The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  ARK Space Exploration & Innovation ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy’s management team earns a Below Average People Pillar rating. The strategy earns an Average Process Pillar rating.  Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. 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

AeroVironment

Kratos Defense & Security Solutions

Iridium Communications

Trimble

Teradyne

L3Harris

Amazon

Archer Aviation

Blade Air Mobility

Garmin

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

The predominant contributor to the rating is the firm's five-year retention rate of 100% over the period. Management team experience, which averages 23 years at this fund, also supports the process. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 0%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy targets deeper value plays than its peers’ average in the Mid-Cap Growth Morningstar Category. But in terms of market capitalization, it is on par with peers. Examining additional factor exposure, this strategy has consistently had low exposure to momentum stocks in the past few years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. In the latest month, the strategy was also less exposed to the Momentum factor compared with Morningstar Category peers. Given the low trading volume of holdings, this strategy also has higher liquidity risk exposure in these years, consistently over its peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. Similarly, in recent months, the strategy also had less exposure to the Liquidity factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This is a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility factor over 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 is overweight in industrials and technology relative to the category average by 34.4 and 7.9 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and financial services, underweight the average by 17.6 and 10.4 percentage points of assets, respectively. The portfolio is positioned across 36 holdings and is relatively concentrated. Specifically, 59.0% of the fund’s assets are housed within the top 10 holdings, compared with the category’s 25.9% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 8% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

ARK Space Exploration & Innovation ETF's sole listed portfolio manager has not yet proven themself effective at running the strategy, leading to a Below Average People Pillar rating. With only one listed portfolio manager, the strategy leaves itself vulnerable to key-person risk. 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 three-year period. Finally, Catherine Wood has invested between $100,000 and $500,000 in the strategy, making an effort to align interests with shareholders and establish a proper incentive structure.

 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 Space Exploration & Innovation ETF

ARKX actively selects global companies engaged in space exploration and innovation. The fund seeks long-term capital growth.