The Invesco QQQ Trust (NASDAQ:QQQ) and the Nasdaq 100 have bounced back in record time from that vicious tariff sell-off encountered at the end of the first quarter. And while the growth-heavy index may or may not still be a great buy while it’s flirting with new highs, I still think it’s worth expanding one’s horizons beyond the Magnificent Seven-heavy index.
While there’s nothing wrong with sticking with the QQQ for your tech exposure, I do think that there was a standout performer that could continue beating the QQQ if the AI bull market has legs to run in the second half.
Indeed, whenever tech gets hot, Cathie Wood’s line of Ark Invest funds stands to become that much hotter. And while her funds have quietly heated up again this year, I do think the outperformance may be the start as her disruptive innovators look to help the Ark funds stage that long-awaited comeback.
The Ark Next Generation Internet ETF is crushing the QQQ and S&P so far this year.
Notably, the Enter the Ark Next Generation Internet ETF (ARKW), which is up close to 40% year to date versus 9% for the QQQ, which invests in a slew of high-growth companies shaping the “next generation” of the internet (think the cloud, AI, blockchain, just to name a few technologies), isn’t all too far off from 2021 highs, now down less than 20% from the previously untouchable “bubble” peak.
As specific corners of the tech scene, like fintech and applied AI, start picking up serious traction, it feels more tempting to bet on the ARKW under the active management of Cathie Wood and her team over the QQQ from here, especially as much of the so-called “Mag Seven” begin dragging their feet. Indeed, Apple (NASDAQ:AAPL | AAPL Price Prediction), Tesla (NASDAQ:TSLA), and Alphabet (NASDAQ:GOOG) have not been all too magnificent so far this year, with negative returns on a year-to-date basis.
It is worth noting, however, that the ARKW is incredibly volatile, with a 1.98 beta, which entails a far wilder ride than the S&P. In any case, young growth investors looking to play the recent melt-up in one of Cathie Wood’s most exceptional recent performers may wish to keep close watch on her “next-gen internet” innovators while the wind is at their back. Of course, once the tides turn and tech encounters another one of its painful descents, expect the ARKW also to lead the charge lower.
The ARKW may keep beating the flagship ARKK
The Ark Innovation ETF (ARKK) has also been surging this year, gaining 30% year to date, but I think the ARKW has a better mix of high-momentum names that could help it stay ahead of the flagship Cathie Wood fund. While there’s quite a bit of overlap between the two funds, I must say I’m a fan of the heavy concentration in fintech high-flyers that have helped power such gargantuan gains so far this year.
Most notably, crypto brokerage platform Coinbase (NASDAQ:COIN) and Robinhood Markets (NASDAQ:HOOD), the two top holdings within the ARKW, are among the hottest stocks in the entire market in recent months, now up 125% and 127%, respectively, in the past three months. Additionally, the Bitcoin exposure (via the Ark 21Shares Bitcoin ETF (ARKB)) has begun to really shine through now that the cryptocurrency is at a fresh all-time high.
Undoubtedly, these soaring names have been profoundly volatile over the years, but I find it impressive that Cathie Wood stuck with them at their low point. Indeed, her funds have since been rewarded accordingly in a big way!
When it rains, it pours for disruptive innovators. But when it shines, it really shines. Wood’s funds have been through a hurricane of pain in recent years, but she held onto the names she believed in most, bought into weakness, and is now trimming some of her big winners (think Coinbase) into profound strength.
In my view, the ARKW raises the rewards (but also the risks and volatility) to a level or two higher than the QQQ. For most, that’s just too much. However, for diversified portfolios that need a bit of a more aggressive, active approach, perhaps the ARKW could prove an excellent pick-up for those who want exposure to the types of disruptive tech innovators that can take their growth into overdrive.
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