After a brief bounceback in 2023, Cathie Wood's exchange-traded funds continued to suffer this year. Investors are losing their patience.
So far this year, investors have pulled $2.2 billion out of the six actively managed ARK ETFs, more than the asset outflows the funds have seen for the entire 2022 and 2023 combined. That's left the funds with just $11 billion, a sharp drop from the peak of $59 billion in early 2021.
Wood became a star fund manager in 2020 as many stocks in her portfolios, such as Tesla, Zoom and Roku Inc, surged during the pandemic as the market hyped up about a future disrupted by innovative technology.
Many investors rushed into the ARK funds during the bull run, which took in a whopping $20 billion in 2020 and another $8 billion the following year.
But the funds' fortunes have turned since the Federal Reserve started raising interest rates in the face of soaring inflation. That's made high-yielding bonds more appealing, while discounting the future cash flows of the unprofitable tech companies ARK owns.
Many of ARK's holdings have declined tremendously from their 2021 peaks.
Investors had largely stayed with Wood since ARK's downturn. In 2022 and 2023, the ETFs saw roughly $800 million assets outflow each year, even as the funds lost 20% to 70% of their value from the 2021 peak.
There have been signs of a comeback as the market got excited over possible Fed rate cuts as inflation comes under control. ARK Innovation gained 72% last year, outperforming the Nasdaq Composite's 45% for the first time since 2020.
But this year, the fund is 13% down again as the hopes of rate cuts wane. After years of waiting, many investors have finally decided to jump ship. The losses will be painful for many, especially investors that got on board during ARK's peak time.
By the end of last year, ARK funds had lost a collective of $14.3 billion investor wealth, according to Morningstar.
To be sure, ARK ETFs have always been risky plays and were never supposed to make up a large part of someone's portfolios. To start with, the funds are concentrated in just a handful of stocks. Oftentimes, fewer than 10 names make up more than half of the portfolio.
Moreover, its holdings are usually smaller companies that bet on exponential growth due to disruptive technologies or business models. But many factors, from the economic environment to strategic mistakes, could trip up the growth, and profits might not come in sight soon.
Tesla Motors, ARK's largest holding, had supported much of the funds' gains in the past two years. But this year, shares of the electrical-vehicle maker tumbled 42% as investors became worried about weaker-than-expected demand.
Still, Wood has repeatedly defended or even doubled down on her choices. Earlier this year, she bought more Tesla shares on a dip, remaining convinced of the company's long-term prospects due to its dominance in autonomous driving and robotics initiatives.
ARK has also missed out on Nvidia's huge rally driven by optimism that generative AI will spur massive demand for its computer chips. Wood's flagship fund, ARK Innovation, exited the stock early in 2023 after taking some profits. But the shares have nearly quadrupled since then.
Wood said earlier this year that Nvidia had gotten ahead of itself. She told Barron's in a recent interview that she will need to see more evidence that AI is actually accelerating revenue growth at companies before giving NVIDIA Corp higher price tags.
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