ARK Investment Management LLC’s winning bet on disruptive technology firm Cathie Wood is Wall Street’s hottest fund manager since Peter Lynch or Bill Gross.
Now, those tricks threaten to turn ARK into the high-profile death of a recent shift in investor confidence from tech stocks and into cyclical stocks linked to economies that Fluctuate
ARK operates five exchange-traded funds that are actively investing in companies. Ms. Wood and her portfolio managers believe that it will change the world through what they call the “ARK”. The “disrupted innovation” among the ETF’s largest shareholders is electric car maker Tesla. Inc.,
Square payment company Inc.
And streaming media company Roku Inc.
The share prices of the three companies have jumped at least 195 percent this year since the COVID-19 outbreak, fueling an investment landscape that helped more than double ARK’s capital in the same period. But stocks fell more than 12 percent last week amid a broader sell-off in fast-growing technology stocks, a number of factors driving government bond yields soaring.
They were underperforming the tech-heavy Nasdaq Composite, which was down 4.9% last week.
Concerns about the growing interest rate environment have fueled the ARK test, which has seen a gaping hole in the investment approach. Higher returns generally make stocks grow, including stocks of big tech companies, unappealing. In addition, some of ARK’s position is in small, liquid-based stocks with great potential for swings.
ETFs were down double-digit percent last week, the biggest path since the stock market crash last March, according to FactSet. The further decline led to the decline of flagship ARK Innovation ETFs to 14% in the past month.
The Red Falls have proven difficult for many investors to become pregnant.ARK funds lost more than $ 1.8 billion between February 24 and Monday, the largest ever inflow, according to FactSet. He managed roughly $ 51 billion at the end of February, making ARK the ninth largest ETF provider. After attracting $ 36.5 billion in assets last year, more than Invesco. Ltd.
Charles Schwab Corp
And First Trust – the fourth, fifth and sixth largest ETF issuer in the US, according to Morningstar Direct.
But the latest outflows have made ARK fund-wide sales redeemed, while the company also opted to ditch shares of easy-to-trade holdings, including Apple. Inc.
And Snap Inc.,
To load favorites such as Tesla.
As tech stocks continue to fall, ETF analysts and traders worry that a combination of a broader market decline and further outflows could create a snowball effect in ARK’s portfolio. This makes some of the holdings that are less liquid and more small to trade a sharp drop.
ARK Chief Operating Officer Tom Staudt ignored any liquidity issues and said ARK’s ETFs continued to operate as other ETFs during the turbulent period.
Still, it’s a rough patch for ARK and star stock picker Ms. Wood.
“It’s been a crazy week for us here,” said Mr. Wood in a YouTube video posted on Friday that had nearly 600,000 views.
Wood founded ARK in 2014 and is currently Chief Executive Officer and Chief Investment Officer. For 12 years, AllianceBernstein’s outstanding performance of her capital, coupled with her willingness to attract investors through social media, podcasts and videos, has earned her the attention of small investors. And Reddit’s daily merchants include “Mamma Cathie,” “Aunt Cathie” and in South Korea, “Money Tree”.
“ARK funding is well suited to telling a worldly growth story in 2020, but now we are seeing a change in that,” said Jefferies stock analyst Steven DeSanctis. She saw there was an outflow, ”DeSanctis added, referring to Ms.Wood.
In addition to last week’s pullback, ARK’s return is the envy of the asset management industry, which has fueled some investor confidence in stock options after more than a decade of dominance by index tracking funds. The ARK Innovation ETF has recorded an average annual return of 36% since it started trading in 2014, compared to the S&P 500’s average return of 11% over the past 10 years.
“There have been many customer calls in the past six months due to the proceeds of the property and the main discussion of what happened when the fund was no longer a hot topic,” said William Carlisle. Coven’s director and head of ETF trading.
Staudt said ARK has a soft cap of about 10% on any equity within its fund.Tesla shares are at that level in ARK innovations and independent funds, as well as Square in ARK’s fintech innovation group for ARK’s disclosure further. Smaller stocks, Staudt said these concerns were overstated and pointed out that around 15 percent of ARK’s innovation funds invested in stocks under $ 5 billion.
If anything, volatility has created an attractive “buying opportunity” for ARK, Mr. Staudt added.
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ARK loads more shares of Tesla, Teladoc Health Inc.
And Square, during last week’s sell-off, according to ARK’s daily trading note.It also added more Zoom Video Communications shares. Inc.
It was one of the funds earlier this week.
In the midst of ARK’s fund redemption, the company also sells stakes in more widely traded liquid stocks. Salesforce.com Inc.,
He added. ARK also sold Facebook shares. Inc.,
Bristol-Myers Squibb Co. and Roche Holding g
“It’s like having dry powder in your portfolios,” said Mr. Staudt, referring to how funds generally create cash reserves to buy other stocks.
Not all investors were intrigued by ARK’s Bigfoot approach.The flow into ARK’s innovation fund turned positive Tuesday, pulling in $ 464.3 million, according to FactSet.
But ARK’s latest stumble continues to terrify others.
Toronto entrepreneur Paolo Campisi, 31, bought shares of ARK’s innovation fund in early February. But sold his shares last week after the stock plunged more than 10%, he decided to take a more risky bet on the eventual rebound by buying a cashless call option that would expire in End of the month But he sold those options as well on Wednesday, when ARK’s flagship fund fell another 6.3 percent.
“I think everyone will be challenged to go forward,” said Campizi, adding that he is unsure of the degree to which he will buy back into the fund. With someone like Cathie [Wood] Going high “
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
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