Don't Cry For Me Arkkgentina!! ARK ETFs lost investors a whopping $12.6 BILLION last year while netting ARK a massive management fee payday (yay?). Here’s a 🧵recapping a wild year for the primary family of ARK ETFs ($ARKK, $ARKG, $ARKW, $ARKQ, $ARKF, $ARKX). Let’s dig in… 
2/With 2021 behind us, it’s a good time to re-visit our friends over at ARK Invest to take a look under the hood at what went down last year. Obviously, 2021 wasn’t so bueno for the ARK funds – the flagship $ARKK lost 24% in a year when Qs and Spoos were up 27%. #notgood
3/But ser, you’re cherry-picking one super bad year when these long-only ETFs lost money in a raging bull market; what about the MASSIVE gains in ARK funds in 2020???!!! That’s an excellent question! See here:
https://twitter.com/ttp_cap/status/1384610614337802240?s=21
4/I’ve already done a deep-dive on past years’ performance here:
So let’s not re-hash that, but here’s a table updating all the #s from that thread thru ’21 so we can level-set ourselves for a discussion about how much capital ARK burned for investors:
https://twitter.com/ttp_cap/status/1384610686337159169?s=21
So let’s not re-hash that, but here’s a table updating all the #s from that thread thru ’21 so we can level-set ourselves for a discussion about how much capital ARK burned for investors:
5/Ok 21 was a bad year so what? The answer to that comes in two parts: (1) from a capital destruction perspective, it was actually worse than what those performance #s look like on the surface, & (2) despite the losses, it was actually a banner year for the ARK team’s bonus pool!
6/For starters, ARK Invest actually finished 2021 with a net INFLOW of ~$8billion on my math. That’s right – in a year where the flagship ARKK ETF was down 24% against Qs up 27%, ARK still sucked in $8bn of net new investor capital. Stunning, right?
7/The magic here is all attributable to flows – in late Feb (magically right around the time $ARKK peaked) ARK’s 5 primary ETFs hit $17bn+ of aggregate Inflows on the year and stayed around this mark thru April. From the peak, ARK has lost ~$9bn of those inflows…
8/That is, ARK’s investors bought high and sold low. In fact, they have been progressively selling lower and lower in 2021 (and into this year). Here’s a chart that shows what cumulative annual fund flows have looked like for the ARK ETFs in 2020-21:
9/As you can see from that chart, ARK ETFs took in a crazy $20bn of Inflows in 2020 and were on pace to match that again thru the first couple months of 2021 before hitting the wall. You can also see from that chart the flows really accelerated higher starting in August 2020.
10/In fact, ARK ETFs added ~$15bn of inflows from Aug-Dec’20, and then another ~$17bn in Jan-Feb’21. So a mind-boggling $32bn+ of capital flowed into ARK over that timeframe! This is fairly problematic when you consider a chart of any of the ARK ETFs relative to those flows...
11/Here’s a chart of the $ARKK ETF showing exactly this phenomenon. I overlaid $ARKK’s VWAP against inflows during the 2020-21 timeframe. The solid horizontal black line in the chart shows roughly where inflows were when the stock was last ~$86 (Aug’20) where it hit today:
12/What you can see from that chart is that essentially all of the $ that flowed into $ARKK since Aug’20 is now underwater. And that chunk of inflows represents the vast majority of all the net flows into the ETF not just the last 2 years but EVER. Scary stuff, right?
13/On my math, at ~$86/share, the $ARKK ETF alone has ~$11 BILLION of inflows that are underwater. Keep in mind that NAV at yesterday’s close (1/4/22) was $15.6bn. So if my math is right, over 2/3 of the NAV of this ETF is investor capital that is losing money!
14/The $ARKG ETF is even worse, if you can believe it – ARKG has NAV of $5.1bn (1/4/22). On my #s, at ~$56/share where the ETF hit today, over $6bn of ARGK inflows are underwater. Said another way, ARKG has on net DESTROYED investor capital over the entire life of the ETF!!
15/How is this possible??? Easy – the magic of fund flows. Investors in ARK ETFs have systematically bought them when they were going up and sold them down. It’s that simple. And the majority of the inflows all came during the late-2020/early’21 bull run, ie at the peak.
16/Here’s some more basic math which crystalizes the ‘21 performance: I took the starting NAV for each ETF, added in Fund flows, and subtracted that from yr-end NAV. The net of all that is how much profit or loss accrued to ARK ETF investors during the year. Here’s the table:
17/As you can see from that table, the 6 ARK ETFs destroyed $12.6 BILLION in investor capital in ‘21 based on this analysis!! This is staggering. Even $ARKQ, the only ARK ETF in '21 that wasn't down (in terms of price) cost investors $200m+ in losses due to the timing of flows.
18/Now, I know exactly what the retort to all of this will be – so what, ARK crushed it in '20 and the funds are still up over the last 2 years, despite the horrible losses in '21, right?? Wrong. In fact, the ETFs overall have lost investors money over the last 2 years.
19/If we run the same analysis on end-19 NAV + 2yr Flows – end-21 NAV we get a net loss overall for the 6 ARK ETFs in aggregate of ~$1.8bn. That’s right – despite 2020 when multiple ARK ETFs were up 100%+, ARK ETFs have on net destroyed investor capital over the last 2 years.
20/But please don’t shed a tear for ARK Invest because as noted earlier, 2021 was a banner year for the managers of the funds! ARK has a fiscal-year ending in July, so the latest data on Management Fee Revenue that we have from their filings is through 7/21…
21/In FY21 (year-ending 7/21), ARK generated a phenomenal $259 MILLION in management fee income alone off of just the 6 major ARK ETFs I have highlighted here. This is legit, top-tier hedge fund-type bonus pool money, particularly for what is a fairly small ARK investment team.
22/For perspective, in FY18 (only 3 yrs ago), ARK generated a measly $8m of fee revenue, barely enough to keep the lights on. If we calendarize the numbers (using a January yr-end), I estimate ARK generated $300+ MILLION in fee revenue in 2021 over the 6 ETFs.
23/This is simply a staggering number when you consider it in light of the capital that ARK destroyed in its funds during the same calendar year. Here’s a table showing data from their semi-Annual filings on Management Fee Revenue (CY21 estimates are mine):
24/That brings me to the end of another stupidly long ARK thread. You might ask what's the point of all of this? I'm not here to dunk on anyone or kick 'em when they are down. All of this info is just here to tie back to the cautionary tale of reflexivity in passive investing…
25/Yes ARK is an actively managed ETF. But as I’ve noted in other threads, the process through which active ETF managers like ARK invest new fund flows is in fact largely passive. I find ARK particularly intriguing for a variety of reasons…
26/…namely bc of the massive/unprecedented capital that flowed into ARK over an absurdly short period of time for what on the surface looks like a highly questionable “strategy” & investment team. I’ve spilled way too much digital ink on all of this stuff in the past…
27/…eg the highly correlated ETFs all of which are marketed to investors as separate strategies despite extremely high position overlap across the funds, as well as management’s specific commentary about their strategy to be “uniquely wrong” (see here:
https://twitter.com/ttp_cap/status/1384610614337802240?s=21
28/But it all ties back to the simple fact that the correlation of 2020’s performance with fund inflows looks increasingly like it was also causation...
29/And while the headlines will still read “but muh 2020 ARK performance!” the reality is, investors have in aggregate, amazingly, only lost money in ARK ETFs even when you include the remarkable 2020 run.
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