Potential economic storms prompt investors to leave Cathie Wood’s ARK

Economic uncertainty means investors want to see profits, but is the seasoned investor concerned about outflows despite her funds' rally?

Cathie Wood, one of America’s most experienced investors, has seen outflows for her ARK suite of exchange-traded fund in recent months, despite rallies for flagship funds.

Among ARK’s flagship funds, the ARK Innovation ETF (ARKK) has recorded outflows of around $200 million since October, as has the ARK Genomic Revolution ETF (ARKG) fund according to Bloomberg data. ARKK attracted $4.6 billion inflows in 2021 and $1.3 billion last year.

The Wall Street Journal reported Sunday that the ARKK fund has seen $717 million outflows over the past 12 months (FactSet data) and has slumped from $30 billion assets under management to $9 billion largely due to investment losses.

There has also been pullback from the ARK Next Generation Internet ETF (ARKW) and the ARK Fintech Innovation ETF (ARKF).

The outflows are despite rallies of 50% for the ARKW and ARKF funds and 36% for ARKK as technology stocks have rebounded as artificial intelligence drives interest and with signs of improving economic conditions.

However, increased interest rates have impacted the stocks of unprofitable companies, including many in the tech space that are not seen as turning a profit in the near-term. Among ARK’s major holdings, Tesla and Zoom were profitable in 2022 but others such as Roku and Coinbase were not. ARK sold $50 million in Coinbase stock Friday as cryptos gained.

Is wood concerned about the outflow trend for her funds, given that investors have stuck with them through some tough times in the last few years?

OPPORTUNISTIC TRADING?

Speaking to CNBC, she said that the funds have developed a nice base and trading range and that there was bound to be some profit taking as funds grew.

“I think we began to see opportunistic trading in the mid-30s to the mid-40s and it seemed to top out regularly in the mid-40s,” she said, adding that last week “our flows picked up very nicely because there are traders out there who are looking at our stock and says, ‘Wow! If it breaks out of this nice long base, it could have a very powerful move here.”

Wood also noted that the firm is seeing investors shifting from the Nasdaq 100 and Nasdaq Composite into the innovation fund.

Roxanna Islam, associate director of research and head of sector and industry research at VettaFi, told Bloomberg investors are watching the economic environment closely and that has impacted ARK ETFs.

“Many of these investors were previously hurt by riskier strategies and are exiting these funds early out of caution,” she said. “Other investors may be holding on to their positions for now but are reluctant to add more exposure.”