I was going to observe that last Friday’s panic about SMCI that send that stock down by 20% and NVDA down by 10% seems to have dissipated as quickly as it arrived. Then I noticed an article about the ARK funds in the Wall Street Journal.

Two excerpts:

–“By the end of last year, ARK funds had destroyed more wealth than any other asset manager over the previous decade, losing investors a collective $14.3 billion, according to Morningstar,” and

–“Investors have pulled a net $2.2 billion from the six actively managed exchange-traded funds at her ARK Investment Management this year, a withdrawal that dwarfs the outflows in all of 2023. Total assets in those funds have dropped 30% in less than four months to $11.1 billion—after peaking at $59 billion in early 2021, when ARK was the world’s largest active ETF manager.”

My thoughts:

–in my experience, redemptions like this almost never happen. ARKK is down by about -16% ytd, accounting for a big chunk of the drop in assets. That’s vs. NASDAQ at +5.5%. The more typical pattern in a situation like this is that holders are very resistant to recognize losses and will hold on instead in the hope that the fund will eventually reach their breakeven. At that point virtually nothing the organization can say or do will prevent them from selling

–as of the semi-annual report of 1/31/24, ARKK had assets of $7.5 billion and unrealized losses of around $9 billion. This latter is in addition to realized losses of $2.6 billion. As Ms. Wood pointed out last year, these losses have a considerable value. To get a ballpark number, if we were to say the total losses are $12 billion and that they could be used to offset what would otherwise be taxes paid at at 33% rate, then they have a value of $4 billion. This suggests that they’re by far the largest asset in the ETF

–a turnaround typically starts with a fund restructuring under a new manager, including a concerted effort to monetize the tax losses. I have no reason to think that’s going to happen here, though.