Mark Hulbert: How you can beat ARK Innovation’s longer-term return with less risk

by | Nov 16, 2023 | Stock Market

You can do just as well or better than the ARK Innovation ETF
over the longer term while nevertheless incurring significantly less risk. That’s important for traders to bear in mind since over the past three weeks this ETF has produced an extraordinary return. Since the stock market’s low on Oct. 27, the ARK Innovation ETF has soared 26.1%, versus 11.7% for the Invesco QQQ ETF,
which is benchmarked to the tech-heavy Nasdaq 100
index. A three-week return that high has not surprisingly begun to attract return-chasing momentum players.

An entirely different picture emerges if we expand our lookback period to more than just the last three weeks. As you can see from the chart below, an investor willing to incur ARK Innovation’s well-above-average volatility would have made a lot more by investing instead in the QQQ with sufficient leverage to match that volatility. (This hypothetical QQQ-plus-leverage portfolio would have been 83% on margin; this portfolio’s return reflects the interest cost of this margin.)

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