Cathie Wood's flagship Ark fund has generated more than $310 million in fees in 9 years while wiping out $10 billion of investors' cash

Did you see what god just did to us, man?!

The most recent bubble’s poster child, Cathie Wood, has been in the newsagain. Long gone are the days that she was celebrated for being the next Buffett. Today, the woman who once expressed that her investments were “fulfilling the will of god" is more often satirised for having lost her investors so much money. $ARKK

“Did you see what god just did to us, man?!”

Fear & Loathing in Las Vegas, but probably ARKK investors too

Standing as one of many low-interest rate phenomenons, there was once a time when investors praised the fund’s forward-thinking investments in disruptive technology. Investors paid little attention to the fund’s 0.75% fee being twice the average for actively managed ETFs. Why would they? The Fed was printing money, the share price of ARKK continued to climb, and capital was sloshing around like petrol in the tank of an offroad dirtbike. But then the final bell at the bar began to ring and as is typical of market cycles, investors remained illusioned; thinking the music was still playing in the background. Denial would follow, and then later illusioned would turn into disillusionment. Tech stocks got well and truly romped. From the point of ARKK’s high in February 2021, the Nasdaq 100 has fallen ~17%, which is a bad stretch of performance by anyone’s standards. Not our Cathie though, she is built different. Her flagship fund has fallen ~75% over the same period and today still holds many of the fallen angels that marked the end of the 2020 bubble.

A list of ARKK’s current holdings, data accurate as of March 9th 2023

They must be struggling now right? …… Right?

Some of ARKK’s largest inflows came right before the top. In the first two weeks of February 2021, ARKK recorded more than $3 billion of inflows; a period when the fund was up more than 700% since inception. Assets at this point in time were just shy of $28 billion and have since dwindled to $7.6 billion. Since its inception nine years ago the ARKK fund has collected ~$310 million in fees. I know what you must be thinking; “it must be hard to earn a comfortable living now that the music has stopped”. Surprisingly not. Ark has earned more than 70% of those fees since it peaked in February 2021; more than $220 million while the share price plummeted by 75%, not bad. Just this year Factset reports that it has brought in an average of $230,000 in fees per day.

The cherry on top?

Since its inception, ARKK has wiped out more than $10 billion of its investors’ cash. But many investors have continued to support Cathie Wood and her band of analysts. Ben Johnson, Morningstar, believes they are simply trapped.

“There is a category of investor that is trapped. They’re anchored to the price at which they purchased it, and hoping it gets back there someway, somehow”.

Ben Johnson, head of client solutions at Morningstar

It’s true that ARKK inflows remain peculiarly robust. Over the last three years (since the outbreak of the pandemic) the fund has recorded net inflows of more than $15 billion. Over the trailing 12 months inflows are a little over $650 million.

But as the share price of ARKK has recovered marginally in 2023, investors have been using this as an opportunity to disembark this sunken ship. Over the trailing 3 months, ARKK has recorded net outflows of $434 million, and over the last month outflows of $137 million. I would imagine that, if one were to have faith in Cathie’s Ark, then now would be the best time to accumulate shares, not sell them. But in the same vein, these are the same investors who catapulted their savings into the fund during peak optimism. Nothing new here; uninformed investors are accustomed to feeling most pessimistic when they ought to be marvelling at the opportunities before them.

It was John Templeton who once said that bull markets mature on optimism, die on euphoria, and are reborn from pessimism.

Thanks for reading,

Conor