Cathie Wood and Ark should look to European ETF market following US success

The US ETF issuer has passed $50bn assets under management (AUM), up from $3bn at the start of 2020

Tom Eckett

Cathie Wood ARK

With the uptake of thematic ETFs in full swing this side of the pond, it is surely only a matter of time before Cathie Wood and Ark Investment Management bring its range of active ETFs to European investors.

Wood (pictured), who has been given the nickname ‘Money Tree’ by South Korean investors, certainly left her mark on the ETF industry in 2020 with her firm seeing $20.6bn inflows and five of its six-strong ETF range returning over 100% over the 12 months.

In particular, the firm’s flagship $25.7bn Ark Innovation ETF (ARKK) has been a shining light returning 20% so far this year and 149% in 2020.

Demand has shown no signs of slowing down with investors piling a further $11bn into the range since the start of the year taking its AUM to over $50bn, the ninth highest across ETF issuers in the US and up from a mere $3bn since the beginning of 2019.

A quick scan across trading platform forums, blogs and Reddit shows European investors are calling out for the US issuer to wrap its strategies in UCITS ETF format.

Ark has a small UCITS presence already. In 2018, the firm, along with partner Nikko Asset Management, announced it was launching the Nikko AM ARK Disruptive Innovation fund, a mirror strategy of ARKK.

While this is a start, the lack of UCITS ETFs means Ark is losing out to other ETF issuers in a market where thematic ETFs are in hot demand.

Highlighting this, thematic ETFs saw a record €9.5bn inflows last year almost doubling the segment’s assets which jumped to €22.7bn.

As will be highlighted in ETF Stream’s upcoming Big Call: Thematic ETFs event, this has been driven by the eye-watering returns on offer and the appeal of investing in the latest megatrends such as cloud computing or robotics and automation.

A word of caution to investors though. Ark’s ETF range is heavily weighted to tech stocks such as Tesla which shot the lights out last year following the coronavirus pandemic and a dramatic shift in the way people live their lives.

Whether this performance can continue in 2021 and beyond is certainly debatable. As Jeffrey Ptak, head of global manager research at Morningstar, found: “The ensuing years tend to be unkind to funds [that gain 100% or more in a calendar year]. The average fund tumbled to a 9.9% loss in the year following, a 17.5% annual loss in the two subsequent years and a 16.6% per year loss in the three years that followed.”

Furthermore, the idea of the star investor may not sit easily with ETF investors which Wood, who has the ability to move share prices when including she picks a new stock, certainly is.

Neil Woodford is the standard-bearer in Europe for any investor looking for reasons not to invest in star fund managers and just because ARK’s strategies are wrapped in ETFs, it does not change the fact they are active in their decision making.

Overall, however, it would be fantastic to see another ETF issuer launch in Europe and provide more choice for European investors, particularly considering the meteoric rise of Ark and Cathie Wood over the past 12 months.

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