The ARK Innovation Fund, an ETF focused on “disruptive” technology companies and run by Cathie Wood, experienced rapid growth during the early Pandemic period until about February of 2021. After a pullback and a period of stagnation from March to November 2021, the fund’s price collapsed through the end of 2022. Now its price is rising modestly once again, but Jack Pitcher notes that despite the rising price, investors are pulling money out of the fund. He writes in The Wall Street Journal:
Cathie Wood’s flagship exchange-traded fund has rallied more than 50% this year. Investors are using that as an opportunity to get out.
They have pulled a net $717 million from the ARK Innovation ETF over the past 12 months, according to FactSet. That exodus marks a notable shift for a fund that had consistently drawn investor cash since its 2014 inception. Once the largest actively managed ETF with nearly $30 billion in assets under management, the fund has shrunk to roughly $9 billion, mostly due to investment losses.
Known by its ticker symbol ARKK, Wood’s fund became an investor darling shortly after the onset of the Covid-19 pandemic with hugely successful bets on unprofitable and “disruptive” technology companies. It took in huge amounts of investor money, culminating with a $6.5 billion inflow in the first quarter of 2021, when its share price peaked.
Then, the Federal Reserve’s fastest interest-rate hiking campaign in decades crushed the valuations of unprofitable growth companies, which often attract investors when interest rates are low and returns on safer investments such as CDs are minimal. Shares of ARKK plunged 67% in 2022, but its investors largely held on or bought the dip. Now, analysts say they expect some of those investors are getting out for good.
“You have a whole group of people who got in somewhere near the top and are sitting on horrific losses,” said Matthew Tuttle, chief executive of Tuttle Capital Management, which operates an inverse ETF that lets investors bet against Wood’s fund. “I think some of those people have said, ‘I’m never getting back to even; this is probably the best I’m going to do, and it’s time to get out.’”
Wood says the outflows have been small compared with the fund’s assets.
“We have been astonished at our asset retention since February of ‘21,” Wood said in an interview. “It’s a very small number as a percentage of assets, which suggests that it’s far more likely to be people who are taking some profits than some exodus of people who have stayed in the fund through a prolonged down period.”
Despite the recent rally, ARKK shares are trading about 70% below their all-time high. The S&P 500 has climbed 17% this year on hopes the Fed is near the end of its tightening effort; it is still down 6.1% from its early 2022 high.
Action Line: Your Survival Guy is not in the prediction business. I won’t make a guess as to the future of the ARK fund, but I get the feeling that the type of investors who follow fads into funds are often the same ones who will follow fads out of a fund. I encourage you to build a long-term investment plan that won’t have you chasing fads. When you want help, let’s talk.
E.J. Smith - Your Survival Guy
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