Morningstar - Q2 2024 - 41

ARK Tops List for Value Destruction
Even during a generally bullish
market, these fund families managed
to lose value for shareholders.
WEALTH DESTROYERS
Amy C. Arnott
Mutual funds and exchange-traded funds
created a total of $11.1 trillion in shareholder value
over the 10 years through 2023, thanks to
the generally bullish market during most of this
period. The top wealth creators were all
well-known funds in plain-vanilla fund categories
such as large-cap blend, allocation-50%
to 70% equity, and foreign large blend. The
winners list-led by Vanguard Total Stock Market
VTSMX-was dominated by the biggest
fund families, including Vanguard, Fidelity, and
American Funds. This reflects a positive
feedback loop of size and performance: Strong
performance attracts more assets, which
in turn means the biggest fund shops
have the most impact on wealth creation in
dollar terms.
Then there are the biggest wealth destroyers,
a motley crew of offerings in more specialized fund
categories that have lost value for shareholders
over the same period (EXHIBIT 1 ). I calculated how
much depreciation each fund generated in
dollar terms over the trailing 10-year period. Most
of the firms that have destroyed shareholder
value are on the smaller end of the fund industry
based on asset size (EXHIBIT 2 ). Credit Suisse,
for example, is a giant in the world of Swiss
banking but a relatively small player in the US
fund industry.
ARK, home of the flagship ARK Innovation ETF
ARKK, tops the list for value destruction.
After garnering huge asset flows in 2020 and 2021
(totaling an estimated $29.2 billion), its funds
were decimated in the 2022 bear market,
with losses ranging from 34.1% to 67.5% for the
year. Many of its funds enjoyed a strong rebound
in 2023, but that wasn't enough to offset their
previous losses. As a result, the ARK family
wiped out an estimated $14.3 billion in shareholder
value over the 10-year period-more than
twice as much as the second-worst fund family on
the list. ARK Innovation alone accounts for
about $7.1 billion of value destruction over the
trailing 10-year period.
EXHIBIT 1
Top 10 Wealth-Destroying Categories
Over the Past 10 Years
Morningstar Category
Trading-Inverse Equity
China Region
Trading- Misc
Commodities Broad Basket
Trading-Leveraged Commodities
Misc. Sector
Trading-Inverse Debt
Latin America Stock
Misc. Region
Systematic Trend
Source: Morningstar. Data as of Dec. 31, 2023.
Size
$B
14.1
27.7
2.6
39.8
2.2
16.2
1.0
9.7
40.4
18.0
Estimated
Wealth
Destroyed $B
-41.8
-14.8
-12.0
-9.6
-6.1
-4.3
-3.8
-3.3
-2.2
-0.6
Fund Family
ARK ETF Trust
KraneShares
Credit Suisse
Global X Funds
ProShares
Barclays
AdvisorShares
Cromwell Funds
ETF Managers Group
Roundhill Investments
EXHIBIT 2
Top 10 Wealth-Destroying Fund
Families Over the Past 10 Years
Size
$B
16.1
7.2
2.3
39.5
68.8
1.3
1.0
0.4
3.7
0.7
Source: Morningstar. Data as of Dec. 31, 2023.
Estimated
Wealth
Destroyed $B
-14.3
-6.5
-5.3
-4.6
-4.3
-3.0
-2.2
-1.9
-0.5
-0.5
In most cases, the fortunes of the other worstperforming
fund families are a product of
their investment focus. Many of the firms on our
list have lineups that are heavy on specialized
and volatile categories, such as commodities,
natural resources, and emerging markets-areas
that failed to enhance shareholder value
during most of the decade covered in our study.
Credit Suisse and Global X are two examples
of this trend. ProShares' focus on inverse
and leveraged ETFs also led to wealth destruction.
The biggest value destroyers in the fund industry
illustrate that there's no guarantee of success,
even during a generally favorable market.
They also provide a valuable case study in how not
to invest. (As Charlie Munger was fond of
saying: " Invert, always invert. " ) Investors have
been far better served by plain-vanilla fund
categories. They've also generally fared well by
sticking with the industry's biggest and
most established fund families. Volatile and
speculative categories-as well as unproven fund
shops that attract a lot of short-term hype-
on the other hand, are best avoided. K
Amy C. Arnott, CFA, is a portfolio strategist for Morningstar
Research Services LLC.
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41
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