This Unstoppable Cathie Wood ETF Is Obliterating the S&P 500 This Year. Is It a Buy Ahead of 2026?

Key Points

• Cathie Wood's Ark Investment Management operates a portfolio of tech-focused exchange-traded funds (ETFs).

• The flagship Ark Innovation ETF invests in disruptive technologies like autonomous vehicles and artificial intelligence.

• The Ark Innovation ETF is up 38% this year, but investors who buy it need to have a high tolerance for volatility.

• 10 stocks we like better than Ark ETF Trust - Ark Innovation ETF ›

Cathie Wood is the founder and CEO of Ark Investment Management, which operates a dozen exchange-traded funds (ETFs) centered around innovative technologies. Electric vehicles, cryptocurrency, e-commerce, social media, robotics, autonomous mobility, and artificial intelligence (AI) are just a few of Ark's areas of interest.

The firm's flagship fund is the Ark Innovation ETF (NYSEMKT: ARKK), which targets companies working on disruptive products and services across many segments of the tech industry. It has delivered a return of 42.7% in 2025 so far, crushing the 12.3% gain in the S&P 500 (SNPINDEX: ^GSPC), but can this momentum continue into 2026?

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Large holdings in some of the world's top tech stocks

ETFs can hold hundreds or even thousands of individual stocks, but the Ark Innovation ETF currently holds just 43. The underlying companies develop intelligent devices, self-driving cars, financial technologies, healthcare solutions, and more.

The top 10 holdings in the Ark ETF account for 57.9% of the total value of its portfolio, so they have an outsized influence over its performance:

Data source: Ark Investment Management. Portfolio weightings are accurate as of Sept. 12, 2025, and are subject to change.

On paper, Tesla (NASDAQ: TSLA) is the ideal stock for the Ark Innovation ETF. The company manufactures electric vehicles, but it's also becoming a leader in self-driving cars, robotics, clean energy storage, and AI. Ark thinks Tesla stock could reach $2,600 a share by 2029, representing 550% upside from where it trades as I write this.

Palantir Technologies (NASDAQ: PLTR) is another innovation powerhouse. Its Gotham and Foundry platforms use AI to help businesses and governments analyze high volumes of data so they can extract actionable insights. The company's revenue growth has accelerated over the last few quarters, catapulting its stock to a gain of 128% in 2025 alone.

Then there is Advanced Micro Devices (NASDAQ: AMD), which designed a lineup of graphics processing units (GPUs) for data centers to compete with Nvidia's industry-leading AI chips. However, it also supplies some of the world's best AI chips for personal computers, which could become a major growth market in the future.

Outside of its top 10, the Ark Innovation ETF holds small positions in Nvidia and other AI titans like Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing.

Can the Ark Innovation ETF beat the S&P 500 in 2026?

The Ark Innovation ETF has generated a compound annual return of 13.9% since it was established in 2014, narrowly edging out the S&P 500 which climbed by an average of 13.3% per year over the same period.

However, the Ark ETF is far more volatile -- in fact, it peaked in 2021 during a pandemic-fueled frenzy in the tech sector and plunged by as much as 80% by the end of 2022. It's currently mounting a recovery, thanks in part to its strong gain this year, but it still remains 50% below its 2021 record high. The S&P 500, on the other hand, is currently trading at its best level ever.

Therefore, it's hard to make a solid prediction about the ETF's future performance based on its incredible return this year alone. Plus, it's an actively managed fund and it's impossible to predict Cathie Wood's next move. In my opinion, Tesla is one of the most overvalued stocks in the tech space, opening the door to a steep potential correction at some point in the future which could weigh on the Ark ETF. But Wood and her team could turn around and sell the stock tomorrow, or even buy more!

It's also worth pointing out that the Ark ETF is quite costly to own. It has an expense ratio of 0.75%, so an investment of $10,000 would incur an annual fee of $75. For some perspective, the Vanguard S&P 500 ETF has an expense ratio of 0.03%, so that same investment would incur an annual fee of just $3.

Remember, the S&P 500 hasn't underperformed the Ark ETF by much over the long run, so investors who want to avoid extreme volatility might be satisfied owning the Vanguard index fund instead.

But investors who want to buy the Ark Innovation ETF for 2026 should keep their expectations in check. Targeting a return of 13.9% (in line with its long-term average) in the new year is definitely more realistic than hoping for another market-crushing 38% surge.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, CRISPR Therapeutics, Meta Platforms, Nvidia, Palantir Technologies, Roblox, Roku, Shopify, Taiwan Semiconductor Manufacturing, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.