Cathie Wood’s flagship Ark fund tops $300 million despite losses
Cathie Wood’s Ark Investment Management has earned more than $300 million in fees since its flagship publicly traded fund was founded nine years ago, while wiping out almost $10 billion in investor cash over the same period.
Investors have continued to pour money into the Ark Disruptive Innovation ETF, known by the ticker ARKK, over the past two years despite being badly burned by the decline in tech stocks.
Ark has earned more than 70 percent of its $310 million in fees since the fund’s value has fallen nearly three-quarters from its February 2021 peak, according to FactSet data. It brought in an average of $230,000 in daily fees this year as ARKK rose slightly by a quarter.
“The investment fees have provided ARK and Cathie Wood with a very good living,” said Elisabeth Kashner, FactSet’s director of global funds, research and analytics. “His investors weren’t so lucky.”
The fund manager has amassed a devoted following with its blockbuster bets on high-growth technology companies, which have generated outsized returns for investors and eye-popping inflows through early 2021.
The ARKK fund has supported venture companies that it sees as radically transforming the future in the fields of technology, robotics, biotechnology and space exploration.
More than $3 billion flowed into ARKK in the first two weeks of February 2021, as the fund rose more than 700 percent since launch, taking its assets to a peak of $27.9 billion. But the rising interest rate environment, which has hammered growth stocks, has led to a decline in value. It currently manages $7.6 billion in assets.
ARKK is unusually expensive — the asset’s 0.75 percent annual management fee is about double the average for actively managed ETFs, according to FactSet.
The fee law draws attention to ARKK’s unusually high investor retention for such an underperforming ETF. Flows remained resilient despite the fund losing $9.5 billion in investor cash due to Wood’s bold bets, according to Morningstar data.
“It’s extraordinary that investors who were looking for upside returns haven’t reversed course,” Kashner said. “The vast majority of investors stuck with Cathie Wood.”
Many investors may be nursing such losses that they are unwilling to withdraw their funds. “There is a category of investors that is trapped,” said Ben Johnson, head of client solutions at Morningstar. “They’re stuck with the price they bought it at and hope it gets back there somehow.”
The fund experienced moderate outflows when ARKK’s share price rose at the beginning of the year, allowing investors to exit with smaller losses. “They saw a bounce and it was a better opportunity to get out than last year,” said Todd Rosenbluth, head of research at VettaFi, a New York-based consulting firm. “People don’t seem to be striving for strong performance.”
According to Johnson, the fund’s unusually high volatility attracted a group of investors who used derivatives to profit from large swings in valuation.
“If their price chart is volatile enough, and there’s enough volatility in the price of the asset, then it’s going to attract demand from a very different crowd — I can’t use the word investor — that feeds off and profits from volatility,” he said.
According to Johnson, strategies benefiting from the volatile price of ARKK – the triple-leverage short ARKK ETF launched in November 2021 – added to the volatility of the underlying fund.
Ark did not respond to a request for comment.
In his presentation to investors at the end of January, Wood said that in the last quarter of 2022 “innovation was punished”. But he reiterated his commitment to investing in “disruptive innovation” that would lead to “exponential growth trajectories” despite the accumulation of large losses.
According to FactSet, ARKK investors have lost nearly 27 percent in dollar-weighted returns since inception — meaning that, on average, every dollar invested in the fund is worth 73 cents. Investors who bought at the peak are down more than 74 percent.
“[Wood’s] the fees are high for the industry,” Kashner said. “But investors were their own worst enemies. People committed the cardinal sin of chasing the return.”