ARK Faithful Hold Firm—Mostly

There’s no sugarcoating it: The performance of ARK’s suite of ETFs in recent months has been abysmal.

On top of the 23.4% loss it suffered in 2021, the ARK Innovation ETF (ARKK) has lost another 25% this year. Prices for the fund have been cut in half since peaking in February 2021, with much of its postpandemic gains wiped out.

Yet interestingly, while the ETF has given up its gains, it hasn’t given up any of the investor money it gathered over the last few years, suggesting that fans of Cathie Wood and her funds are not losing faith the aggressive, high growth strategies she is known for.
 

ARKK

Investors Keeping The Faith

The most resilient of the funds in terms of assets has been ARKK, the issuer’s flagship fund that invests in all of ARK’s highest-conviction themes. After picking up $9.6 billion of assets in 2020, ARKK added $4.6 billion in 2021 and another $61 million so far this year.

Sure, the ETF’s total assets under management are down—from a peak of $28.2 billion in February 2021 to around $12 billion today—but they’d be much lower if investors in the fund had given up on the strategy.

Investors’ conviction in ARK extends to its second biggest fund, the ARK Genomic Revolution ETF (ARKG). This $4 billion fund was as big as $13 billion at its peak, but much of that drop can be attributed to the falling prices of its holdings rather than investors fleeing the ETF.

There were brief flurries of investor redemptions, most notably in February and March 2021, but the ETF still pulled in a net $1.2 billion in fresh assets that year and another $34 million this year.

Less Resilient

While far from hemorrhaging assets, the other ETFs in ARK’s suite haven’t been as immune to investor redemptions as ARKK and ARKG.

The only one of them to face net outflows in 2021 was the ARK Next Generation Internet ETF (ARKW), but here in 2022, that ETF—along with five others—is facing redemptions on a year-to-date basis.

So far in 2022, ARKW’s outflows have totaled $360 million, a substantial sum for a fund with less than $3 billion in assets. At the same time, the $1.6 billion ARK Autonomous Technology & Robotics ETF (ARKQ) and the $1.6 billion ARK Fintech Innovation ETF (ARKF) have seen outflows of $208 million and $154 million, respectively, in 2022.

The smaller ARK Space Exploration & Innovation ETF (ARKX), 3D Printing ETF (PRNT) and ARK Israel Innovative Technology ETF (IZRL) have also had outflows this year.

Different Interpretations

In total, ARK’s nine ETFs have had year-to-date outflows of $710 million:

There are a few ways to interpret that number. Taking a rosy view, you could argue that $710 million is modest next to ARK’s net inflows of $8.5 billion in 2021 and $20.6 billion in 2020. It’s also not huge in comparison to ARK’s total AUM of $22.6 billion.

Also encouraging is the fact that ARK’s two biggest fund’s—ARKK and ARKG—are still hanging on to net inflows in 2022 despite terrible performance. That could mean ARK’s investors are going to stick with it through thick and thin.

On the other hand, a more pessimistic interpretation might be that ARK’s once-faithful investors are beginning to bail. Perhaps it starts with the smaller funds and then eventually spreads to the big ones. What starts as a trickle could turn into a deluge of outflows unless ARK’s performance turns around soon.

Then there is also the middle ground, where ARK loses a modest amount of assets, and then if and when the ETFs rebound, investors come back in.

We can only speculate about how this all shakes out. The only thing certain is that ARK investors have been quite committed all throughout a brutal sell-off in the issuer’s ETFs. Small cracks in their conviction have begun to show; time will tell if that’s all they are or if they turn into something bigger.

​Follow Sumit Roy on Twitter @sumitroy2