Low-cost passive index investing (in the S&P 500 or Nasdaq 100) has been key to impressive results in recent years. However, with much of the outsized gains coming from just a handful of names (at the very top of tech), exploring investments beyond the S&P 500 seems like a worthy pursuit, especially for those who don’t want 7% of their portfolio in Apple (NASDAQ:AAPL | AAPL Price Prediction) or close to 6% in Nvidia (NASDAQ:NVDA), given the ground that could be lost in a vicious tech sell-off.
Some passive investors may be inclined to spread some bets across the actively managed ETFs while they’re down. Indeed, active management often entails much heftier expense ratios (fees). And, in recent years, the higher price of admission on most actively managed ETFs has not been worth paying for as they’ve failed to top the S&P 500.
Still, the lousy run many actively managed ETFs have had versus the S&P 500 seems unlikely to last forever, especially if the easy money has already been made in mega-cap tech—it doesn’t get much easier than betting on the S&P 500 for Mag Seven-led gains.
The recent underperformance of active funds can be attributed to various factors. That said, simply not owning enough of the Magnificent Seven (it’s hard to be overweight in the Mag Seven stocks these days!) has made it trickier to beat the market last year.
Of course, your mileage will vary with the actively managed ETFs. But if you’re looking for specific types of opportunities, the following actively managed ETFs may be worth checking in on, especially if you believe in a specific strategy or theme.
Ark Innovation Fund (ARKK)
Cathie Wood’s flagship Ark Innovation Fund (NYSEARCA:ARKK) had a lukewarm year, gaining just shy of 13% while the S&P 500 surged more than 20%. While the ARKK is still a long way from hitting its high water mark hit back in the early innings of 2021, I view the slowly recovering basket of disruptive innovators as having what it takes to return to its market-beating ways under President Trump’s tech-friendly administration.
Indeed, Trump wants to let America’s tech innovators do their thing. I don’t think he wants to stand in their way. In fact, he seems more than delighted to join them on stage as they announce efforts to invest in AI and other disruptive innovations to bolster economic growth.
In any case, if you want disruptive innovation and aggressive growth, ARKK is an actively managed ETF worth keeping on the radar, even as investor outflows continue.
With an overweighting in Tesla (NASDAQ:TSLA), which comprises more than 13% of the ARKK, Cathie Wood is in the driver’s seat of the company’s robotaxi opportunity. And while the big stake in Tesla gave ARKK a nice lift in 2024, many of the other names within the fund have been sinking even as the rest of the market surged. Most notably, Roku (NASDAQ:ROKU) and many of the smaller-cap genomics names have been weighing down the ARKK. As Wood looks to make moves to prepare for the year ahead, I do think there’s potential for profound outperformance after many years of lagging behind.
Ark Genomics Revolution ETF (ARKG)
Ark Genomics Revolution ETF (ARKG) had an abysmal year, plunging by around 25%. Indeed, 2024 was not the best year for the genomics theme as a whole. As AI evolves and interest rates look to fall, I wouldn’t bet perhaps these biotech innovators will be overdue for a relief bounce of sorts. Many of their product pipelines are packed with promise, but for now, investors are shying away from most of them due to a lack of cash flow and an excess of uncertainty.
Of course, it can be virtually impossible to tell which smaller-cap firm will experience the biggest breakthroughs.
That’s why it may be wiser to spread one’s bets across a wide range of names. Though ARKG has been, by far, Wood’s worst fund of 2024, I also think the rough year could be quickly forgiven should a major breakthrough in genomics spark a relief rally for the broad basket of names.
You’ll find dozens of biotech companies you’ve probably never heard of underneath the hood. The largest holding, Twist Bioscience (NASDAQ:TWST) has been one of the better performers, gaining 45% over the past year, thanks in part to some decent quarterly earnings beats. With an upbeat 2025 outlook and some of the most advanced synthetic DNA manufacturing techniques out there, Twist is a name that could help drag the ARKG out of the gutter in the new year as it goes after further margin gains and strategic partnerships.
Indeed, investing in genomics can be daunting and complex, given the volatility and scientific expertise required to thrive within the space. When it comes to genomics, I do think Wood’s expense ratio is more than worth paying, given her experience investing in this realm.
Top Gaining Stocks
Top Losing Stocks