Growth stocks have been in hot demand over the past year. And one place where you can find some of the best and brightest growth stocks is the Ark Innovation ETF (ARKK -2.77%). Run by Ark Investment Management CEO Cathie Wood, its focus is on companies with incredible potential. But over the years, the makeup of the portfolio has changed. While electric vehicle maker Tesla has been a staple, the same can't be said for many other stocks.
How would you have done if you simply bought the five top stocks in Ark Innovation's fund five years ago, and held on until now? Let's take a look.
These were the five top stocks in the Ark Innovation ETF as of Jan. 31, 2019
Exchange-traded funds (ETFs) can give investors a great way to gain exposure to dozens, or potentially hundreds or even thousands of stocks through just a simple investment. But if you don't want exposure to absolutely everything in the fund, you can simply look at what the top stocks are in the ETF and invest in those stocks yourself. ETFs regularly report on their holdings, so that isn't a difficult thing for investors to do.
Five years ago, these were the top five stocks in the Ark Innovation fund, based on the values of the ETFs holding at the time:
| Stock | Value |
|---|---|
| Tesla | $117,759,977 |
| Stratasys Ltd | $102,614,414 |
| Invitae | $74,411,294 |
| Nvidia | $74,391,344 |
| Square (now known as Block) | $70,672,032 |
Data source: Company filings.
Today, only Tesla remains one of the top holdings in the fund.
How have these stocks done over the past five years?
The good news is that if you spread a $10,000 investment across these stocks, you would be ahead right now. Chipmaker Nvidia would have turned a $2,000 investment into nearly $37,000 all on its own. And while investors may be down on Tesla of late due to shrinking margins and growing competition, the stock has been an impressive investment to own over the past five years. The gains Tesla and Nvidia have accumulated over the years would have more than offset the underwhelming performances of the other stocks on this list. Here's a breakdown of what a $2,000 investment would be worth in each one of these stocks today.
Ark Innovation top stocks data by YCharts
The biggest disappointment would surely be Invitae, the genetic testing company that recently filed for Chapter 11 bankruptcy protection. The risk for investors is that many up-and-coming growth stocks don't always have strong financials and resources to support their growth prospects, even if they may appear to be encouraging.
What if you just invested in the Ark Innovation ETF?
If instead of investing $10,000 across the fund's top five stocks, you simply put the full amount into just the ETF, your investment would be worth around $11,100 today. That's a modest return and while you would have a profit, it wouldn't be nearly as impressive as investing in those five stocks individually.
An ETF can help reduce your overall risk and exposure to any one stock, but it can also mean that you miss out on significant gains if there's one particular stock that does extremely well.
Should you invest in the Ark Innovation ETF today, or just pick from its top stocks?
The Ark Innovation ETF is full of varied growth stocks that can give you some excellent exposure to up-and-coming growth companies. But given the volatility within the fund and how varied the returns may be, I'd opt for making individual stock selections rather than holding the entire ETF.
A good strategy for investors can be to go through the ETF's top holdings and review individual stocks to identify particularly good investment options. Doing the extra work can lead to better returns. If, however, that's not possible for you, then investing in the entire ETF may be the more attractive option. But you will need to accept the risk and volatility that comes with the fund because when growth stocks aren't hot buys, the fund could struggle badly; in 2022, shares of the Ark Innovation ETF nosedived a mammoth 67% amid rising interest rates.
Investing in growth stocks is, however, generally a good move for the long term, and the Ark Innovation ETF can give you some great exposure to some the best companies in the world.
