Wood’s flagship ETF has lost much of its value since early 2021, but there’s a way the investment management firm continues to make money.
Cathie Wood’s Ark Invest makes an unusual amount of money by implementing a practice that is a bit out of the ordinary.
Heavy on tech stocks, the Ark Innovation ETF (ARKK) – Get a free reporthad a difficult 2022 as interest rate hikes and Russia’s war against Ukraine negatively affected markets in general.
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But the investment management firm earned more than 70% of its $310 million in investment fees since ARKK fell 75% from its February 2021 high of $156.58, according to the financial times (FOOT).
The Ark Innovation ETF closed at $37.29 on March 9.
“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.” wrote FT.
In 2020, the covid pandemic caused an increase in the use of some new technologies that ARKK had. Its value increased and the fund became very popular.
“ARK Investments CEO Cathie Wood became a media darling, buoyed by ARKK’s meteoric gains in 2020. Even as ARK funds plummet, the press can’t get enough of Cathie Wood,” wrote Elisabeth Kashner in set of facts.
While Ark’s flagship ETF has lost much of its value, Wood continues to have a devoted following.
“More than $3 billion flowed into ARKK in the first two weeks of February 2021, as the fund increased more than 700% since launch, bringing its assets to a high of $27.9 billion.” reported by FT. “But a rising interest rate environment that hit growth stocks caused their value to drop. He now manages $7.6 billion in assets.
Some ARKK investors may have experienced such steep drops in value that they simply cannot bring themselves to withdraw.
“There’s a category of investor that’s trapped,” said Ben Johnson, Morningstar’s head of client solutions. according to FT. “They’re anchored to the price they bought it at and hope it’s going to get back there somehow, some way.”
Johnson also spoke about how high volatility affects the fund.
“If your price chart ripples enough and there is a sufficient level of volatility in the price of the instrument, it will attract demand from a very different crowd, I can’t use the word investor, who feeds and benefits from, volatility, ” he said.
Since its launch in 2014, ARKK has fallen about 27 cents in value in dollar-weighted returns. Those who bought at their 2021 high have lost 74%, FT said.
“(Wood’s) fees are high for the industry,” kashner said. “But investors have been their own worst enemy. People have committed the cardinal sin of chasing returns.”
