Ark Investment Management outgunned established Wall Street titans BlackRock and State Street last month, as the asset manager founded by a longstanding Tesla bull reaped the rewards of its bets on disruptive tech companies.
In a fevered market that is drawing comparisons with the internet boom of the late 1990s, Ark’s actively managed exchange traded funds have attracted $8.2bn this year, outstripping BlackRock’s iShares division and State Street’s ETF business, according to data from Morningstar. It was bettered only by Vanguard.
The performance in January caps a remarkable 12 months for New York-based Ark, cementing its position as one of the biggest winners in a stock market whose exuberance has jarred with the economic damage wrought by the pandemic.
Founded and run by Cathie Wood, a former investment officer at AllianceBernstein, Ark’s assets under management hit $46.7bn in January, according to Morningstar. Last year, they surged from $3.4bn to over $30bn.
Launched in 2014 with an investment strategy aimed at identifying “disruptive innovation”, Ark has ETFs focused on innovation, genomics, fintech, autonomous tech and the next generation internet.
Its flagship fund, the Innovation ETF, which is dominated by holdings in electric car maker Tesla, streaming company Roku and biotech Crispr Therapeutics, appreciated by 150 per cent last year. After climbing sharply earlier in January, Ark’s ETFs retreated in the past week.
The Innovation ETF has a gain of 10.4 per cent so far this year. With a weighting of more than 9 per cent, Tesla remains the fund’s largest holding.
“The ARK line-up of actively managed ETFs has delivered mind-bending returns and mind-bending flows from investors in recent months,” said Ben Johnson, director of global ETFs and passive strategies research at Morningstar. “Narratives sell at the end of the day.”
In contrast with much of the ETF universe, Ark actively manages its holdings, tilting its portfolios towards companies it believes can outperform the market. Rather than passively tracking an index, Ark functions more like an old-style mutual fund manager. It charges an expense ratio of 0.75 per cent.
Analysts say the investment firm’s ability to tap into the market’s zeitgeist has been helped by regular videos from Ms Wood discussing market and economic trends, as well as webinars.
“Something interesting and different has happened with Ark,” compared with other actively managed ETFs, said David Nadig, chief investment officer at ETF Trends. Alongside taking “aggressively concentrated bets”, the firm is “very good at taking complex stories about companies and explaining them to investors,” he added.
However, Ark’s stunning record has drawn uncomfortable comparisons with a group of thematic funds that were popular as the dotcom boom reached a peak in the late 1990s. It has also set a high bar for the group’s future performance.
Ark’s Innovation ETF has, on an annualised basis, returned 45.47 per cent for the past five years, according to Mr Johnson at Morningstar. Between 1995 and 1999, only four funds produced higher returns than Ark. All fell sharply between 2000 and 2003, and eventually closed.
“History shows that the odds of expecting that success [of the past five years] being replicated in the next five years are infinitely small,” said Mr Johnson.