Fun little clip about investor behavior

[lemanfan]

Patrick Boyle is a youtuber that normally posts clips analyzing financial scams and crashes and related stuff.  His latest clip started with an analysis about the "Cathie Wood and The Ark Invest Disruptive Innovation Fund". 

The key takeaway for me however was that he showed that even in a reasonably consistently rising fund or market, most investors are so fickle and bad at timing that they lose money by buying and selling at the wrong time. 

Perhaps worth a few minutes of your time:  https://www.youtube.com/watch?v=cBxysC62tK8

[misterhorsey]

Interesting video thanks.

I actually found it insightful in the way it illustrates how much in fees Cathie Wood and her team make from the fund, irrespective of performance. And for those who aren't going to watch the entire video, the most fees ($200m) at the time when the fund is just on the cusp of losing most of it's value.

The media is always looking for drama and opinions, but it's pretty galling how business news give fund managers like Cathie a platform to speak authoritatively on the value and prospects of companies that comprise the majority of the fund that they are managing. Basically, they are compelled to speak relentlessly optimistically about the companies they invest in as their meal ticket is riding on it - and for that reason their opinions should be labelled as empty spruiking or just ignored.

Also interesting seeing how their large positions in illiquid companies ramped up the price when they bought in, and pummeled the price when they sold out. The fund doesn't sound like it was set up intentionally as a scam but it kind of effectively operates as one in the way the valuation of the fund holdings are highly dependent on volume of fund inflows.

[MustacheAndaHalf]

Patrick Boyle is a youtuber that ...

Actually he's a professor of finance and a hedge fund manager, so he has much stronger credentials than most people talking investments on YouTube.

"Boyle is the Founder of Palomar Capital Management, a UK-based hedge fund. He is a professor of finance at King’s Business School King's College London"
https://en.wikipedia.org/wiki/Patrick_Boyle_(financier)

I actually found it insightful in the way it illustrates how much in fees Cathie Wood and her team make from the fund, irrespective of performance. And for those who aren't going to watch the entire video, the most fees ($200m) at the time when the fund is just on the cusp of losing most of it's value.

His general point is correct, that ARKK's 0.75% expense ratio resulted in more profits for ARK funds in 2021 than in 2020.  But it's wrong to take the peak NAV and claim fees for a year were based on that NAV.  From that video:

"This is because the Disruptive Innovation ETF started out 2020 with under $2 billion assets under management."
"At the peak in 2021, fees would have been over $200 million dollars, and this is because so much more money had come in"
https://www.youtube.com/watch?v=cBxysC62tK8&t=116s

"Investment management fees for exchange-traded funds (ETFs) and mutual funds are deducted by the ETF or fund company, and adjustments are made to the net asset value (NAV) of the fund on a daily basis."
https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp


It was sloppy of Professor Boyle to use the peak NAV to calculate expense ratio for all of 2021, when average NAV comes much closer to the daily NAV actually used to calculate fees.  ARKK's peak NAV only represented a matter of 1-2 weeks in 2021 - nowhere close to the entire year.  You can see for yourself on the graph provided in his video, which appears about 15 seconds into the link above.  Estimating the average from looking at the graph, I'd put it somewhere between $20 billion and $24 billion, so fees would likely be closer to $160 million.  As a professor he should at least identify when he's doing a sloppy, incorrect calculation.

That said, Professor Boyle's general point stands: ARKK received far more in fees in 2021, a losing year, than in 2020, a year it became famous for +150% performance.

[clarkfan1979]

Typical example of the average investor chasing performance and then under performing the S & P 500. This example seems to be a little more extreme on losses.