Ark Next Generation Internet ETF vs. Ark Innovation ETF: Which Is Best for You?

Cathie Wood’s Ark Invest offers investors several exchange-traded funds (ETFs), generally focused on the latest technology trends – artificial intelligence (AI), robotics and cloud computing, among others. All are unique in that they are not index funds. Unlike most ETFs, these are actively managed funds with the common goal of outperforming a benchmark over time.

Two of the most popular are Ark Innovation ETF (ARKK 1.73%) and Ark Next Generation Internet ETF (ARKW 1.19%). While both are tech-focused and even have significant overlap in their most important holdings, there are some key differences to know before you decide.

Similarities Between These Two ETFs Ark

Before we get into what makes these funds different, let’s discuss what they have in common.

• As mentioned, both are actively managed ETFs, meaning a fund manager selects stocks with the goal of beating the market. In this case, both ETFs have the same manager: leading technology investor Cathie Wood.
• Both are quite focused, targeting 35-55 holdings at a time. Each fund’s top 10 holdings represent more than 60% of its total assets.
• There is quite a bit of overlap between the top holdings. adze, Roku, Coinbase, Block, Roblox, Palantir, UiPathand robinhood all appear in the top 10 holdings of both funds.

Key differences to note

With the similarities out of the way, let’s talk about the differences between these two ETFs.

The most significant difference is the investment objectives of each ETF. On the one hand, the Ark Innovation ETF has the broader focus of the two, aiming to invest in companies involved in “disruptive innovation.” On the other hand, the Ark Next Generation Internet ETF also focuses on disruptors, but those that focus on the Internet. This includes cloud infrastructure, mobile internet, online and mobile payments, AI, the Internet of Things and more.

This explains the overlap between top holdings. After all, anything I just described as an Internet disruptor also falls into the realm of disruptive innovation. But we can also look at the most important holdings they have not have in common to better understand the differences.

The main holding of the Ark Next Generation Internet ETF is a Bitcoin (Internet Payments) ETF. He also owns shares of Meta platforms (social media), which is a clear internet-focused disruptor.

Alternatively, the Ark Innovation ETF has a genetics company CRISPR Therapeutics in the top 10 because it is a disruptive innovator in healthcare that is obviously not a piece of internet technology. Shopify is the other top 10 holding that only appears on the Ark Innovation list. Beyond the top 10, however, we find significant exposure to non-internet domains:

• Precision therapies (12% of assets)
• Autonomous mobility (12.1%)
• Programmable Biology (2.6%)
• Adaptive Robotics (2.1%)

There is also a cost difference. The Ark Innovation ETF has an expense ratio of 0.75%, meaning that for every $1,000 in assets, there will be $7.50 in management fees annually. (Note: an expense report is not a fee you have to physically pay; it will only be reflected in your stock performance.)

On the other hand, the Ark Next Generation Internet ETF has an expense ratio of 0.88%. To be fair, this makes sense. In general, the more specialized an ETF is, the higher its costs. But be aware of the difference and that this seemingly small cost discrepancy can make a significant difference in your returns over time.

Which is best for you?

There is no clear winner here. If you simply believe in Cathie Wood’s ability to find disruptive winners, the Ark Innovation ETF, with its lower cost and wider pool of companies to choose from, might be the better choice for you. however, if you’re looking to invest in the next phase of Internet innovation, the Ark Next Generation Internet ETF could be a smart addition to your portfolio.