Battle of edgy tech ETFs

on May21

Both ETFs have vague mandates, and ARKQ’s is arguably broader, because it can essentially hold any company that develops or benefits from new technology, though it focuses particularly on energy, automation/manufacturing, materials and transportation, according to FactSet. ROBO holds only companies related to robotics and automation.

But the number of securities in the portfolios are very different. And it’s ARKQ that is more concentrated.

That concentration is working well for ARKQ this year, being one of the sources of the fund’s 10-percentage-point lead over ROBO and 13-point lead over XLK. The fund owns only 27 stocks, and its top holding represents 13 percent of the portfolio — just one single stock, which is Tesla.

Oftentimes, however, it is diversification that wins the race because a broadly diversified portfolio can better dilute poor performance of individual securities, preventing a handful of stocks from dragging overall returns.

ROBO is the more diverse of the two, with a portfolio that has more than 80 securities, and one that assigns weights to its underlying holdings much more evenly. The fund’s biggest holding represents only 2.5 percent of the mix.

In 2016, it was ROBO that outperformed ARKQ. Concentration is working well for ARKQ in 2017, but that’s not always the case, as the chart below shows:

Charts courtesy of StockCharts.com



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