Growth stocks rebounded sharply in 2023, and that was good news for star investor Cathie Wood and her Ark Investment Management family of exchange-traded funds. Wood's flagship ARK Innovation (ARKK -2.77%) ETF generated strong returns, rising 67% with just a single week left in the year and recovering a significant amount of ground after big losses in 2022.
Yet ARK Innovation wasn't Wood's best performer in 2023. That honor instead goes to the ARK Next Generation Internet ETF (ARKW -2.45%), which nearly doubled in value and benefited even more from favorable trends in popular areas like artificial intelligence and cryptocurrency. Here's everything you need to know about this top-performing Ark Invest ETF and why Wood is so optimistic about the exchange-traded fund's long-term prospects.
Leading the way higher
As you can see below, ARK Next Generation Internet and ARK Innovation largely made the same moves throughout the year. However, ARK Next Generation Internet had a greater concentration of top-moving stocks, helping to amplify its returns in 2023.
ARKK Total Return Level data by YCharts.
A look at the top holdings within ARK's winning ETF in 2023 makes it easy to identify the source of its outperformance. Top holding Coinbase Global (COIN -3.17%) benefited from the end of the crypto winter as the price of Bitcoin (BTC -2.48%) soared back above $40,000 by year end. Coinbase has positioned itself well to benefit if the U.S. Securities and Exchange Commission finally approves a spot Bitcoin ETF for ordinary investors, and its crypto trading platform stands to generate more revenue and profit if higher crypto prices spur renewed excitement among investors. Coinbase stock has almost quintupled in 2023.
Other top performers among ARK Next Generation Internet's holdings include Roku (ROKU -3.08%), UiPath (PATH -2.28%), and Tesla (TSLA -4.95%). Roku has made considerable progress in finding ways to monetize the rising popularity of connected TV, as advertisers have flocked to take advantage of the ability to target their marketing efforts more effectively to viewers. For UiPath, growing demand for robotic process automation in an AI world has helped the newly public company turn its stock around in 2023, and it still has plenty of upside to get back to where shares traded shortly after its 2021 IPO. And Tesla remains a force to be reckoned with in the electric vehicle space, while many investors also see its efforts in AI-driven robotics and autonomous driving as having even greater value in the long run.
Ambitious picks with constant rebalancing
Many investors respect Wood for her gutsy calls on the investments she selects for Ark Invest fund holdings. For instance, on Bitcoin, Wood said that the price of Bitcoin could rise to nearly $1.5 million by 2030, based on her analysis of institutional investing trends and rising adoption of the leading cryptocurrency. That would represent a roughly a 35-fold increase in the cryptocurrency's value, and it would inevitably have a positive impact on Coinbase's business.
Yet one thing that largely flies under the radar among investors is that Wood doesn't hesitate to trim positions in her winning stocks in order to fund purchases of other stocks. Earlier in December, Wood sold the most shares in Coinbase in months, with the Next Generation Internet ETF selling about 17,000 shares for roughly $24 million.
Investors shouldn't take that as a sign of no confidence in Coinbase's future. Even that large a sale represents just a trimming of a position that makes up 12% of the fund. And after such a big rise, taking the opportunity to make a switch to stocks that might have a greater chance of explosive returns in 2024 would be typical of Wood's long-term performance.
More gains ahead in 2024?
Even with 2023's gains, the losses that Ark Invest ETFs suffered in 2022 were large enough that Wood still has some work to do to satisfy some of her investors. Nevertheless, there's little doubt that key trends like AI and cryptocurrency will remain at the forefront of investors' attention in the coming year. That could bode well for Wood and the Ark Invest ETFs in 2024 and beyond.
