Cathie Wood, founder of ARK Investment Management
Thanks to ARK Invest
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Glowing stock exchange-traded funds of ARK Invest suffered a major setback this week.
In its worst week since March last year, the company’s flagship product, the $ 24 billion
ARK Innovation
exchange-traded fund (ticker: ARKK) plummeted 14.6% as some of the top positions, including
Tesla
(TSLA) and
Year
(ROKU) – fell sharply. The
S&P 500,
meanwhile fell 2.4%.
An improving economic outlook – which could lead to higher prices and higher interest rates – caused stocks to fall this week, especially those of the best-performing technology companies. At its peak on Feb. 12, ARK Innovation was up 26% in 2021, versus 5% of the S&P. By the end of the month, ARK Innovation was up 4.7% and S&P was up 1.5%. Investors took more than $ 1 billion from ARK ETFs Wednesday and Thursday, the largest net outflow in the company’s seven-year history and a sharp turnaround from weeks before. The funds have seen inflows of $ 16 billion so far this year.
As the Wall Street adage goes, feed the ducks like the ducks croak. Fund companies have taken note of ARK’s influx and have rolled out similar specialized, ARK-like funds targeting innovative and disruptive companies.
Cathie Wood, the economist who founded ARK Investment Management, is a thoughtful observer and an excellent stock picker. But ARK’s phenomenal rise is down to more than just skill: five of ARK’s seven ETFs returned more than 100% last year, a historical anomaly. Such returns attract a lot of money from people rushing into a “sure thing” and selling as soon as stocks falter – hence the $ 1 billion outflow in two days.
Fidelity rolled out a package of six actively managed disruption funds last April. Five focus on specific areas such as automation, communications, finance, medicine and technology; a,
Faithful disturbers
(FGDFX), covers all five themes. All told, the suite has $ 558 million in assets; year-to-date they are up 3.3% on average.
The disruption funds use a new time-based compensation model. Annual fees start at 1%, fall to 0.75% after one year and 0.5% after another two years. “The overall goal is to encourage investors to invest in the long term,” said Chris Peixotto, vice president of Fidelity’s investment product group. This makes especially sense for disruptive funds, which can be volatile and last for years.
The $ 421 million
Goldman Sachs Innovate Equity
Launched in November, ETF (GINN) tracks an index of nearly 500 stocks – about 10 times more than ARK Innovation. That lack of concentration and lack of active management makes this ETF look much more like the broad market, with top positions such as
Alphabet
(GOOG),
Nvidia
(NVDA), and
Facebook
(FB), none of which are in the ARK Innovation ETF. The Goldman Innovate ETF has returned 4.8% so far this year.
The 181 million dollars
Direxion Moonshot Innovators ETF
(MOON), also launched in November, is probably the most ARK-like fund. It only has 50 stocks, but unlike most of ARK’s ETFs, it is not actively managed. Instead, it tracks an index that uses natural language processing to assess business applications, identify innovation-related comments, and select disruptive businesses at an early stage. The fund is up 34% this year.
The $ 1.1 billion
Invesco NASDAQ Next Gen 100
ETF (QQQJ), a mid-cap version of the popular
Invesco QQQ Trust
(QQQ), was a big hit when it launched in October. It tracks the 101st to 200th largest Nasdaq listed “up-and-coming” companies, primarily in technology and other innovation-driven industries. Many of today’s mega names were once in the Next Gen basket. The fund is up 7.1% this year.
All of these innovation funds have fallen over the past week, but none have seen the outflows that ARK did. It may not always be an advantage to be the first mover.
Write to Evie Liu at [email protected]