In 2024, the ETF led by Cathie Wood is dominating the market. Still worth investing in, you might wonder?
Cathie Wood concentrates on cutting-edge tech stocks in her exchange-traded funds (ETF), garnering a devoted fanbase of investors eager to monitor her ideas. Her fearless approach towards new businesses and trends has resulted in exceptional returns - albeit sporadically.
For instance, her internet-centric ETF, Ark Next Generation Internet (ARKW -1.58%), is annihilating the market in 2021, surging 59% compared to the S&P 500 index's 29% rise. Could this trend continue in 2025?
AI-Driven Growth
Wood's ETFs are filled with high-growth stocks packing enormous potential. She put her money on Tesla before many others, and her ability to spot trends has earned her a reputation.
Her firm, Ark Invest, manages a variety of ETFs, each focusing on different sectors. However, her primary interest lies in disruptive technology. The Next Generation internet ETF invests in stocks associated with Internet-related products and services, such as hardware, payments, infrastructure, cloud, and social media.
Although the ETF wasn't designed to capitalize on artificial intelligence (AI), some of its sectors, particularly cloud companies like Microsoft and Amazon, are transitioning heavily towards AI. It also holds a position in Nvidia. However, these represent smaller investments. The ETF's top holdings include Tesla, Roku, and Coinbase Global. Overall, it's a well-balanced ETF in the realm of high tech, but it boasts a high exposure to cryptocurrency.
This isn't Ark Invest's ETF most directly linked to AI. That title belongs to the Autonomous Technology & Robotics ETF, which aims to profit from advancements in automation and AI. Despite its strong performance in 2021, this ETF hasn't outperformed the internet ETF as much - it yields a 41% return this year. This discrepancy could be due to the ETF's diverse sectors like energy and transportation, rather than the traditional tech categories found in the internet ETF.
Risk vs. Reward
Generally, during uptrends, growth stocks outstrip the market. In bull markets, growth stocks are responsible for the market's gains, while the overall benchmark indicator like the S&P 500 is buoyed by growth stocks and weighed down by value stocks.
Wood's growth stocks lean towards high-risk, disruptive ventures. They can soar during good times but plunge during tough times due to their inherent risk. Despite the internet ETF nearly doubling the broader market's gains in 2021, it lags behind the S&P 500 over the past three years.
The past three years included a bear market, a period that traditionally poses the greatest challenges for growth-focused ETFs. However, despite this, throughout its lifetime, the internet ETF has significantly outperformed the market with a 638% return versus the market's 270% gain.
Wood believes in the transformative power of technology and has proven correct on multiple occasions. Nevertheless, her ETFs don't always surpass the market during their lifetimes or specific periods. Some have, others haven't. This unpredictability makes each one a risky investment. These ETFs can be volatile, and they're best suited for risk-taking investors who can tolerate substantial dips on the way to high gains.
Regarding the original question, it appears that the internet ETF holds promising growth drivers headed into 2025. Its diverse tech portfolio and burgeoning AI sector look promising. Nevertheless, investing in it requires confidence in cryptocurrency, an understanding that the ETF might falter in unforeseen circumstances, and the acceptance that it will likely drop during a market crash or correction.
Investors interested in Cathie Wood's approach to finance might consider her ETFs, such as the Ark Next Generation Internet ETF, which has shown exceptional growth in 2021 by annihilating the market and surging 59%. To capitalize on artificial intelligence (AI) growth, this ETF invests in tech companies like Microsoft and Amazon, which are heavily transitioning towards AI.
Given Cathie Wood's reputation for spotting trends and high-growth potential stocks, investing in her ETFs could yield significant returns, provided investors are willing to accept the high risk associated with these high-tech ventures.
