Two active tech ETFs that invest in disruptive growth stocks, the ARK Innovation ETF (NYSEARCA:ARKK) and the less well-known Spear Alpha ETF (NASDAQ:SPRX), both racked up impressive gains last year. ARKK notched a 67.6% gain in 2023, while SPRX was up an even more scintillating 88.0%. So, which one is the better actively-managed tech ETF?
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What Is the ARKK ETF’s Strategy?
Launched in 2014, ARK Invest’s flagship fund is among the most well-known and discussed actively-managed ETFs in the market today, thanks to the visibility of ARK Invest founder and CIO Cathie Wood. ARKK now has $8.1 billion in assets under management (AUM).
ARKK invests in companies that are driving “disruptive innovation.” ARK describes disruptive innovation as “the introduction of a technologically enabled new product or service that potentially changes the way the world works.” ARK says that these investments can include companies involved in DNA technologies and “the genomic revolution,” artificial intelligence and “the next generation internet,” automation, robotics, energy storage, and fintech.
What Is the SPRX ETF’s Strategy?
Meanwhile, the relatively unheralded SPRX debuted in August 2021. With $75 million in AUM, it is much smaller than ARKK and doesn’t have nearly the same level of visibility.
The Spear Alpha ETF is an actively-managed ETF from Spear Funds that, according to the fund, “invests in companies benefiting from breakthrough trends in industrial technology.”
SPRX’s aims to find and invest in “underappreciated opportunities across different value chains that are beneficiaries of…” secular themes such as artificial intelligence, automation and robotics, enterprise digitalization, environmental focus and decarbonization, photonics and additive manufacturing, and space exploration. SPRX looks for long-term capital growth.
As you can see, while there are some areas of investment that are unique to each fund, there is also some overlap in areas like artificial intelligence and robotics.
Head-to-Head Performance
While the specifics of their strategies are slightly different, both of these ETFs are targeting potentially large gains from disruptive growth and technology stocks.
Because SPRX only launched in 2021, let’s compare the two ETFs based on their 2022 and 2023 results, as 2022 was the first year that full-year results for SPRX were available, rather than comparing annualized returns.
In 2022, tech and growth stocks performed poorly. Unsurprisingly, both ARKK and SPRX suffered as a result. SPRX lost 45% for the year, while ARKK put up an even worse performance, losing an unsightly 67.0%.
These were significant losses, but both funds stuck with their strategies and rebounded nicely in 2023. ARKK returned 67.6% for the year, while SPRX returned an even better 88.0%. So far in 2023, ARKK is down 13.3%, while SPRX has held steady, with a gain of 1.3%.
Based on these results, with a narrower loss in 2022, a bigger gain in 2023, and a better performance so far in 2024, SPRX is the winner when it comes to head-to-head performance.
Portfolio Comparison
These funds aren’t particularly diversified, as that isn’t their goal, but ARKK is a bit more diversified than SPRX. ARKK holds 37 stocks, and its top 10 holdings make up 60.8% of the fund.
Below is an overview of ARKK’s top 10 holdings using TipRanks’ holdings tool.
Meanwhile, SPRX owns 27 stocks, and its top 10 holdings make up 74.0% of the fund. Below is an overview of SPRX’s top 10 holdings using TipRanks’ holdings tool.
As you can see, the holdings are different, but both funds target stocks of cutting-edge businesses with high growth potential.
Both funds have benefited from the large, concentrated bets in their respective top holdings, which have generated stellar returns over the past year. For example, ARKK’s largest holding, crypto exchange Coinbase Global (NASDAQ:COIN), has an 11.8% weighting within the fund and has gained 265.1% over the past year. Meanwhile, SPRX has a 12.8% weighting in its top holding, semiconductor giant Nvidia (NASDAQ:NVDA), which has returned 280% over the past year.
A key reason for SPRX’s outperformance versus ARKK over the past year is that while their top holdings put up similarly impressive results, ARKK has a few top 10 holdings that detracted from its performance last year, like Unity Software (NYSE:U), which fell 10.7% over the past year, and several stocks that are down slightly or treaded water like Zoom Video (NASDAQ:ZM), Tesla (NASDAQ:TSLA), Block (NYSE:SQ), and Roku (NASDAQ:ROKU).
On the other hand, all of SPRX’s top 10 holdings have generated gains of 25% or higher, leading to a better overall performance.
SPRX has four top 10 holdings with Outperform-equivalent Smart Scores of 8 or better, while ARKK has just two. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
Based on these Smart Scores, SPRX seems to have a slight edge over ARKK when it comes to their respective portfolios. SPRX has a 7 out of 10 Smart Score, while ARKK scores a 6 out of 10.
Comparison of Fees
Interestingly, both ARKK and SPRX feature identical 0.75% expense ratios, meaning that an investor putting $10,000 into either fund will pay $75 in fees annually.
While 0.75% is a fairly steep expense ratio, it’s important to remember that these are actively-managed funds, which are typically considerably more expensive than index funds. If the ETFs generate the types of returns they did last year, few investors will mind paying the expense ratio, but if the funds struggle like they did in 2022, this steep expense ratio can sting.
Is ARKK Stock a Buy, According to Analysts?
Turning to Wall Street, ARKK earns a Moderate Buy consensus rating based on 27 Buys, 10 Holds, and zero Sell ratings assigned in the past three months. The average ARKK stock price target of $60.07 implies 19.45% upside potential from current levels.
Is SPRX Stock a Buy, According to Analysts?
Meanwhile, SPRX also earns a Moderate Buy consensus rating based on 24 Buys, five Holds, and zero Sell ratings assigned in the past three months. The average SPRX stock price target of $27.18 implies 9.6% upside potential from current levels.
While SPRX has a Strong Buy rating, analysts ascribe more potential upside to ARKK.
And the Winner Is…
These funds are similar in that both are actively managed and have an aggressive focus on disruptive tech stocks. In an environment where tech stocks and more speculative growth stocks continue to perform well, both of these ETFs will generate impressive returns, but if we see a downturn in tech and growth, both ETFs can pull back sharply.
The two funds feature the same expense ratio, and analysts see ARKK as having more upside, but I am going to give the win to SPRX. It outperformed ARKK, with a narrower loss in a bear market in 2022 and a larger gain in 2023’s bull market. It’s also outperforming ARKK so far in 2024. Plus, TipRanks’ Smart Score System gives a slight edge to SPRX’s portfolio.
