How to Invest in Red-Hot ‘Meme’ Stocks and High-Flying ETFs

“Stonks” only go higher, right?

That’s the main takeaway from the craze around red-hot names like GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings, Inc. (NYSE: AMC), popularized by the Reddit day-trading crowd.

Almost as frenzied is the action around the ARK Investment Management family of exchanged-traded funds (ETFs). Investors are plowing money into them at a pace never seen before.

In fact, investors have never poured so much money at such as furious pace.

Over the last 12 months, investors have thrown $28.8 billion into ARK ETFs. That’s the 15th-largest raw-dollar inflow of all time. But it’s No. 1 in terms of percentage growth: 886%.

Source: pbs.twimg

Total ETF assets for the company are now at $53 billion.

The ARK Innovation ETF (NYSE: ARKK) is ARK’s most popular ETF with net assets of $23 billion. Its other four ETFs are no slouches:

•  ARK Genomic Revolution ETF (NYSE: ARKG), with $10 billion in assets, is up 173% in the last 12 months;

•  ARK Next Generation Internet ETF (NYSE: ARKW), with $6.5 billion in assets, is up 152% in the last 12 months;

•  ARK Autonomous Technology & Robotics ETF (NYSE: ARKQ), with $2.8 billion in assets, is up 122% in the last 12 months; and

•  ARK Fintech Innovation ETF (NYSE: ARKF), with $2.7 billion in assets, is up 120% in the last 12 months.

Every one of the ARK ETFs have more than doubled in the last 12 months. Given that success, a small army of investors is following the moves ARK makes, using its daily purchases as its own shopping list.

Source: cms.qz.com

People are even beginning to ask whether Cathie Wood is “the world’s best stock picker” because of her early (and loud) recommendations of other headline-generating names like Tesla, Inc. (Nasdaq: TSLA), Square Inc. (NYSE: SQ), Shopify Inc. (NYSE: SHOP) and Bitcoin.

Source: cms.qz.

ARK Innovation ETF has smashed the performance of the S&P 500 Index and trounced icons like Warren Buffett.

And, I have to admit, I envy her 2020 performance.

The key to ARK’s stellar performance is its focus on five key “disruptive” technologies: artificial intelligence (AI), energy storage, robotics, DNA sequencing and blockchain technology.

I absolutely agree about AI, robotics, energy storage and blockchain technology. I don’t share the enthusiasm for DNA sequencing simply because I lack the medical background to make intelligent decisions.

Should you add a little ARK spice to your portfolio? There’s no denying its stellar performance. But its ETFs are volatile.

ARK Innovation ETF has a standard deviation of 35.8% compared to 12.1% for the S&P 500, which means it’s almost 300% more volatile than the world’s most widely followed equity index.

And the Weiss Ratings gives ARKK a “D+” for risk.

My experience is that investors who absolutely love volatility to the upside also absolutely hate volatility to the downside.

If you have a cast-iron stomach and a long-term horizon, I think the ARK funds are worth your consideration.

But buckle your seatbelt; it will be a wild ride.

Best,

Tony

About the Technology Analyst

Even in the worst years for stocks, Tony was twice named “Portfolio Manager of the Year” by Thomson Financial. He was one of the first to introduce computer software for trading stocks. And in the early 2000s, he wrote “The Supernet,” providing a vision of the future internet that was far ahead of its time.

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