Though it’s lost nearly $10 billion of investors’s money, the flagship ETF from Cathie Wood’s Ark Investment Management has garnered over $300 million in fees since it launched 9 years ago, reports an article in Financial Times. In spite of those massive losses over the last two years, mainly due to the plunge in tech stocks, investors continue to pour money into the Ark Disruptive Innovation ETF (ARKK).
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70% of those fees have been earned since the fund began declining in 2021, proving that the ETF still has a strong attraction for some investors. So far this year, the fund has raked in about $230,000 a day in fees. Wood became known for her wagers on innovative tech companies, many of them risky and fast-growing, and the ARKK fund concentrated mainly on companies that Wood views as disruptors. ARKK generated huge returns for investors, especially those that got in early, and attracted a heavy stream of inflows. At its peak, it managed $27.9 billion in assets in February 2021, but after declining amid the tech rout and rising interest rates, it’s currently managing $7.6 billion in assets, the article reports.
ARKK’s management fee of 0.75% is nearly twice the average for other actively-managed ETFs. And while those fees have made Wood and Ark’s managers a lot of money, the same cannot be said for the investors who sustained enormous losses as the fund’s value plunged. But it could be those very losses that keep investors from pulling their money out. “There is a category of investors that is trapped,” says Ben Johnson of Morningstar. However, when ARKK rebounded at the beginning of 2023, many investors exited with reduced losses, resulting in moderate outflows. As for the continued high inflows, Johnson points to a certain category of investor “that feeds off of, and profits from, volatility,” he told FT. And strategies that try to profit off of ARKK’s volatility, such as the triple-leveraged short ARKK ETF launched in late 2021, add fuel to the fund’s tumultuous fire.
In spite of 2022’s tech rout, Wood told investors earlier this year that she still believes in “disruptive innovation” and would continue to invest in companies that further that mission. And despite the exorbitant fees and the losses incurred—investors who bought in at the fund’s peak have lost over 74%—the significant amount of investors who have stuck with her even as the fund plunged is a testament to their fervent belief in her vision.