The Next Wave of Growth Meets the Total Portfolio Approach

By Dan White, CFA

Associate Portfolio Manager

Dan joined ARK in February 2021. As Associate Portfolio Manager, Dan assists Cathie in managing investment strategies in non-discretionary positions that, over time, could lead to discretionary control. Dan joined ARK as a Client Portfolio Specialist, partnering with ARK’s investment team to create and deliver insight and analysis to internal and external clients.

The Next Wave Of Growth Won’t Fit In A Box

Innovation creates opportunities across public, private, and crypto assets. In ARK’s Big Ideas 2026, we projected that disruptive innovation’s market value would compound at 35% annually from 2025 to 2030, reaching ~$180 trillion and 65% of total equity market value.¹ We believe a change of that magnitude poses challenges for portfolios built around today’s market leaders. A Total Portfolio Approach (TPA) gives institutions and individuals another way, with more flexibility to invest in the businesses driving change.

Note: Innovation market cap includes non-stablecoin crypto assets. Pre-2015 innovation market cap is tech sector share of global markets. Source: ARK Investment Management LLC, 2026, based on data from International Monetary Fund 2025, Crunchbase 2026, World Federation of Exchanges 2026, and Bureau of Labor Statistics 2026, and MSCI Inc. 2026. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results. Forecasts are inherently limited and cannot be relied upon.

CalPERS began implementing TPA on July 1, 2026, replacing 11 asset-class benchmarks with a reference portfolio of 75% global equities and 25% US Treasuries. Investment teams can pursue opportunities across asset classes within a 400 basis point² active-risk limit.³

CFA Institute’s July 2026 report identifies CalPERS, the Healthcare of Ontario Pension Plan (HOOPP), and Dutch pension investment manager PGGM as institutions transitioning toward TPA, joining established adopters Australia’s Future Fund and the New Zealand Superannuation Fund. Together, these five institutions represent approximately US$1.15 trillion in reported assets,⁴ and it looks like things are just getting started.

Source: Urwin, Robert, and CFA Institute, 2026. The Total Portfolio Approach (TPA): A Practical Guide for Navigating  the Transition to TPA. Notes: WTW, MNOPF (Merchant Navy Officers Pension Fund), Railpen (pension fund for Britain’s rail workers), QIC (Queensland Investment Corporation), TCorp (NSW Treasury Corporation), OPTrust (OPSEU Pension Plan), OTPP (Ontario Teachers’ Pension Plan), PSP Investments (Public Sector Pension Investment Board). For informational purposes only.

NZ Super’s Will Goodwin explains the investment rationale: “TPA supports and enhances long horizon investing, creating opportunities that are more challenged under an Strategic Asset Allocation (SAA) approach.”⁵ With a more than 20 year track record through June 2026, the fund reported annual returns of 9.68%, versus 8.19% for its reference portfolio—1.49% annualized excess return over 20 plus years.

Let Opportunities Compete For Capital

Strategic Asset Allocation  establishes long-term targets for equities, bonds, and other assets. TPA begins with the portfolio’s objectives and evaluates how each opportunity contributes to them. The distinction between the two approaches centers on how investors compare opportunities and direct capital across the portfolio, as illustrated in the table below.

Both approaches support active management, passive strategies, and forward-looking research. The choice reflects an institution’s objectives, governance, and operating model. CalPERS captures that continuity: “TPA builds on our successes under SAA,” while expanding flexibility to assess investments across the fund.⁶ 

Framing TPA as an organizational change—involving investment decisions, governance, risk management, sustainability—CFA Institute stresses that the people and information supporting them must work together. Boards set objectives and risk appetite; investment teams compare opportunities across mandates. Shared accountability connects research to portfolio management.⁷ 

TPA brings different ways to access the same opportunity into one allocation decision. A team might compare equity ownership with debt lending to a business, weighing upside, cash flows, liquidity, and downside protection. SAA can accommodate both exposures, but separate mandates can fragment the comparison. TPA centers their relative contributions to the whole portfolio.

Diversified Across Sectors, Underexposed To Innovation

A portfolio can own hundreds of companies and still depend heavily on established business models. A bank, a logistics provider, and a software company occupy different sectors, yet all may depend on workflows that AI can automate. Sector diversification can conceal a shared vulnerability to disruption.

If innovation creates the lion’s share of future market value, concentrating capital in traditional industries limits participation in that growth. Tomorrow’s benchmark may resemble today’s innovation opportunity set far more than its current holdings.

Broad indexes already own innovative companies, but ownership and meaningful exposure differ. A business can create substantial shareholder value before it commands a large benchmark weight. Waiting for benchmark prominence risks missing that buildup. As depicted below, the ten largest US public companies show how quickly that buildup can reshape the top of the market over a business cycle. Only Microsoft ranked in the top ten in both 2000 and 2025.

Source: ARK Investment Management LLC, 2026, based on S&P Capital IQ data. Companies without Capital IQ history ranked from Goldman Sachs Global Strategy Paper (September 2024) for 1990, Mullooly Asset Management's 1980 S&P 500 top ten (2021), and Fortune (May 3, 1993) and Forbes (1967) market value rankings for 1970. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

New entrant marks a company's first appearance in the top ten during the period shown; 1970 sets the starting lineup. Red band marks a company absent from the top ten at the next snapshot. Published rankings named in the source line place companies that lack S&P Capital IQ price history. Companies tracked by corporate lineage: Standard Oil (New Jersey) renamed Exxon in 1972; Standard Oil (California) renamed Chevron in 1984; Standard Oil (Indiana) later became Amoco; Google reorganized as Alphabet in 2015; Facebook renamed Meta in 2021. AT&T refers to the pre-1984 Bell System in 1970 and 1980. 2000 ranking as of December 29, the year's final trading day.

According to ARK’s research, today’s innovation platforms will drive the next rotation. AI, robotics, energy storage, multiomics, and blockchains reach across conventional sectors, creating opportunities for emerging businesses and incumbents that adapt while threatening companies whose economics depend on older technologies.

That dynamic creates two crucial questions about portfolio construction: How much exposure is there to the businesses gaining value? and How much capital depends on the businesses that are at risk of losing value? In our previous publication, “Rethinking Risk In An Era Of Disruption,” we explained why standard deviation cannot capture the full risk of technological obsolescence.⁸ CFA Institute’s broader framework connects that concern with liquidity, changing market conditions, and threats that compound over time.⁹ 

Innovation Should Earn Its Place In A Total Portfolio

Individuals and advisers should judge a proposed investment by how it changes the entire portfolio. Public equities, private businesses, and infrastructure can offer exposure to the same theme with different upside, downside, liquidity, valuations, and sensitivities. Funding the investment matters as much as sizing it.

Take the 75% global equities and 25% US Treasuries reference portfolio used by CalPERS. Funding a 10% innovation allocation from the equity book would create a portfolio of 67.5% global equities, 25% US Treasuries, and 7.5% innovation. Historical tracking error helps describe how that mix departs from the reference portfolio; the institution’s prospective risk model determines how the proposal fits its own budget.

To isolate what innovation brings to the fund, we backtested that mix with the ARK Innovation ETF (ARKK) as the innovation sleeve, as shown below. Rather than rebalancing on a fixed calendar, the model resets the portfolio and the benchmark whenever ARKK drifts 250 basis points above or below its target 7.5%. Innovation is inherently volatile, which calls for rebalancing in response to market moves, not a calendar.

Source: ARK Investment Management LLC as of 10/27/26. VT is the Vanguard Total World Stock ETF. CalPERS names this asset class Global Public Equity. GOVT is the iShares U.S. Treasury Bond ETF. CalPERS labels this Global Fixed Income (specifically its U.S. Treasury component). Portfolio target: 7.5% ARKK / 67.5% VT / 25% GOVT. Benchmark target: 75% VT / 25% GOVT. Rebalance both when ARKK breaches ±2.5 percentage points around target. No additional transaction costs or taxes. For informational purposes only and should not be considered investment advice, or a recommendation to buy, sell or hold any particular security. Past performance does not guarantee future results. Data presented is unreconciled and from a third-party system.

Over the backtest, the innovation portfolio finished roughly 20 percentage points ahead of the benchmark on a cumulative basis. Using trailing 12-month tracking error as a proxy for active risk, the hypothetical portfolio peaked at 2.76% and stands near 1.5% as of October 27, 2026, as shown below.

Source: ARK Investment Management LLC as of 10/27/26. For informational purposes only and should not be considered investment advice, or a recommendation to buy, sell or hold any particular security. Past performance does not guarantee future results. Data presented is unreconciled and from a third-party system.

We believe TPA gives innovation a clearer route from research conviction to capital allocation. The case rests on the opportunity’s contribution to the fund, including the cost of leaving it underrepresented. For investors who expect innovation to reshape market leadership, the time to assess that exposure is while new businesses build value. As Mark Zuckerberg recalled Peter Thiel telling him, “In a world that’s changing so quickly, the biggest risk you can take is not taking any risk.”

Important Information

Investors should carefully consider the investment objectives and risks as well as charges and expenses of an ARK Fund before investing. This and other information are contained in the ARK ETFs’ prospectuses and summary prospectuses, which may be obtained by visiting www.ark-funds.com. The prospectus and summary prospectus should be read carefully before investing.

An investment in an ARK Fund is subject to risks and you can lose money on your investment in an ARK Fund. There can be no assurance that the ARK Funds will achieve their investment objectives. The ARK Funds’ portfolios are more volatile than broad market averages. The ARK Funds also have specific risks, which are described below. More detailed information regarding these risks can be found in the ARK Funds’ prospectuses.

The principal risks of investing in the ARK Funds include:

Disruptive Innovation Risk. Companies that ARK believes are capitalizing on disruptive innovation and developing technologies to displace older technologies or create new markets may not in fact do so. Companies that initially develop a novel technology may not be able to capitalize on the technology. Companies that develop disruptive technologies may face political or legal attacks from competitors, industry groups or local and national governments. These companies may also be exposed to risks applicable to sectors other than the disruptive innovation theme for which they are chosen, and the securities issued by these companies may underperform the securities of other companies that are primarily focused on a particular theme.

Equity Securities Risk. The value of the equity securities the ARK Funds hold may fall due to general market and economic conditions. Foreign Securities Risk. Investments in the securities of foreign issuers involve risks beyond those associated with investments in U.S. securities. Health Care Sector Risk. The health care sector may be affected by government regulations and government health care programs. Consumer Discretionary Risk. Companies in this sector may be adversely impacted by changes in domestic/international economies, exchange/interest rates, social trends and consumer preferences. Industrials Sector Risk. Companies in the industrials sector may be adversely affected by changes in government regulation, world events, economic conditions, environmental damages, product liability claims and exchange rates. Information Technology Sector Risk. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins.

Financial Technology Risk. Companies that are developing financial technologies that seek to disrupt or displace established financial institutions generally face competition from much larger and more established firms. Fintech Innovation Companies may not be able to capitalize on their disruptive technologies if they face political and/or legal attacks from competitors, industry groups or local and national governments. Blockchain technology is new and many of its uses may be untested. Blockchain and Digital commodities and their associated platforms are largely unregulated, and the regulatory environment is rapidly evolving. As a result, companies engaged in such blockchain activities may be exposed to adverse regulatory action, fraudulent activity or even failure. Communications Sector Risk. Companies is this sector may be adversely affected by potential obsolescence of products/services, pricing competition, research and development costs, substantial capital requirements and government regulation.

Cryptocurrency Risk. Cryptocurrency (notably, bitcoin), often referred to as ‘‘virtual currency’’ or ‘‘digital currency,’’ operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Some of the ARK actively managed Funds may have exposure to bitcoin, a cryptocurrency, indirectly through an investment in the ARK 21Shares Bitcoin ETF, a 1933-Act exchange traded product. Cryptocurrency operates without central authority or banks and is not backed by any government. Even indirectly, cryptocurrencies may experience very high volatility and related investment vehicles like ARKB may be affected by such volatility. As a result of holding cryptocurrency, the Fund may also trade at a significant premium to NAV. Cryptocurrency is also not legal tender. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in the U.S. is still developing. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware. Leverage Risk. The use of leverage can create risks. Leverage can increase market exposure, increase volatility in the Fund, magnify investment risks, and cause losses to be realized more quickly.

Health Care Sector Risk. The health care sector may be adversely affected by government regulations and government health care programs, restrictions on government reimbursements for medical expenses, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many health care companies are heavily dependent on patent protection and intellectual property rights and the expiration of a patent may adversely affect their profitability.

Biotechnology Company Risk. A biotechnology company’s valuation can often be based largely on the potential or actual performance of a limited number of products and can accordingly be greatly affected if one of its products proves, among other things, unsafe, ineffective or unprofitable. Biotechnology companies are subject to regulation by, and the restrictions of, the U.S. Food and Drug Administration, the U.S. Environmental Protection Agency, state and local governments, and foreign regulatory authorities.

Pharmaceutical Company Risk. Companies in the pharmaceutical industry can be significantly affected by, among other things, government approval of products and services, government regulation and reimbursement rates, product liability claims, patent expirations and protection and intense competition.

Additional risks of investing in ARK ETFs include market, management and non-diversification risks, as well as fluctuations in market value NAV. ETF shares may only be redeemed directly with the ETF at NAV by Authorized Participants, in very large creation units. There can be no guarantee that an active trading market for ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

To view the top ten holdings and standardized performance for ARKK click here.

ARK Investment Management LLC is the investment adviser to the ARK Funds.

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