Cathie Wood’s tactic of selling stakes in larger, more liquid companies during drawdowns and buying less well-traded securities has helped fuel fears that Ark Investment Management could become overexposed to its more speculative bets.
So far, the opposite has happened.
While the number of companies in which Ark holds more than 10% of the capital is the same as three months ago, other indicators show a declining concentration.
The New York-based fund manager no longer owns a greater than 20% stake in any stock, down from three companies in February. Its largest stake remains in Compugen Ltd., but it fell to 17.2% from 21.3% earlier in the year.
When its stake is combined with that of Nikko Asset Management – the Japanese company with a minority stake in Ark with which it has partnered to advise on multiple funds – the pair now control 25% or more of a single company, Compugen. And the number of stocks in which both own more than 20% has fallen to eight from 10 previously.
“It’s a bit of an evolution – Ark accepting that it’s a big family of funds now,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. “It makes sense that, especially in some of the smaller cap names, they’re reducing that focus. The money you spend on smaller names can change the risk-reward calculation. “
Ark’s exchange-traded funds endured a scorching few weeks, with the flagship fund losing more than 32% from its February 12 high. Yet the exits remained modest, even if tens of billions of late investments are underwater.
This means that the portfolio manager has had time to make an orderly adjustment of positions, rather than being forced into a panicked liquidation. Ark did not respond to a request for comment.
“I was concerned that investors who were relatively new to strategy would see poor performance and then retreat, just as management increasingly favored some of these smaller companies,” said Todd Rosenbluth, head of ETF research and mutual funds at CFRA Research. “But since investors have remained relatively loyal, they did not have to change the portfolio to cope with customer buyouts.”
The decline in the company’s total ETF assets – currently $ 41 billion, down from $ 60 billion at its peak – is mainly due to the fall in shares of its funds, amid fears of inflation. higher and a rotation towards securities of value which will benefit from the economic recovery.
In fact, since the end of February, the family of funds – six actively managed indices and two tracking indices – have lost only about $ 1.2 billion. They have still collected $ 15.1 billion net since the start of the year.
“This speaks to the conviction of Ark’s investors,” said Nate Geraci, chairman of the ETF Store, a consultancy firm. “Investors aren’t running for the hills, they seem to be there for the long haul.”
None of this means that Ark funds will not face cash outflows in the future. An extended period of underperformance could rattle some Wood fans.
The $ 20 billion ARK Innovation ETF (symbol ARKK) has fallen for four straight weeks and conceded four straight weeks of exits, before rebounding slightly to end this week 1.5% higher. Short interest as a percentage of outstanding shares is 3.5%, according to data from IHS Markit Ltd., down from its all-time high of 5.3%, but still high.
“Investors might not want to make this reckless decision, but if the fund doesn’t rebound – and we don’t think it will that quickly – then we might see some of these new investors getting their money back,” said Rosenbluth.