The flagship ARK Innovation ETF (ARKK) managed by prominent investor Cathie Wood is experiencing persistent capital outflows this year, as its performance continues to trail the tech-heavy Nasdaq 100 Index.
Investors have withdrawn more than $313 million from the fund year-to-date, reducing its assets under management to $7.2 billion, a far cry from its peak of $29 billion. This outflow contrasts sharply with the broader U.S. ETF market, which has attracted over $1 trillion in inflows this year.
Year-to-date, the ARKK share price has gained a mere 2%, while the Nasdaq 100 and S&P 500 indices have surged 20% and 9%, respectively. Over the past five years, ARKK shares have declined 31%, compared to gains of 116% for the Nasdaq 100 and 80% for the S&P 500.
Despite its higher fee structure, the fund's performance has been weaker than popular passive alternatives. ARKK charges a 0.75% expense ratio, significantly higher than the 0.03% fee for the Vanguard S&P 500 ETF and the 0.015% fee for the Invesco NASDAQ 100 ETF.
The underperformance of ARKK relative to major U.S. benchmarks is linked to the persistent weakness of its top holdings. The fund's largest position, Tesla Inc, is facing significant headwinds, with its stock price down roughly 20% from its year-to-date highs.
Tesla's first-quarter deliveries this year fell well short of expectations, while competition in key markets like Europe and China intensifies. A year after launching its robotaxi service, its fleet consists of only 42 vehicles, compared to Waymo's fleet of over 500.
Robinhood Markets Inc, another major holding in ARKK, has seen its stock price retreat more than 30% from its all-time high, as the cryptocurrency sector endures a prolonged downturn. The fund's third-largest holding, CRISPR Therapeutics AG, has seen its share price remain largely flat this year.
Recently, Cathie Wood invested over $300 million to acquire shares of SpaceX, making it one of the largest holdings in ARKK. While SpaceX's stock price surged following its IPO, it has since given back some gains and is down approximately 18% from its record high.
The fund's poor share price performance is also connected to its investments in the cryptocurrency industry. Beyond Robinhood, ARKK holds positions in Coinbase Global Inc and Circle Internet Financial Ltd, both of which are facing challenges as the crypto sector contends with numerous adverse factors.
Critically, ARKK has no exposure to storage industry companies like SanDisk, Seagate Technology, and Western Digital Corp, which have been key drivers behind the Nasdaq 100 and S&P 500 reaching new record highs this year.
The performance of ARKK serves as a prime example of the difficulty active management funds face in outperforming their passive counterparts. Indeed, the SPIVA scorecard indicates that over the past 15 years, 90% of funds underperformed the S&P 500; over the past five years, 88% underperformed; and over the past three years, that figure stands at 78%.
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