ARK Invest Fee Costs Example

How to Beat ARK Funds Guaranteed

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How to Invest in the ARK Funds and Save Thousands

The ARK Funds are on fire this year! Easily the most popular stock funds with market busting returns! The ARK Next Generation Internet, ticker ARKW, has surged 135% over the past year. The flagship ARK Innovation fund, the ARKK etf has jumped 126%. Even lagging funds like the ARKQ and ARKF have smashed the return on the broader market!

But in this video, I’m going to show you a strategy to beat the ARK funds or any other ETF. I’ll show you why it works and reveal that strategy.

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Why are the ARK Funds so Popular?

Nation, in more than a decade as an analyst and 20 years in the market, I’ve never seen an ETF as popular as the ARK Invest funds. The five actively managed funds target companies with disruptive innovations like robotics, fintech – any tech-enabled product or service that changes the way the world works.

The investment adviser was formed in 2014 by Cathie Wood after nearly four decades on Wall Street, most recently as the Chief Investment Officer at AllianceBernstein. The ARK funds are well run and booming higher, I LOVE them…OK…everything except the price.

Downside to the ARK Invest Funds

You see because the ARK funds are actively managed funds, so the portfolio manager tracks the stocks, buying and selling regularly to produce that market-beating return, they are going to be more expensive than other funds.

For example, the SPDR S&P 500 ETF, ticker SPY, is a passively managed fund of all the stocks in the S&P market index and charges investors a tenth of a percent management fee. In passively managed funds like this, all the manager has to do is sit back and buy or sell stocks when their changed in the index…which is happens only infrequently.

Actively managed funds like the ARK funds though, Cathie has a team of analysts pouring over financial statements and cash flow models, looking for those innovative companies. To pay for this level of management, the funds charge 0.75% annually, more than seven-times that passive index fund.

Now three-quarters of a percent fee doesn’t seem like much, especially against a 100%-plus return but it adds up. With a single hundred-thousand investment over 20 years, you’d be out almost $51,000 on the fund charging an expense fee of 0.75% versus the index fund and its 0.1% fee and even that is over $8,000 more than a do-it-yourself strategy.

ARK Invest Fee Costs Example
ARK Invest Fee Costs Example

How to Invest like ARK Invest and Cathie Wood

Fifty-grand…and what if you could get the same returns on amazing investments like the ARK funds but get to keep that money?

That’s what I’m going to show you in this video, how to replicate those returns on your own, keep the money and reinvest it for an even bigger payday! I’ll walk you through how this strategy works step-by-step, then use it on each of the five ARK Invest funds.

And the beauty of this strategy is that it will work on any exchange traded fund out there. Want to beat the Invesco Solar ETF, ticker TAN, and its 120% return this year, this strategy will work with that too.

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ARK Fund Investing Example

So I’m going to use the ARK Innovation Fund as an example first, show you exactly how this strategy works, then I’ll reveal how to put it in action with each of the remaining four ARK funds. I’ll then show you when to use this strategy and why some of you out there might just want to invest in the funds themselves and pay the fee.

Here we are on the ARK Invest website and we see each of the funds listed on the right. We’ll click over to the ARK Innovation ETF, ticker ARKK, and again, every ETF is going to have a page like this. You’ll see a description and objective of the fund, that’s its theme or index it’s trying to follow with the investments. In this case, the fund manager is investing in companies with a disruptive innovation in four fields; genomics, industrial, internet and fintech.

You’ll also find some detail on the fund like number of holdings, this one just says between 35 to 55 stocks, and here we see the expense ratio of 0.75 percent.

Now a big misconception here about the expense ratio. This fee isn’t actually taken out of your account or your investment. Instead, the fee is just taken out of the fund assets regularly. For example, the ARK-K has $8.9 billion in assets so with a 0.75% expense ratio, that means just under $67 million is taken out of those net assets over the year to pay management and other expenses.

You never see the expense fee taken out of your investment but the effect is the same, lowering the fund value and your returns.

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What Stocks are in the ARK Funds?

You’ll find a lot of other info on this page like returns for different time periods but what we’re interested in is this Top 10 Holdings. Every fund is going to list out its stock holdings, every single one. You’ll see the company name and ticker symbol as well as what percentage that stock makes up the fund holdings.

For example, here in the ARK Innovation fund, shares of Tesla make up just over 10% of holdings. Invitae is another 8% and Square is 6% of the fund.

That’s just the top ten though. Here you can click to view all holdings and you can see all 49 stocks held by the fund as of the reporting date.

So do you start to see where we’re going with this? The fund manager is telling you exactly what they’re investing in and how important that stock is to the returns. You can invest in these same stocks, get the same returns and not have to pay those fees. That’s going to mean an extra half percent or more return to beat the funds!

And why this strategy works so well with these smaller, actively managed funds is because they typically hold only a handful of stocks.

In fact, you probably don’t even need to invest in all these stocks to replicate the returns of the ARK-K fund here. Just the top ten stocks make up 48% of the money invested and if you just invested in the stocks with a 2% weight or larger, that’s only 18 stocks and accounts for two-thirds of the fund.

So here’s the strategy in a nutshell. Go to the portfolio holdings page on any ETF and invest in the top ten stocks held or even down to the top 20 stocks.

How many of the stocks you buy is up to you. Realistically, if you’re investing in the top 50% of the fund, so in our ARK-K example those top 10 stocks that make up 48% of the holdings, you’re going to pretty much copy the returns.

Now an important note here is you have to buy these stocks in the same percentage as the fund. So on our ARK Innovation example, let’s say we have $1000 to invest to replicate this fund. We see that Tesla is 10.2% of the fund, so we would want to invest $102 in shares of Tesla to get that same 10% weight. Next here with Invitae and 8.17% we would want to invest about $82 into that stock.

This is where it’s helpful to invest on a platform like M1 Finance that lets you buy fractional shares so you can invest exactly that amount in each stock.

Now if you’re only investing in the top 10 stocks, so if those percentages add up to 48%, then you’re only investing $480 of that $1,000 and here I think you can invest the rest in a low-cost index fund that gives you the broad market exposure for that super-low expense ratio.

You’re still going to mimic the returns on the fund almost exactly because if you think about those remaining stocks you didn’t buy, for example 1.52% of the ARK-K fund is invested in Splunk, ticker SPLK. And we see here shares have done extraordinarily well, rising 74% over the past year, but the stock is such a small percent of the fund that it only contributed 1.1% to the overall return.

Even most of these actively managed funds don’t change that often, so you’re probably fine just checking in on the holdings page once every three months to see if it’s changed. In fact, ARK Invest actually allows you to sign up for trade notifications on the company’s website so that makes it even easier.

So by just investing in that top 10 or 20 stocks in the fund, you make your job a lot easier and get what’s going to amount to nearly identical returns…all the while, you’re not paying that expense ratio because you’re investing in the stocks yourself.

Now that we have an idea of how this ETF-beating strategy works, and go back and watch the strategy again if you need to, but now let’s take a look at the other four ARK Invest funds to put it in action.

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Stocks in the ARK Invest Autonomous Tech ETF

The ARK Invest Autonous Tech and Robotics ETF, ticker ARKQ, targets five themes; autonomous transportation, robotics and automation, 3d printing, energy storage and space exploration. The fund holds between 30 and 50 stocks and charges that same 0.75% expense ratio. This is a great theme to be in and a lot of what I highlighted recently in what I think could be the next FANG stocks!

If we click over to the holdings, we see Tesla again at the top of the list with just over 10% of the fund. And just like the ARK-K fund, the top 10 stocks account for 50% of the total holdings.

And now there’s two really interesting points here looking at the stocks held in these funds. One is that you’ll see stocks held in multiple funds. In fact, there’s a huge amount of overlap with these five ARK Invest funds.

Tesla is the top holding in three of the five. Shares of Square, Roku and LendingTree are in three of the funds. So you don’t even necessarily need 50 stocks to replicate all five of the ARK funds.

Something else you’ll get just by exploring the pages for these funds though is an eye into the thinking and analysis by some of the world’s best analysts.

You get to see exactly which stocks they’re buying and a lot of times, the website will have a blog or regular reports with commentary on what the manager is watching.

Stocks in the ARK Invest Next Generation Internet ETF

This next one, the ARK Invest Next Generation Internet fund, ticker ARKW, is one of my favorites because its in what I think will be the biggest trends over the next few decades.

The fund holds 30 to 50 stocks in six themes; cloud computing and cyber security, ecommerce, big data and AI, mobile tech and IoT, social platforms and blockchain.

We’ll scroll down to the holdings and WHAAAA, shock…Tesla tops the list.

There’s some others here on the list I really like too though. Those of you in the nation will remember we recommended Pinterest last December, now up 176% since then, and I highlighted shares of SNAP as the best investment in social in September, up 75% in just the four weeks after.

Stocks in the ARK Genomic Revolution ETF

The ARK Genomic Revolution ETF, ticker ARKG, is interesting and a theme I don’t think investors see as much as some of those internet high-flyers.

Again here, 30 to 50 stocks in six themes; CRISPR which is gene editing technology, gene targeting therapeutics, bioinformatics, molecular diagnostics, stem cell and agricultural biology.

And there isn’t nearly as much overlap here as we see in the other funds other than with the flagship ARK-K fund which also holds Invitae and Crispr therapeutics.

Now I won’t say any of the industries in these five funds are easy to analyze but this one strikes me as even more difficult because you really need that background in medical research and genetics to understand these companies. Like I can put together a pretty kick-ass analysis on Pinterest and Snap because social is a lot of what I do, I know the business models, but you ask me to explain how the gene editing works with Crispr…and I might as well be a monkey with a violin!

So if you’re going to be investing in these types of intensely complicated industries or just ones outside your experience, I really like this fund-replicating strategy to piggyback on with what the analysts are buying.

Stocks in the ARK Fintech Innovation ETF

The next fund, the ARK Fintech Innovation ETF, ticker ARKF, invests across six themes; transaction innovations, blockchain, risk transformation, funding platforms, customer platforms and new intermediaries.

And we see a lot of familiar stocks, not just the ones in other ARK funds but some popular stocks like Tencent, LendingTree and Zillow.

Should You Invest in the ARK Funds?

But now that you’ve sat through 10 minutes of how to use this strategy…now I’m going piss on your parade with a few reasons you might just invest in the funds anyway.

Here you’ve really got to ask yourself what type of an investor are you and what your time is worth. Are you actively following your stocks or are you the type of investor that just wants to buy a fund and not look at it for years?

If you’re watching your stocks and portfolio at least every few months then it wouldn’t take much to check in on the ARK Invest website for portfolio changes and then make changes to your own portfolio. Probably less than an hour of work each quarter to save about $180 for every $100,000 invested.

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It’s a simple strategy and a great way to follow these funds without paying the higher expense ratios! You can beat the ARK Invest funds or any ETF you like whether it's the high-flying ARK Innovation Fund, ARKK, or something else. You'll get identical returns to the ETFs and save thousands on fees.

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