Cathie Wood’s flagship Ark fund tops $300mn in fees despite losses

Cathie Wooden’s Ark Funding Administration has earned greater than $300mn in charges on its flagship trade traded fund since its inception 9 years in the past, whereas wiping out nearly $10bn of buyers’ money in the identical interval.

Buyers have continued to plough cash into the Ark Disruptive Innovation ETF, identified by its ticker ARKK, over the previous two years although it has been badly burnt by the downturn in know-how shares.

Ark has earned greater than 70 per cent of its $310mn charges because the fund’s valuation plummeted by almost three quarters from its excessive in February 2021, in keeping with FactSet knowledge. This yr it has introduced in a mean of roughly $230,000 in charges a day as ARKK’s worth recovered barely, rising by 1 / 4.

“Funding charges have supplied ARK and Cathie Wooden an excellent residing,” mentioned Elisabeth Kashner, director of world funds, analysis and analytics at FactSet. “Her buyers haven’t been so fortunate.”

The fund supervisor has amassed a faithful following for her punchy bets on fast-growing tech corporations, which till early 2021 produced outsized returns for buyers and drew eye-popping inflows.

The ARKK fund has backed dangerous corporations that it sees as radically reshaping the long run in know-how, robotics, biotechnology and house exploration.

Greater than $3bn flowed into ARKK within the first two weeks of February 2021 when the fund was up greater than 700 per cent from its launch, bringing its belongings to a peak of $27.9bn. However a rising rate of interest setting that hammered development shares led to a hunch in its worth. It now manages $7.6bn in belongings.

ARKK is unusually costly — its annual administration charge of 0.75 per cent of belongings is about double the common for actively managed ETFs, in keeping with FactSet.

The charge invoice calls consideration to ARKK’s unusually excessive investor retention for an ETF with such poor efficiency. Flows have remained resilient regardless of the fund shedding $9.5bn in investor money with Wooden’s daring bets, in keeping with Morningstar knowledge.

“It’s extraordinary that buyers who chased returns on the best way up didn’t reverse course,” Kashner mentioned. “The overwhelming majority of buyers have caught with Cathie Wooden.”

Many buyers could also be nursing losses so giant they’re unwilling to withdraw their funds. “There’s a class of investor that’s trapped,” mentioned Ben Johnson, head of shopper options at Morningstar. “They’re anchored to the value at which they bought it, and hoping it will get again there someway, by some means.”

The fund noticed modest outflows when ARKK’s share worth rebounded earlier this yr, enabling buyers to exit with lowered losses. “They noticed a bounce, and it was a greater alternative to get out than it was final yr,” mentioned Todd Rosenbluth, head of analysis at VettaFi, a New York-based consultancy. “Individuals don’t seem like chasing robust efficiency.”

Johnson mentioned the fund’s unusually excessive volatility had attracted a category of buyers who used derivatives to generate returns from its giant valuation swings.

“If their worth chart squiggles sufficient and there’s a adequate degree of volatility within the instrument’s worth, it will entice demand from a really completely different crowd — I can’t use the phrase investor — that feeds off of, and earnings from, volatility,” he mentioned.

Methods aiming to revenue from ARKK’s risky worth — a triple leveraged quick ARKK ETF launched in November 2021 — have additional fuelled volatility within the underlying fund, in keeping with Johnson.

Ark didn’t reply to a request for remark.

Wooden mentioned in a presentation to buyers in late January that “innovation was punished” within the final quarter of 2022. However she reiterated her dedication to investing in “disruptive innovation” that might result in “exponential development trajectories” regardless of accruing huge losses.

Since inception, ARKK buyers have misplaced almost 27 per cent in greenback weighted returns — which means on common, each greenback invested within the fund is now price 73 cents, in keeping with FactSet. Buyers who purchased on the peak are down greater than 74 per cent.

“[Wood’s] charges are excessive for the sector,” Kashner mentioned. “However buyers have been their very own worst enemy. Individuals dedicated the cardinal sin of chasing returns.”

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