ARKK ETF 1-year Performance is 6X the S&P 500: Can it Continue?

Led by Cathie Wood, the ARK Innovation ETF (ARKK) is an actively managed exchange-traded fund (ETF) that focuses on finding and investing in Wall Street’s most disruptive companies.

Unlike passive ETFs like the S&P 500 Index ETF (SPY), Cathie Wood and her extensive research team constantly adjust ARKK’s positions based on their portfolio composition goals and the latest and hottest trends. Rather than look for value like Warren Buffett and Berkshire Hathaway, Wood seeks to find next-generation technology with hyper-growth potential.

ARKK Booms During COVID, then Busts

While Wood’s focus on innovation sounds like a fool-proof process, it hasn’t been without its issues. With the benefit of government stimulus checks and liquidity in the post-Covid rampant bull market of 2020, ARKK shares screamed from $33 to $160 in a little over twelve months. However, when the bull market finally corrected in 2022 due to inflation concerns and slower growth, ARKK round-tripped its gains, plunging from $160 to under $40 as Wall Street investors punished the unprofitable, high-valuation stocks that made up the portfolio.

Cathie Wood Regains Her Mojo

While many ARKK investors were caught holding the bag post-Covid, Cathie Wood and her ARKK team have again caught fire. In fact, ARKK shares have quietly trounced the S&P 500 Index over the past year, gaining 61.26% versus the S&P 500’s 9.87%.

While many investors may see the one-year returns as a classic ‘dead-cat bounce’ fluke, there are three reasons to believe that Wood’s outperformance will stick into 2026, including:

1.  Bull Market Winds are at ARKK’s Back: The tech-heavy Nasdaq 100 Index ETF (QQQ) has soared from ~$400 (during the tariff panic correction) to over $500 while riding the 21-day moving average. High-octane growth stocks like ARKK holding Tesla (TSLA), Roblox (RBLX), and Robinhood Markets (HOOD) tend to outperform during bull market phases.

2. ARKK is Positioned in the Strongest Growth Areas: Industries that ARKK focuses on, such as artificial intelligence, robotics and automation, and digital assets, are likely to continue to outperform over the next few years as these technologies move from dream to reality and profits are realized.

3. ARKK Benefits from A Red-Hot IPO Market: The best growth investing opportunities often exist in the IPO market. For instance, Wood and her team snapped up stablecoin-operator Circle Group (CRCL) shares on the first day of trading. Since then, the stock has soared from $64 to $300!

With looser regulations from Washington and a hot IPO market, Wood is in her ‘wheelhouse’ market environment.

Bottom Line

Cathie Woods ARKK has made an impressive comeback over the past year. With a fresh bull market, a strong technology market, and a flurry of new IPOs, Wood and her team are poised to outperform.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research