Retail investors slow to buy into ARK Innovation Fund's blistering rally

Investment (THE)

21/06/2023 18:02

By David Randall
       NEW YORK, June 21(Reuters) - Individual investors have
given a cold shoulder to Cathie Wood’s ARK Innovation Fund
during their searing run this year, but some market watchers
believe that may change if risk appetite keeps improving.
    The $8 billion fund, which outperformed all U.S. equity
funds during the pandemic rally of 2020 but suffered a steep
fall last year, is up nearly 37% year-to-date, outpacing broader
markets.
    Despite those gains, the fund has notched more than $250
million in net outflows since the start of the year, according
to Lipper data. That pattern has persisted during the market’s
recent leg higher: over $157 million has left the fund over the
last eight weeks, a period in which its price gained nearly 15%.
The tech-heavy Nasdaq 100, by comparison, is up 13% in that
period. 
    ARK Invest, the fund's parent company, did not respond to a
request for comment.
    Overall, 2023 has seen investors back away from equity funds
despite the stock market's rebound, in part due to high yields
in the fixed income market offering a compelling alternative,
said Todd Rosenbluth, head of research at VettaFi. 
    Domestic equity funds and ETFs posted a total of $151.3
billion in outflows year to date through June 7th, according to
data from trade group the Investment Company Institute. 
     In ARK’s case, the dearth of inflows may also have to do
with the behavior of individual investors, who make up a
significant chunk of the fund's shareholders and have been loath
to return after many were badly hurt when it fell by as much as
60% last year, Rosenbluth said. 
    "Many investors have lost patience with the ARK ETFs and
have moved on to other strategies following the prior period
struggles," he said. "Those that stayed loyal ... are not
seeming eager to add more exposure."
    Still, the recent broadening of the equity market's rally
this year out of a handful of megacap stocks could mean
investors will eventually give Cathie Wood’s flagship fund
another look, said Virag Shah, portfolio strategist at Van
Leeuwen & Company. 
    Optimism among individual investors vaulted to a 19-month
high in the latest American Association of Individual Investors
(AAII) Sentiment Survey. Bearish sentiment plunged to a 19-month
low.
        Morgan Stanley analysts, meanwhile, wrote this week that
retail and institutional investor sentiment has reached its
highest levels in over two years and registered readings in the
top quintile of the past several decades.
  
    "Once you see the market concentration broadening out, we
think you will see the investor flows follow," potentially
sending more investors into ARK, Shah said.
    ARK's 2023 rally has largely been powered by the more than
100% gain in top holding Tesla Inc  TSLA.O , which makes up
roughly 12% of its assets. Shares of the company fell nearly 5%
Wednesday as concerns about higher interest rates weighed on
growth stocks. 
    Other positions in the fund include streaming company Roku
Inc  ROKU.O  and cancer diagnostics company Exact Sciences Corp
 EXAS.O , which are both up more than 50% over the year to date.

 (Reporting by David Randall; Editing by Ira Iosebashvili and
David Gregorio)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))