Cathie Wood’s flagship fund Ark surpasses $300 million in fees despite losses
Cathie Woods Ark Investment Management has earned more than $300 million in fees for its flagship exchange-traded fund since its inception nine years ago, while wiping out nearly $10 billion in investor money over the same period.
Investors have continued to put money into the Ark Disruptive Innovation ETF, known by its ticker ARKK, over the past two years despite being hit hard by the downturn in tech stocks.
According to FactSet data, Ark has earned more than 70 percent of its $310 million in fees since the fund’s valuation plummeted nearly three-quarters from its February 2021 peak. This year, it has averaged around $230,000 in fees per day as ARKK’s value recovered slightly, rising by a quarter.
“Investment fees have provided ARK and Cathie Wood with a very good living,” said Elisabeth Kashner, director of global funds, research and analytics at FactSet. “Their investors weren’t so lucky.”
The fund manager has built a loyal following for her hard-hitting bets on fast-growing tech companies, which delivered investors outsized returns and attracted staggering inflows through early 2021.
The ARKK fund has backed risky companies it believes are radically reshaping the future in technology, robotics, biotechnology and space exploration.
More than $3 billion flowed into ARKK in the first two weeks of February 2021, as the fund has grown more than 700 percent since inception, taking its assets to a peak of $27.9 billion. But a rising interest rate environment hitting growth stocks has caused their value to plummet. It now has $7.6 billion in assets under management.
ARKK is unusually expensive — its annual management fee of 0.75 percent of assets is about double the average for actively managed ETFs, according to FactSet.
The fee statement draws attention to ARKK’s unusually high investor retention for an ETF that has performed so poorly. Flows remained resilient despite the fund losing $9.5 billion in investor money on Wood’s bold bets, according to Morningstar data.
“It’s extraordinary that investors who were chasing yields on the way up didn’t reverse course,” Kashner said. “The vast majority of investors have remained loyal to Cathie Wood.”
Many investors can suffer such large losses that they are unwilling to withdraw their funds. “There’s a category of investors who are trapped,” said Ben Johnson, Morningstar’s head of client solutions. “They’re tied to the price they bought it at and hoping that somehow, somehow, it gets back there.”
The fund saw modest outflows when ARKK’s share price rallied earlier this year, allowing investors to exit with smaller losses. “They saw an upside and it was a better opportunity to get out than last year,” said Todd Rosenbluth, director of research at VettaFi, a New York-based consulting firm. “People don’t seem to strive for strong performances.”
Johnson said the fund’s unusually high volatility attracted a class of investors who used derivatives to seek returns on its large swings in valuation.
“If their price chart has enough flourishes and the instrument’s price has a sufficient level of volatility, it will attract demand from a whole different crowd — I can’t use the word investor — that feeds on, and profits from, volatility,” he said .
Strategies aimed at profiting from the volatile price of ARKK — a triple-leveraged short ARKK ETF that launched in November 2021 — have further fueled the underlying fund’s volatility, according to Johnson.
Ark did not respond to a request for comment.
Wood said in a presentation to investors in late January that “innovation was penalized in the final quarter of 2022.” But she reiterated her commitment to investing in “disruptive innovation” that would lead to “exponential growth trajectories” despite big losses.
Since inception, ARKK investors have lost nearly 27 percent in dollar-weighted returns — meaning that, on average, every dollar invested in the fund is now worth 73 cents, according to FactSet. Investors who bought at the peak are down more than 74 percent.
“[Wood’s] Fees are high for the sector,” Kashner said. “But investors were their own worst enemy. Humans have committed the cardinal sin of chasing returns.”
https://www.ft.com/content/7930fbf7-d2d6-464c-9ffa-20efcf58e21e Cathie Wood’s flagship fund Ark surpasses $300 million in fees despite losses