Key Points
Cathie Wood’s famed Ark Innovation ETF is delivering decent returns, but it’s trailing the broader market.
Elon Musk figures prominently in this ETF’s outlook.
Other variables need to be considered as well.
Being an active equity fund manager sounds like a glamorous job. It also usually pays well.
That's reasonable because it's hard work. In the domestic large-cap equity arena, the S&P 500 (SNPINDEX: ^GSPC) is the rock against which the surf (active fund managers) crashes. It's a stone-cold fact. Last year, 79% of all active large-cap U.S. equity funds failed to beat the S&P 500. That's far worse than the 65% failure rate in 2024, and 2025 was the fourth-worst year for large-cap managers in the study's 25-year history.
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So it's not altogether surprising that over the past year, the Ark Innovation ETF (NYSEMKT: ARKK), Cathie Wood's largest and most widely followed exchange-traded fund (ETF), is trailing the S&P 500 (up 18.4%). However, the ARKK ETF still has fans among growth-inclined investors, so it's worth examining if the fund merits a "buy" label today.
Ark Investment Management's Cathie Wood. Image source: Getty Images.
Understanding how this ARKK sails
This ETF is up 9.6% over the past year, so it's not in the proverbial tank while broader benchmarks are thriving. But the ARK ETF's lagging performance underscores the difficulties active managers face. The fund's active status is also a reminder that investors need to evaluate the ETF's largest holdings.
It's a fun exercise because the fund's top holdings include familiar names. On that note, investors should note that this ETF is a de facto bet on Elon Musk because it allocates nearly 15% of its portfolio to Tesla and Space Exploration Technologies, both of which Musk is the CEO of.
That's not surprising because Wood has long been a Musk devotee. She was one of the earliest Tesla bulls and has similar enthusiasm for SpaceX. She's said to have added to her firm's position in that stock multiple times (buying the dip) since the June initial public offering (IPO). The point is investors holding this ETF need Musk to execute on not one, but two fronts.
Beyond this fund's Musk bets, its 31.6% weight (as of June 30) to the healthcare sector is a tailwind at a time when biotech stocks are soaring. There's a belief that, due to increasing consolidation, rising IPO activity, and progress in obesity and oncology treatments, the biotech rebound has legs. That'd be a tailwind for this ETF.
Then there's cryptocurrency. Wood's ETF features a trio of crypto stocks among its top 10 holdings. That's great when Bitcoin soars, as it did last week. The other side of the coin (pun intended) is that holdings such as Coinbase Global and Robinhood Markets (a combined 7.9% of the portfolio) need digital currencies to continue ascending or to articulate their growing business outside of crypto (they are) to contribute upside to the Ark ETF.
Talking turnover
There are a lot of moving parts for making clear "buy" or "sell" calls on this Ark ETF. For risk-tolerant investors, it's a "buy" if the two Musk stocks post gains and if biotech and crypto extend recent upside.
There's another moving part to consider: portfolio turnover. This ETF turns over at a 43% clip. While that's below average among active domestic large-cap funds, the pace at which this fund's roster is altered far exceeds that of a passively managed equivalent.
Investors need to account for turnover with this ETF because what they sign up for today may change a bit by tomorrow.
Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Tesla. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.