Exchange-traded funds such as the ARK Innovation ETF are ideal for investors who don’t have the expertise to buy individual stocks.
Jan. 18, 2022
After a market-beating rally in the past decade, growth stocks have experienced a significant pullback in recent months. Investors were initially worried about the steep valuations surrounding growth stocks as well as the threat of rising interest rates and the emergence of the Omicron variant.
However, every correction should be viewed as a buying opportunity for the long-term investor.
Here, we take a look at two growth ETFs or exchange-traded funds that are ideal for investors with a large risk appetite. ETFs hold a basket of stocks that provide investors with diversification of risk in a cost-efficient manner.
The ARK Innovation ETF
The ARK Innovation ETF (NYSE: ARKK) is an actively managed fund that aims to derive long-term capital growth by investing in equities that are in line with the investment theme of disruptive innovation.
According to ARK, disruptive innovation is a technology-enabled product or service that has the potential to change how the world works that include fintech innovation, DNA technologies, automation, and artificial intelligence.
The ETF was launched in late 2014 and has since returned 341% to date, easily crushing the S&P 500 returns that stand at 171.5%. However, while the S&P 500 Index is down 2.7% from all-time highs, the ARKK ETF has fallen by 48% from record highs. In the last year, the ARK Innovation ETF has declined by 42% compared to the 25.4% gains of the S&P 500.
The ARK Innovation ETF levies a fee of 0.75% to investors and has over $16 billion in assets under management. Its top five holdings include Tesla, Teladoc Health, Zoom Video, Roku, and Coinbas, which account for 32.5% of the ETF.
The ETFMG Prime Cyber Security ETF
The global shift towards digital transformation and the exponential rise in the number of connected devices has also led to an increase in cyberattacks. Further, the work-from-home trend has positively impacted demand for enterprise-related cyber-security solutions.
One fund that provides you exposure to a basket of cyber-security stocks is the ETFMG Prime Cyber Security ETF (NYSE: HACK). Launched in 2015, it is the first ETF to target the cyber-security industry. The HACK ETF has returned 137% to investors since inception, which is lower compared to the S&P 500 returns of 162% in this period. However, the ETF is also down 15.5% from all-time highs, at the time of writing.
With over $2 billion in assets under management, the HACK ETF has an expense ratio of 0.60%. The fund holds 63 stocks in its portfolio and provides investors with a cost-efficient way to gain exposure to the highly disruptive cyber-security market. Its top holdings include Cisco, Palo Alto Networks, CheckPoint Software, Splunk, and Norton, accounting for 13.5% of the ETF.