Cathie Wood’s Ark Investment Management has lost nearly $50 billion in assets from its stable of exchange-traded funds since its 2021 peak, highlighting the scale of this year’s losses in speculative tech stocks.
The total assets of Ark’s nine ETFs have plummeted to $11.4 billion from a high of $60.3 billion in February last year, according to Morningstar data. This was led by sharp falls in its flagship Ark Disruptive Innovation ETF, known by its ticker ARKK, which has lost around two-thirds of its value this year and is on track for its worst yearly performance.
“The results for Ark Innovation have been appalling this year and very disappointing for investors,” says Robby Greengold, a strategist at Morningstar, which in April downgraded the ETF’s rating to negative from ‘neutral’.
The sharp decline highlights how growth investors like Wood got it wrong this year, as the US Federal Reserve and other central banks around the world ended a decade of cheap money with rate hikes. interest to combat inflation.
This has led to a sell-off in technology stocks, particularly fast-growing and loss-making companies, which are seen as especially susceptible to interest rate hikes that reduce their potential future returns. Investors have rotated to value stocks that look cheap compared to metrics like book value and earnings.
ARKK is the largest of a group of strategies that combine an ETF structure with the ability to choose stocks. Wood seeks to identify the handful of companies that can make exponential profits by shaping the future, covering areas from space exploration and financial technology to robotics and the genomics revolution.
Shares of the flagship ARKK are down about 65 percent this year, remaining at a five-year low and underperforming the technology-strong Nasdaq Composite, which is down 32 percent in the same period.
ARKK’s losses have caused its assets under management to decline from a peak of $27.9 billion in February 2021 to $6.4 billion today, according to Morningstar. The decline in assets was due solely to declining valuations across its investment portfolio: Overall, the ETF has amassed $1.4 billion in new client money this year, Morninstar data shows, as investors they bought the fall.
“A big driver of underperformance has been stylistic in nature. . . Globally, growth stocks have suffered and value stocks have been more resilient,” Greengold said.
Greengold added that ARKK represents “the canary in the coal mine for regime change because it began its decline in February 2021” and was the first of many prominent growth funds, including Baillie Gifford’s Scottish Mortgage and Chase Coleman’s Tiger Global. to suffer heavy losses. .
Wood, 67, launched Ark Investment Management, a St. Petersburg, Florida-based asset manager, in 2014. She is known for her big bets focused on “disruptive innovation” and her almost outlandish predictions on everything from shares of electric car maker Tesla up the price. of bitcoin, as well as his intelligent use of social networks.
“Cathie Wood is very gullible, as long as there is a good narrative to go along with something, she is willing to believe it,” said Ramin Nakisa, a former UBS analyst who now runs consultancy PensionCraft. “You have to wonder if she has that sanity check on the valuation, market share and potential profitability of companies.”
ARKK soared 149 percent in 2020 as the pandemic fueled investor enthusiasm for the technologies that underpin its portfolios: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain. After losing 24 percent last year, the fund has continued its decline in 2022.
ARKK’s top three holdings are video communications platform Zoom, a Covid-19 winner that subsequently gave up its pandemic-era gains; Exact Sciences, a provider of molecular cancer detection and prognosis tests; and electric vehicle maker Tesla, whose shares are down more than 60 percent this year.
Wood is also a vocal advocate for cryptocurrencies. This year, the bitcoin price has fallen more than 60 percent to $16,800, amid the collapse of several large crypto hedge funds, exchanges, and lenders, including Three Arrows Capital, Celsius, BlockFi, and FTX.
In a Bloomberg interview last month, Wood reiterated his forecast that Bitcoin would reach $1 million by 2030. “Sometimes you need a battle test, you need to go through a crisis. . . to see the survivors,” she said. Ark has doubled down on many of its holdings, acquiring more shares in cryptocurrency exchange Coinbase and increasing its holdings in Grayscale Bitcoin Trust and crypto-focused lender Silvergate Capital.
Ark declined to comment. Wood defended his approach in a investor comment earlier this month who argued that disruptive innovation is both undervalued and undervalued.
“The companies we invest in are sacrificing short-term gains to capitalize on the exponential growth and highly profitable opportunities that a number of innovation platforms are creating,” he said, adding that “long-term profitability and the performance of So-called ‘no-profit technology’ companies will eclipse companies that have catered to short-term oriented shareholders with share buybacks and dividends, at the expense of investing in the future.”