ZINGER KEY POINTS
Cathie Wood's ARK Innovation ETF faces significant outflows, losing $717 million in the past year.
The fund's assets have shrunk from nearly $30 billion to around $9 billion due to investment losses.
Investors are leaving amid concerns over interest rate hikes impacting the valuations of unprofitable growth companies.
Investors have reportedly been pulling money out of Cathie Wood‘s flagship exchange-traded fund, the ARK Innovation ETF
ARKK, despite its rally of over 50% this year.
What Happened: Over the past 12 months, investors have withdrawn a net $717 million from the fund, the Wall Street Journal reported Sunday, citing FactSet data.
This marks a significant shift as the fund had previously been attracting investor cash since its inception in 2014. The fund’s assets under management have reportedly shrunk from nearly $30 billion to approximately $9 billion, largely due to investment losses.
The ARK Innovation ETF, also known as ARKK, gained popularity during the COVID-19 pandemic for its successful bets on unprofitable and “disruptive” technology companies. It experienced significant inflows, including a $6.5 billion influx in the first quarter of 2021, the Journal reported.
However, the valuations of unprofitable growth companies took a hit when the Federal Reserve implemented an aggressive interest rate hike campaign. As a result, shares of ARKK plunged 67% in 2022.
Now, analysts suggest that investors who experienced significant losses are choosing to exit the fund for good, as per the Journal.
Despite the recent rally, ARKK shares are still trading approximately 70% below their all-time high. This is in contrast to the S&P 500, which has climbed 17% this year. The ARK fund’s top holdings include Tesla Inc, Coinbase Global, Inc., Roku Inc, Zoom Video Communications, and Jack Dorsey‘s Block Inc. Only Tesla and Zoom were profitable last year, the Journal reported.
Why It Matters: Investors appear to have less interest and patience for companies that are not expected to turn a profit soon, especially with higher interest rates leading to a higher opportunity cost.
The Journal’s report also noted that the ARK brand has also lost some of its appeal due to the fund’s significant fall and missed opportunities, such as selling its Nvidia position before the stock’s massive rally.
While the outflows at ARK have been significant, other ETFs have been attracting investor money. June saw strong equity ETF flows, and active funds have received over $100 billion in inflows over the past 12 months, according to the report.
The ARK Innovation ETF has generated significant fee revenue for ARK Investment Management, despite the recent outflows, according to the Journal.
