Cathie Wood is the founder and chief investment officer of Ark Investment Management, which operates several exchange-traded and private funds. She is one of the most bullish voices on Wall Street when it comes to the long-term potential of technology stocks, which is reflected in Ark's various portfolios.
Each Ark fund has a unique theme designed to give investors exposure to different segments of the technology sector. The Ark Autonomous Technology and Robotics ETF(NYSEMKT: ARKQ), for example, invests in companies developing autonomous mobility solutions, robotics, and neural networks, all of which are powered by artificial intelligence (AI).
That ETF is actively managed, so it can be a great way to invest in the emerging AI industry under the direction of a seasoned professional like Wood. However, it does come with risks.
Image source: Tesla.
The Ark Autonomous Tech and Robotics ETF runs a very concentrated portfolio
This Ark ETF was established in 2014 and currently manages $739 million in assets. Since it has a specific focus on autonomous technologies and robotics, its portfolio is highly concentrated and holds just 37 stocks.
Its top five holdings represent 23.9% of the total value of that entire portfolio, but they include a couple of the biggest names in the AI space:
Stock | Ark ETF Portfolio Weighting |
|---|---|
1. Tesla | 11.11% |
2. Komatsu | 3.92% |
3. Deere & Company | 3.34% |
4. Taiwan Semiconductor Manufacturing | 2.91% |
5. Archer Aviation | 2.67% |
Data source: Ark Invest, Cathie's Ark. Portfolio weightings are accurate as of Sept. 17, 2024, and are subject to change.
Tesla is more than just an electric vehicle manufacturer. It's also a leading developer of fully autonomous self-driving software, which could transform the company's economics over the long term. In fact, Cathie Wood says Tesla is the biggest AI opportunity in the world, and she thinks its stock could soar more than 1,000% by 2029.
John Deere manufactures both regular and autonomous machinery for the agriculture sector. Its AI-powered driverless tractors can reduce costs and save significant amounts of time for farmers. Then, there is Taiwan Semiconductor Manufacturing (TSMC), which fabricates the majority of the data center chips used in AI development.
Many of those chips are designed by Nvidia, which boasts a 2.59% weighting within the ETF. Its graphics processors (GPUs) have set the benchmark for the AI industry, and the company can't keep up with demand right now. Nvidia is gearing up to scale shipments of its new Blackwell GPUs later this year, and they should offer significantly more performance than its popular H100.
Alphabet, Amazon, and Palantir Technologies are some of the other renowned AI companies in this Ark ETF.
Investing like Cathie Wood can be a recipe for volatility
Concentrated portfolios are a double-edged sword; they have the potential to deliver spectacular returns, but they can also underperform the broader market when the theme in question isn't working. Furthermore, the performance of an actively-managed fund relies on its investment professionals making the right stock picks, at the right time.
The Ark ETF is down 2% this year despite the S&P 500 index soaring 18%, which highlights the opportunity cost of getting things wrong.
The ETF's large holding in Tesla has been a drag because the stock is down 8% in 2024 so far. Deere & Company stock is flat for the year, and Archer Aviation has plunged 50%. Those losses have canceled out the more than 60% gain for TSMC stock and also the 130% gain for Nvidia since it's a relatively small position.
However, the Ark ETF is up 195% since its inception in 2014, which translates to a compound annual gain of around 11.7%. That's a solid return, but it does lag the 13.2% average annual return of the S&P 500 over the same period.
The ETF could do much better if Ark's forecast for Tesla stock comes to fruition, for example. If AI remains a dominant theme in the stock market, TSMC and Nvidia are likely to also deliver strong returns in the coming years.
But volatility is likely to remain a consistent theme for this ETF, so investors who buy it should do so as part of a balanced portfolio.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Deere & Company , Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.
