Cathie Wood's Ark Invest makes an unusual amount of money implementing one practice that is a bit out of the ordinary.
Heavy in technology stocks, the Ark Innovation ETF (ARKK) had a rough 2022 as interest rate hikes and Russia's war on Ukraine adversely affected markets in general.
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But the investment management firm earned more than 70% of its $310 million in investment fees since ARKK dropped 75% from its February 2021 high of $156.58, according to the Financial Times (FT).
The Ark Innovation ETF closed at $37.29 on March 9.
"ARKK is unusually expensive -- its annual management fee of 0.75 per cent of assets is about double the average for actively managed ETFs, according to FactSet," wrote FT.
In 2020, the covid pandemic prompted a rise in use of some new technologies that ARKK held. Its value surged and the fund became intensely popular.
"ARK Investments’ CEO Cathie Wood became a media darling, spurred by ARKK’s meteoric 2020 gains. Even when ARK’s funds plummet, the press can’t get enough of Cathie Wood," wrote Elisabeth Kashner on FactSet.
While Ark's flagship ETF has lost much of its value, Wood continues to have many devoted followers.
"More than $3 billion flowed into ARKK in the first two weeks of February 2021 when the fund was up more than 700 per cent from its launch, bringing its assets to a peak of $27.9 billion," FT reported. "But a rising interest rate environment that hammered growth stocks led to a slump in its value. It now manages $7.6 billion in assets.
Some ARKK investors might have experienced drops in value so high that they simply can't bring themselves to pull out.
"There is a category of investor that is trapped," said Ben Johnson, head of client solutions at Morningstar, according to FT. "They’re anchored to the price at which they purchased it, and hoping it gets back there someway, somehow."
Johnson also talked about how high volatility affects the fund.
"If their price chart squiggles enough and there is a sufficient level of volatility in the instrument’s price, it is going to attract demand from a very different crowd -- I can’t use the word investor -- that feeds off of, and profits from, volatility,” he said.
Since its launch in 2014, ARKK's value has dropped about 27 cents in dollar weighted returns. Those who bought at its high in 2021 have lost 74%, FT said.
"[Wood’s] fees are high for the sector," Kashner said. "But investors have been their own worst enemy. People committed the cardinal sin of chasing returns."
