Is Liquidity a Problem for ARK?

Unprecendented success at the ARK ETFs has seen inflows swell. How can ETFs manage capacity concerns, asks Morningstar's Ben Johnson?

11 March, 2021 | 12:03PM
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By every measure, the ARK family of funds has been tremendously successful. ARK founder Cathie Wood and team have seen their vision of the trends that will shape the future translate into off-the-charts performance. Investors have taken notice, and investment flows have followed. The firm’s recent growth is unprecedented among the upper ranks of the asset management industry. But as the firm skyrockets up the industry league table, investors should be asking whether the kind of performance that has landed ARK on its current perch is sustainable--especially as capacity concerns mount.

ARK’s Arc

From its October 31, 2014, inception through February 28, 2021, ARK’s flagship fund, the ARK Innovation ETF (ARKK) gained 36.01% on an annualised basis. That is nearly 23 percentage points better than the Morningstar US Market Index and just over 21 percentage points ahead of the mid-cap growth Morningstar Category average. In 2020, ARKK’s performance went from peppy to parabolic as the fund gained 153%. A $10,000 investment at inception would have been worth $70,053 on February 28, 2021.

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