The ARK Innovation ETF (ARKK) stock continued its underperformance in 2024, returning just 8%. In contrast, the Nasdaq 100 and the S&P 500 indices returned 25% and 24%, respectively. The ARKK ETF remains 65% below its highest level in 2021. So, is there a good reason to invest in the ARK Innovation Fund?
ARKK is a highly expensive ETF
The expense ratio is one of the most important factors when buying an ETF. In this case, the ARKK fund has a ratio of 0.75%, meaning that a $10,000 investment will cost $75 to manage.
In contrast, the tech-heavy Nasdaq 100 ETF has a 0.25% ratio, while the Vanguard S&P 500 ETF (VOO) charges just 0.03%. A similar investment in the two funds would cost just $25 and $3.
These differences are not all that big at face value, but the numbers can add up over time. All factors held constant, the ARKK ETF will cost $750 in a decade, while the other two will cost $250 and $30.
It makes sense to overpay for an ETF that has a long history of beating the benchmark ETFs since this performance will make the expensive costs reasonable.
The challenge, however, is that the ARKK ETF is expensive and constantly underperforms the most basic ETFs like the Invesco QQQ (QQQ) and Vanguard S&P 500 (VOO). As shown below, its total return in the last five years was 13.28%, while the QQQ an VOO returned 140% and 92%.
Top Ark Innovation Fund companies
Several top ARKK ETF investments did well in 2024, but these gains were not big enough to offset its underperformance.
Tesla stock rallied in the second half of the year, with most of the gains happening after Donald Trump won the election. Still, Tesla stock faces substantial risks ahead. For one, its annual sales dropped for the first year in 2024 as competition rose and demand for EVs softened. It is also unclear whether Tesla’s investments in robotaxis will pay off in the long term.
ARKK ETF holds over 7.5 million shares in Roku, which provides TV streaming solutions in the US and other countries. ROKU shares have fallen by over 11.7% in the last 12 months, while the S&P 500 is up by 21%.
Roku is facing three main challenges. First, its business growth has slowed, and competition in streaming solutions has risen. The company’s quarterly revenue rose from $912 million in Q3 ’23 to $1.06 billion in Q3 ’24. Second, Roku is still losing money, with its net loss at $9 million in the last quarter. Third, the persistent takeover rumors are yet to materialize.
Other top performers in the ARKK ETF were companies like Coinbase, Roblox, Palantir, and Shopify. Palantir surged due to the artificial intelligence hype, while Shopify benefited from its growing market share.
Firms like Meta Platforms, Trade Desk, and Archer Aviation were some of its other top performance in 2024.
Is the ARKK ETF worth it?
The ARKK ETF is a highly expensive fund that performed well during the pandemic. Most of its companies surged, making it easy to recommend investing in the fund at that time. It beat the benchmark indices quickly.
The ARKK ETF has changed over the years and has become a top laggard in the technology sector. Therefore, at least for now, there is no good reason to invest in it because of its costs and because it underperforms the most basic funds, such as QQQ and VOO.
Read more: ARKK: Why would anyone invest in this Cathie Wood ETF?
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