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ARK Innovation ETF VS STI ETF: Which ETF Has Performed Better Since The Start Of The Pandemic?

The DCA approach on the STI ETF gained the highest return of 19% from 2020 to April 2022, whereas the ARK Innovation ETF lost 40%. 


Some may say that a comparison between the ARK Innovation ETF (ARKK) and the Straits Times Index (STI) ETF is like the biblical battle between David and Goliath. They represent the clash between traditional businesses and new-age business models. After all, the market capitalisation of both the ARKK and STI ETFs as of 29 April 2022 was US $12 billion and SGD $1.7 billion, respectively.

The difference between them is more than the size of the funds. The ARKK is an actively managed fund, run by its CEO, Cathie Woods. The fund selects and invests in companies that are relevant to its disruptive innovation investment theme. Meanwhile the STI ETF is a passively managed fund that tracks the performance of the top 30 stocks listed on the Singapore Exchange.

During the last pandemic-fueled recession in 2020, many local investors shunned the slow-moving STI ETF in favour of the innovation-focused ARK ETF. So, how have these two ETFs performed over the last two years?

We calculated the performance of both ETFs using a lump sum and a dollar-cost average investment approach to find out.

Lump Sum Investment Approach

We will begin our comparison between the ARK Innovation ETF (ARKK) and the SDPR Straits Times Index (ES3) using a lump-sum investment approach. This assumes that we are able to invest a larger sum of capital at one time and we don’t continue contributing regularly to the investment.

Read Also: Understanding How Regular & Lump Sum Savings Plans Work In Singapore

Lump Sum Investing In ARK Innovation ETF 

Let’s work out the calculation if you invested a lump sum of USD $28,000 as your investment capital in ARK Innovation ETF from 2020 to 2022. Based on the investment capital of $28,000 and the entry price of $50.50 per unit, you would have received a total of 554.4554 units of the ARKK.

Period Value At The (Close) First Trading Day Of The Year Value At The (Close) Last Trading Day Of The Year
2020 $28,000 $69,024.16    (+146.51%)
2021 $28,000 $21,240.84    (-24.14%)
2022 $28,000 *$13,605.94  (-51.41%)
2020 to 2022 $28,000 *$26,131.49  (-6.67%)

*Till End April 2022

First, let’s look at a year-by-year return. Had you started investing in the ARKK in 2020, your investment would have gained over 146%. However, had you started investing in the ARKK at the start of either 2021 or 2022, you would have had a net loss of (-24%) and (-51%), respectively.

In total, had you stayed invested in ARKK from the start of 2020 to the end of April 2022, your initial $28,000 investment value would have dropped to $26,131, or a loss of (-6.7%).

The ARKK distributes one round of dividends annually in December. If we were to include the two rounds of dividends ($2.827) collected for the total number of ARKK ETF units held from 2020 to 2022, it would have amounted to $1,567.45 or 5.6% based on the initial cost of investment. This cushions the overall net loss on your investment capital to around -$301.06 or -1.08%.

Read Also: Complete Guide To ETF investing in Singapore

Lump Sum Investing in SPDR Straits Times Index (STI) ETF

Let’s work out the calculation if you invested a lump sum of SGD $28,000 in SDPR STI ETF from 2020 to 2022.

Based on the investment capital of $28,000 and the entry price of $3.31 per unit, you would have received a total of 8459.2145 units of the STI ETF.

Period Value At The (Close) First Trading Day Of The Year Value At The (Close) Last Trading Day Of The Year
2020 $28,000 24,616.31   (-12.08%)
2021 $28,000 30,735.24   (9.77%)
2022 $28,000 29,811.56   (6.47%)
2020 to 2022 $28,000 28,676.74   (2.42%)

*Till End April 2022

First, let’s look at a year-by-year return. Had you started investing in the STI ETF in 2020, your investment would have lost over (-12%). However, had you started investing in STI at the start of either 2021 or 2022, you would have had a net gain of (+9%) and (+6%), respectively.

In total, had you stayed invested in the STI ETF from the start of 2020 to the end of April 2022, your initial $28,000 investment value would have gained by +2.4%, or an investment value of $28,676.

The STI ETF distributes two rounds of dividends annually, in February and August. If we were to include the five rounds of dividends ($0.249) collected for the total number of STI ETF units held from 2020 to 2022, it would have amounted to $2,106.34. This will bring your overall net gain on your investment capital to around $2,783.08, or 9.94%.

Dollar-Cost Average (DCA) Investment Approach

Next, we will use the dollar-cost average method to compare the returns between the ARK Innovation ETF (ARKK) and the SDPR Straits Times Index (ES3). This approach involves investing a specified amount at regular intervals (e.g. every month or quarter), depending on the investor’s preference.

Read Also: 20 Investment Platforms Singaporeans Can Use To Invest A Fixed Monthly Sum

Dollar-Cost Average (DCA) In ARK Innovation ETF (ARKK)

Here’s the calculation for the ARK Innovation ETF had we taken the dollar-cost average approach and invested USD $1,000 per month from January 2020 to April 2022.

For our calculation, we have used the closing price of the first trading day of each month as our purchase price.

Period
(Year) Month
ARK ETF
(Purchase Price)
Units Bought Each Month Accumulated Total Units
(2020) – Jan 50.5 19.8020 19.8020
(2020) – Feb 53.96 18.5322 38.3342
(2020) – Mar 54.08 18.4911 56.8254
(2020) – April 40.24 24.8509 81.6762
(2020) – May 52.38 19.0913 100.7675
(2020) – June 64.8 15.4321 116.1996
(2020) – July 73.5 13.6054 129.8050
(2020) – August 83.68 11.9503 141.7553
(2020) – September 97.21 10.2870 152.0423
(2020) – October 94.54 10.5775 162.6199
(2020) – November 90.8 11.0132 173.6331
(2020) – December 112.76 8.8684 182.5015
(2021) – January 124.69 8.0199 190.5214
(2021) – February 142.62 7.0116 197.5330
(2021) – March 136.7 7.3153 204.8483
(2021) – April 120.85 8.2747 213.1230
(2021) – May 116.91 8.5536 221.6766
(2021) – June 111.25 8.9888 230.6654
(2021) – July 129.16 7.7423 238.4077
(2021) – August 121.12 8.2563 246.6640
(2021) – September 123.72 8.0828 254.7467
(2021) – October 111.17 8.9952 263.7420
(2021) – November 125.12 7.9923 271.7343
(2021) – December 98.6 10.1420 281.8763
(2022) – January 96.99 10.3103 292.1866
(2022) – February 77.08 12.9735 305.1602
(2022) – March 68.31 14.6391 319.7993
(2022) – April 67.54 14.8060 334.6054

Total Investment From 2020 (January) to 2022 (April): $28,000
Total Units Held At April 2022: 334.6054 shares
Average Cost Per Share: $83.68
Total Dividends Received: $945.93
Dividend Yield (on cost): 3.38%

If you had DCA into ARKK from January 2020 to April 2022 based on a monthly contribution of $1,000, you would have accumulated a total of 334.6054 units at a total cost of $28,000. The average cost of one full unit would be $83.68. Based on the closing price ($47.13) on 29 April 2022, your investment value would have dropped to $15,769.95. This represents a loss of (-$12,230.05) or (-43.68%).

As mentioned earlier, ARKK distributed one round of dividends in 2020 and 2021, which amounted to a total of $945.93 in dividends collected for the units held. This represents a dividend yield of 3.38% based on the initial cost of investment. After including the dividends for the three-year period, it would have amounted to a total investment loss of -$11,284.12 or (-40.30%).

Read Also: STI and S&P500: How Much Would You Have Gained (Or Lost) If You Started Investing In 2021 Using Dollar Cost Averaging (DCA)?

Dollar-Cost Average (DCA) In SDPR Straits Times Index (STI) ETF

Here’s the calculation for the STI ETF had we taken the dollar-cost average approach and invested $1,000 per month from January 2020 to April 2022. For our calculation, we have used the closing price on the first trading day of each month as our purchase price.

(Year) Month STI ETF
(Purchase Price)
Units Bought Each Month Accumulated Total Units
(2020) – Jan 3.31 302.1148 302.1148
(2020) – Feb 3.178 314.6633 616.7781
(2020) – Mar 3.019 331.2355 948.0136
(2020) – April 2.45 408.1633 1356.1769
(2020) – May 2.57 389.1051 1745.2819
(2020) – June 2.6 384.6154 2129.8973
(2020) – July 2.66 375.9398 2505.8372
(2020) – August 2.55 392.1569 2897.9940
(2020) – September 2.56 390.6250 3288.6190
(2020) – October 2.52 396.8254 3685.4444
(2020) – November 2.48 403.2258 4088.6702
(2020) – December 2.85 350.8772 4439.5474
(2021) – January 2.9 344.8276 4784.3750
(2021) – February 2.93 341.2969 5125.6720
(2021) – March 2.97 336.7003 5462.3723
(2021) – April 3.19 313.4796 5775.8519
(2021) – May 3.2 312.5000 6088.3519
(2021) – June 3.22 310.5590 6398.9109
(2021) – July 3.17 315.4574 6714.3683
(2021) – August 3.2 312.5000 7026.8683
(2021) – September 3.12 320.5128 7347.3812
(2021) – October 3.09 323.6246 7671.0057
(2021) – November 3.26 306.7485 7977.7542
(2021) – December 3.15 317.4603 8295.2145
(2022) – January 3.18 314.4654 8609.6799
(2022) – February 3.37 296.7359 8906.4158
(2022) – March 3.27 305.8104 9212.2262
(2022) – April 3.41 293.2551 9505.4814

Total Investment From 2020 (April) to 2022 (April): $28,000
Total Units Held At April 2022: 9,505.4814 shares
Average Cost Per Share: $2.945
Total Dividends Received: $1,166.93
Dividend Yield (on cost): 4.15%

If you had invested in the STI ETF from January 2020 to April 2022 based on a monthly contribution of $1,000, you would have accumulated a total of 9505.4814 units at a cost of $28,000. The average cost of one unit is $2.945. Based on the closing price ($3.39) on 29 April 2022, your investment value would be worth $32,223.58 or a gain of 15.08%.

As mentioned earlier, the STI ETF distributes dividends twice a year. You would have received a total of five rounds of dividends from 2020 to 2022, amounting to a total of $1,166.93. This represents a dividend yield of 4.15% based on the cost of investment. After including the dividends received, the total gain in the STI ETF would amount to $5,387.51, or 19.24%.

Read Also: How Much Dividends Do Stocks In The STI ETF Pay Out Each Year?

Lump Sum Investing Or Dollar Cost Averaging (DCA): Which Is A Better Strategy?

By comparing the returns achieved using both the lump sum and dollar-cost average strategies, we can conclude that the highest return was derived using the DCA approach on the STI ETF.

  Initial Investment/ (Units) Investment Value / % Gain or (Loss) Investment Value with Dividends / % Gain or (Loss)
Lump Sum Investment
(ARKK)
$28,000
(554.4554)
$26,131.49
(-6.67%)
$27,698.94
(-1.08%)
Lump Sum Investment
(ES3)
$28,000
(8459.2145)
$28,676.74
(2.42%)
$30,783.08
(+9.94%)
DCA Investment (ARKK) $28,000
(334.6054)
12,230.05
(-43.68%)
$11,284.12
(-40.30%)
DCA Investment (ES3) $28,000
(9505.4814)
$32,223.58 (+15.08%) $33,387.51
(+19.24%)

 

The lump sum investment approach worked better for ARKK, even though the returns were negative. The investor was able to get more units of the ETF and therefore, more dividends for the same comparison period using the lump sum approach compared to the DCA approach.

The lump sum approach works well if the underlying instrument trends strongly upwards like the price action observed in 2020 on ARKK. However, if the investor uses the DCA approach in a up trending market, they would have little opportunity to buy more units or lower their average price.

However, if we look at the price action for the STI ETF, it’s not hard to see why the DCA approach worked better. The STI ETF was generally in a sideways trend for most periods, though it gradually climbed higher over the last two years. This allowed the investor who used the DCA approach to accumulate more units of the STI ETF at a lower average price than the lump sum approach.

Therefore, we should not discount any instrument based on its trend alone. By using the right investment approach, we could reap the best possible return regardless of the market conditions.

Read Also: Active Investing VS Passive Investing, Lump Sum VS Dollar Cost Averaging: Which Investment Strategy Suits You Best?

Editor’s Note: Prices are reflective as of 29 April 2022 and do not take into account the exchange rate or withholding tax for the dividends received for ARK Innovation ETF.

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