4 Lessons We Can Learn From ARK Innovation ETF

ARK Innovation ETF is an actively managed exchange-traded fund run by ARK that focuses on US stocks. As of December 2019, the tech-focused fund boasts a 21.7% annualised return since its inception in late 2014, making it one of the top-performing funds globally. Its performance is also well ahead of its comparative benchmark, the S&P 500, which returned just 11.7% annualised over the same time frame.

So how did ARK Innovation ETF do it?

I took a look at some of the blog posts from ARK’s investing team and its investing principals to find out what is driving the ARK Innovation ETF’s market-beating performance.

It invests for the long-term

Benjamin Graham was one of the pioneers of long-term investing. He once said that “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

What this means is that stocks can get mispriced in the stock market simply because of the whims of investors. Over the long run, though, a stock will tend to gravitate towards its true value. 

ARK invests with this principle in mind. It explains:

“The market easily can be distracted by short-term price movements, losing focus on the long-term effect of disruptive technologies. We believe there is a time arbitrage ARK can take advantage of. We seek opportunities that offer growth over 3-5 years that the market ignores or underestimates.”

It doesn’t mind going against the grain

ARK is not your typical Wall Street fund manager. In fact, many of its views go against the traditional beliefs of Wall Street.

For example, Wall Street often likes to categorise different types of innovation. But ARK believes that innovation “cannot be boxed into sectors, geographies or market caps.”

It also doesn’t mind having vastly different opinions from the rest. For instance, ARK is famous for being one of the most bullish funds about Tesla, which is also one of the most heavily shorted stocks in the market today.

It goes big on high-conviction stocks

A truly exceptional opportunity does not come around often. And Charlie Munger is famous for saying that the important thing when you find one is to “use a shovel, not a teaspoon.”

I think ARK abides by the principle, betting big on stocks that it believes in.

For instance, 10% of ARK Innovation ETF’s portfolio is in Tesla. ARK is one of the vocal supporters of Elon Musk’s brainchild. So far, the concentrated position has worked well for ARK with Tesla’s stock price up four-fold over the past five years and nearly doubling so far this year.

Open-source approach to research

Instead of relying solely on its own in-house research, ARK is open to new ideas from the public. It frequently publishes its research and encourages readers to provide more insight and comments. ARK believes that its “open research ecosystem allows for an organised exchange of insights between portfolio managers, director of research, analysts and external sources”.

The Good Investors’ conclusion

ARK’s unique approach has certainly worked well for it. The ARK Innovation ETF is now one of the top-performing and most respected funds in the market.

I also have a feeling that year ARK Innovation ETF will extend its winning streak in 2020 due to the recent surge in Tesla’s share price.

Investors who want to learn more about ARK’s research can head here.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.