Nikko sticks with Ark's investment strategy despite hard times

Nikko Asset Management isn't among those bailing from Cathie Wood's Ark Innovation exchange-traded fund (ETF).

Tuesday, January 25th 2022, 7:39AM

by BusinessDesk

In 2019, Wood called herself the most-trolled fund manager on earth, and she certainly seems to have a target on her back now.

Wood's funds, which invest in technological disruption, have suffered huge price falls over the last year as well as significant funds outflows.

However, she still had more than US$30 billion (NZ$44.34b) in funds under management at Dec 31, including more than US$16b in the innovation fund, according to her website.

The innovation fund's units peaked at US$159.70 in February last year and ended Wednesday at less than half that at US$75.70.

According to Bloomberg, withdrawals from the innovation fund reached US$352 million in a single day last week.

Nikko globally has been a major backer of Ark and, about two and a half years ago, the New Zealand arm started a portfolio investment entity (PIE) fund for retail investors based on the flagship Ark fund.

Expecting volatility

Managing director of the NZ arm, George Carter, told BusinessDesk his firm has always expected Ark to be volatile and that it's the riskiest of Nikko NZ's funds, a fact disclosed in investment documents.

"We absolutely went into this with our eyes open," Carter said.

"One of the areas we want investors to focus on is what are they trying to achieve over the long term," he said.

And Nikko wants investors not to worry about any given quarterly or annual performance.

Wood's stated aim with her flagship fund is to identify the stocks which will allow her to double investors' money in five years, something that would require average annual returns of about 14%.

Ark Innovation has delivered 25.9% annual returns to the end of 2021 since its inception in 2014.

Nikko's fund has a more modest aim of achieving 10% average annual returns over the long term, which would double investors' money after seven years, but has delivered 23% per annum since it started, he said.

Despite the expected volatility, stocks such as Ark have a role to play in investment strategy.

Playing a small part

In its other funds, it has no Ark holding in its conservative fund but it makes up 3% of the balanced fund and 6% of the growth fund, Carter said.

"It's going to be volatile. We know it's going to have large swings."

Ark's investors have certainly been having a wild time of it, at least some of it due to rising fears about inflation getting out of control.

The latest fall in the innovation fund's units, US$1.21 on Wednesday, was despite Wood tweeting that Nancy Lazar, chief economist at Cornerstone Macro, was predicting that US inflation, running at an annualised 7% in December, the highest in 40 years, would fall to 1.8% by the end of 2022.

In recent days, Wood has also said that the market is irrational – "I'll say what's going on right now is irrational" – and that she's more focused on deflation than inflation.

The stocks she invests in are "in deep value territory", some having halved and some even down 75%, and "my conviction couldn't be higher" about her portfolio.

Tags: Ark Invest