QUAL vs. ARKK: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the ARK Innovation ETF (ARKK) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and ARKK is a ARK ETF Trust Mid-Cap Growth fund. So, what’s the difference between QUAL and ARKK? And which fund is better?

The expense ratio of QUAL is 0.60 percentage points lower than ARKK’s (0.15% vs. 0.75%). QUAL also has a lower exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided lower returns than ARKK over the past 5 years.

In this article, we’ll compare QUAL vs. ARKK. We’ll look at annual returns and industry exposure, as well as at their performance and portfolio growth. Moreover, I’ll also discuss QUAL’s and ARKK’s holdings, fund composition, and risk metrics and examine how these affect their overall returns.

Summary

QUAL ARKK
Name iShares MSCI USA Quality Factor ETF ARK Innovation ETF
Category Large Blend Mid-Cap Growth
Issuer iShares ARK ETF Trust
AUM 23.93B 25.52B
Avg. Return 13.42% 55.45%
Div. Yield 1.29% 0.0%
Expense Ratio 0.15% 0.75%

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

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%.

QUAL’s dividend yield is 1.29% higher than that of ARKK (1.29% vs. 0.0%). Also, QUAL yielded on average 42.03% less per year over the past decade (13.42% vs. 55.45%). The expense ratio of QUAL is 0.60 percentage points lower than ARKK’s (0.15% vs. 0.75%).

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Fund Composition

Industry Exposure

QUAL vs. ARKK - Industry Exposure

QUAL ARKK
Technology 22.52% 30.5%
Industrials 9.22% 2.11%
Energy 2.24% 0.0%
Communication Services 11.44% 25.01%
Utilities 2.41% 0.0%
Healthcare 13.22% 29.47%
Consumer Defensive 8.57% 0.93%
Real Estate 2.72% 0.51%
Financial Services 15.87% 0.04%
Consumer Cyclical 9.43% 11.42%
Basic Materials 2.35% 0.0%

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

The ARK Innovation ETF (ARKK) has the most exposure to the Technology sector at 30.5%. This is followed by Healthcare and Communication Services at 29.47% and 25.01% respectively. Utilities (0.0%), Energy (0.0%), and Financial Services (0.04%) only make up 0.04% of the fund’s total assets.

ARKK’s mid-section with moderate exposure is comprised of Real Estate, Consumer Defensive, Industrials, Consumer Cyclical, and Communication Services stocks at 0.51%, 0.93%, 2.11%, 11.42%, and 25.01%.

QUAL is 7.98% less exposed to the Technology sector than ARKK (22.52% vs 30.5%). QUAL’s exposure to Financial Services and Healthcare stocks is 15.83% higher and 16.25% lower respectively (15.87% vs. 0.04% and 13.22% vs. 29.47%). In total, Basic Materials, Utilities, and Real Estate also make up 6.97% more of the fund’s holdings compared to ARKK (7.48% vs. 0.51%).

Holdings

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

ARKK - 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%.

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Risk Analysis

QUAL ARKK
Mean Return 0 0
R-squared 0 0
Std. Deviation 0 0
Alpha 0 0
Beta 0 0
Sharpe Ratio 0 0
Treynor Ratio 0 0

The iShares MSCI USA Quality Factor ETF (QUAL) has a Treynor Ratio of 0 with a Sharpe Ratio of 0 and a R-squared of 0. Its Alpha is 0 while QUAL’s Standard Deviation is 0. Furthermore, the fund has a Mean Return of 0 and a Beta of 0.

The ARK Innovation ETF (ARKK) has a Mean Return of 0 with a R-squared of 0 and a Treynor Ratio of 0. Its Beta is 0 while ARKK’s Alpha is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Standard Deviation of 0.

QUAL’s Mean Return is 0.00 points lower than that of ARKK and its R-squared is 0.00 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than ARKK. The Alpha and Beta of QUAL are 0.00 points lower and 0.00 points lower than ARKK’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. ARKK - Annual Returns

Year QUAL ARKK
2020 16.96% 152.52%
2019 34.14% 35.73%
2018 -5.77% 3.58%
2017 22.26% 87.38%
2016 9.18% -1.96%
2015 5.56% 3.76%
2014 11.62% 0.0%
2013 0.0% 0.0%
2012 0.0% 0.0%
2011 0.0% 0.0%
2010 0.0% 0.0%

QUAL had its best year in 2019 with an annual return of 34.14%. QUAL’s worst year over the past decade yielded -5.77% and occurred in 2018. In most years the iShares MSCI USA Quality Factor ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 5.56%, and 9.18% respectively.

The year 2020 was the strongest year for ARKK, returning 152.52% on an annual basis. The poorest year for ARKK in the last ten years was 2016, with a yield of -1.96%. Most years the ARK Innovation ETF has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 3.58% respectively.

Portfolio Growth

QUAL vs. ARKK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $19,733 13.42%
ARKK $10,000 $65,218 55.45%

A $10,000 investment in QUAL would have resulted in a final balance of $19,733. This is a profit of $9,733 over 5 years and amounts to a compound annual growth rate (CAGR) of 13.42%.

With a $10,000 investment in ARKK, the end total would have been $65,218. This equates to a $55,218 profit over 5 years and a compound annual growth rate (CAGR) of 55.45%.

QUAL’s CAGR is 42.03 percentage points lower than that of ARKK and as a result, would have yielded $45,485 less on a $10,000 investment. Thus, QUAL performed worse than ARKK by 42.03% annually.


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