The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  ARK Genomic Revolution ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy’s management team earns a Below Average People Pillar rating. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy's parent organization earns the firm a Below Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Twist Bioscience Corp

CRISPR Therapeutics

Recursion Pharmaceuticals

CareDx

Intellia Therapeutics

Schrodinger 

Arcturus Therapeutics

Ionis Pharma

Moderna

Beam Therapeutics

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. ARK Genomic Revolution ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the firm's five-year retention rate of 100% over the period. The stability of the management team also bolsters the rating. Specifically, the fund has not seen a manager change in the last nine years. Lastly, the process is limited by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period.

 This strategy tends to hold smaller, higher-growth companies than its average peer in the Health Morningstar Category. Analyzing additional factors, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. Additionally, this strategy has had lower yield exposure than peers, with the portfolio holding fewer stocks with high dividend or buyback yields over these years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. In recent months, the strategy also had less Yield factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio has allocations in its top two sectors, technology and energy, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and basic materials; however, the allocations are similar to the category. The strategy owns 41 securities and is relatively concentrated. Specifically, 47.9% of the fund’s assets are housed within the top 10 holdings, compared with the category’s 41.0% average. And finally, in terms of portfolio turnover, on a year-over-year basis, 28% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

With only one listed portfolio manager, ARK Genomic Revolution ETF leaves itself vulnerable to key-person risk. The manager has not yet proven themself effective at running the strategy, leading to a Below Average People Pillar rating. This is concerning as a strategy's team size and management stability contribute significantly toward the People Pillar rating.  Catherine D. Wood brings over 23 years of portfolio management experience to the table. However, the risk-adjusted performance of the strategies they manage has been weak, averaging a 1.2-star Morningstar Rating. Isolating the analysis to the fund at hand, Catherine Wood has delivered inferior performance, lagging both the category benchmark and average peer over the past nine-year period. Finally, Catherine Wood has invested over $1 million in the fund, showing an effort to build a proper incentive structure and align interests with fundholders.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Below Average

People

ARK Invest's poor management of the significant risks borne by its clients warrants a Below Average Parent rating.

ARK's main draw is Cathie Wood, who since founding the firm in 2014 has presided over its tremendous growth while establishing a broad media presence and enthusiastic following. Expansion of the firm's headcount in recent years means more hands on deck to oversee operational and strategic issues, which is a positive. But the thematic-investing specialist's future in 68-year-old Wood's hypothetical absence remains murky. Some at the firm have held titles of associate portfolio manager but haven't clearly shown ambition or ability in this arena. Dovetailing with that key-person risk is the firm's struggle to develop and retain investment team talent.

The firm's seven actively managed exchange-traded funds had roughly $13.5 billion as of March 2024. ARK also has subadvisory or marketing relationships with several firms, including 21Shares for its recently launched bitcoin ETF. In 2023, the firm entered the European market through its acquisition of Rize ETF, a shop with funds whose themes have ranged from petcare to cannabis to sustainability.

Despite dismal results over the past five years, ARK has shown remarkable asset retention but little inclination to prevent future implosions, such as those suffered by its flagship fund ARK Innovation in 2021 and 2022.

Parent

ARK Genomic Revolution Multi-Sector ETF

ARKG is an actively managed fund that targets companies involved in the genomics industry.