For all we hear about how low-cost passively-managed funds dominate the ETF landscape, it's nice to know that a few active fund managers are still doing well.
In fact, one of them is killing it.
ARK Investment Management launched its first ETF back in 2014 and has since expanded its lineup to seven funds in total. Two of them as passively-managed and five are active, but all of them focus on next generation innovation as a theme.
ARK first got itself on the industry map a few years ago when several of its funds took large positions in Tesla (TSLA) back when the company was burning a lot of cash and was still more hype than production. ARK CEO Cathie Wood, however, was perhaps the biggest Tesla bull on Wall Street.
Back in 2018, when Elon Musk was floating the idea of taking the company private at $420 a share (funding secured!), Wood had the guts to go on TV and call Tesla a "deep value stock". Her forecast? A 5-year price target of $700 in a bear case and $4,000 in a bull case!
Her bold call succeeded in getting the street's attention, but here's the thing. She was right!
Pre-split (Tesla split 5-for-1 in August of this year), Tesla would be trading today at around $3,200. In a time when Tesla is consistently one of the most shorted stocks in the market, Wood's ultra-bull case, instead, was the one proven correct.
In case you were wondering, she recently upped her price target to $7,000 over the next five years. Her bear case price target is "only" $1,500. Her best case scenario? $15,000 per share by 2024.
Today, three of the firm's funds hold 9-10% stakes in Tesla. The ARK Innovation ETF (ARKK), the ARK Autonomous Technology & Robotics ETF (ARKQ), formerly the ARK Industrial Innovation ETF, and the ARK Next Generation Internet ETF (ARKW). You probably wouldn't be surprised to hear that they're all up huge in 2020.
ARKK and ARKW are the company's two best performers, gaining 186% and 150%, respectively, while ARKQ is up "only" 90%. Two other funds - the ARK Genomic Revolution ETF (ARKG) and the ARK Fintech Innovation ETF (ARKF) - are also up triple digits.
Investors, of course, have taken notice. The company, not long ago just a frisky upstart, now manages more than $25 billion across its lineup.
Perhaps most impressive is how ARK has carved out its niche. For the past several years, the dominant theme in the ETF industry has been the emergence of ultra-low cost passively-managed funds. Vanguard, BlackRock and State Street routinely capture the lion's share of industry flows by offering a number of ETFs with expense ratios as low as 0.03% annually.
ARK focuses on actively-managed strategies and charges around 0.75% a piece, give or take. Swimming against the stream would be an understatement, but ARK has managed to be successful through bold research, successful implementation of these ideas and, of course, a little luck and good PR.
It's also impressive that the company has had very successful ETFs across multiple industries. The broad "innovation" theme means there are some similarities across portfolios, but having 100% gainers across both technology and biotech is remarkable. It speaks highly to the company's overall research process and ability to identify future winners.
At this point, it would be unwise to bet against Cathie Wood and ARK in 2021 or at any point in the future.