Investors are abandoning ship from Cathie Wood's ARK Investment Management, in a continuing signal of plunging confidence after substantial losses in recent years.
The six actively managed ETFs managed by ARK have experienced a net outflow of $2.2 billion this year, reported the Wall Street Journal, surpassing the total outflows of 2023. This decline has brought the total assets under management to $11.1 billion, a stark drop from their peak of $59 billion in early 2021.
The AUM decline isn’t just from bleeding dollars. Despite a market environment that might favor ARK’s investment style in disruptive technology and growth, the funds have continued to underperform.
Todd Rosenbluth, head of research at VettaFi, noted, "The loyal shareholders have become frustrated. This should be a better year for the ARK style of investing in growth and disruptive technology, but they are concentrated in companies that have underperformed."
Cathie Wood's investment strategy, which relies on big-swing bets on a few stocks, has contributed to this downturn. The ARK Innovation fund, the company's flagship, is heavily invested in about seven major stocks, including Tesla, Roku, and Unity Software, all of which have seen significant declines this year. Tesla, ARK’s largest holding, has seen its shares drop nearly 45 percent, trading around $142.
Despite these challenges, Wood remains optimistic about the prospects of these companies. In a recent CNBC appearance, she reiterated a bold five-year price target for Tesla of $2,000 as she continues to "buy the dip."
ARK's journey has been a volatile one. From becoming a major player in the asset management industry during the 2020 pandemic, with the innovation fund posting remarkable returns, to facing severe losses due to increased interest rates and a high-risk portfolio focused on speculative assets and emerging companies. The funds soared when interest rates were near zero but fell hard as rates rose, reducing the perceived value of future tech earnings.
ARK's decision to exit Nvidia before its meteoric ascent on the back of AI sector hype and hope also drew criticism. However, the firm defended the move, citing the need for better opportunities within the AI ecosystem despite Nvidia's successful run.
Among other doubters, Morningstar has also raised concerns about ARK's sustainability and strategic direction, especially after high personnel turnover and Wood's heavily intuitive investment approach.
“Wood remains the firm’s key person. [Her] reliance on her instincts to construct the portfolio is a liability,” Robby Greengold, an analyst at the fund ratings giant, wrote in April.
Despite the recent downturn, ARK remains a significant name in thematic investing, with Wood at the helm. Among other moonshot bets, she continues her long-standing support for cryptocurrency ventures like Coinbase Global, whose shares have seen a significant upswing over the past year.
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