Cathie Wood's ARK Innovation is back on top. And amazingly, it's largely due to off-the-beaten path stocks not in the S&P 500.
ARK Innovation is again the No. 1 actively traded diversified ETF, says an Investor's Business Daily analysis of data from Morningstar Direct. And that's thanks mostly to 10 stocks — like Roku, Palantir and DraftKings — all up more than 55% or more this year. Stunningly, eight of the 10 stocks driving ARK Innovation aren't in the S&P 500. Meta Platforms and Tesla are the only two ARK Innovation stocks up more than 50% that are in the S&P 500.
And that's the big takeaway from ARK Innovation's return to the top. Wood is outperforming mainly with bets outside the megacap techs that have driven the market higher all year. And finding less obvious stocks could become more important for investors looking to outperform.
"The FOMO trade might be here, but the economy is clearly feeling the effects of the Fed's tightening cycle, and the consumer is weakening but has no trouble getting a job, so it will be interesting how the stock market's back gets broken," said Edward Moya of Oanda.
ARK Innovation's Return To No. 1
Wood's juggernaut $7.9-billion-in-assets fund returned 40.2% this year. That means it's also topping the S&P 500's 15.5% return this year — including ETFs that cherry-pick the S&P 500's new "blue chips."
The fund's willingness to go after smaller stocks is a gutsy move — amid a megacap rally powered by the "magnificent seven" stocks. But it's paying off handsomely.
ARK Innovation's outsize bet on Roku, a maker of video streaming gear, is a case in point. Shares are up 56.6% just this year. Shares are rallying despite the fact that analysts think the company will lose $5.08 a share on an adjusted basis this year, says S&P Global Market Intelligence. That's even more than the $3.62 a share it lost in 2022. It's also not represented in many major indexes, including the S&P 500.
But Wood is betting big on it. The stock counts as 7.3% of the portfolio, making it one of ARK Innovation's largest positions.
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Other ARK Bets That Are Working
ARK Innovation is best known for its Tesla position. And that has helped, too. The stock accounts for 11.6% of the ETF. That's paying off handsomely, with shares up 114% this year.
But S&P 500 member Tesla is just part of the reason ARK Innovation is soaring this year. Just ahead of Tesla is gaming firm DraftKings. The stock, not in the S&P 500, makes up nearly 4% of ARK Innovation and is up 133% this year.
And then there's Palantir, a data management firm. The stock, not in the S&P 500, is up 139.9% this year. Wood might hope she owned more: It's a small slice of ARK Innovation's portfolio at 0.9%. But Coinbase, up 99%, is another giant holding with a 7.1% weight.
It's unclear if ARK Innovation and Wood's hot streak will continue. But she's definitely not piling onto the big-cap tech trade everyone else is.
Top ARK Innovation Stocks
Most aren't in the S&P 500
| Company | Ticker | Weight (%) in ETF | YTD % ch. |
|---|---|---|---|
| Palantir Technologies | 0.94% | 139.9% | |
| Meta Platforms* | 0.53% | 139.4% | |
| DraftKings | 3.89% | 133.4% | |
| Tesla* | 11.59% | 114.2% | |
| Coinbase Global | 7.09% | 99.2% | |
| Exact Sciences | 4.80% | 89.5% | |
| Shopify | 4.42% | 86.9% | |
| Pacific Biosciences of California | 2.29% | 69.5% | |
| Roku | 7.29% | 56.6% | |
| 10x Genomics | 1.52% | 55.8% |
Sources: ARK Invest, IBD, S&P Global Market Intelligence, * - in the S&P 500
Follow Matt Krantz on Twitter @mattkrantz
