After a brief recovery in 2023, Cathie Wood's exchange-traded fund continued to struggle this year. Investors are losing patience.
So far this year, investors have withdrawn $2.2 billion from the six actively managed ARK ETFs, more than the outflows the funds experienced in all of 2022 and 2023 combined. Exceeds. This left the fund with just $11 billion, down sharply from its peak of $59 billion in early 2021.
Wood became a star fund manager in 2020 as he included many stocks, including Tesla, in his portfolio.
,
Zoom video communications and Roku
,
It soared during the pandemic as the market got excited about a future disrupted by innovative technology.
Investors flocked to ARK funds during the bull market, with a whopping $20 billion flowing into the fund in 2020 and another $8 billion the following year.
But the fund's fortunes changed forever after the Federal Reserve began raising interest rates in the face of soaring inflation. This made high-yield bonds more attractive while discounting the future cash flows of unprofitable tech companies owned by ARK.
Advertisement – SCROLL TO CONTINUE
Many of ARK's holdings have fallen significantly from their 2021 peaks.
Since ARK's downturn, investors have largely remained with Mr. Wood. In 2022 and 2023, the ETF shed about $800 million in assets each year, even as the fund's value declined between 20% and 70% from its 2021 peak.
With inflation under control and markets excited about the possibility of a Fed rate cut, there are signs of recovery. ARK Innovation's gain of 72% last year exceeded the Nasdaq Composite's 45% gain for the first time since 2020.
Advertisement – SCROLL TO CONTINUE
But this year, as expectations for interest rate cuts faded, the fund once again fell 13%. After years of waiting, many investors have finally decided to jump ship. This loss will be painful for many, especially investors who joined ARK at its peak.
By the end of last year, the ARK fund had lost $14.3 billion in investor assets, according to Morningstar.
Admittedly, the ARK ETF has always been a risky trade and was never meant to be a large part of anyone's portfolio. To begin with, funds are concentrated in just a handful of stocks. Often fewer than 10 names make up more than half of the portfolio.
Advertisement – SCROLL TO CONTINUE
Moreover, their holdings are typically small companies that bet on exponential growth through disruptive technologies and business models. However, many factors, from the economic environment to strategic mistakes, can slow growth, and benefits may not be immediately visible.
Tesla is ARK's largest holding and has driven much of the fund's gains over the past two years. But this year, the electric car maker's stock has fallen 42% as investors worry about weaker-than-expected demand.
Still, Wood has repeatedly defended and even doubled down on his choices. Earlier this year, she bought more Tesla stock during a downturn, confident in the company's long-term prospects due to its advantages in self-driving and robotics efforts.
ARK also missed Nvidia
's
Advertisement – SCROLL TO CONTINUE
A massive stock rally driven by optimism that generative AI will stimulate massive demand for its computer chips. Wood's flagship fund, Ark Innovation, exited the stock in early 2023 after locking in some profits. However, the stock price has nearly quadrupled since then.
Wood said earlier this year that Nvidia is ahead of the curve.she said Barons She said in a recent interview that she needs to see more evidence that AI is actually accelerating the company's revenue growth before putting a high price tag on NVIDIA.
Email Evie Liu at evie.liu@barrons.com.
