Mar 29, 2022 | BEN WAITE


The financial press love to tell us about the performance of superstar fund managers.  

During 2020, the latest example of fund manager stardom was Cathy Wood and the Innovative Technology ‘Ark Fund’. The fund posted a stellar return of around 200% from the start of 2020 to February 2021.  

If we compare this to a diversified portfolio comprising 60% in global equities and 40% in higher quality bondsi, which returned in the region of 8% over the same period, the diversified investor may feel a bit disappointed. Yet 8% is actually a good outcome, given that in Q1 2020 the markets fell substantially on the back of the pandemic.   

 Figure 1: ‘Peak’ ARK (1 Jan 2020 to 21 Feb 2021) 

Data: ARK ETF and Global balanced 60% equity/40% bonds both in GBP 

If we roll on from the ‘peak’ of ARK to 12 March 2022, we can see the asymmetry in percentage returns in action.  ARK has lost over 60% and is now almost back to where it started the period, despite its 200% rise. 

Figure 2: ‘Peak’ ARKK (1 Jan 2020 to 21 Feb 2021) 

Data: ARK ETF and Global balanced 60% equity/40% bonds both in GBP.  

Over the whole period, ARK is up 13% and the global balanced portfolio is up 9%, so not much to choose between the two, or is there?  There are two sides to the investment coin. One is return and the other is risk. Over the whole period, the ARK fund is almost four times more volatile than the global balanced fund, which makes it inherently harder to live with. 

The other useful lesson is that most of the stellar performance occurred when the ARK Fund was relatively small. The 200% performance assumes that a lump sum investment was made on 1st January 2020 when assets under management were just below US$2bn. 

Yet as is very common with investment funds which enjoy stellar returns, the ARK Fund only became popular once the majority of this return had happened. Consequently, a large component of investors’ money chasing the investment performance was invested at or near to the peak of the fund and has since suffered the bulk of the subsequent falls. 

By the end of 2020, the ARK Fund was sitting on US$21bn, peaking in February 2021 at US$28bn. By the end of 2021, it was back down to around US$16bn and at the time of writing now around US$10bn! 

Unfortunately, many investors’ have once again ignored the risk warning – past performance is no guide to future performance – and continued to exhibit Einstein’s definition of insanity – doing the same thing over and over again, expecting a different result. 

Meanwhile, the investors who’ve adopted a globally diversified approach, might feel that their portfolios are as dull as dishwater but the diversification results in a smoother journey and makes it more likely you’ll arrive at your destinations. Unlike when your Ark is sinking, you jump and hopefully can swim!  

Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in. 

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