(Bloomberg) -- There was a time when investors would send money into Cathie Wood’s funds even when they were struggling. This year, even as ARK Investment Management roars back, the flows are notable by their absence.
All but one US-listed ARK exchange-traded fund, the flagship ARK Innovation Fund (ticker ARKK), have seen outflows in 2023, despite the fact that most funds have at least matched — and in some cases trounced — the performance of the S&P 500 Index, according to data compiled by Bloomberg.
Meanwhile, Wood and her firm have waived some fees for one of their newest vehicles, the ARK Venture Fund (ARKVX), amid lackluster demand from investors.
It’s a sign that the cult-like fan base Wood amassed after her flagship’s gain of nearly 150% in 2020 may be finally losing interest after a rough 2022. ARKK tumbled a record 67% last year as the Federal Reserve’s interest-rate hikes dented prospects for its highly speculative, often profitless technology stocks. While many investors still bought the dip throughout last year’s selloff, enthusiasm is now waning.
“There’s certainly a camp of investors that may have lost some faith,” said Nate Geraci of the ETF Store. “How could you not?”
A representative from ARK did not respond to a request for comment.
Although coming off extremely distressed levels, returns for many of Wood’s products have had impressive starts to the year. For example, through Tuesday’s close, the ARK Next Generation Internet ETF (ARKW), which has seen $35 million in net outflows since the start of the year, has risen some 35% in that time, outperforming the S&P 500’s 8% gain.
Returns from three other ARK ETFs have also solidly outpaced the benchmark gauge, while three other products are at least tracking it. Only one — the ARK Israel Innovative Technology ETF (IZRL) — has posted negative returns since the start of the year, according to data compiled by Bloomberg.
Beyond its well-known line of ETFs, ARK also offers a fund focused on venture capital, which has struggled to catch on with investors. According to its website, the ARK Venture Fund “seeks to democratize venture capital, offering all investors access to what we believe are the most innovative companies throughout their private and public market life cycles.”
At the end of March, ARK waived the fund’s management fee to reduce the expense ratio from an estimated 4.2% to 2.9% through November 2024. The fund had roughly $15 million in net assets as of March 31 — far less than the firm’s other products.
“This is likely an attempt to attract assets to keep the fund afloat,” said Geraci.
Wood announced the fund’s launch in September, despite rising borrowing costs and mounting uncertainty facing the venture sector. Those challenges have only grown as rates rise. In the first quarter, US startups raised $37 billion from venture capitalists, the lowest haul in 13 consecutive quarters, according to data from research firm PitchBook and the National Venture Capital Association.
To be sure, while ARK’s products may have seen net outflows this year, equity ETFs at large have not exactly thrived. Bloomberg Intelligence data puts net inflows into US-listed equity ETFs at $28 billion for the first quarter, a 78% drop from the previous quarter and the lowest intake since the second quarter of 2020.
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Plus, it could be the case that solid returns from ARK’s funds may have played into the diminished flows, according to Todd Rosenbluth, head of research at VettaFi. After all, he said, the old adage of buy-low, sell-high exists in the wonky world of ETFs, too, and investors may be waiting for another dip before upping their bets on ARK.
“Those that didn’t give up are being rewarded in the short term,” said Rosenbluth. “The funds are still down quite notably on a one-year basis and a three-year basis. But if you stayed loyal up until this point, it’s been a good start to 2023.”
