Cathie Wood's ARK Innovation ETF has had big ups and downs. Its investors, though, have mostly missed out on the gains and swallowed a big chunk of the losses, new numbers show.
The $5.8 billion fund, known by its stock ticker ARKK, became a standout because of Wood, the star portfolio manager and CEO of ARK Invest, and her bold bets on Pandemic-era tech stocks such as Tesla Motors and Zoom.
The fund more than doubled in value in 2020 -- at one point becoming the largest active ETF overseeing nearly $30 billion. Shares plunged during the next two years and have yo-yoed since. While the fund posted a 68% return in 2023, it's down about 14% so far this year.
But the average ARK investor has seen results far worse than the fund itself, according to data from fund research Morningstar.
In fact, since its 2014 inception, the fund has returned 9.7% on average per year, according to Morningstar. That's far below the triple-digit returns that investors once dreamed of, but more or less in line with long-term stock returns.
And for investors, it's even more bleak: Their average annual return, calculated by Morningstar is -17%.
ARKK didn't respond to requests for comment.
"It's wild to see a gap this large for a fund this size," said Morningstar analyst Jeffrey Ptak told Barron's. "It's virtually unheard of."
Morningstar calculates the investor return by tracking money moving into and out of a fund to see what share of the fund's annual return is actually captured by fundholders.
While it's common for investor returns to lag behind actual returns, the average for funds with more than $1 billion in assets is about a percentage point.
A big reason ARKK investors have missed so much of the fund's gains: They poured in billions during its first big run-up during the pandemic, including $12 billion in the final six months before returns began to nosedive in early 2021.
That means plenty of investors who came late to the party still suffered through 2021's and 2022's negative returns -- 23% and 67%, respectively -- caused by big losses from ARK holdings such as Zoom, Roku Inc and Roblox Corporation.
It isn't necessarily a fund portfolio manager's responsibility to police investors moving money in and out of funds. Unlike traditional mutual funds, which frequently close doors to new investments, ETFs like ARK Innovation don't.
In the firm's July shareholder letter, Wood wrote: "As an investor in our funds myself, I understand that volatility can be frustrating and unsettling,"
Filings with the Securities and Exchange Commission show Wood has more than $100,000 invested in the ARK Innovation ETF and similar stakes in at least seven other of ARK Invest's funds.
She and went on to add, "Our conviction in and commitment to investing in disruptive innovation have not wavered."
ARK bounced back last year, gaining 67%. The fund trimmed its exposure to Tesla and other top holdings including Roku and cryptocurrency broker Coinbase Global, Inc. rallied.
However, the law of compounding returns means the fund's net asset value -- essentially its share price -- has never come close to its pandemic-era highs.
In the past 12 months, investors have yanked about $2.2 billion from the fund, a move that will lock in their losses no matter what future returns ARK posts.
Ptak put the numbers in context: "I think it's fair to say it's one of the largest-scale failures we've ever seen in the fund industry."
The analyst noted that over the past five years, while ARK Innovation was on its wild ride, the S&P 500 roughly doubled in value.
Had investors simply plunked money in an S&P 500 index fund and let it sit there, they would have earned returns of 15% a year, he calculated, while ARK's investors lost about 17% a year.
"That's a major fail," he added.
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