ARKQ vs. QQQ: Which Tech Stock ETF is the Better Buy?

Part of the conversation around the artificial intelligence (AI) boom is focused on physical AI -- robots and automation that can use AI for productivity breakthroughs in the real world. If you're optimistic that robots, self-driving cars, and other advanced AI and automation technologies are coming soon and you want to invest in those companies, the ARK Autonomous Technology & Robotics ETF (NYSEMKT: ARKQ) could be a good choice.

But is buying a robot-focused exchange-traded fund (ETF) the best way to profit from the future of robots and physical AI? You might be better off buying the more diversified Invesco QQQ ETF (NASDAQ: QQQ). This popular tech ETF, also called "the Q's," tracks the tech-heavy Nasdaq-100 index and has delivered powerful wealth-building returns to its investors for the past 15 years.

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Over the past year, as of May 30, the ARK fund delivered a return of 79.99% (by net asset value), strongly outperforming the Invesco fund's one-year return of 42.71%. But in the long run, over the past almost 12 years since the ARK fund's inception in September 2014, the Invesco QQQ ETF Trust has outperformed it.

ARKQ Total Return Level data by YCharts

It's tough for tech investors to beat the Q's. Let's look closer at these two technology ETFs and see which one might be a better buy.

ARK Autonomous Technology & Robotics ETF (ARKQ): 40 holdings, nearly 12 years of 19.1% annualized returns

The ARK Autonomous Technology & Robotics ETF is an actively managed fund that invests in stocks of companies that its managers expect will benefit from advancements in energy, automation and manufacturing, AI, materials, and transportation, among other areas. This fund charges a management fee of 0.75% and has delivered annualized returns (by net asset value) of 19.1% since its inception in September 2014.

As of June 9, the fund held 40 stocks, and the top five holdings were:

• Tesla (NASDAQ: TSLA): 10.34% of the fund
• Advanced Micro Devices (NASDAQ: AMD): 8.33%
• Teradyne (NASDAQ: TER): 7.26%
• Rocket Lab (NASDAQ: RKLB): 5.72%
• Kratos Defense & Security Solutions (NASDAQ: KTOS): 4.7%

Those top five holdings make up about 37% of the fund's assets. If you have strong conviction that the future of robotics and automation is bright, and that these companies are well-positioned to profit from it, then this fund could be a good play. But to many investors, a 37% weighting to the top five stocks might feel a bit too top-heavy.

Invesco QQQ ETF (QQQ): 102 stocks, 10 years of 21.8% annualized returns

The Invesco QQQ ETF is one of the most popular tech ETFs for good reason: it has delivered exceptional returns for a long time. This fund holds 102 stocks, and its top five holdings are:

• Nvidia (NASDAQ: NVDA): 8.32% of the fund
• Apple (NASDAQ: AAPL): 7.25%
• Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL): 6.69%, combining Class A and Class C shares
• Microsoft (NASDAQ: MSFT): 5.02%
• Micron Technology (NASDAQ: MU): 4.83%

This fund is also a bit top-heavy, with 32% weighting in the top five stocks. But it's more diversified than the ARK fund. And it has a lower expense ratio: 0.18%.

In the past 10 years, the Q's delivered annualized returns (by net asset value) of 21.8%. If you'd invested $10,000 in the Invesco QQQ ETF 10 years ago, that investment would be worth about $64,240 today. The ARK fund would have grown slightly more -- $10,000 invested in it 10 years ago would've grown to $65,520 today.

QQQ data by YCharts

But which fund is a better choice for the future? The Invesco QQQ ETF is tough to beat as a tech fund because it owns stocks that track the entire Nasdaq-100 index. As some companies grow faster, they get added to the index or move higher up in the index. Owning an index fund lets you benefit from the stock market itself picking winners over the years.

The top holdings in the ARK Autonomous Technology & Robotics ETF are all Nasdaq-listed stocks. Many of them are in the Nasdaq-100 already. If these companies are successful, the Q's will likely own them too. The biggest investment returns from the future of robotics might not go to a robotics-focused ETF -- they might go to the entire Nasdaq-100 index more broadly.

The future is always uncertain, especially when you're investing in volatile stocks and unproven technologies like robots and automated driving.

Why buy QQQ instead of ARKQ

I don't own either of these tech funds, but if I had to choose one, I'd buy the Q's. The ARK Autonomous Technology & Robotics ETF has delivered strong returns, but there's no guarantee it will outperform the Invesco QQQ ETF in the long run.

The ARK fund is making a heavily concentrated investment on the theme of robotics and AI, and I am not confident that this fund (or any actively managed fund) is going to be better at picking winners in this space than the Nasdaq-100 index. In the long run, I'd rather go with the Invesco QQQ ETF because it's more diversified and charges lower fees.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Kratos Defense & Security Solutions, Micron Technology, Microsoft, Nvidia, Rocket Lab, and Tesla. The Motley Fool recommends Teradyne. The Motley Fool has a disclosure policy.