How to Mitigate Mega-Cap Concentration Risk While Maintaining an Innovation Exposure

Disruptive innovation is shaping the future. Canadian investors can own a piece of that innovation with the BMO ARK Next Generation Internet Fund ETF Series (Ticker: ARKW). ARK Invest’s team identifies disruptive innovations and convergence across markets using an open research ecosystem. This top-down approach to ideation enables ARK to track evolving themes, calculate demand — and pinpoint opportunities.

Here are 5 reasons investors should consider ARKW:

1. High Exposure to AI Growth

• Next Wave of AI Innovation: ARKW is strategically positioned to capitalize on the rapid growth in AI platforms and software, ensuring investors are part of the forefront of technological advancement. It invests across the AI spectrum (chip design, chip manufacturing, chip testing, cloud infrastructure, AI platform/​software and application convergence).

• AI Convergence: The ETF includes investments in companies that are leading the way in the convergence of AI with other cutting-edge technologies, providing a diversified approach to AI investment.

• Industry Leaders: ARKW​’s portfolio includes some of the top-performing AI companies, ensuring exposure to industry leaders driving the future of AI (e.g. Palantir, UiPath, Teradyne and Tesla, to name a few).¹

2. Bitcoin and Blockchain Exposure

• Direct Bitcoin Investments: ARKW offers direct exposure to Bitcoin, providing investors with access to one of the most prominent cryptocurrencies. Currently, exposure to BTCQ is 9.32%.²

• Blockchain Technology: The ETF includes investments in companies developing and utilizing blockchain technology, ensuring diversified exposure to this transformative sector. Stock holdings including Coinbase, Block, and Robinhood.²

• Crypto Diversification: For clients interested in cryptocurrency, ARKW provides a balanced approach by integrating crypto investments within a diversified ETF, decreasing the need for separate crypto holdings.

3. Client Portfolio Integration

• Simplified Portfolio Management: ARKW​’s inclusion of cryptocurrency and blockchain technology within an ETF allows for streamlined portfolio management, avoiding the complexity of separate line items (i.e. clients do not see bitcoin holdings in the their portfolio).

• Client Discussions: The ETF makes it easier for advisors to discuss cryptocurrency exposure during portfolio reviews, addressing client interest in crypto investments without the need for standalone crypto assets.

• Balanced Risk: ARKW offers a way to diversify client portfolios with a mix of high-growth AI and blockchain investments while managing risk through a broader technology-focused strategy.

4. Long-Term Growth Potential

• Innovative Companies: ARKW invests in companies poised for long-term growth through continuous innovation in AI and blockchain technologies.

• Future-Focused Strategy: The ETF’s forward-looking approach ensures that it aims to remain at the cutting edge of technological developments, offering sustained growth opportunities for investors. 

5. Diversification Benefits

• Comprehensive Tech Exposure: By including both AI and blockchain technologies, ARKW provides a well-rounded exposure to high-growth sectors within the technology landscape.

• Risk Mitigation: The diversified nature of the ETF helps mitigate the risks associated with investing in single sectors or technologies, offering a balanced growth potential.

Mitigate Mega-Cap Correction Risk:

Historically elevated concentration has left many investors over exposed to a handful of names, and potentially missing out on stronger longer-term performance from non-benchmark-oriented names. By allocating a portion of one’s portfolio to the BMO ARK Next Generation Internet Fund ETF Series (Ticker: ARKW), investors can mitigate some mega-cap concentration risk while still investing in themes and individual companies that have growth potential.

If history serves as any guide, stock market breadth tends to broaden as bull markets strengthen over time. BMO’s ARKW could be well-positioned to benefit if breadth continues to improve, with the ETF averaging an active share of 97% vs. the S&P 500 Index and 95% vs. the Nasdaq 100 Index, respectively,³ meaning company exposure/​allocation within BMO’s ARKW is different from benchmarks, and investors are getting greater diversification into different names.

Overlap to S&P 500

*The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.

** Used as a proxy for the S&P 500 Index.

By BMO partnering with ARK Invest, there is no need to convert currency. BMO’s suite of innovation ETFs trade in Canadian dollars⁴ and are a cost-effective way to gain exposure to secular trends that can be utilized to complement core strategies and provide greater diversification with growth potential. 

ARK’s top-down approach to ideation enables the team to track evolving themes, calculate demand and pinpoint opportunities. Simultaneously, ARK’s bottom-up analysis aims to select the companies best-positioned for long-term growth. 

Each decision is based on a proprietary calculation and comprehensive five-year valuation models. Cathie Wood, CIO and Portfolio Manager at ARK, has the final accountability for all investment decisions. Adjustments are made to support ongoing risk management, changes in conviction and market volatility.

Historical performance

Bloomberg, as of June 30, 2024. 

¹Google Finance: PLTR, PATH, TER, and TSLA, as of July 22, 2024.

²BMO Global Asset Management, as of June 28, 2024.

³ARK Investment Management LLC, 2024, based on data from Morningstar as of June 30, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

⁴Changes in rates of exchange may also reduce the value of your investment.