ETF Comparison: ARK Innovation ETF (ARK) Versus iShares Exponential Technologies ETF (XT)

ARKK vs. XT: Total Cost of Ownership

It’s always an uphill battle for any actively managed ETF to compete with passive ETFs on fees, and this case is no different.

XT comes in with a 0.46% expense ratio, meaning an investor would pay $46 per year on a $10,000 investment. In contrast, ARKK charges 0.75%, or $75 annually for the same investment, making it notably more expensive.

Looking at implicit costs, ARKK is an extremely liquid ETF, with a 30-day median bid-ask spread of just 0.017%, meaning low trading friction. XT is less liquid, with a 0.05% spread, which is still relatively low but not as tight as ARKK’s.

Verdict: When you add up both the expense ratio and bid-ask spread, XT wins by a mile as the more affordable ETF.

ARKK vs. XT: Methodology and Holdings

This is where the differences between both ETFs become night and day.

XT tracks the Morningstar Exponential Technologies Index, which is defined as “advances expected to create significantly positive non-linear economic benefits for the companies that produce or use them.”

Morningstar employs a team of 100 equity analysts who take a fundamental approach to identifying promising technologies across nine exponential tech themes: big data and analytics, nanotechnology, networks and computer systems, energy and environmental systems, medicine and neuroscience, robotics, 3D printing, bioinformatics, and financial services innovation.

Stocks eligible for inclusion are selected from the Morningstar Global Markets Index, assigned “exposure scores”, and ranked by equity research managers. Certain stocks scoring 2 are selected as thematic leaders, which boosts them to a “3” and an overweight allocation, resulting in a portfolio of 200 stocks.

This process isn’t quite traditional passive indexing—it functions more like a rules-based overlay on qualitative analyst insights.

ARKK, on the other hand, is old-fashioned active management. Investing in ARKK means putting full trust in Cathie Wood’s expertise in picking winners in “disruptive innovation.” Unlike XT, which has clear constraints, ARKK

has broad discretion to invest across sectors, market caps, and geographies.

It focuses on a few key themes, including intelligent devices, autonomous mobility, precision therapies, neural networks, next-gen cloud, digital wallets, digital assets, smart contracts, and multiomic technologies.

The differences between XT and ARKK are palpable. XT

is more diversified, holding 200 stocks, while ARKK is highly concentrated, with just 30 holdings.

Sector-wise, XT is tech-heavy, with 55.98% of the portfolio in technology, whereas ARKK is actually fairly balanced between consumer discretionary, healthcare, tech, and financials.

ARKK is also extremely top-heavy. Its top 15 holdings account for 79.2% of the fund, compared to just 8.63% in XT. Cathie Wood often takes a high-conviction approach with security selection and weighting, so this is to be expected.

Single-stock risk is also far greater in ARKK—Tesla and Roku alone make up 16.53% and 10.10% of the portfolio, respectively, while XT’s top holding, BlackBerry, is just 0.7%.

Verdict: I respect Cathie Wood’s expertise in disruptive innovation and thematic investing, but XT provides more tech exposure in a less concentrated and more diversified manner.

ARKK vs. XT: Risk and Return

Over the past three years, XT has outperformed ARKK, but over the last one year, ARKK has massively outpaced XT as speculative tech stocks rebounded. Interestingly, both ETFs have seen net outflows, though ARKK’s redemptions have been significantly higher, suggesting some investors have lost confidence in its high-risk, high-reward strategy.

Risk data over this period shows that ARKK has been more than twice as volatile as XT, with much deeper and more prolonged drawdowns.

However, an extended backtest from March 24, 2015, to February 6, 2025, reveals that ARKK has the edge in total returns, delivering a 12.70% compound annual growth rate (CAGR) versus 10.59% for XT.

That said, ARKK achieved this outperformance by taking on far greater risk—experiencing a 90.96% peak drawdown compared to 34.40% for XT, alongside a 38.23% standard deviation versus 19.69% for XT.

Unsurprisingly, XT had the better risk-adjusted return, with a Sharpe ratio of 0.52 versus 0.46 for ARKK.

Verdict: ARKK may be appealing to high-risk investors looking to swing for the fences, but for the average investor, XT provides a far less volatile ride with a better balance of risk and reward.

This article is for informational purposes only and does not in any way constitute investment advice. The author may express their own opinions, which may not represent the opinions of ETF Central or its affiliated partners. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.