The newly formed ARK Invest Europe has today launched three actively managed ETFs which replicate strategies already available in the US for several years.
In addition to the flagship strategy ARK Innovation UCITS ETF (ARKK), ARK Genomics Revolution UCITS ETF (ARKG) and ARK Artificial Intelligence & Robotics UCITS ETF (ARKI) have also been listed on the London Stock Exchange, Xetra and CBOE Amsterdam. Listings on Borsa Italiana and SIX Swiss exchange are due in the coming weeks.
The move to launch European versions of the US ETFs had been expected after the acquisition of Rize ETF in October 2023.
In our recent special on thematic funds, we spoke with ARK founder Cathie Wood about several topics, including artificial intelligence, Tesla and bitcoin. She hinted that a new product launch was imminent: “I think we'll be able to showcase the three portfolios that we are evolving and actually launching in the not too distant future.”
Click here to watch the interview.
Who is ARK's Cathie Wood?
After various experiences in asset management, at Capital Group and AllianceBernstein, Cathie Wood co-founded ARK Invest in 2014, with the idea of combining active stock picking within a low-cost and easily tradeable instrument such as exchange-traded funds.
ARK funds focus strongly on 'disruptive innovation', on new technologies applied in various fields. This is a high-risk investment strategy that inevitably brings high volatility.
Among the funds’ bets, mention should be made of Nvidia (NVDA); the now hot stock was bought in 2014 when it was off the radar of most investors, but then sold at the end of 2022 just before the incredible rally.
Wood was positive from the outset on Tesla (TSLA) with the first acquisition in 2016, before the 2020 rally. (Tesla is still one of the most important names in the portfolio). Wood has also always been a major fan of bitcoin.
Wood has become something of a financial rock star in the US, thanks to the stellar returns achieved by the ARK Innovation ETF between 2017 and 2020. In 2020, the fund gained 153%, exploding in popularity. But the following year it lost 23.4% and in 2022 even 67% of its value.
In February 2021, ARK funds managed over $60 billion. At the time, Forbes estimated Wood's personal wealth at around $400 million. Today, ARK Invest manages about $7 billion.
Can ARK Pick Winning Stocks? The Morningstar View
"The fund is more vulnerable than visionary," writes Morningstar strategist Robby Greengold, in his April 3, 2024 analysis of ARK Innovation ETF. The fund earns a Morningstar Medalist Rating of Negative.
By focusing on five technology platforms that Cathie Wood believes will reshape global economic sectors – artificial intelligence, blockchain, DNA sequencing, energy storage and robotics – this strategy stands out for its bold bets. "The potential of these platforms is compelling, but the company's ability to identify winners and manage the myriad risks is not so compelling," says Greengold.
The strategy navigates the choppy seas of early-stage (start-up) companies, which often promise rapid growth, but also poor earnings and an uncertain future. The Morningstar analyst reminds us that "results vary from extraordinary to terrible" and that "to successfully navigate this terrain requires predictive talent that ARK Investment Management does not possess."
The firm has also struggled to grow and retain its management team. Many have moved on over the years, including two of the longest-serving members in 2023. Wood remains the key person.
"The fact that Wood relies on his instincts to build the portfolio is a problem," says Greengold. "The highly correlated stock prices of his holdings belie the apparent diversification across many sectors (according to conventional classifications). In practice, the portfolio's exposures look a lot like those of a technology-oriented fund."
The Market Beats ARK Innovation
But while the average technology fund has risen by 15% annualised since the inception of this strategy in 2014 – coincidentally the minimum rate of return Wood expects from all holdings in this portfolio – ARK Innovation has gained 11.6% annualised through February 2024.
In short, its total returns were lower than almost all surviving technology funds and its standard deviation (a measure of volatility) was higher than all others. It also underperformed the S&P 500, which had another exceptional year in 2023.
The funds’ investment style greatly amplifies market movements. "Typically, it underperforms during market declines or when value stocks are favourable, such as in 2022," Greengold further explains.
"By contrast, it has excelled during market rises, when risk-taking on companies with high price multiples or highly uncertain futures has been amply rewarded, as was generally the case in 2023, when the ETF rose 68%."
Since the beginning of the year, however, it has lost 18% (in dollars, as of April 17, 2024).
