ARK Invest’s hot, publicly traded funds suffered a major setback this week.
In its worst week since last March, the company’s flagship product, the $ 24 billion
Exchange-traded fund (ticker: ARKK) fell 14.6% as some of its major holdings, including
(ROKU) —it fell sharply. the
meanwhile, it fell 2.4%.
An improved economic outlook, which could lead to higher prices and higher interest rates, sent stocks down this week, especially those of higher-flying tech companies. At its peak on February 12, ARK Innovation increased 26% for 2021, compared with 5% for S&P. At the end of the month, ARK Innovation was up 4.7% and the S&P was up 1.5%. Investors pulled more than $ 1 billion from ARK ETFs on Wednesday and Thursday, the largest net outflows in the company’s seven-year history, and a sharp turnaround from previous weeks. The funds have seen inflows of $ 16 billion so far this year.
As the Wall Street adage goes, when the ducks quack, feed the ducks. Fund companies took notice of ARK’s entries and have been launching similarly specialized ARK-like funds that target innovative and disruptive companies.
Cathie Wood, the economist who founded ARK Investment Management, is a thoughtful observer and an excellent stock picker. But ARK’s phenomenal rise is due to more than skill: Five of ARK’s seven ETFs returned more than 100% last year, a historical anomaly. Returns like this draw hot money from folks who rush to do a “sure thing” and sell as soon as the stock falters, hence the $ 1 billion in exits in two days.
Fidelity launched a set of six actively managed interruption funds last April. Five are focused on specific areas such as automation, communications, finance, medicine, and technology; one,
Disruptors of fidelity
(FGDFX), covers all five topics. In total, the suite has $ 558 million in assets; so far this year, they have risen 3.3% on average.
Your interruption funds use a new time-based fee model. Annual fees start at 1%, drop to 0.75% after one year, and 0.5% after another two years. “The overall goal is to incentivize investors to invest for the long term,” says Chris Peixotto, vice president of Fidelity’s investment products group. This makes particular sense for disruptive funds, which can be volatile and take years to develop.
The $ 421 million
Goldman Sachs Innovate Equity
ETF (GINN), launched in November, tracks an index of nearly 500 stocks, roughly 10 times more than ARK Innovation. This lack of concentration and the lack of active management make this ETF much more like the broad market, with the main positions being
(FB), none of which are on the ARK Innovation ETF. The Goldman Innovate ETF has returned 4.8% so far this year.
The $ 181 million
Direxion Moonshot Innovators ETF
(MOON), also launched in November, is probably the most ARK-like fund. It has only 50 stocks, but unlike most ARK ETFs, it is not actively managed. Instead, it tracks an index that uses natural language processing to review company submissions, identify innovation-related feedback, and select early-stage disruptive companies. The fund is up 34% this year.
The $ 1.1 billion
Invesco NASDAQ Next Gen 100
ETF (QQQJ), a mid-cap version of the popular
Invesco QQQ Trust
(QQQ), was a huge success when it was released in October. It tracks “promising” companies listed on the Nasdaq from 101 to 200, primarily in technology and other innovation-driven industries. Many of today’s mega names were once in the Next Gen basket. The fund is up 7.1% this year.
All of these innovation funds have fallen in the past week, but none have seen the kind of exits that ARK did. Perhaps being the first to move is not always an advantage.
Write to Evie Liu at [email protected]