ARK Invest’s CEO, Cathie Wood, talks to ETF Express about the firm’s recent purchase of Rize ETF, expansion into Europe and the difference between active and thematic investing.
What was the driver for the purchase of Rize ETF?
This transaction marks a significant milestone in ARK Invest’s global expansion strategy and allows the firm to bring its suite of innovation-based active equity ETFs, under the UCITS framework, to investors across Europe, the United Kingdom and new markets globally. The transaction allows ARK to establish a European UCITS suite of its ETF strategies along with the proven distribution excellence of Rize ETF. It also incorporates Rize ETF’s valuable and differentiated impact strategies to be distributed by ARK affiliates across our global footprint. We are planning to launch several of ARK’s actively-managed strategies in the European markets by the end of the year.
Do you believe that European investors have an appetite for active ETFs?
Active ETFs in Europe have witnessed a remarkable surge in popularity. In just five years, AUM has soared from EUR8.6 billion to a whopping EUR33.3 billion. This significant growth is attributed to robust inflows over the past two years, with an impressive EUR5.1 billion added in 2022 alone, followed by an additional EUR4.8 billion this year. We expect this trend to continue, especially if you consider that in the US, the active ETF market commands an AUM of close to EUR500 billion.
Rize ETF is a thematic ETF issuer and you are an active ETF issuer – when does thematic become active and vice versa?
The terms ‘thematic’ and ‘active’ in the context of ETFs are not mutually exclusive; they refer to different dimensions of investment strategy. Thematic ETFs, such as those issued by Rize ETF, invest in specific ‘themes’ available in the stock market. These themes can range from disruptive innovation and megatrends to sustainable investments encompassing environmental and social objectives. On the other hand, the term ‘active’ refers to the investment management style of an ETF. Active ETFs are run by teams of portfolio managers that make investment decisions based on ongoing research and analysis, aiming to outperform a benchmark or deliver a specific outcome. Accordingly, a thematic ETF can be either actively managed or follow an index replicating approach. An active thematic ETF combines the thematic focus with active decisions about which stocks to buy and/or sell within that theme. Conversely, an index thematic ETF replicates a predefined index related to the chosen theme.
Your active investment strategy in themes of disruptive innovation create a very volatile return…where next for ARK Invest?
At ARK Invest, our primary objective is to invest in genuinely disruptive innovation with a long-term horizon. While we recognise that our thematic approach might exhibit periods of short-term volatility, it’s essential to understand that this is not the central focus or objective of our strategy. Investors who concentrate solely on short-term performance might not fully capture the potential of our approach. We believe that the real value and potential of disruptive innovation unfolds over time and short-term assessments might not do justice to the transformative opportunities we target.
