Cathy Wood’s Ark Investment Management has lost nearly $50 billion in assets from stablecoin exchange-traded funds since their peak in 2021, highlighting the scale of losses this year in speculative tech stocks.
Total assets across Ark’s nine ETFs fell to $11.4 billion from $60.3 billion in February last year, according to Morningstar data. That led to sharp falls in the Ark Disruptive Innovation ETF, known for its ticker ARKK, which has lost about two-thirds of its value this year and is on track for its worst annual performance.
“Ark Innovation’s results this year have been terrible and very disappointing for investors,” says Robby Greengold, a strategist at Morningstar, which in April downgraded the ETF from “neutral” to “negative.”
The sharp decline highlights how growth investors like Wood got it wrong this year, as the US Federal Reserve and other central banks globally called for a decade-long period of cheap money with higher interest rates to combat inflation.
This has led to a sell-off in stocks of technology companies, particularly fast-growing and loss-making companies, which are seen as particularly vulnerable to rising interest rates that reduce their potential future returns. Investors swirl over the value of a stock that looks cheap compared to metrics like book value and earnings.
ARKK is the largest group of strategies that combines an ETF structure with stock picking power. Wood seeks to identify a few companies that can make huge gains by shaping the future, covering areas ranging from including space exploration and financial technology, to robotics and the genetic revolution.
ARKK’s major shares are down nearly 65 percent this year, staying at a five-year low and underperforming the high-tech Nasdaq Composite Index, which is down 32 percent in the same period.
ARKK’s losses sent assets under management down from a peak of $27.9 billion in February 2021 to $6.4 billion today, according to Morningstar. The decline in assets was driven entirely by a valuation decline in its portfolio of investments: Overall, the ETF has already raised $1.4 billion in new client money this year, Morninstar data shows, as investors bought into the dip.
“The huge driver of underperformance was stylistic in nature . . . globally, growth stocks suffered and equity value was more resilient,” Greengold said.
Greengold added that ARKK represented “the canary in the coal mine of system transformation as it began its descent in February 2021” and was the first of several high-profile growth funds, including Baillie Gifford’s Scottish Mortens and Chase Coleman’s Tiger Global, to suffer huge losses. .
Wood, 67, launched St. Petersburg, Florida-based Ark Investment Management in 2014. It’s known for its big, focused bets on “disruptive innovation” and its outside frontier predictions on everything from shares in electric carmaker Tesla to the price of bitcoin, In addition to her clever use of social media.
“Kathy Wood is very naive — as long as there’s a good narrative going along with something you’re willing to believe,” said Ramin Nakisa, a former UBS analyst who now runs Pension Kraft consultancy. “You have to wonder if they have been validated by the companies’ valuation, market share and potential profitability.”
ARKK is up 149 percent in 2020 as the pandemic causes investors to get excited about the technologies that power their wallets — DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain. After losing 24 percent last year, the fund has continued its decline in 2022.
ARKK’s top three positions are video communications platform Zoom, a Covid-19 winner that later gave up its pandemic-era gains; Exact Sciences, a provider of molecular cancer screening and prognostic testing services; and electric car maker Tesla, whose shares have fallen more than 60 percent this year.
Wood is also a strong supporter of cryptocurrency. This year, the bitcoin price has fallen more than 60 percent to $16,800, amid the collapse of several major hedge funds, exchanges, and lenders, including Three Arrows Capital, Celsius, BlockFi, and FTX.
In an interview with Bloomberg last month, Wood reiterated her prediction that bitcoin will reach $1 million by 2030. “Sometimes you need to test the battle, you need to go through crises . . . to see the survivors.” Ark doubled down on many of its holdings, acquired more shares in cryptocurrency exchange Coinbase, and added to its holdings in Grayscale Bitcoin Trust and crypto-focused lender Silvergate Capital.
Ark declined to comment. Wood defended its approach in an investor comment earlier this month that said disruptive innovation is ineffectively valued and undervalued.
“The companies we invest in are sacrificing short-term profits to take advantage of the exponential growth and highly profitable opportunities that a number of innovation platforms create,” she said, adding that “the long-term profitability and stock performance of that-the non-profit technology companies dubbed “technology companies.” Nonprofits “will outpace those of companies that cater to existing shareholders in the short term through share buybacks and dividends, at the expense of investing in the future.”
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