Q4 2025: Commentary From ARK's CIO

Broad-based global equity indexes¹ pushed higher as the markets digested and weighed the tradeoffs among tariffs, employment, and geopolitical uncertainty versus deregulation, tax incentives, and lower interest rates. In our view, the innovation space is recovering and being revalued. Headwinds that once pressured disruptive technologies are shifting into structural tailwinds, supported by a broadening out of the bull market, favorable policy shifts around crypto, AI, and healthcare, and fiscal catalysts in the OB3 (The One Big Beautiful Bill) like accelerated depreciation. Thanks to OB3, the US is likely to be one of the most tax-competitive economies globally, improving returns on invested capital (ROIC) which should attract significant foreign direct investment, bolster the dollar, reinforce surprises on the low side of inflation expectations, and push interest rates lower, creating a supportive backdrop for both risk assets and innovation-led growth. President Trump’s pro-growth policies should combine with transformative breakthroughs across artificial intelligence, robotics, energy storage, blockchain, and multiomics sequencing to catalyze a new wave of productivity gains and accelerate economic growth.

Despite reports of sustained real gross domestic product (GDP) growth during the past three years, ARK’s research suggests that the underlying US economy has suffered a rolling recession,² which began in the spring of 2022 when the U.S. Federal Reserve (Fed) raised interest rates by 22-fold in little more than a year, and created a coiled spring that could propel a productivity-driven boom in the US economy during next few years. Supporting this perspective are the following indicators:

Despite historically strong demand for homes, buying activity has been constrained by near record low affordability. As measured by new and existing home sales, housing has dropped 40% from 7.6 million units at an annual rate in October 2020 to 4.8 million, a level last seen in July 2011.³ Meanwhile, single-family home inventory has climbed to roughly 490,000 homes, nearing the peak of 570,000 in August 2006 which preceded the housing collapse in 2008-2009.⁴ If the Fed continues to lower rates, housing could rebound sharply. Illustrating how tightly the spring has coiled, existing home sales are as low as they were in the early 1980s when the US population was ~35% lower than today.
As measured by the US PMI (Purchasing Managers Index), manufacturing has been contracting since November 2022, despite the AI-related spending boom on data centers and power plants beginning in late 2022.
As measured by the University of Michigan, the sentiment of low- and middle-income earners has not been this low since double-digit inflation and interest rates pushed the US economy into back-to-back recessions in the early eighties. Simultaneously, sentiment among high-income earners has capitulated, falling to levels not seen since the Global Financial Crisis (GFC).
Signaling recession in July 2024, the employment report triggered the Sahm Rule, as the three-month moving average of the US unemployment rate rose 50 basis points⁵ above its lowest point in the last 12 months, historically an indicator that the economy has been in recession for three months. Underscoring labor market weakness, in its September benchmark revision, the Bureau of Labor Statistics issued a historic downward revision of 911,000 to nonfarm payrolls for the 12 months ending in March, the largest revision since 2000. Corroborating the labor softness, the Conference Board reported that the gap between respondents saying jobs are “plentiful” and those saying they are “hard to get” widened, signaling that jobs are becoming increasingly difficult to find. The quit rate also has declined to 1.8%, a post-COVID low, suggesting that workers are less confident about switching jobs. Moreover, the average duration of unemployment has increased 5 weeks to 24 weeks since early 2023. Because inflation stabilized at a lower level than many expected after last year’s tariffs, the broad deterioration in labor conditions has prompted the Fed to cut rates by 75 basis points and has fueled expectations for further easing ahead.

After hovering stubbornly in the 2-3% range for the last few years, inflation, as measured by the Consumer Price Index (CPI), is likely to drop to a surprisingly low—if not negative— rate during the next few years. First, from its post-COVID high at ~$124 on March 8, 2022, the West Texas intermediate oil price per barrel has dropped ~53% and now is down ~22% on a year-over-year basis. New single-family home sale prices are down ~7% since peaking in June 2022, while existing single-family home price inflation has dropped from ~21% at its post-COVID peak in March 2022 to only 1.4% in the latest reading.⁶ To clear the ~490,000 new single-family houses for sale—a level not seen since December 2007, just before the Global Financial Crisis—three homebuilders cut prices significantly during the third quarter on a year-over-year basis: Lennar -10%, KB Homes -7%, and D.R. Horton -3%. Those price declines should seep into the CPI with a lag during the next few years. Meanwhile, we believe the negative impact of tariffs on inflation has peaked and, obfuscating the impact of its appreciating yuan, China still is exporting deflation, as its Producer Price Index (PPI) for goods has dropped ~17% since October 2021.⁷ Finally, one of the most powerful antidotes to inflation, non-farm productivity, has been defying the rolling recession and was up 1.9% on a year-over-year basis during the third quarter, taking the edge off the 3.2% gain in the compensation per man-hour and lowering unit labor cost inflation to 1.2%.⁸ No Seventies-style cost-push-inflation in that number! Confirming its decline, inflation as measured by Truflation⁹ has declined recently to 1.7% year-over-year.

If our research on technologically enabled transformative innovation is correct, convergences among major platforms like AI, robotics, energy storage, public blockchain technology, and multiomics sequencing should accelerate non-farm productivity growth to 4–6% on a year-over-year basis for both cyclical and secular reasons during the next few years. That productivity acceleration should compress unit labor cost inflation and, together with roughly 1% labor force growth and inflation between −1% and +1%, support nominal GDP growth in the 5–6% range, creating significant wealth.

During the fourth quarter of 2025, four of ARK's actively managed ETFs underperformed the broad-based global equity indexes, while two outperformed or delivered mixed results.

ARK Autonomous Technology and Robotics ETF (ARKQ)

During the fourth quarter, the ARK Autonomous Technology and Robotics ETF (ARKQ) outperformed the S&P 500 index but lagged the MSCI World Index. Among the top contributors were Teradyne (TER) and Rocket Lab (RKLB). Shares of Teradyne contributed to the fund's performance after the company reported better-than-expected third-quarter results, thanks to strong demand for AI-related chip testing. Additionally, management guided to strong demand for semiconductor testing across compute, networking, and memory. After the results, a number of analysts raised their price targets and upgraded the stock rating, highlighting robust growth in semiconductor test demand tied to rising AI-related opportunities. Shares of Rocket Lab Corp appreciated during the quarter, supported by multiple launch agreements, better-than-expected third-quarter results, and the largest contract in the company’s history—an $816 million agreement to provide 18 missile warning, tracking, and defense satellites in low earth orbit for the Proliferated Warfighter Space Architecture, with launches expected to begin in fiscal year 2029.

Among the top detractors were Kratos Defense & Security (KTOS) and AeroVironment (AVAV). Shares of both companies detracted from performance during the quarter amid a broad sell-off in innovation-based defense stocks. Even so, Kratos management reported better-than-expected third-quarter results, and the U.S. Army announced plans to purchase at least one million drones in the next 2–3 years, with annual demand potentially reaching several million units thereafter. AeroVironment management reported mixed second-quarter results, including revenue that beat expectations but profitability that missed consensus because of the government shutdown, program timing, and margin pressure following the BlueHalo acquisition. As noted above, the U.S. Army also announced plans to purchase at least one million drones in the next 2–3 years.

ARK Next Generation Internet ETF (ARKW)

The ARK Next Generation Internet ETF (ARKW) underperformed broad-based global equity indices during the quarter. Among the top detractors were Coinbase (COIN) and Roblox (RBLX). Shares of Coinbase detracted from fund performance amid weakness in crypto market trading activity. Despite hosting a product event that showcased its long‑term strategic ambitions, including plans for on‑chain equities, prediction markets, an AI‑powered portfolio advisor, and a broader rollout of its Layer 2 Base app, market conditions remained challenging. Quarterly spot trading volumes on centralized exchanges declined 9% quarter‑over‑quarter, especially following the October 10th liquidation event. Shares of Roblox depreciated during the quarter after the company reported third-quarter earnings, including bookings growth of 51% year-over-year, an acceleration from the previous quarter. That said, management guided to a decline in operating margins during 2026, because of increased costs associated with needed improvements around infrastructure and safety. Furthermore, Russia banned Roblox because of child safety concerns. As of October 2025, Russia accounted for ~8% of the company’s total platform daily active users (DAUs) but less than 1% of total revenue.

Among the top contributors were Advanced Micro Devices (AMD) and Alphabet (GOOG). Shares of Advanced Micro Devices traded up this quarter after the company announced significant AI partnerships, including a multiyear deal with OpenAI and a collaboration with Oracle for a public AI supercluster. Additionally, AMD's strong third-quarter earnings reflected 36% year-over-year revenue growth, thanks to robust demand in its Data Center and Gaming segments, bolstered further by a $1 billion partnership with the U.S. Department of Energy for supercomputers. Shares of Alphabet contributed to the fund’s performance after the company reported strong third-quarter earnings, highlighted by accelerations in search revenue to 14% year-over-year and Cloud revenue to 34% year-over-year. Management noted that the Gemini app’s monthly active users have hit 650 million. The release of Gemini 3, which pushed the frontier for most benchmarks, was successful and well received.

ARK Genomic Revolution ETF (ARKG)

The ARK Genomic Revolution ETF (ARKG) outperformed broad-based global equity indices during the quarter. Among the top contributors were Guardant Health (GH) and Natera (NTRA). Shares of Guardant Health contributed after the company reported strong third-quarter earnings—including revenue growth of 39%—and raised the midpoint of fiscal-year 2025 revenue guidance by 5%. Shares of Natera appreciated this quarter following the company’s release of data from its IMvigor011 trial in muscle-invasive bladder cancer. Results indicated that patients who were Signatera-positive following cystectomy and who were randomized to receive atezolizumab had a statistically significant improvement of greater than 2x in median disease-free survival and a 41% increase in overall survival vs. placebo. Those results are notable, because atezolizumab previously failed to demonstrate a statistically significant benefit when all patients were randomized post-cystectomy, regardless of Signatera status, indicating that Signatera and ctDNA status can be used to identify patients more likely to respond to treatment escalation. Additionally, Natera reported strong third-quarter earnings, including revenue that surpassed consensus estimates by 15%. Finally, Natera benefited from increasingly positive sentiment in the genomics tools and diagnostic space following Abbott’s acquisition of Exact Sciences.

Among the top detractors were Tempus AI (TEM) and Arcturus Therapeutics (ARCT). Shares of Tempus AI traded down this quarter after appreciating ~175% the prior six months. Although third-quarter earnings exceeded consensus, investors may have been disappointed by the magnitude of the beat following Guardant Health’s report. Shares of Arcturus Therapeutics detracted from fund performance after the company released interim Phase 2 data for its inhaled mRNA therapeutic (ARCT-032) in Class I cystic fibrosis patients that do not produce CFTR protein and thus do not respond to available CFTR modulatory therapy. By day 28, the dataset failed to demonstrate meaningful improvement in forced expiratory volume, an established marker of disease progression. That said, AI-powered high-resolution scans suggested by the U.S. Food and Drug Administration (FDA) revealed reductions in mucus burden in four of six participants, suggesting potential therapeutic activity. The company plans to initiate a new 12-week clinical trial to evaluate ARCT-032 further during the first half of 2026.

ARK Blockchain & Fintech Innovation ETF (ARKF)

The ARK Blockchain &Fintech Innovation ETF (ARKF) underperformed broad-based global equity indices during the quarter. Among the top detractors were Coinbase (COIN) and Roblox (RBLX), for the reasons discussed above.

Among the top contributors were Shopify (SHOP) and Advanced Micro Devices (AMD), the latter for the reasons discussed above. Shares of Shopify contributed to the fund this quarter, following a continued rally based on news of its integration with OpenAI to enable instant in-chat checkout for ChatGPT users. Shopify also announced an integration with Lovable, an AI app development platform, that will enable users build online stores on Shopify using natural language prompts. The company reported strong third-quarter earnings, highlighted by 32% growth year-over-year in gross merchandise value (GMV) and in revenue, which beat Wall Street expectations. During Black Friday Cyber Monday (BFCM) weekend, Shopify’s merchant sales increased 27% year-over-year. At Shopify's Winter Editions '26, the company announced shipment of more than 150+ product updates, including improvements to Sidekick—Shopify's AI workflow automation and agentic storefront manager—on AI chatbots like ChatGPT and Perplexity.

ARK Space & Defense Innovation ETF (ARKX)

The ARK Space & Defense Innovation ETF (ARKX) underperformed broad-based global equity indices during the quarter. Among the top detractors were AeroVironment (AVAV) and Kratos Defense & Security (KTOS), for the reasons discussed above. Among the top contributors were Rocket Lab (RKLB) and Teradyne (TER), for the reasons discussed above.

ARK Innovation ETF (ARKK)

Invested in the highest conviction names in the Funds discussed above, the ARK Innovation ETF (ARKK) underperformed broad-based global equity indices during the quarter. Among the top detractors were Roblox (RBLX) and Coinbase (COIN), for the reasons discussed above.

Among the top contributors were Advanced Micro Devices (AMD), for the reasons discussed above, and Exact Sciences (EXAS). Shares of Exact Sciences contributed to fund performance after Abbott announced an agreement to acquire the company for $105 per share, a 51% premium to its closing stock price. With an implied equity value of $21 billion, the deal is the largest transaction in the healthcare sector in the past two years and the largest diagnostic acquisition in history. Expected to close in the second quarter, the deal highlights Exact’s leadership in the science and commercialization of cancer detection and monitoring technologies.

ARK Israel Innovation Technology ETF (IZRL) and The 3D Printing ETF (PRNT)

Among ARK’s self-indexed ETFs, the ARK Israel Innovation Technology ETF (IZRL) outperformed, while The 3D Printing ETF (PRNT) underperformed the broad-based global equity indices.¹⁰

Shares of RP Optical Lab (RPOL) were the largest contributor to IZRL’s performance after the company announced multiple letters of intent from different customers, representing a combined potential order volume of approximately $36 million. While subject to receipt of approved purchase orders, those announcements underscore the potential for a growing order book. Shares of WIX.com (WIX) were the largest detractor from IZRL’s performance. The company reported strong third-quarter earnings that beat Wall Street expectations, but management's guidance reflected lower gross margins and higher-than-expect operating expenses, signaling that its AI ramp will weigh on near-term profitability.

Shares of 3D Systems (DDD) were the largest detractor from PRNT’s performance after the company reported weaker‑than‑expected third‑quarter results amid a challenging macroeconomic environment. Later in the quarter, management announced a $31 million debt‑for‑equity exchange that reduced leverage but diluted existing shareholders, which further weighed on the stock. Shares of Kaiser Aluminum (KALU) were the largest contributor to PRNT’s performance after the company released a better-than-expected earnings report and an upward revision to its full-year guidance, reflecting improving operating performance.

Broad-based global equity indexes are defined as the S&P 500 Index and the MSCI World Index.

A type of recession that affects different sectors of the economy at different times—not simultaneously.

National Association of Realtors. Data as of August 2025.

U.S. Department of Housing and Urban Development. Data as of August 2025.

A basis point (bp) is a unit of measurement used to quantify the change between two percentages. It is equal to 1/100th of 1%, or 0.01%.

US Census Bureau and National Association of Realtors. Data as of August 2025.

National Bureau of Statistics of China.

US Bureau of Labor Statistics.

Truflation provides an alternative inflation index to the widely used Consumer Price Index (CPI), aiming to offer more real-time and accurate data. While the CPI is updated monthly, Truflation uses daily data from a vast number of sources, including decentralized oracles and foreign sources, to provide a more frequent and potentially more accurate reflection of inflation.

IZRL underperformed its benchmark, The ARK Israel Innovation Index. PRNT underperformed its benchmark, The Total 3-D Printing Index.

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ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. ARK and its clients as well as its related persons may (but do not necessarily) have financial interests in securities or issuers that are discussed. Certain of the statements contained may be statements of future expectations and other forward-looking statements that are based on ARK’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements.