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Cathie Wood's ARKK ETF Trails S&P 500 Despite AI Boom
7 Dec
Summary
- ARK Innovation ETF has lost 28% over five years.
- Fund's top 10 holdings comprise over half of its weight.
- Vanguard Information Technology ETF offers broad diversification.
The recent surge in technology stocks, fueled by the artificial intelligence boom, has propelled many exchange-traded funds (ETFs) upward. However, not all tech-focused funds have shared equally in this success. Cathie Wood's ARK Innovation ETF (ARKK) stands out as a notable underperformer, with its share price declining by 28% over the last five years, a stark contrast to the S&P 500's 86% gain.
The primary reason for ARKK's struggles lies in its concentrated investment strategy. More than half of the fund's value is tied up in its top 10 holdings. Furthermore, ARKK includes highly speculative companies that have yet to generate revenue or profit, such as Archer Aviation. While a strong performer like Tesla has been a significant contributor, its gains have not been enough to offset the losses from riskier ventures.
In contrast, the Vanguard Information Technology ETF (VGT) offers a more robust and diversified investment vehicle. Tracking the MSCI US Investable Market Information Technology 25/50 Index, VGT includes approximately 300 small- to large-cap companies. This broad diversification ensures investors gain exposure to both established tech leaders and emerging disruptors, providing a more stable path to participate in the technology sector's growth.
