Bold bets on high-flying technology stocks from Cathie Wood's ARK Invest have destroyed an estimated $1.3 billion in shareholder wealth over the past decade, a Morningstar analysis published this week found.
And these losses don't take into account the sharp declines seen across ARK's suite of investment offerings so far this year.
The ARK Genomic Revolution fund – with roughly $2.4 billion in assets under management – shed roughly 34% in 2021, per Yahoo Finance data, even during a blowout year for the stock market that saw the benchmark S&P 500 return 28.7% and the technology-heavy Nasdaq 100 churned out 27.5%.
The ARK Fintech Innovation ETF, with $817 million in net assets, lost about 18% last year.
Year-to-date in 2022, the funds are down 49% and 62%, respectively — losses that are not reflected in Morningstar’s data.
ARK'S ETFs came in fifth place among Morningstar’s list of top 10 wealth-destroying funds compiled by portfolio strategist Amy C. Arnott, and ranked just below investment vehicles from Credit Suisse, ALPS, Kraneshares, and Barclays.
“In most cases, the fortunes of the worst-performing fund families are a product of their investment focus,” Arnott said in the analysis, noting most firms seeing the largest losses for clients had fund lineups focused on categories like commodities, natural resources, and emerging markets.
In the case of Cathie Wood’s ARK, the investment management firm employs an actively-managed equity strategy with funds focused on disruptive innovation over five investment themes — artificial intelligence, autonomous vehicles, fintech, DNA sequencing, and robotics and 3D printing.
Companies in these industries have been hit particularly hard since late last year as the Federal Reserve moved away from easy-money policies that fueled investor enthusiasm for speculative, high-flying pockets of the market in an effort to tame inflation.
“Any time you have a growth-oriented investment style, those stocks are going to be very sensitive to any increase in interest rates because so much of the value of those stocks is based on cash flows into the future,” Arnott said in an interview with Yahoo Finance.
“Any continued interest rate hikes would be continually negative for the type of stocks that Ark focuses on,” she said, adding, however, that the stocks would not be particularly damaged by a recession.
ARK’s flagship exchange-traded fund, the ARK Innovation ETF (ARKK) — often seen as a proxy for U.S. speculative tech stocks — has dropped more than 60% this year. ARKK has about $8 billion in net assets. ARKK gained popularity after a stunning pandemic return of 150% in 2020 that helped it attract $20.6 billion in estimated inflows in 2021, according to Morningstar.
Wood earlier this year promised ARKK ETF investors a 50% compound annual rate of return for the next five years.
In an interview back in April, Wood said the decline in ARKK of 36% year-to-date at the time suggested return expectations had increased to 50% annually from 15%. Since then, ARKK has fallen another 44% and was down about 64% this year as of Wednesday's close.
“Whether or not these stocks can meet Cathie’s projections is a question mark, but I think people should definitely realize that the type of returns that we saw in 2020 when several of the ARK funds had triple digit returns – that’s very unlikely to be repeated in any future year," Arnott said.
Investors in ARKK who entered at inception in 2014 would still be in the green. In calculations provided to Yahoo Finance, Arnott said that an investment of $10,000 at the time of the fund's launch would total $18,951 as of Wednesday’s close at $34.35 – but the majority of investors in the vehicle did not enter until recent years.
Someone who bought in five years ago with a $10,000 investment would be just about breaking even, per Arnott’s math. But an investor who forayed into ARKK three years ago with that amount would be down to $7,176.
Even amid sharp declines decline, Bloomberg data shows ARKK has attracted roughly $1.5 billion in inflows year to date.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc