ETF Battles: QQQ vs. ARKK – Which ETF is Best Positioned for Future Growth?
- QQQ and ARKK go against each other in key areas, including cost, performance and exposure strategy
- QQQ is index linked whereas ARKK is actively managed
- Both ETFs own some of the same stocks like Tesla, ROKU and Square
Ron: Today’s arm wrestle is between the Invesco NASDAQ 100 ETF (QQQ) against the ARK Innovation ETF (ARKK). This is a match up of two cocky ETFs with lots of chatter surrounding them. And although both funds own some of the same types of stocks, QQQ follows an index, whereas ARK is actively managed.
QQQ, by the way, has been featured in several rounds of ETF battles and despite its super hot performance and popularity, QQQ has yet to win against any of the ETF opponents it’s faced in the short history of this program. I know it’s hard to believe, but will today be different? Well, we’re about to find out.
Helping us to judge today’s matchup is Dave Kreinces at ETF Portfolio Management and Mike Akins at ETF Action, the absolute brightest and best in the business. Judges, welcome back to the show. Great to see you.
Our four battle categories are cost, strategy, performance, and then we’ve got a mystery category. That’s where our judges can choose one factor or possibly multiple factors that they feel are important to their analysis. And who knows that mystery category, it could be the deciding factor in which ETF wins today’s battle. As you can see, my scorecard is ready. It’s blank. That means we’re gonna fill it out together in real time live. And we’re gonna begin with the first category. It’s cost. Let’s start with you, Dave, you got 30 seconds, go.
Dave: Well, the expense ratio is 0.20% for QQQ, known as the Q’s and ARK has a 0.75% expense ratio. So ARK is charging more than triple the cost of the Q’s. However, ARK employs an active aggressive growth strategy. So the higher cost may be worth it at times, but on a lower cost, I’ll give the win to the NASDAQ 100.
Ron: Let’s shift to you, Mike. What’s your take on cost, which ETF wins?
Mike: Yeah, I think it’s gonna be hard to argue with the absolute cost being, going to the triple Q’s, but you gotta point out the fact that ARK is definitely an actively managed strategy. It’s a super high conviction, 40 stocks versus a hundred stocks in the triple Q’s. And it’s getting you into port securities that you may not be familiar with and you probably don’t already own in your portfolio. So something, at the end of the day cost is probably not a factor that should be thought of too long with these two strategies.
Ron: Let’s move to the next battle category. And you alluded to it Mike, exposure strategy. So let’s stick with you, QQQ versus ARK. Talk about the differences in which ETF you think wins.
Mike: All right, So the Q’s are gonna follow an exchange. They follow what’s listed on the NASDAQ, the largest 100 companies on the NASDAQ exchange. As history has played out, NASDAQ has tended to get more of the technology exposure companies. As a result it’s heavily tilted towards technology. ARK is an innovation strategy. They’re trying to find companies that they refer to as disruptors and that’s across a number of different themes that they’ve laid out, including health innovation, technology enablers, industrial revolution, a number of different things. So from a cost and exposure perspective, Q’s are gonna be broader, are gonna be more diversified across sectors.
ARK is going to be very high conviction into a smaller number of names. Calling a winner here is tricky, but I’m gonna go with ARK simply because I think it gives you exposure to something you probably don’t already own. And what I mean by that is the Q’s have about 40% overlap with the S&P 500 in common names, ARK has less than 2%. Q’s and ARK only have about 5% in overlap exposure. So the idea here is that you’re again, you’re expanding your portfolio into areas of the market that you believe, or that ARK believes have really high growth potential. So I’m gonna give it to ARK on exposure strategy as an additive to your existing portfolio.
Ron: That’s a pretty convincing argument. Thank you, Mike. Dave, how do you see it?