ARK funds of ‘tech queen’ Cathie Wood are emptying at a rapid pace

Cathie Wood, the queen of the bull market during the pandemic madness, is experiencing unprecedented outflows from her ARK ETFs. Investors have already withdrawn $2.2 billion this year, more than in all of 2023. Wood’s concentrated bets on losers like Tesla are causing enormous value destruction.

Cathie Wood still believes that e-car manufacturer Tesla is on its way to a share price of $2,000 within a few years. She repeated her famous prediction at the beginning of this month on business channel CNBC, although Tesla is now rapidly losing value. The share has already fallen more than 42 percent this year to $ 142. It must go times 14 to achieve Wood’s goal.

Apparently, ARK investors are also starting to doubt Wood’s predictions. Since the beginning of the year, they have withdrawn a net amount of $2.2 billion from the six actively managed trackers or ETFs (exchange-traded funds) of ARK Investment Management, business newspaper The Wall Street Journal estimates.

Total assets under management therefore plummeted by 30 percent to $11.1 billion. That’s a far cry from the $59 billion that Woods ARK managed at its peak in early 2021, when “Queen Cathie” was the heroine of meme investors who speculated wildly during the lockdowns.

ARK’s performance is no stranger to this. The flagship fund ARK Innovation has lost almost 19 percent of its value since the beginning of the year. The Nasdaq technology stock exchange rose 5 percent in the same period.

It doesn’t help that Wood sticks to a concentrated portfolio with minimal diversification. For example, barely seven shares account for half of the Innovation fund. Tesla is the largest position with 10 percent, which makes its stock market turmoil even more important. Another major position, video streamer Roku, has seen 30 percent of its value go up in smoke since early January. The recent price explosion of chip builder Nvidia passed ARK by: Wood sold the entire position at the beginning of 2023.

The ARK Innovation fund, which charges investors a 0.75 percent fee, “has completely failed to live up to the hype,” said George Cipolloni, a portfolio manager at Penn Mutual Asset Management.

“Cathie is an incredible marketer. She put forward a number of very ambitious return targets and thus attracted a lot of investor money,” Cipolloni told the Reuters news agency. In its heyday, ARK easily saw $3 billion of fresh money flowing in per month.

The downside is that a lot of that money flowed in at the peak. The result has been a rarely seen value destruction. By the end of 2023, the ARK ETFs had destroyed a total of $14.3 billion in investor money, a greater destruction of value than any asset manager in the past decade, fund data provider Morningstar calculated.

The rapidly rising interest rates from 2022 took the wind out of ARK’s sails. With zero interest rates, investors dare to gamble more on young companies with expected explosive growth. With higher interest rates, the critical sense returns, also because all that hoped-for future profit is worth less when compared to a higher interest rate today.

Even then, ARK missed the rally that was unleashed by the hope of interest rate cuts from November 2023. With Tesla as one of the culprits, especially because Wood bought additional Tesla shares when prices fell.