Balancing AI Exposure: How Combining iShares U.S. Tech ETF (IVV) and ARK Innovation ETF (ARKQ) Can Optimize Risk and Growth

The rise of artificial intelligence (AI) has reshaped global markets, creating both opportunities and risks for investors. For those seeking to capitalize on AI-driven growth while mitigating volatility, combining broad-market exposure with thematic innovation funds offers a compelling strategy. The iShares Core S&P 500 ETF (IVV) and the ARK Autonomous Technology & Robotics ETF (ARKQ) exemplify this approach, blending stability and specialization to optimize risk-adjusted returns in the AI era.

IVV: A Stable Foundation for AI-Driven Growth

IVV, tracking the S&P 500, provides exposure to the 500 largest U.S. companies, including tech giants like Apple, Microsoft, and Nvidia—key players in AI development. As of 2025, these holdings account for a significant portion of IVV's portfolio, driving its 31% annual return in the ASX-listed version . While IVV is not AI-specific, its passive strategy ensures broad diversification across sectors, including 33% allocated to technology . This structure offers downside protection during market corrections, as the S&P 500's large-cap constituents tend to exhibit lower volatility compared to niche innovation plays.

ARKQ: Targeting Disruptive AI Innovation

In contrast, ARKQ is an actively managed fund focused on autonomous technology, robotics, and AI. Its portfolio includes Tesla (10.7% weight), Palantir Technologies, and Kratos Defense, companies at the forefront of AI-driven automation and cloud computing . With 41.57% in Industrials and 32.12% in Technology , ARKQ's concentrated exposure to high-growth sectors aligns it with disruptive trends. However, this specialization comes with higher volatility, as evidenced by its 0.75% expense ratio and historical annualized returns of 15.7% since 2014 . ARKQ's active management allows it to pivot toward emerging opportunities, such as next-gen cloud infrastructure, but also exposes it to sector-specific risks.

Diversification Through Strategic Overlap

Combining IVV and ARKQ leverages their complementary strengths. While IVV's top holdings overlap with ARKQ's focus areas (e.g., Microsoft and Amazon), the two funds differ in concentration and strategy. IVV's broad market exposure reduces the impact of sector-specific downturns, whereas ARKQ's niche focus amplifies exposure to AI innovation. According to a report by ARK Invest, thematic ETFs like ARKQ can push portfolios closer to the efficient frontier by enhancing risk-adjusted returns .

The key to this strategy lies in correlation dynamics. IVV, with its near-perfect correlation to SPY (1.00), mirrors broad market movements . ARKQ, however, likely exhibits a lower correlation due to its focus on disruptive sectors. For instance, ARK's Innovation ETF (ARKK), a similar fund, has a 0.72 correlation to SPY , suggesting ARKQ may follow a similar pattern. This lower correlation implies that combining IVV and ARKQ can reduce portfolio volatility while maintaining growth potential.

Risk Management and Portfolio Optimization

To quantify diversification benefits, investors can use tools like the ETF Correlation Calculator , which analyzes daily return correlations over specified periods. While exact 30-day data for IVV and ARKQ is unavailable, historical patterns indicate that ARKQ's volatility—driven by its active management and sector concentration—creates opportunities for risk mitigation when paired with IVV's stability.

A balanced allocation might involve 60% IVV and 40% ARKQ, reflecting a conservative tilt toward broad-market stability while retaining exposure to AI innovation. This approach reduces overreliance on high-risk sectors while capturing growth from AI-driven megatrends.

Conclusion

In the AI era, investors must balance the allure of disruptive innovation with the need for risk management. IVV and ARKQ offer a dual-path strategy: IVV provides a stable foundation, while ARKQ targets high-growth AI themes. By combining these funds, investors can harness the strengths of both broad-market diversification and thematic specialization, optimizing their portfolios for the challenges and opportunities of the future.