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Cathie Wood’s ARK ETF Outperforms Fidelity with Coinbase Bet

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Cathie Wood’s ARK Innovation ETF is set to outperform its Fidelity competitor in the race for the best-performing exchange-traded fund this year. The key difference lies in Wood’s bold investment in Coinbase Global, while Fidelity chose to be more cautious.

Wood’s victory can be attributed to her faith in Coinbase and the broader crypto market. She has been a long-term investor in Coinbase, which operates as a leveraged bet on Bitcoin. Although Bitcoin experienced a downturn in 2022, hurting Wood’s investment, this year has seen substantial gains. Coinbase has surged by 295%, surpassing Bitcoin’s 155% increase. The anticipation of regulators approving an ETF that directly holds Bitcoin, including an application by ARK Investment Management, has led investors to drive up the token’s value.

Currently, Coinbase represents about 10% of ARK Innovation’s holdings. Wood has gradually reduced her stake in the brokerage and now owns approximately 6 million shares in ARK Innovation, down from 8.3 million during the summer. However, her firm still possesses more than 8 million shares of Coinbase across various ETFs, making it one of the brokerage’s major stakeholders.

“It’s widely known that we are optimistic about the future of digital assets, particularly Bitcoin,” stated Tom Staudt, ARK Invest’s President and CEO in a recent interview. “Coinbase is well-positioned to benefit from this outlook.”

Wood’s other top picks have also performed remarkably well. Roku has surged by 158%, UiPath by 99%, and Tesla by 101%. However, Wood has significantly reduced her position in Tesla, going from over 3.5 million shares in June to 2.6 million as of December 13.

Undoubtedly, Wood is rebounding from a disastrous 2022. ARK Innovation suffered a 67% loss last year, ranking at the bottom among mid-cap growth ETFs. This year, however, the fund is in the top 1%, according to Morningstar, showcasing an impressive worst-to-first comeback.

ARK Innovation ETF Lagging Behind the Market

The ARK Innovation ETF has been experiencing a significant lag in its long-term returns compared to the overall market. Over the past three years, the ETF has seen a decline of 58%, and it has only increased by 31% over the past five years. These numbers fall well behind the Nasdaq Composite Index’s impressive 122% five-year total return.

Fidelity Blue Chip Growth Riding the Tech Wave

On the other hand, Fidelity Blue Chip Growth has been capitalizing on the tech wave. Some of its top holdings, including Nvidia, Meta Platforms, and Uber Technologies, have seen substantial growth of 231%, 179%, and 150%, respectively. Interestingly, the ETF’s latest holding report, dated October 31, reveals the absence of Coinbase or any other crypto-related assets.

According to Todd Rosenbluth, the head of research at fund analytics firm VettaFi, both ARK and Fidelity’s Blue Chip ETF have been performing exceptionally well this year. He emphasizes that these are not traditional index strategies but rather an opportunity to access the best ideas from active managers.

Questions Surrounding Crypto in Fidelity ETF

The inclusion of crypto assets in Fidelity ETF is a matter of debate. The ETF primarily tracks the portfolio of its mutual fund counterpart with the same name. Based on its investment strategy, crypto doesn’t seem to fit the criteria for “blue chip growth.”

Though lacking exposure to crypto has had its consequences this year, sticking to high-quality investments has paid off for Blue Chip Growth. The fund’s core consists of highly profitable megacap tech stocks, such as Apple, Microsoft, and Alphabet. Additionally, it includes a selection of other sectors and companies that have performed well, including Eli Lilly, which saw a 57% increase this year due to its weight-loss drugs.

Over the past five years, the mutual fund version of Blue Chip Growth has achieved impressive cumulative returns of 147%. This outperforms Wood’s Bitcoin-juiced ETF and the broader market, all while excluding any involvement with crypto.

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