Four billion dollars would provide for a lot of retirements. It would, for example, pay for about 80,000 of these popular recreational vehicles. Or about 40,000 of these popular boats. Or, more prosaically, it would cover the medical costs of about 21,000 retired couples.
It’s also how much investors have lost, so far, in the rising and falling fortunes of star manager Cathie Wood’s flagship ETF ARK Innovation ARKK, -5.23%. That’s based on calculations by Morningstar Inc., the fund analyst company. ARK Innovation declined to comment.
Read: 4 lessons from ARK’s rapid rise — and fall (Barron’s)
“Investors have put in about $15.7 billion, and the current assets total is $11.6 billion,” calculates Morningstar portfolio strategist Amy Arnott. That’s since the fund’s launch in 2014, she says. “Over the past two years…there’s about a $2.6 billion loss.”
And that’s true even though the fund price itself is up 270% since 2014, and is about 50% from two years ago. That’s because investors put comparatively little into the fund early on, before it rose, but tons near the 2020 peak, just before the crash.
It’s yet another cautionary tale about the massive dangers of jumping onto a Wall Street bandwagon after it’s been rolling for a while, and the risks of the hot stock or fund which has already made your neighbor rich. Investors poured money into ARKK at the wrong times, buying once it had already gone through the roof, and then selling again once it had come back down.
Read: Jim Cramer drowns Cathie Wood’s ARK as flagship fund falters
Much of this happened in the wild market swings during the Covid crisis since March 2020. ARK Innovation and manager Cathie Wood were the hottest tickets on Wall Street when the crisis lit a fire under tech stocks. ARK rocketed over 200% in just over a year, riding the boom in big holdings like Tesla TSLA, -2.61%, Shopify SHOP, -9.80% and Roku ROKU, -5.64%.
“There was a flood of money into the fund in late 2020, just before the market turned away from hyper growth stocks,” says Arnott.
ARK peaked in February last year and since then has halved in value. Wood, ironically, says the selloff has been made much worse by new technology on Wall Street—momentum created by “quantitative” investment funds and computer “algorithms.”
The plunge has been so severe that Tuttle Capital in Connecticut launched its own ETF last year, Tuttle Capital Short Innovation ETF SARK, +5.10%, that simply bets against ARKK.
SARK is up 44% since November.
Wood declined to be interviewed for this article. But early last month she took to YouTube to offer words of encouragement to those who’ve seen their money apparently evaporate.
“We’ve got this long-term investment time horizon,” she said. “Keep your eyes on that prize…. The other side of what we’ve just been through is going to be delightful, in our opinion.”
She added: “We believe we’re going to see the turn sooner rather than later.”
Wood has developed a cult following among her investors. She is a persuasive speaker and communicates directly with videos and writings online.
“She is the expert in her space,” says Scott Bishop, a financial adviser with Avidian Wealth Solutions in Houston. ”If you like the disruptive technology space and are waiting to give it time to rebound…. I think she knows the space well and I’d buy her fund for clients that fit this profile.“
Wood and her investors have two things going for them.
First: Many of these technology and innovation stocks genuinely are on long-term growth trajectories. “These are not stay-at-home stocks, these are stay-connected, stay-competitive stocks,” Wood likes to say. Take Zoom ZM, -4.76% : COVID-19 forced people to work from home, so they suddenly started using Zoom. But now it’s ingrained. People aren’t going to stop using it once the lockdown is behind us.
Second: Many of these stocks have already cratered. Zoom, for instance, is down 75% from its peak. Whether that makes them “value,” as Wood claims, is another matter. (No matter how far a stock has already fallen, it can always fall another 100% — and plenty have.)
One of the most dangerous things any investor can do in these circumstances is to promise themselves they will sell “when the fund gets back to where it was.” There is no guarantee it will do any such thing. ARK is not a “$155-per-share fund” (the peak price) that is currently down to $73. It is a $73-per-share fund. Those losses, as the late Peter Bennett used to say, have already gone to “money heaven.”
The ARK investors who face the biggest problem aren’t those who invested in ARKK, or even those who invested at the wrong time and the wrong price, but those who invested too much. Financial experts generally say you should limit the speculative part of your portfolio to about 15% of the total.
Wood, who is ARK Invest’s chief executive as well as chief investment officer, says she has “more than half” of her own IRA invested in the ARK business and its funds. But note that includes her stake in her fund management business as well as the funds themselves.
The rich may be able to afford to lose a bigger chunk of money than everyone else. Those who take huge gambles on this fund risk paying a heavy price if things don’t go the way they hope.