Cathie Wood’s ARK Invest Europe will face a significant challenge to win over Europe’s professional investor base and shake off the FOMO-stock retail label born out of its US endeavours.
Fund selectors are sceptical about where the group’s asset growth will come from in Europe and whether Wood’s “evangelical gut feel” investment approach will resonate in a market dominated by advisors and institutions.
ARK acquired thematic specialist Rize ETF from Martin Gilbert’s AssetCo last September in a cut-price deal of £5.25m.
Since then, Wood has been using her star power on the continent, conducting a European roadshow in a bid to win over fund selectors, many of whom remain unconvinced.
Fund selector snub
Terry McGivern, senior research analyst at AJ Bell, said Rize ETF will benefit from media-savy Wood, who has proven she can woo the retail market in the US, but questions whether her “shoot from the hip style” can be replicated in Europe.
“I do wonder which part of the market asset growth will come from,” he continued. “I suspect it will be in the more narrative, media-led FOMO end which is often dominated by retail investors, rather than institutional or adviser-led money.
“Her often clunky timing of entry and exits of large positions has allowed them to see big gains at times, but of late has also seen them suffer large and sustained drops. That sort of volatility does not lend itself well to being picked up and included in portfolios run by professional fund selectors.”
The group will also have to overcome the idea that ARK Investment Management is a wealth destroyer. According to Morningstar research, the group wiped out a total of $14.3bn of shareholder value over the past 10 years – the most of any fund house.
Andrew Limberis, investment director at Omba Advisory & Investments, said he was “sceptical” on the impact ARK would have in Europe, even in a market where an active approach to thematics could benefit European investors.
“All being said, even with potential benefits and sound reasoning of an active thematic approach, it is going to be a very difficult job to convince European investors,” he added.
Active thematic opportunity
In the months prior to the sale, AssetCo wrote down the value of Rize ETF by roughly £5m, citing the Ukraine war and “subsequent market jitters” as a reason for damaging its thematic focus.
At the time of acquisition, Rize ETF had roughly $452m assets under management across 11 ETFs, with its investor base primarily made up of professional investors, something the group hopes will give ARK Invest Europe the platform to succeed.
Rahul Bhushan, head of index at ARK Invest Europe, said: “Rize ETF’s investor base has always been wholesale clients – Europe is highly intermediated. There might be retail at the end of the chain, but we will be focusing on wholesale to build the business.”
He added there is a growing demand for multi-thematic ETFs – such as the flagship ARK Innovation ETF (ARKK) – from fund selectors who cannot be bullish around a single theme such as AI or cybersecurity.
ARK Invest Europe is set to launch its first three ETFs in Europe later this month, including ARKK, as it looks to take advantage of the burgeoning active ETF space in Europe.
“The ETFs will be a great addition to the active thematic product suites in Europe, there is nothing like this which is backed by such rigorous research,” Bhushan said. “The launches will be an interesting test case to see how the market opens up. We believe markets will open up, that is the feedback we have been getting.”
He added the group’s strong identity will help them come out on top of growing competition in the active ETF space, especially with US asset manager’s increasingly eyeing Europe as the next big growth market.
“There is a lot of fixation on US managers coming to Europe to launch active ETFs, but what are they doing that is different? It is a big existential crisis that is coming,” Bhushan warned. “Many of these managers will struggle because they do not have an identity and the market will hollow out over the next decade.”
Can investors be won round?
While it may take time for the group to shake off its retail focus, there are some investors who share Bhushan’s bullish sentiment.
James Penny, UK CIO at Tam Asset Management, said market volatility has not helped ARK over the previous couple of years but welcomed their addition to the European market.
“ARK is innovative with plenty to bring to the market to help boost both alpha and diversification for industry and retail portfolios,” he said. “In that respect, its entry into the European market is certainly one to be celebrated by both retail and professional investors.”
Karin Weiderkehr, co-founder of discretionary asset manager IMP AG, agreed, noting the addition of an active thematic investor was “great” for professional investors.
“ARK’s entry into Europe is a very positive development and we are a big fan of Cathie,” she said. “It is great to see thematics develop from a broad index approach into something more active.”
However, Wood remains a divisive figure in investing and some believe she may have to take more of a backseat to succeed.
“It may require the business to step out of Cathie’s shadow and reign in their approach for them to penetrate the institutional market,” McGivern said.
“But I do not see that anytime soon, given she is synonymous with the brand and it is hard to separate where Cathie ends and ARK starts, in its current form.”
ARK Invest Europe will have to work hard to win investors but there are signs there is appetite for their high conviction approach in Europe.
Challenges around distribution will also have to be overcome, with Bhushan noting the group has been working hard to build out its distribution capabilities – an area typically outsourced in the US, but not in Europe.
In addition, Wood has previously made clear Europe is a stepping stone to a global market for ARK – with the group eyeing growth in Asia and Latin America via the highly valuable UCITS structure.
For now, some fund selectors remain unsure. “I am not, in all honesty, expecting to see their funds proliferate widely into multi-asset fund ranges and MPS in the near future,” McGivern predicted.
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full edition, click here.
