Cathie Wood’s Ark Innovation ETF Is Soaring. Can it make you a millionaire?

Few investors get as much attention as Cathie Wood, and it’s easy to see why.

Here are Wood’s 2018 calls: tesla (TSLA 0.96%) That the pre-split price would reach $4,000 per share over the next five years seemed odd at the time, but turned out to be true in 2021, the year after Wood’s flagship fund was acquired. Ark Innovation ETF (ARKK 3.70%) It jumped 100%. Ark’s funds also publicly share their day trading activities and research papers and actively post and engage on social media, whereas most investment funds are more secretive about their activities.

Since then, the stock price of the Ark Innovation ETF has declined, but the exchange-traded fund (ETF) is expected to rebound and finish with strong performance in 2023. Through December 11, the ETF was easily up 55% this year. ahead of both S&P 500 and Nasdaq Composite.

Is it worth investing in ETFs now? Let’s take a closer look at the Ark Innovation ETF’s outlook heading into 2024, and whether it could make you a millionaire.

Image source: Getty Images.

What is Ark Innovation ETF?

Ark Innovation is an actively managed ETF that aims for long-term growth by investing in companies with disruptive innovation. Ark defines disruptive innovation as a company that introduces “a new, technologically enabled product or service that can potentially change the way the world works.”

The fund’s top five holdings are: Coinbase Global (coin 7.76%), year (year 0.69%), Ui Pass (road 1.67%)Tesla, and zoom video communications (ZM -0.08%). Together, these five stocks make up about 40% of the Ark Innovation ETF.

Coinbase is a leading cryptocurrency exchange, and Wood likes the asset class. Her funds are also invested in: bitcoinShe said it would reach $1.48 million per token by 2030, which would be more than 30 times the current price.

Roku is the best streaming distribution platform. UiPath is famous for robotic process automation. Tesla is well known as a leader in the electric vehicle (EV) space, and Zoom is a popular video communication platform.

These companies are all known disruptors, and many of the stocks in the Ark Innovation ETF have some connection to artificial intelligence (AI).

Whether a stock is called a winner depends on your investment horizon. All five have fallen significantly from their peaks during the pandemic, when investors seemed confident that the pandemic-induced boom in stocks like Zoom would continue.

Can Ark Innovation ETF Make You a Millionaire?

Despite the hoopla surrounding the Ark Innovation ETF, the fund’s performance since inception hasn’t been as great as you might think. It’s just a little bit ahead. S&P 500 Excluding dividends, it has been lagging since 2014. Nasdaq Composite By a significant margin.

ARKK data from YCharts.

As you can see in the chart above, Ark Innovation’s stock price soared early in the pandemic, then plummeted amid a selloff in tech stocks during the reopening period.

Historically, Ark Innovation has behaved like a high beta version of the Nasdaq exchange. That is, it moves in a similar direction as a broad-based, technology-focused index, but with greater volatility. This makes sense, given that many of the stock’s top holdings are highly volatile and speculative.

Coinbase’s business, for example, relies heavily on interest in cryptocurrency trading, and its stock plummeted in 2022 as cryptocurrency prices plummeted. Wood’s bullish claims about Tesla hinge largely on the company’s investments in AI, but the company has yet to launch a fully self-driving car outside of long-term beta testing, so her price target of $2,000 by 2027 appears to have been achieved.

If you invest in the Ark Innovation ETF with the hopes of getting rich, there’s a chance you’ll make big profits when markets cooperate, interest rates fall, and AI takes off, but the Ark Innovation ETF also remains high. – Risky investment.

With many of its top holdings generating minimal returns or even being unprofitable, the ETF is likely to be hit hard by another market crash or recession.

Risk-tolerant investors could benefit from exposure to Wood’s flagship fund as it could become a multibagger again, but be wary of downside risk as the ETF could see a boom/bust cycle similar to what it experienced during the pandemic. You should.