Bold bets on leading US technology companies have helped ARK Invest Europe to claim the top two spots for the best performing active equity ETFs sold in Europe over the past 12 months.
The ARK Artificial Intelligence & Robotics UCITS ETF (ARKI) which holds assets worth $229m has delivered a return of 80.3% in US dollar terms over the 12 months to the end of August while the $254m ARK Innovation UCITS ETF (ARKK) has returned 66.5% over the same period, according to the data provider justETF.
Both funds have significantly outperformed passive trackers which follow the main US technology benchmark such as the 20.1% delivered by Invesco’s $15.7bn NASDAQ-100 UCITS ETF (EQQQ) which has returned 20.1% over the same comparison.
The rebound follows several difficult years for ARK Invest’s founder Cathie Wood who was dubbed “Wall Street’s most controversial investor” by New York magazine in 2022, reflecting the sharply differing opinions triggered by the chief executive and chief investment officer at the Florida-based asset manager.
Analysts at the data provider Morningstar in 2024 blasted Ark Invest as the investment company that has destroyed the most wealth over the past decade with estimated cumulative losses reaching $14.3bn over the previous decade.
But some fund selectors remain more supportive.
“ARK plays an important role in the [investment] ecosystem by pushing boundaries, sparking debate and offering pure-play exposure to disruptive technological innovation,” said Karin Wiederkehr, portfolio manager for the IMP Global Megatrend Fund.
Wood’s almost boundless optimism about the possibilities offered by new technologies, such as artificial intelligence, cryptocurrencies and robotics has inspired ARK to adopt a high voltage investment style focused on identifying disruptive companies. All of ARK’s ETFs are built as concentrated portfolios with ARKI and ARKK holding just 41 and 42 companies respectively.
This approach differs markedly from most of the other active ETFs sold in Europe which operate with strict tracking errors constraints that allow a portfolio manager to make only limited deviations from an underlying benchmark in order to generate better returns.
Tesla represents the largest holding in both ARKI and ARKK with a weighting of 9.8% and 9.6% respectively.
The electric vehicle manufacturer has been described by Wood as the company that she would invest in if she was restricted to buying only one stock.
Few investment managers are prepared to stick their necks out with the bold predictions issued by Wood.
ARK Invest last year said that it expected Tesla’s share price to reach $2,600 in 2029, adding that the probability of the stock not reaching at least $2,000 was less than 25%.
Tesla’s share price has risen 69.4% to $438.5 over the 12 months to the end of September, helped by chief executive Elon Musk’s decision to leave his role in the Department of Government Efficiency (DOGE) for the Trump administration, a position which drew criticism from some investors as a distraction from his job as chief executive of the electric vehicle maker.
Tesla has contributed 16.5 percentage points of the 122.6% return generated by ARKI since it started trading in April 2024 and 15 percentage points of the 81.2% return provided by ARKK over the same period.
The strong performance of these two ETFs has helped Ark Invest’s European arm to reach the $1bn milestone for assets in September.
Passing the $1bn asset mark “demonstrates that European allocators want research driven, high conviction exposure to technological innovation,” said Stuart Forbes, head of ARK Invest Europe and global head of distribution.
Buying interest was seen from a “wide variety of investor types” including funds of funds, models run by banks and discretionary fund managers, a growing number of institutional investors across Europe and a smattering of flow from retail platforms, said Forbes.
Net investor inflows have reached $229m for ARKI and $227m for ARK since the UCITS versions of the ETFs were launched in April 2024, according to Bloomberg data.
Critics, however, remain unconvinced by the recovery in performance.
ARKK remains “uniquely sensitive” to shifts in market sentiment, warned Kenneth Lamont, a principal in the research department at Morningstar.
“ARKK has delivered periods of blistering gains alongside stretches of gut-wrenching losses. It tends to soar when investors chase risk, sink when they seek safety, and lag when value stocks lead,” said Lamont.
The combination of volatile returns and the skittish behaviour of ARK’s retail investor base has amplified the problems, according to Lamont.
“Many piled in near peaks and sold in panic during troughs, compounding losses,” he said.
As a response to that volatility, ARK has begun to roll out so-called “buffered” versions of its flagship ARKK ETF. The new Ark DIET ETF suite offers protection against losses incurred by ARKK in return for limits on future gains.
“We want to increase access. Most people don’t own Ark funds. Some don't own them because of volatility. We are taking away that reason. Everyone should have exposure to truly disruptive innovation,” said Wood in a recent interview with Bloomberg.
