ARK invest

I’m writing this because I’ve mentioned ARK invest favorably in past posts. My family and I own several of the company’s actively managed ETFs. I have no other interest in ARK. In fact, I was skeptical at first that Cathie Wood, the CIO, who came from Bernstein, a deep value organization, could be successful as a growth investor. It turns out she can.

Ark’s focus is on disruptive growth. The ETFs are highly concentrated. Each holds around 30 names (compared with 50 for a typical growth investor and maybe 200 for a true value investor). The top five names may be a quarter of the fund. There are key stocks like Square that can be large positions in several funds.

Yes, the ETFs are risky. But they’ve been ideal for the economic environment of the past few years, with an incompetent Washington dismantling the profits of traditional industry. Their performance has been through the roof. Some years ago, when I tried to buy them in my Merrill Edge account, Merrill refused to do the trades, saying the ETFs were too risky (i.e., illiquid). Now, however, ARK’s assets under management are about $30 billion. It collects a management fee of 0.75%. According to Forbes, Wood, 64, has a net worth of $250 million, principally, (if not entirely) from her majority ownership of the firm.

I don’t mean this to be a commercial for ARK, though.

A short while ago, ARK announced it was soliciting proposals to replace its current ETF distributor, Resolute Investment Distributors. Three days later, Resolute, already a minority holder, announced it intended to exercise an option it has had since becoming ARK’s distributor in 2016, that would make it the majority owner of ARK. Wood, the current majority owner, with a reported 50% – 75% interest, is “disappointed.”

Details aren’t available. An article in Barrons is the best I’ve seen.

In a perfect world, what we’re learning about is the opening act in a negotiation about the future division of profits. I don’t imagine either side thought they’d be talking about how to split a $225 million/year pie, so there would appear to be plenty of money to satisfy everyone.

On the other hand, people aren’t always rational. Ego often gets seriously in the way. The fact that the negotiation appears to be happening in public rather than behind closed doors suggests that not all is well in the business relationship between Resolute and ARK.

My experience is that a well-constructed portfolio can manage on its own for maybe a year. So I don’t think there’s need for immediate action. There may be legal or contractual impediments to either side taking drastic measures. We just don’t know. Still, this developing story is something to keep an eye on.

One response

  1. I was researching which EFT had tech and health related portfolios which contained companies that I thought were technically advanced. ARK was one of the few. As an older tech guy (Atari etc) I will keep on looking over the next few months to see what should be the top ten companies is a tech eft

    Steve

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