Has The ARK Innovation Fund ETF Finally Sprung A Leak?

The ARK Innovation Fund ETF that has become synonymous with disruptive growth stocks looks like it’s going to take a big hit

Nov. 16, 2020

The ARK Innovation ETF has become synonymous with disruptive growth stocks and its recent performance has made it the most-watched fund on Wall Street, having grown 97% year-to-date compared to the S&P 500 benchmark’s 10% growth in the same period. 

When you look at its top 5 holdings, it’s not hard to see why it jumped so much:

  1. Tesla (+375% YTD)
  2. Invitae (188% YTD)
  3. Roku (+66% YTD)
  4. Square (178% YTD)
  5. Crispr Therapeutics (+75% YTD)

Among the rest of its holdings are the likes of Teladoc, Nintendo, and much more. Just look at these returns as of November 13, 2020:

  • 29.8% annualized return since its inception in 2014.
  • 37.5% annualized return for the past five years.
  • 39.10% annualized return for the past three years.
  • 106.7% annualized return in the past year.

There’s a problem with Resolute

Well, the ARK might have sprung a leak as it was revealed on Friday that Resolute Investment Managers will exercise its option to take majority control of ARK Investment Management, a move not supported by ARK’s leader, Catherine D. Wood:

“On behalf of the employee-owners of ARK, we are disappointed that Resolute Investment Managers and its private equity owner, Kelso & Co., have chosen to issue this unwelcome notice that they intend to seize control of our business.”

Resolute acquired a minority stake in ARK in 2016 alongside an agreement that it would serve as the exclusive U.S. distributor of ARK’s investment strategies. This acquisition included an option to purchase controlling voting and equity interest in ARK that is exercisable in 2021.

Though neither firm provided the size of the existing and future ownership stakes or the financial terms of the deal, the move is unlikely to benefit ARK or its winning strategy, with CEO Wood insisting that the remarkable success of her team is rooted firmly in a culture of transparency, collaboration, and employee ownership. Wood does not believe that equity ownership by a Resolute, a party tangential to ARK’s business, is in the best interest of its stakeholders.

It looks as if ARK will fight Resolute on this one to at least maintain sovereignty over its own decision making, so for anyone invested, it’s worth keeping an eye on these developments. Should ARK maintain majority control of its operations, it will remain a far more prospective investment than if Resolute should incorporate it into its own business model, potentially breaking up a winning formula. 

For further information on ARK Innovation’s ETF, you can read our opinion here.

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