Before going any further, let’s address the elephant in the room: ETFs are boring. With a myriad of investment opportunities available at your fingertips, investing in ETFs feels like a squandered opportunity for seasoned stock pickers.
Investing in an ETF suggests you’ve taken the time to understand market trends but don’t have the gall to back your conviction. The greater the risk, the greater the reward, and as ETFs are nestled comfortably in the safe zone, their returns are uninspiring too.
Furthermore, while not a hard and fast rule, it’s generally recognised that younger investors have the capacity to be exposed to greater risk. Without being too morbid, the youth simply have more time to earn back any losses and thus can afford to take on more risk than grandpa can.
Millennials, Gen Zs and the young’uns should thereby be steering clear of ETFs and instead plunge into the highly lucrative (albeit perilous) pool of stocks picking.
ETF Because Stocks Are Scary AF
With all that said, we mustn’t disregard the demand for ETFs. Not everyone has the financial liberty to be exposed to risk. Sure Gen Zs have more time to regain losses than OAPs but their bank accounts are unlikely to be as unconstrained.
What’s more, there’s no shame in admitting that investing in stocks is scary AF. We’ve all heard horror stories about how people’s lives have been uprooted due to mistakes made in the market. Why expose yourself to such risk if you can’t sleep at night?
Lastly, stock picking requires time. Youngsters are consumed by either school or work or both. They simply don’t have time to carry out the due diligence required for effective fundamental analysis.
By bundling a group of stocks together, ETFs offer a safety blanket for the risk-averse and time-constrained.
Aunt Cathie: The Aunt Without The Agony
For stock pickers and ETF investors alike, the respect held for Cathie Wood is unrivalled.
In February 2018, Wood drew controversy for saying Tesla stock could reach USD 4,000 in five years – a 1,100% increase. In January 2021, Tesla reached that target on a split-adjusted basis two years early. Ark is now expecting Tesla to reach USD 3,000 by 2025.
Wood’s Tesla call was just the tip of the iceberg and is reflective of her comprehensive understanding of the tech industry.Thus, investors have been closely following Wood’s every move and tracking her products on Ark Invest.
Her Ark Innovation ETF soared 148.33% in 2020, beating many stock pickers by far.
No Gambling On Ark’s Transparency ETF
Earlier this month, ARK Invest filed for a transparency-themed ETF with the SEC. The nature of its theme means the ETF will exclude stocks from pollutant or decadent sectors such as oil, gas, alcohol, tobacco, and gambling.
Instead, the Ark Transparency ETF will largely follow a transparency index that tracks the stock movements of 100 companies that rank highly for transparency. Factors such as reputation and strong environmental, social and governance (ESG) commitments are considered when measuring transparency.
“Companies operating in the following industries, as determined by the Index provider, are excluded from the Index: (i) alcohol, (ii) banking, (iii) chemicals, (iv) confectionary, (v) fossil fuel transportation, (vi) gambling, (vii) metals, (viii) mineral, (ix) natural gas, (x) oil, and (xi) tobacco,” Ark said in its filing.
Potential stocks to make Ark’s Transparency list include Apple, Chipotle, Coinbase, Salesforce, Roku, Teladoc, Airbnb, Microsoft, Netflix, Nike and of course Tesla.
Social Causes, EFTs FTW
According to Pew Research Center, Gen Zs, Gen Xs and Millenials are more environmentally conscious than boomers and older generations. 71% of US millennials said the climate should be the top priority. 67% of Gen Zs said the same whilst 63% of Gen Xs agreed. Only 57% of boomers or older shared the same view.
Younger generations are increasingly more concerned with social causes, and the behaviour of corporations is constantly under the microscope. Whilst the youth of today may not have the financial capital to collectively bring down companies that behave poorly, their power on social media can certainly hold them accountable.
With social issues consistently on their conscience, investing in companies with strong ESG commitments fits their virtuous narrative.
Ark’s Transparency ETF not only offers a nutritious blend of ESG firms but can also serve as a first foray for young newbie investors.
Not Reckless But Not Risk-less
Although ETFs are generally regarded as less risky than stock picking, they’re not completely risk free.
Whilst ARK Innovation soared 148.33% in 2020, the ETF is down 1.68% YTD at the time of writing in 2021. Tesla and Coinbase, which will likely feature in the Transparency ETF are heavily weighted in the Innovation ETF at 10.49% and 5.06%.
In fact, Ark Innovation even trails behind the S&P 500, which is up 22.03% YTD.
This proves that there is varying risk even within the different ETFs.
Perhaps Ark’s Transparency greatest weakness is also its greatest strength – it’s very Cathie and very much in line with other Ark ETFs.
Nonetheless, having Auntie Cathie look after your portfolio might let you sleep easier at night even if it’s red.
Are You Young Enough?
So, ETFs are less risky than individual stocks but are still riskier than other ETFs. Once you’ve let that sink in, we can move on to who should be buying Ark’s Transparency ETF.
From our perspective a new investor who is young, conservative (financially not Trump-wise), risk-averse and cares strongly about social issues would benefit greatly from having Wood’s newest ETF as their first foray into the investment world.
Yes, Ark’s had a rocky 2021, but in the long run, Auntie Cathie is always right. As the world becomes increasingly environmentally conscious, with governments accelerating eco-agendas, Ark’s Transparency suite should only continue to prosper.
In any case, if 2022 is just as rocky, it’ll be a great first lesson in investing: all investments are risky!