Cathie Wood’s Ark Investment Management has lost almost $50bn 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.
Total assets across Ark’s nine ETFs have slumped to $11.4bn from a peak of $60.3bn in February last year, according to Morningstar data. This was led by steep declines 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 annual performance.
“Ark Innovation’s results have been horrendous this year and very disappointing for investors,” says Robby Greengold, a strategist at Morningstar, which in April downgraded the ETF from ‘neutral’ to ‘negative’.
The steep fall highlights how growth investors such as Wood have been wrongfooted this year as the US Federal Reserve and other central banks globally called time on a decade-long period of cheap money with interest rate rises to combat inflation.
This has prompted a sell-off in tech stocks, notably fast-growing and lossmaking companies, which are seen as especially susceptible to rises in interest rates that diminish their potential future returns. Investors have rotated in to value stocks that look cheap compared with metrics such as book value and profits.
ARKK is the largest of a group of strategies that combine an ETF structure with an ability to pick stocks. Wood seeks to identify the handful of companies that can make exponential gains by shaping the future, covering areas ranging from including space exploration and fintech, to robotics and the genomic revolution.
The flagship ARKK’s shares are down roughly 65 per cent this year, lingering at a five-year low and underperforming the technology-heavy Nasdaq Composite, which is down 32 per cent in the same period.
ARKK’s losses have led a decline in its assets under management from a peak of $27.9bn in February 2021 to $6.4bn today, according to Morningstar. The drop in assets was purely driven by valuation decreases in its portfolio of investments: overall the ETF has actually hoovered up $1.4bn in new client money this year, Morninstar data show, as investors bought the dip.
“A huge driver of the underperformance has been stylistic in nature . . . globally, growth stocks have suffered and value stocks have been more resilient,” said Greengold.
Greengold added that ARKK represents “the canary in the coal mine for the regime shift because it began its descent 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 steep losses.
Wood, 67, launched St. Petersburg, Florida-based asset manager Ark Investment Management in 2014. She is known for her big, concentrated bets on “disruptive innovation” and her borderline outlandish predictions on everything from shares in electric carmaker Tesla to the price of bitcoin, as well as her savvy use of social media.
“Cathie Wood is very credulous — as long as there’s a good narrative that goes with something she’s willing to believe it,” said Ramin Nakisa, a former UBS analyst who now runs consultancy PensionCraft. “You have to question whether she has that sanity check on companies’ valuation, market share and potential profitability.”
ARKK soared 149 per cent in 2020 as the pandemic turbocharged investor excitement about the technologies that underpin its portfolios — DNA sequencing, robotics, energy storage, artificial intelligence and the blockchain. After losing 24 per cent last year, the fund has continued its decline in 2022.
ARKK’s three largest positions are video communications platform Zoom, a Covid-19 winner that has subsequently given up its pandemic-era gains; Exact Sciences, a provider of molecular cancer screening and prognostic testing; and electric vehicle maker Tesla, whose shares are down more than 60 per cent this year.
Wood is also a vocal proponent of cryptocurrencies. This year the price of bitcoin has dropped more than 60 per cent to $16,800, amid the collapse of several big crypto hedge funds, exchanges and lenders, including Three Arrows Capital, Celsius, BlockFi and FTX.
In a Bloomberg interview last month, Wood reiterated her forecast for bitcoin to hit $1mn by 2030. “Sometimes you need to battle test, you need to go through crises . . . to see the survivors,” she said. Ark has doubled down on many of its holdings, snapping up more shares in crypto exchange Coinbase, and adding to its holdings in the Grayscale Bitcoin Trust and crypto-focused lender Silvergate Capital.
Ark declined to comment. Wood defended her approach in an investor commentary earlier this month that argued that disruptive innovation is both inefficiently valued and underpriced.
“The companies in which we invest are sacrificing short-term profits to capitalise on the exponential growth and highly profitable opportunities that a number of innovation platforms are creating”, she said, adding that “the long-term profitability and equity performance of so-called ‘profitless tech’ companies will dwarf those of companies that have catered to short-term oriented shareholders with share repurchases and dividends, at the expense of investing in the future.”