Cathie Wood, founder of ARK Investment Management
Thanks to ARK Invest
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Red-hot exchange-traded funds from ARK Invest had a major setback this week.
In the worst week since March last year, the company’s flagship product, the $ 24 billion
ARK Innovation
exchange traded fund (ticker: ARKK) tumbled by 14.6% as some of its top interests – including
Tesla
(TSLA) and
Roku
(ROKU) —it fell sharply. The
S&P 500,
it has meanwhile fallen by 2.4%.
An improving economic outlook – which could lead to higher prices and higher interest rates – has made equities lower this week, especially those of the technology companies flying the highest. At its peak on 12 February, ARK Innovation increased by 20% for 2021, compared to 5% for S&Ps. By the end of the month, ARK Innovation had risen by 4.7% and the S&P by 1.5%. Investors ejected more than $ 1 billion from ARK ETFs on Wednesday and Thursday, the largest net outflow in the firm’s seven-year history, and a sharp turnaround from previous weeks. The funds have so far this year amounted to $ 16 billion.
As the Wall Street proverb goes, the ducks feed as the ducks quack. Fund companies have taken note of the inflow of ARK and have implemented similar, ARK-like funds focusing on innovative and disruptive companies.
Cathie Wood, the economist who founded ARK Investment Management, is a thoughtful observer and an excellent stock voter. But the phenomenal rise of ARK is due to more than skill: five of ARK’s seven ETFs yielded more than 100% last year, a historic deviation. Proceeds like this attract money from people who rush a “sure thing” and sell as soon as stocks falter – hence the outflow of $ 1 billion in two days.
Fidelity launched a series of six actively managed disruption funds last year. Five focus on specific areas such as automation, communications, finance, medicine and technology; one,
Loyalty Disruptors
(FGDFX), covers all five themes. In total, the suite has $ 558 million in assets; year-on-year it rises by an average of 3.3%.
Its disruption funds use a new, time-based fee model. Annual fees start at 1%, decrease to 0.75% after one year and 0.5% after another two years. “The overall goal is to encourage investors for long-term investment,” said Chris Peixotto, vice president of Fidelity’s investment product group. This is especially true for disruptive funds, which can be volatile and can last for years.
The $ 421 million
Goldman Sachs innovates shares
Launched in November, the ETF (GINN) tracks an index of nearly 500 stocks – about ten times more than ARK Innovation. The lack of concentration and the lack of active management make this ETF look much more like the broad market, with top interests such as
Alphabet
(GOOG),
Nvidia
(NVDA), and
Facebook
(FB), none of which is in the ARK Innovation ETF. The Goldman Innovate ETF has yielded 4.8% so far this year.
The $ 181 million
Direxion Moonshot Innovators ETF
(MOON), which was also launched in November, is probably the ARK-like fund. It only holds 50 shares, but unlike most of ARK’s ETCs, it is not actively managed. Instead, it follows an index that uses natural language processing to review the submission of companies, identify comments on innovation, and select disruptive ventures at an early stage. The fund has risen 34% this year.
The $ 1.1 billion
Invesco NASDAQ Next Gen 100
ETF (QQQJ), a mid-cap version of the popular
Invesco QQQ Trust
(QQQ), was a big hit when it was launched in October. It follows the 101st to 200th largest Nasdaq-listed “emerging” companies, mostly in technology and other innovation-driven industries. Many of today’s mega-names were once in the Next Gen basket. The fund grew by 7.1% this year.
All of these innovation funds have been declining over the past week, but no one has seen the kind of outflow that ARK has done. Maybe it’s not always an advantage to be the first car.
Write to Evie Liu by [email protected]