Don’t buy Cathie Wood’s ARKK stock: Buy this ETF instead
The Ark Innovation Fund (ARKK) ETF has bounced back this year, helped by the ongoing recovery of the stock market and technology companies. Cathie Wood’s flagship fund, jumped to a high of $43.51 this month, the highest point since February. It has jumped by over 44% from the lowest level in 2022. Despite this, there are a few reasons why I believe that Invesco QQQ is a much better ETF to buy than ARKK.
ARKK is expensive than QQQCopy link to section
ETFs make money by charging a small fee that is typically known as an expense ratio. This is a small fee that the sponsor of the fund makes in a certain period. In most cases, passive ETFs like QQQ tend to be cheaper than actively managed funds like ARKK.
In this case, QQQ has an expense ratio of 0.20% while ARKK has a ratio of 0.75%. As such, if you invest $100,000 in QQQ and it remains flat in a year, you will pay a fee of $200. On the other hand, investing the same amount in ARKK will cost you $750.
In some cases, it makes sense to invest in an actively managed fund if it has superior performance, But ARKK has not outperformed QQQ at all. In the past five years, QQQ has grown by 100% while ARKK has lost 7%.
QQQ pays a dividend and ARKK does notCopy link to section
In addition to the stock price return, it is always important to consider the dividend payous that a fund pays. It is better to invest in a fund that pays a dividend than one that does not. Invesco QQQ is known for paying a quarterly dividend. According to SeekingAlpha, it has a dividend yield of 0.68% and a four-year average of 0.63%. Its dividend growth rate in the past five years was 10.78%.
AKK, on the other hand, invests in companies that mostly don’t pay dividends. And there is a likelihood that it won’t pay a dividend any time soon. Therefore, in this case, I believethat QQQ is a better fund to invest in.
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QQQ is more diversifiedCopy link to section
Diversification is an important thing when investing. QQQ has 100 companies while ARKK has 31. The top ten companies in QQQ represent about 58% of the entire fund while the top ten in ARKK account for 62%. Therefore, for your long-term portfolio, it is always recommended that you invest in an ETF with a wider pool of capital.
There are other reasons why you should consider investing in QQQ. For example, it has a longer track record of performance, it does not have a “superstar” manager calling the shots, and it does not make speculative bets