Ark Invest: Major Active ETF Risk

Summary

• New strategy ETFs may not be for all investors.
• Daily e-mails don't tell the entire picture.
• Beginner investors should stick with sector-type ETFs.

In recent years, perhaps the most popular part of the investment space has been Exchange Traded Funds ("ETFs"). These investment vehicles allow a buyer to hold a large group of stocks together, without having to purchase a number of individual securities. The SPDR S&P 500 Trust (SPY) may be most known as it allows you to purchase all the components of the popular index in one shot, rather having to buy 500 individual names.

While many ETFs out there are good, like those that focus on a particular index or sector, some funds are not for the first time investor. A new type of ETF has popped up in recent years, called actively managed ETFs. These are almost like hedge funds in a way, basically where a portfolio manager chooses what stocks should be in the portfolio. Unfortunately, some of the more popular ones out there carry a major risk, something I like to detail today.

I would like to take a look at Ark Invest, which has a number of ETFs today. Ark has been a big supporter of electric vehicle maker Tesla (TSLA), and thus shares of the company are the largest holding in three of Ark's five main ETFs: the ARK Innovation ETF (BATS:ARKK), the Ark Autonomous Technology and Robotics ETF (BATS:ARKQ), and the Ark Next Generation Internet ETF (BATS:ARKW).

Everyday, Ark Invest sends out a daily e-mail of trades, although the firm cautions upfront that it's not a complete list. In the end, that's an understatement to say the least. Investors that don't have the time to check the company's actual pages, linked further below, may be really surprised what they are getting into. The below image is what the daily e-mail looked like for July 8th of 2020, as an example, with Tesla trades highlighted.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.