The ARK Innovation ETF (ARKK) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. ARKK is a ARK ETF Trust Mid-Cap Growth fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between ARKK and VMBS? And which fund is better?
The expense ratio of ARKK is 0.70 percentage points higher than VMBS’s (0.75% vs. 0.05%). ARKK also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, ARKK has provided higher returns than VMBS over the past 5 years.
In this article, we’ll compare ARKK vs. VMBS. We’ll look at performance and fund composition, as well as at their annual returns and industry exposure. Moreover, I’ll also discuss ARKK’s and VMBS’s portfolio growth, risk metrics, and holdings and examine how these affect their overall returns.
Summary
| ARKK | VMBS | |
| Name | ARK Innovation ETF | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Mid-Cap Growth | Intermediate Government |
| Issuer | ARK ETF Trust | Vanguard |
| AUM | 25.52B | 16.61B |
| Avg. Return | 55.45% | 2.89% |
| Div. Yield | 0.0% | 1.23% |
| Expense Ratio | 0.75% | 0.05% |
The ARK Innovation ETF (ARKK) is a Mid-Cap Growth fund that is issued by ARK ETF Trust. It currently has 25.52B total assets under management and has yielded an average annual return of 55.45% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.75%.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
ARKK’s dividend yield is 1.23% lower than that of VMBS (0.0% vs. 1.23%). Also, ARKK yielded on average 52.56% more per year over the past decade (55.45% vs. 2.89%). The expense ratio of ARKK is 0.70 percentage points higher than VMBS’s (0.75% vs. 0.05%).
Fund Composition
Holdings
| ARKK Holdings | Weight |
| Tesla Inc | 9.56% |
| Roku Inc Class A | 6.48% |
| Teladoc Health Inc | 5.76% |
| Square Inc A | 4.37% |
| Zoom Video Communications Inc | 4.36% |
| Shopify Inc A | 4.27% |
| Spotify Technology SA | 3.68% |
| Twilio Inc A | 3.66% |
| Coinbase Global Inc Ordinary Shares – Class A | 3.65% |
| Unity Software Inc Ordinary Shares | 3.41% |
ARKK’s Top Holdings are Tesla Inc, Roku Inc Class A, Teladoc Health Inc, Square Inc A, and Zoom Video Communications Inc at 9.56%, 6.48%, 5.76%, 4.37%, and 4.36%.
Shopify Inc A (4.27%), Spotify Technology SA (3.68%), and Twilio Inc A (3.66%) have a slightly smaller but still significant weight. Coinbase Global Inc Ordinary Shares – Class A and Unity Software Inc Ordinary Shares are also represented in the ARKK’s holdings at 3.65% and 3.41%.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.01% |
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| ARKK | VMBS | |
| Mean Return | 0 | 0.21 |
| R-squared | 0 | 65.78 |
| Std. Deviation | 0 | 2.02 |
| Alpha | 0 | 0.37 |
| Beta | 0 | 0.54 |
| Sharpe Ratio | 0 | 0.94 |
| Treynor Ratio | 0 | 3.47 |
The ARK Innovation ETF (ARKK) has a Sharpe Ratio of 0 with a Alpha of 0 and a Treynor Ratio of 0. Its Standard Deviation is 0 while ARKK’s Mean Return is 0. Furthermore, the fund has a R-squared of 0 and a Beta of 0.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Sharpe Ratio of 0.94 with a Treynor Ratio of 3.47 and a Alpha of 0.37. Its R-squared is 65.78 while VMBS’s Beta is 0.54. Furthermore, the fund has a Mean Return of 0.21 and a Standard Deviation of 2.02.
ARKK’s Mean Return is 0.21 points lower than that of VMBS and its R-squared is 65.78 points lower. With a Standard Deviation of 0, ARKK is slightly less volatile than VMBS. The Alpha and Beta of ARKK are 0.37 points lower and 0.54 points lower than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | ARKK | VMBS |
| 2020 | 152.52% | 3.77% |
| 2019 | 35.73% | 6.17% |
| 2018 | 3.58% | 0.87% |
| 2017 | 87.38% | 2.37% |
| 2016 | -1.96% | 1.43% |
| 2015 | 3.76% | 1.43% |
| 2014 | 0.0% | 5.81% |
| 2013 | 0.0% | -1.28% |
| 2012 | 0.0% | 2.47% |
| 2011 | 0.0% | 5.89% |
| 2010 | 0.0% | 5.24% |
ARKK had its best year in 2020 with an annual return of 152.52%. ARKK’s worst year over the past decade yielded -1.96% and occurred in 2016. In most years the ARK Innovation ETF provided moderate returns such as in 2011, 2010, and 2018 where annual returns amounted to 0.0%, 0.0%, and 3.58% respectively.
The year 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| ARKK | $10,000 | $65,218 | 55.45% |
| VMBS | $10,000 | $11,539 | 2.89% |
A $10,000 investment in ARKK would have resulted in a final balance of $65,218. This is a profit of $55,218 over 5 years and amounts to a compound annual growth rate (CAGR) of 55.45%.
With a $10,000 investment in VMBS, the end total would have been $11,539. This equates to a $1,539 profit over 5 years and a compound annual growth rate (CAGR) of 2.89%.
ARKK’s CAGR is 52.56 percentage points higher than that of VMBS and as a result, would have yielded $53,679 more on a $10,000 investment. Thus, ARKK outperformed VMBS by 52.56% annually.
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