Innovation Is Becoming Essential To Portfolio Construction: Why Systematic Rebalancing Still Matters

By Grant Banko

Artificial intelligence (AI), multiomics, robotics, energy storage, and blockchain technology are reshaping the global economy faster than many investors realize. Yet despite the rapid pace of innovation, many portfolios remain underexposed to the technologies driving long-term growth.

The first half of 2026 reinforced that trend. While broad equity markets reached new highs during the second quarter, innovation continued to accelerate across nearly every major platform. In our view, the question for investors is no longer whether innovation deserves a place in a portfolio, but rather how to maintain exposure through inevitable periods of volatility.

Our research suggests that the answer may be simpler than many investors realize: maintain a long-term allocation and rebalance systematically.

Innovation is Entering a New Phase

Innovation today looks very different than it did only a few years ago.

During the second quarter, investors looked beyond concerns about geopolitical tensions and questions about AI monetization as many innovation companies continued to demonstrate meaningful commercial progress. Meanwhile, cloud providers increased projected 2026 capital expenditures from roughly $600 billion at the beginning of the year to more than $700 billion,¹ underscoring growing demand for AI infrastructure.

Commercial adoption accelerated as well. Anthropic's annualized revenue run rate increased from approximately $9 billion last December to $47 billion within roughly six months,² highlighting how quickly enterprise AI is moving beyond experimentation and into real-world deployment.

Healthcare innovation also reached an important milestone. The convergence of AI, sequencing technologies, and CRISPR gene editing has begun to translate into tangible clinical and commercial progress, renewing investor interest across multiomics.

Taken together, these developments reinforce what we believe is a simple conclusion: innovation is becoming one of the primary engines of long-term economic growth.

Innovation Has Never Been a Smooth Ride

Periods of exceptional gains often have been followed by meaningful pullbacks. That volatility can be uncomfortable, but it does not necessarily make innovation a riskier long-term investment.

History suggests something different.

Investors who maintained exposure through changing market environments generally have been rewarded over time, while those attempting to time every rally and correction often risked missing the strongest periods of performance.

*Annualized. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares when redeemed may be worth more or less than the original cost. For the Fund’s most recent month end performance, please visit www.ark-funds.com or call 727.810.8160. Returns for less than one year are not annualized. As stated in the ARK ETFs' current prospectuses, the expense ratio for ARKK is 0.75%.

Extraordinary performance is attributable in part due to unusually favorable market conditions and may not be repeated or consistently achieved in the future.

Additional information about fees and expense levels can be found in the ARK ETFs' prospectuses. Net asset value (“NAV”) returns are based on the dollar value of a single share of an ARK ETF, calculated using the value of the underlying assets of the ARK ETF minus its liabilities, divided by the number of shares outstanding. The NAV is typically calculated at 4:00 pm Eastern time. Market returns are based on the trade price at which shares are bought and sold on the exchange using the last share trade. Market performance does not represent the returns you would receive if you traded shares at other times. Total Return reflects reinvestment of distributions on ex-date for NAV returns and payment date for Market Price returns. The market price of ARK ETF shares may differ significantly from their NAV during periods of market volatility. ARK's actively managed ETFs are benchmark agnostic. Index performance provided as a general market indicator.

Source: ARK Investment Management LLC. As of June 30, 2026.

ARK selected a single fund manager as the consistent brand to represent the broad US market, international developed markets, and emerging markets respectively so as not to imply ARK conducted due diligence among several or many fund managers. ARK selected Blackrock, and their brand iShares specifically because iShares is one of the largest, most respected, and most trusted passive ETF providers globally that historically offers low tracking error to target exposure, has low fees relative to the industry, and has high liquidity given their scale. This research and report is a hypothetical experiment conducted to understand if an innovation strategy, as represented by the ARK Innovation ETF (ARKK), is value accretive in a total equity portfolio when rebalancing around target weights, as opposed to a temporal rebalancing schedule.

For the most recent month end performance for ITOT, EEM, and EFA visit www.ishares.com or call 1-800-474-2737

Source: ARK Investment Management LLC. Data Source: Bloomberg. Note following market representations: US Market: iShares Core S&P Total US Stock Market ETF (ITOT; Fee: 0.03%); International Developed Market (Ex US) : iShares MSCI EAFE ETF (EFA; Fee: 0.32%); Emerging Markets: iShares MSCI Emerging Markets ETF (EEM; Fee: 0.70%); Innovation: ARK Innovation ETF (ARKK; Fee: 0.75%, Inception Oct. 30, 2014).

Volatility Doesn’t Have to Mean More Risk

One of the most consequential misconceptions about innovation investing is that adding innovation automatically makes an entire portfolio much riskier.

Our research found the opposite.

We began with a traditional global equity portfolio consisting of 60% US equities, 30% international developed equities, and 10% emerging markets. We then tested what happened after adding modest innovation allocations of 5%, 10%, and 15%.

Historically, those portfolios improved long-term return potential while only modestly increasing overall portfolio volatility, even during one of the most challenging periods for growth stocks, between 2021 and 2022.

Perhaps even more important, investors didn't have to predict market tops or bottoms.

Instead, the portfolios followed a disciplined rebalancing process that systematically trimmed positions after strong rallies and added exposure after meaningful pullbacks.

In other words, volatility became something the portfolio could use to investor advantage, not simply something investors had to endure.

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. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares when redeemed may be worth more or less than the original cost. For the Fund’s most recent month end performance, please visit www.ark-funds.com or call 212.426.7040. Returns for less than one year are not annualized. As stated in the ARK ETFs' current prospectuses, the expense ratio for ARKK is 0.75%.

Extraordinary performance is attributable in part due to unusually favorable market conditions and may not be repeated or consistently achieved in the future.

For the most recent month end performance for ITOT, EEM, and EFA visit www.ishares.com or call 1-800-474-2737

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. The hypothetical model portfolios performance returns presented: 1) are not actual portfolios, 2) are being provided for illustrative purposes only, 3) do not represent the results of actual trading, 4) were achieved by means of the retroactive application of the model (see Disclosure at the end) designed with the benefit of hindsight, 5) involves an analytical model (See Disclosure in the back) which uses historical financial data, 6) should not be used as the basis for making an investment decision, 7) are NOT intended to illustrate investment results that were actually achieved or could have been achieved by any of our clients, 8) are comprised of what we believe are the most appropriate securities making up the model portfolios, 9) do not account for typical fees and expenses incurred by our clients, 10) assumes investment in the model portfolios each underlying fund's expense ratio, and 11) do not reflect the impact that material economic and market factors may have had on investment decisions that would have been in actual portfolios being managed at the time and do not involve market risk.

Source: ARK Investment Management LLC. As of June 30, 2026. Data Source: Bloomberg. Note following market representations: Domestic Equity: iShares Core S&P Total US Stock Market ETF (ITOT; Expense Ratio: 0.03%); International Equity (Ex US & Canada): iShares MSCI EAFE ETF (EFA; Expense Ratio: 0.32%); Emerging Markets: iShares MSCI Emerging Markets ETF (EEM; Expense Ratio: 0.70%); Innovation: ARK Innovation ETF (ARKK; Expense Ratio: 0.75%, Inception Oct. 30, 2014).

Staying Invested Historically Paid Off

No investment strategy outperforms all the time.

The most recent rolling five-year periods include both the extraordinary innovation rally of 2020 and the difficult market environment that followed during 2021 and 2022. As a result, recent rolling returns naturally appear weaker than earlier periods.

But instead of weakening the case for innovation, those results actually demonstrate why maintaining a disciplined process matters.

Across rolling five-year periods ending between October 2019 and June 2026, portfolios including a 5% innovation allocation outperformed the traditional reference portfolio roughly 80% of the time.

Innovation leadership has never moved in a straight line, to be sure, but long-term investors who maintained disciplined exposure historically benefited by remaining invested.

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. hypothetical model portfolios performance returns presented: 1) are not actual portfolios, 2) are being provided for illustrative purposes only, 3) do not represent the results of actual trading, 4) were achieved by means of the retroactive application of the model (see Disclosure at the end) designed with the benefit of hindsight, 5) involves an analytical model (See Disclosure in the back) which uses historical financial data, 6) should not be used as the basis for making an investment decision, 7) are NOT intended to illustrate investment results that were actually achieved or could have been achieved by any of our clients, 8) are comprised of what we believe are the most appropriate securities making up the model portfolios, 9) do not account for typical fees and expenses incurred by our clients, 10) assumes investment in the model portfolios each underlying fund's expense ratio, and 11) do not reflect the impact that material economic and market factors may have had on investment decisions that would have been in actual portfolios being managed at the time and do not involve market risk.

Some dates in the table may appear to not be month end, due to the end of the month being on a weekend.

Why Rebalancing Works

The greatest challenge of innovation investing tends not to be the investments themselves but investor behavior. Why? When innovation experiences a sharp drawdown, many investors become uncomfortable and reduce exposure. Then, after strong rallies, investors often do the opposite, adding exposure only after prices have already appreciated.

Systematic rebalancing encourages the opposite. Instead of reacting emotionally to short-term headlines, investors simply return their portfolio to its target allocation whenever it drifts too far.

That naturally encourages investors to:

Trim positions after strong periods of outperformance.
Add exposure following meaningful pullbacks.
Maintain a consistent long-term allocation.
Remove emotion from investment decisions.

Historically, most rebalancing events actually involved trimming gains rather than buying weakness, because innovation has generated asymmetric upside over time. Even so, maintaining a disciplined process has enabled investors to add exposure during periods when many others were selling.

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. The hypothetical model portfolio’s performance returns presented: 1) are not an actual portfolio, 2) are being provided for illustrative purposes only, 3) do not represent the results of actual trading, 4) were achieved by means of the retroactive application of the model (see Disclosure at the end) designed with the benefit of hindsight, 5) involves an analytical model (See Disclosure in the back) which uses historical financial data, 6) should not be used as the basis for making an investment decision, 7) are NOT intended to illustrate investment results that were actually achieved or could have been achieved by any of our clients, 8) are comprised of what we believe are the most appropriate securities making up the model portfolios, 9) do not account for typical fees and expenses incurred by our clients, 10) assumes investment in the model portfolios net of each underlying fund's expense ratio, and 11) do not reflect the impact that material economic and market factors may have had on investment decisions that would have been in actual portfolios being managed at the time and do not involve market risk.

Source: ARK Investment Management LLC. As of June 30, 2025. Data Source: Bloomberg. Note following market representations: Domestic Equity Market: iShares Core S&P Total US Stock Market ETF (ITOT; Expense Ratio: 0.03%); International Equity Market (Ex US & Canada) : iShares MSCI EAFE ETF (EFA; Expense Ratio: 0.32%); Emerging Markets: iShares MSCI Emerging Markets ETF (EEM; Expense Ratio: 0.70%); Innovation: ARK Innovation ETF (ARKK; Expense Ratio: 0.75%, Inception Oct. 30, 2014).

Looking Ahead

We believe the long-term case for innovation remains compelling.

Artificial intelligence continues to move from experimentation toward broad commercial deployment. Robotics and automation are expanding across manufacturing and logistics. Multiomics technologies continue to accelerate drug discovery and precision medicine. Digital assets are modernizing financial infrastructure.

At the same time, these innovation platforms increasingly reinforce one another.

Artificial intelligence accelerates biological discovery. Robotics becomes smarter through AI. Lower-cost computing enables more sophisticated healthcare applications. Together, these technologies have the potential to increase productivity while reducing the cost of intelligence, energy storage, and biological discovery.

In our view, innovation is no longer a niche investment theme. It is becoming an increasingly important driver of future economic growth.

For investors seeking active exposure across these technologies, ARK offers a family of innovation-focused ETFs designed to capture these long-term opportunities. We encourage investors to work with financial professionals to evaluate whether a dedicated innovation allocation can improve long-term diversification and growth.

ARK Innovation ETF (ARKK): Broad exposure across disruptive innovation platforms.
ARK Next Generation Internet ETF (ARKW): AI, blockchain, cloud computing, and digital assets.
ARK Autonomous Technology & Robotics ETF (ARKQ): Automation, robotics, mobility, and intelligent machines.
ARK Genomic Revolution ETF (ARKG): Multiomics, diagnostics, and precision medicine.
ARK Fintech Innovation ETF (ARKF): Digital wallets, blockchain infrastructure, and the future of finance.
ARK Space & Defense Innovation ETF (ARKX): Aerospace, satellites, communications, and defense innovation.

The Bottom Line

Innovation will almost certainly remain volatile. Our research suggests that the volatility is not a reason to avoid innovation. Instead, it underscores the importance of having a disciplined investment process. Rather than trying to predict every market cycle, we believe investors who maintain a dedicated innovation allocation and rebalance systematically should be better positioned to participate in the technologies shaping the future.

Innovation doesn't have to be timed. It must be owned and held with discipline.

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.

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

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

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

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

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

Model Portfolio Disclosure:

Data Source taken from Bloomberg. Note following market representations: Domestic Equity: iShares Core S&P Total US Stock Market ETF (ITOT); International Equity (Ex US and Canada): iShares MSCI EAFE ETF (EFA); Emerging Markets: iShares MSCI Emerging Markets ETF (EEM); Innovation: ARK Innovation ETF (ARKK).

Market Representation	ETF	Ticker	Expense Ratio
U.S. Market	iShares Core S&P Total US Stock Market ETF	ITOT	0.03%
International Developed Market (Ex U.S.)	iShares MSCI EAFE ETF	EFA	0.32%
Emerging Markets	iShares MSCI Emerging Markets ETF	EEM	0.70%
Innovation	ARK Innovation ETF	ARKK	0.75%

The four model portfolios were constructed using an inception date of 10/31/14. The initial portfolio weights and securities for each portfolio are as follows: Global Equity Portfolio (Reference Portfolio): iShares US Total Stock ETF (ITOT) = 60%, iShares MSCI EAFE ETF (EFA) = 30%, iShares MSCI Emerging Markets ETF (EEM) = 15% | 5% Innovation: iShares US Total Stock ETF (ITOT) = 57%; iShares MSCI EAFE ETF (EFA) = 28.5%; iShares MSCI Emerging Markets ETF (EEM) = 9.5%; ARK Disruptive Innovation Strategy = 5% | 10% Innovation: iShares US Total Stock ETF (ITOT) = 54%; iShares MSCI EAFE ETF (EFA) = 27%; iShares MSCI Emerging Markets ETF (EEM) = 9%; ARK Disruptive Innovation Strategy = 10% | 15% Innovation: iShares US Total Stock ETF (ITOT) = 51%; iShares MSCI EAFE ETF (EFA) = 25.5%; iShares MSCI Emerging Markets ETF (EEM) = 8.5%; ARK Disruptive Innovation Strategy = 15%. Each of the four model portfolios were set to rebalance to their initial weightings noted above on a monthly frequency. However, the tactical rebalancing methodology described on slide 14 is applied on a daily basis and rebalancing will only occur when the allocation drift threshold is triggered.

The model portfolio weights were set to drift intramonth before rebalancing at the end of each month. The risk/return statistics and ratios (Return, Standard Deviation, Alpha, Sharpe Ratio, and Information Ratio) were calculated using Bloomberg's PORT function under the 'Portfolio Statistics' tab for each portfolio.

Bloomberg's calculation methodology for each statistic/ratio: Return: The 5 year annualized return on the security including appreciation and dividends, assuming the dividends are reinvested back into the security. Gross dividend is used. | Standard Dev: This is a measurement of the degree to which an individual probability value varies from the distribution mean. The higher the variation, the greater the risk. This amount is calculated on each portfolio's monthly returns over a 5-year period, and then annualized. | Excess Return (Alpha): The weighted average percentage performance of a portfolio with respect to the benchmark (Portfolio 1) over the time frame. The return combines price appreciation (or depreciation) and corporate actions. The time frame selected was 5 years using the initial start date of 12/31/14. The Excess Return formula is: Excess Return = (SUM(( Relative Returns on granularity defined))/N of periods in the time frame)*100 annualized. | Sharpe Ratio: Portfolio Sharpe Ratio as computed in Bloomberg's Portfolio & Risk Analytics function as the excess return over the risk free rate (3-month yield linked to the USD currency), per unit of volatility. Performance is measured as mean return. The higher the Sharpe ratio, the better the historical risk-adjusted performance. The time frame selected was 5 years using the initial start date of 12/31/14. The ratio is calculated using daily returns over the stated time frame (5 Years). The Sharpe ratio formula is: Sharpe Ratio = [ ( Annualized Mean Return - Risk Free Rate ) / Annualized Standard Deviation of Returns ]. | Information Ratio: Ex-post Information Ratio is computed in the Portfolio & Risk Analytics function. It is a risk-adjusted measure that calculates the excess return over the benchmark, per unit of tracking error volatility. The average performance of each portfolio (Portfolios 2, 3, and 4) relative to the benchmark (Portfolio 1) per unit of volatility in benchmark tracking over the time frame. The time frame selected was 5 years using the initial start date of 12/31/14. The ratio is calculated using daily returns over the stated time frame (5 Years). The information ratio formula is: Information Ratio = [ Annualized Mean Excess Return / Annualized Tracking Error ].

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

Foreside Fund Services, LLC, distributor.

Nicole-Schwarx. 2026. “The Tech Download: Can hyperscalers justify their huge AI capex?” CNBC.

Anthropic. 2026. “Anthropic expands partnership with Google and Broad com for multiple gigawatts of next-generation compute.”

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.