Summary The ARK Next Generation Internet ETF (ARKW) is rated Hold due to high fees, portfolio concentration, and digital currency exposure despite strong recent performance. ARKW's top 10 holdings comprise over 48% of assets, with Tesla at 9.59%, and the ETF has significant tech and crypto exposure. ARKW trades at a substantial valuation premium to other tech ETFs, justified by higher projected earnings and cash flow growth, but carries elevated risk. The fund's active management, high turnover (44%), and 0.76% fee may hinder future returns, especially if more value-oriented stocks outperform in 2026. Cathie Wood opened her most well-known fund, the ARK Innovation ETF ( ARKK ), in 2014. This fund has been praised and panned by a variety of sources since its inception, but there is no denying that it has experienced several years of strong returns. In 2017, 2020, and 2023, ARKK was in the top percentile for its category on Morningstar , and it is currently in the top 4% of similar ETFs this year. In between some of those years, the fund has also experienced some periods to forget. In both 2021 and 2022, the fund was ranked dead last for total returns. While ARKK tends to garner most of the attention, and therefore most of the assets for Wood’s firm, the second-largest fund in the ARK family in terms of assets under management is the ARK Next Generation Internet ETF (ARKW). It actually opened a month prior to ARKK and has experienced similar extremes in its performance. Since 2015, ARKW has ranked in the top percentile in its category three times and in the second percentile twice, if 2025 is included. Even though most of my investments lean much more to the conservative side, I am a big believer in many of the industries that are supported by ARKW. The fund invests in technologies that will undoubtedly play a major role in our everyday lives in the not-so-distant future, such as cloud computing, digital media, and AI. The question then becomes, how do we find the right value for those companies today, and what is the best way to play these trends? For its growth potential, unique investment focus, and lack of overlap with my other investments, ARKW appears to be an attractive option. However, its costs, portfolio concentration, and small exposure to digital currencies are concerning. The chance that the fund will swing back toward underperformance next year is also a strong possibility in my book. This is enough to keep me on the sidelines for ARKW to start 2026. ETF Overview The ARK Next Generation Internet ETF is actively managed to seek long-term growth in companies that fit the theme of “ next generation internet .” According to ARK Investment Management, these companies may develop or enable innovations in areas such as autonomous mobility, neural networks, digital wallets, and next-generation cloud technology. As of December 26, the fund had $2.16 billion in assets under management. A list of the 13 holdings that have an allocation of at least 2.5% in the ARKW portfolio is shown below. The fund generally holds about 35 to 55 positions, so it tends to be heavily weighted toward its top holdings. Tesla, Inc. ( TSLA ) has the largest weight in the fund by far at 9.59%. Roku, Inc. ( ROKU ) is a distant second at 5.76%, with Advanced Micro Devices, Inc. ( AMD ) right behind at 5.65%. The top 10 stock holdings represent just over 48.2% of the fund. Assets.ark-funds.com Cathie Wood is not afraid to take high-conviction positions in the fund to achieve significant gains, but of course, when the market is not working in the same direction as the companies in the fund, the losses are also greater than average. Morningstar says that ARKW has been able to capture 2.1 times the upside in the market but also 2.0x the downside. ARKW does have significant exposure to cryptocurrency, as its top 10 holdings show a weight of over 5.5% in Bitcoin. The fund also holds small positions in Ether and Solana. Obviously, there are several stocks in the fund that are also dependent on cryptocurrency as part of their operations. Coinbase Global, Inc. ( COIN ) operates a major cryptocurrency exchange. Circle Internet Group, Inc. ( CRCL ) operates a network for stablecoin and blockchain applications. While the inclusion of COIN and CRCL does not bother me as much, the inclusion of pure crypto assets gives me added pause, as their value is truly speculative. The sector breakdown for the stocks in ARKW is heavily weighted toward technology, and that should be no surprise. I actually expected that sector’s allocation to be higher than its current 42.0%. Communication is second in weight at 23.1%. The 18.6% allocation to Consumer Cyclicals may be unexpected, but the fund’s largest holding, Tesla, belongs to that sector. Seeking Alpha The fund does have some international exposure through ADRs. ARK Fund Management says that just over 4.4% of ARKW is invested in Asian stocks. Another 2.3% is allocated toward Europe. South and Central America are the home to an additional 1%. While dividends are certainly not among the top reasons for an investment in ARKW, the fund did pay a dividend this year that may be larger than what some investors would expect. On December 24, the fund declared a dividend of $2.35, which gives ARKW a forward yield of 1.55%. Prior to this year, the ETF had not paid a dividend since 2021. Analysis of ARKW As mentioned in my introduction, there are few funds outside of the ARK Fund Management universe that can boast of returns like ARKW. The ETF appears to be on its way to its second straight year of gains over 40%. These two years have followed an even stronger year in 2023, where the net asset value of ARKW almost doubled. Looking all the way back to the fund’s inception, one thing is certain. ARKW has never had a three-year run like the one it is finishing in 2025. Morningstar It is challenging to measure the fund against any benchmark, as there are no major indices that follow the same investment approach. The prospectus for ARKW does compare returns against the S&P 500 and the MSCI World Index, and the ETF easily beats both of them in performance over almost every time period. However, before this year, the five-year return of the S&P 500 did edge out ARKW by 22 basis points. Just to have a better gauge of the fundamentals for the stocks contained in the ARK Next Generation Internet ETF, I compared the fund with the others in the ARK family. In addition to ARKK, Wood manages the ARK Autonomous Technology and Robotics ETF (ARKQ), ARK Blockchain and Fintech Innovation ETF (ARKF), and ARK Space and Defense Innovation ETF (ARKX). She also manages the ARK Genomic Revolution ETF (ARKG), but I left it out of my comparison because its holdings have no overlap with ARKW. My findings, as obtained from Morningstar , are given below. ARKW ARKK ARKQ ARKF ARKX P/Earnings 42.31 47.2 37.21 34.82 29.08 P/Book 5.41 4.54 4.53 4.56 3.77 P/Sales 5.79 6.8 5.66 3.22 3.86 P/Cash Flow 19.43 21.81 26.27 17.88 18 LT Earnings 32.64% 33.90% 14.91% 21.90% 15.12% Historical Earnings 20.79% 10.93% 15.68% 155.48% 15.61% Cash Flow Growth 22.15% 21.36% 14.64% 27.77% 15.82% These are all funds with stocks that are trading at valuations well above the market average. From the perspective of their holdings, ARKK and ARKF have the most in common with ARKW. ARKK has a weighted overlap of 53%. ARKF is next with 45%. ARKW has the second highest average PE ratio and price-to-sales ratio. It has the highest price-to-book. Those metrics seem more justified when considering that it also has the second highest historical earnings growth rate, projected long-term earnings growth rate, and cash flow growth. However, even with its strong three-year run, ARKW has just an “average” risk-adjusted return score from Morningstar, as the financial research firm gives the ETF three stars. ARKQ receives four stars. ARKX receives the highest mark from this group with five stars. I did also compare ARKW to three other tech funds that all receive five-star ratings from Morningstar. The trio included the Invesco QQQ Trust ETF (QQQ), the Vanguard Information Technology Index Fund ETF (VGT), and the iShares US Technology ETF (IYW). While ARKW has clear advantages in earnings and cash flow growth, investors are also paying about a 60% PE premium for that growth, increasing the chance of greater losses if this growth does not continue along its expected path. ARKW QQQ VGT IYW P/Earnings 42.31 26.07 25.5 25.98 P/Book 5.41 6.69 6.94 7.84 P/Sales 5.79 5.75 5.66 7.04 P/Cash Flow 19.43 18.79 20.59 20.89 LT Earnings 32.64% 9.92% 13.95% 12.82% Historical Earnings 20.79% 14.92% 13.45% 11.90% Cash Flow Growth 22.15% 12.49% 13.82% 17.13% In addition to these elevated risks, one final aspect of the fund that I do not like is its management fee of 0.76%. I understand that investors should expect to pay more for an actively managed fund, and there have certainly been many years where 20 or 30 basis points in additional expenses would not have been missed when the fund is outpacing the typical market returns by 50% or more. Much of the source of the fund's fees can be traced to its high turnover rate. According to the prospectus for ARKW, its turnover rate was equal to 44% of the average value of its portfolio in 2024. ARKW does receive a “D+” in Expenses from Seeking Alpha’s Quant analysis. Additional Risks to Consider Many of the risks for this fund, including concentration risk and the high valuation of the stocks in ARKW's portfolio, have already been mentioned in this analysis. The high turnover rate that explains the fund's fee structure also brings added risk. Over half of the 16 pages in the fund's prospectus are dedicated to various risks associated with the ETF. ARKW is an actively managed fund that is trying to select just the right stocks to ride the current market sentiment that favors tech innovation. Its prospectus points out that some older technologies may prove tougher to replace and, therefore, the adoption of their replacements may take longer than expected. There may also be added regulatory risks for many of the companies held by the fund, especially those that deal with blockchain and cryptocurrencies. The current presidential administration has proven to be very pro-crypto, but increased Congressional oversight or other headwinds for further adoption may loom in the future. About 40% of the fund is invested in mid-cap and small-cap companies that may have increased challenges reaching profitability and may not have the capital to compete with large-cap companies in the same spaces. ARKW Prospectus Because the ARK Next Generation Internet ETF is an actively managed fund, there is a chance that its performance will lag others in its category and may underperform the overall market as it did in 2021 and 2022. Past performance is not a guarantee of future results. ARKW also invests in a much smaller pool of companies than many other tech-based funds, which limits its ability to shift gears to keep pace with changes in market sentiment. The fund’s management fees are significantly higher than the broader tech funds mentioned earlier — QQQ, VGT, and IYW — which could also make it harder for the fund to keep up with their returns. The Bottom Line There is certainly a chance that 2026 will be another banner year for ARKW, as well as many of the other funds in the ARK family. As I write this, I realize that my position to rate the ETF as a Hold may seem non-committal. There is a big part of me that actually believes the fund is closer to a Sell than a Buy, but I certainly would never recommend someone short such a volatile position. I do think it is possible that the fund posts another year of gains, but I find it hard to justify a belief that the gains for next year will be anything like the last three. Given the high fees from the fund, it does appear that someone could create their own miniature version of ARKW by owning some of its larger holdings. Other investors like me who are not fans of the digital currency exposure could avoid that aspect of the fund while still taking advantage of the other broader market trends. I just believe that next year will be one where value takes a larger role in the market, and the elevated valuations of the stocks owned by ARKW may have to deflate slightly before starting their next ascent.
