Why the disdain for managed funds like ARKK that destroy total market funds?

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Bwlonge
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Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Bwlonge »

I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by KyleAAA »

Sure, if you could predict the future you would just buy the highest performing fund. But who knows what will outperform over the next 5 years?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by stan1 »

How old were you in 2000? I was 33. I got lucky, I only lost $15,000 (at the time about 10% of my portfolio but half of my portfolio was the life insurance policy proceeds my dad had left me a few years earlier so it hurt a little).

If I was 33 again today I'd probably hold some BTC, TSLA, and ARKK (and would be worrying about when to sell it).
Last edited by stan1 on Sat Feb 13, 2021 6:57 pm, edited 1 time in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Blue456 »

delete
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AlexanderTheMediocre
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by AlexanderTheMediocre »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
Past performance does not predict future results. Are you saying that you know ARK will outperform going forward? The whole point of indexing is that we acknowledge that we CANNOT know who the winners/losers are in advance with enough certainty to action it AND time it correctly. How would you have identified ARK as THE set of funds to invest in back in 2015? What if you had picked a fund that under-performed the total market by 40% instead?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by crystalbank »

I don't have any disdain for ARKK or funds that vastly outperform total market funds. It's just that over long term (think decades) the odds of the same fund beating the market consistently are pretty low. I don't want to be moving in between funds trying to chase return.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by anon_investor »

Didnt ARRK do nothing from 2015 to 2018?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by WarAdmiral »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
You are missing longevity. 5 years is a nothing burger for a boglehead. You need to comeback in year 2030 to compare.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by geerhardusvos »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
Nice cherry picking timelines bro! Have fun chasing the highest performing fund (data says you will lose out in the long run). I don’t think you understand how much money people have lost chasing something different than market returns. I will be VTSAX and chilling!

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Last edited by geerhardusvos on Sat Feb 13, 2021 7:03 pm, edited 1 time in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by nedsaid »

I for one don't have disdain for ARK funds or for aggressive investments. Despite my Value orientation, I have had a taste for aggressive investments for many years. The problem is that market beaters like ARKK have a hard time sustaining their returns, asset bloat is one issue and changes in the markets and the economy is another. There were many a Tech investment that roared during the later 1990's and crashed and burned afterwards during the 2000-2002 bear market. This is why folks are wary.

I do think such investments as the ARK funds have a place in a portfolio but I would not go overboard on them particularly since they have been really hot recently. Chasing hot performance often ends in tears. I don't own ARK funds and have no recommendation on them.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Nate79 »

Bitcoin spanked your ARKK fund. So.......
Last edited by Nate79 on Sat Feb 13, 2021 8:57 pm, edited 1 time in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by nisiprius »

1) It hasn't "destroyed" VTI. VTI did not stop making money just because ARKK investors made more.

2) It is not accurate to say funds like ARKK "outperform" VTI, as if that were an intrinsic characteristic or permanent condition. What is accurate to say, past tense, that ARKK slightly underperformed VTI, the Vanguard Total Market Index Fund, for two years, and then hugely outperformed it for four.

3) Anyone who has taken any careful look at performance of mutual funds knows that four years of outperformance is not unusual, and, exactly as the disclaimer says, is not indicative of future results.

From 1/1/1995 through 1/1/1999, the Legg Mason Value Trust, LMVTX averaged 43.03%/year, growing a $10,000 investment to $43,118 in just four years. That's not as much as ARKK, which averaged 62.78%/year from 1/1/2018 through 1/1/2021, growing $10,000 to $73,118, but still mightily impressive. What's even more impressive is that the Legg Mason Value Trust outperformed the S&P 500 in 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, and 2005. Yet it turned out not to mean anything because in just three years it lost back all of the accumulated outperformance. And the vast majority of the dollars invested in the fund were invested during the years when it was outperforming, so the vast majority of the funds' investors lost money in this fund. It currently has a one-star Morningstar rating.

4) ARKK since inception has had a standard deviation of 29.52%; VTI, 15.24% over the same period. It has had double the volatility, which is an important aspect of risk. In a rough way, Cathie Wood has taken twice as much risk as a total market index fund. Now let's be clear: the returns it has gotten have more than justified that risk, but it still means that it is not an apples-to-apples comparison. ARKK is taking more risk. When it outperforms, as it has been for the last four years, it should be expected to greatly outperform total market funds. If a crash should come, it would be surprising if it didn't also experience a more severe crash.

A sane person could decide that ARKK is a good gamble, but please don't fall into the trap of thinking it is just plain better.
Last edited by nisiprius on Sat Feb 13, 2021 7:37 pm, edited 4 times in total.
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Bwlonge
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Bwlonge »

nedsaid wrote: Sat Feb 13, 2021 7:02 pm I for one don't have disdain for ARK funds or for aggressive investments. Despite my Value orientation, I have had a taste for aggressive investments for many years. The problem is that market beaters like ARKK have a hard time sustaining their returns, asset bloat is one issue and changes in the markets and the economy is another. There were many a Tech investment that roared during the later 1990's and crashed and burned afterwards during the 2000-2002 bear market. This is why folks are wary.

I do think such investments as the ARK funds have a place in a portfolio but I would not go overboard on them particularly since they have been really hot recently. Chasing hot performance often ends in tears. I don't own ARK funds and have no recommendation on them.
I don't know if people can be that mad about tech crashing in 2000 when even if you had a significant chunk in QQQ starting in 2000 and DCA'd from 2000 to now, you would still have the same situation with VTI beat by a lot.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by flyingcows »

Of course concentrated funds can outperform the total market in the short term, so can random people on YouTube/Reddit who pick stocks, or perhaps your neighbor who just bought whatever was trending on stocktwits. Do you think what worked last year, will work this year, and next year? If your outlook is 30+ years, the long term is what matters.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Triple digit golfer »

Did you own ARKK and achieve those returns?

If not, why didn't you?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by nisiprius »

Also, why are we reading about ARKK? Because it has outperformed. The question is, who was posting about ARKK in the forum in 2018?

The latest SPIVA scorecard, for US mid-year 2020, over the preceding 15 years...

87% of actively managed funds underperformed the S&P Composite 1500 index.

87%!

But of course nobody writes about those.

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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by eye.surgeon »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
There will always be vehicles that outperform total market, that is until they revert to the mean. What is obvious in hindsight is unknowable looking forward. Rookie investing mistake #1 : thinking that past performance predicts the future. It does not. Rookie investing mistake #2: this time it's different. It isn't.

"I would rather be certain of a good return than hopeful of a great one" : Warren Buffett
Last edited by eye.surgeon on Sat Feb 13, 2021 8:00 pm, edited 4 times in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by UpperNwGuy »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs
Looking into it is easy. Putting your money into it is a bigger step. How much have you invested in ARK ETFs?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by ElJefeDelQueso »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
There is a fund with a 64 year-old finance professional in charge that has outperformed the market handily/embarrassingly. This person may have insight that is not available to the market at large = efficient markets do not apply (?). It may be worth jumping onboard for a ride until time or the powers-that-be alter this trajectory. Watch carefully for the time to alter your AA.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by JD2775 »

I don't know why but this post made me laugh.

It totally destroyed it dude
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Bwlonge »

Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.

But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.

To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.

I don't own any ARKs yet, but am planning to go 30% allocation next week, only because I can't allocate more in my 403b.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Elric »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
ARKK hasn't been around long enough to establish a long-term track record. A tech heavy fund can be expected to significantly outperform during rising markets, particularly the recent one. Maybe those huge gains will more than make up for likely underperformance during down times, maybe not. As others have written, who knows? I don't think it's a bad bet, but it's a bet.

To me, QQQ, while having a lower recent performance than ARKK, is quite interesting. One can look at returns for the NASDAQ 100 and compare them to say, the S&P 500 (which closely tracks the total market) for many more years than QQQ has been around. The comparison is rather interesting. The NASDAQ 100 holds up quite well over the long haul, without severe negatives (other than the dot.com boom and bust) to offset the high growth periods when compared to the S&P 500. provided you didn't start investing during the dot.com boom (OUCH!!!). This article walks through the long-haul comparison: https://fourpillarfreedom.com/sp-500-vs ... s-better/

Disclosure: I have the largest portion of stocks in S&P 500 index funds, but own others, including QQQ. I'd take more of my QQQ gains off the table, but it's in taxable, and I don't really want to pay significant taxes on those gains in order to reinvest in the S&P 500.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by hoofaman »

The guy who repaired my air conditioner this summer got a 200% return buying zoom, pton, and tesla, thats even better than ARK. Want me to ask if he is accepting clients?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Actin »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.

But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.

To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.

I don't own any ARKs yet, but am planning to go 30% allocation next week, only because I can't allocate more in my 403b.
Your logic is completely correct. The companies you're investing in are the wild cards

Toys R Us, Radioshack, and Blockbuster were once considered category killers.

I fully expect Tesla to pull an Enron at some point.

ARKK is purely survivorship bias. No one is talking about the 87% of active funds that peed the bed.
Last edited by Actin on Sat Feb 13, 2021 8:43 pm, edited 2 times in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Triple digit golfer »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.

But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.

To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.

I don't own any ARKs yet, but am planning to go 30% allocation next week, only because I can't allocate more in my 403b.
You are performance chasing, plain and simple. You do own tech stocks, as well as every other sector, in VTI.

Good companies often make poor investments and bad companies often make good investments.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by SlowMovingInvestor »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.
have you read about the Internet Strategies fund launched in 2000 ? Or the numerous biotech funds that have been launched at different times ?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by fennewaldaj »

Meh. She destroyed total market funds in the past. Will she in the future? Was she skilled or just lucky. Or perhaps a bit of both. If she was skilled will she be able to continue the performance with way more assets? Its hard to say. Obviously if I knew the future I would have invested in her fund over VTI but I don't so I didn't.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by MishkaWorries »

Why would anyone entrust their money to ARK and Cathie Woods? She's such a lousy businesswoman she almost lost control of her own company. What makes anyone think she has the ability to research and understand other people's businesses?

"Barrons
FEATURE
Cathie Wood Might Lose Control of ARK, the Company She Founded

By Evie Liu
Updated Nov. 18, 2020 9:26 am ET / Original Nov. 18, 2020 6:30 am ET
Cathie Wood
Cathie Wood

COURTESY OF CATHIE WOOD

ARK Investment Management—a privately-held asset manager founded just six years ago—has been in the spotlight a lot this year thanks to its vocal founder and stellar investment record. The firm’s success hasn’t only been spotted by many investors, but also by one of its early backers and minority shareholders.

A recent regulatory filing suggests that Resolute Investment Managers—ARK funds’ U.S. distributor—plans to take control of the company early next year.

It turns out that when Resolute acquired a minority stake in ARK in 2016, the deal also included an option that allows Resolute to purchase a controlling stake—if it wants—before the option expires in early 2021. ARK, which manages $30 billion in assets, including $15 billion across seven exchange-traded funds, has more than tripled its assets in the past year alone. Now, Resolute is exercising its option to own a bigger piece of the cake.

Cathie Wood, ARK’s founder and CEO who owns 50% to 75% of the firm, is fighting the takeover."
We plan. G-d laughs.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by anon_investor »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.

But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.

To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.

I don't own any ARKs yet, but am planning to go 30% allocation next week, only because I can't allocate more in my 403b.
I do not like ARKK because of the high expense ratio. I do own VGT though.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Noobvestor »

Bwlonge wrote: Sat Feb 13, 2021 7:28 pm
nedsaid wrote: Sat Feb 13, 2021 7:02 pm I for one don't have disdain for ARK funds or for aggressive investments. Despite my Value orientation, I have had a taste for aggressive investments for many years. The problem is that market beaters like ARKK have a hard time sustaining their returns, asset bloat is one issue and changes in the markets and the economy is another. There were many a Tech investment that roared during the later 1990's and crashed and burned afterwards during the 2000-2002 bear market. This is why folks are wary.

I do think such investments as the ARK funds have a place in a portfolio but I would not go overboard on them particularly since they have been really hot recently. Chasing hot performance often ends in tears. I don't own ARK funds and have no recommendation on them.
I don't know if people can be that mad about tech crashing in 2000 when even if you had a significant chunk in QQQ starting in 2000 and DCA'd from 2000 to now, you would still have the same situation with VTI beat by a lot.
But you're not talking about investing while it's down post-crash, you're talking about piling on at all-time highs. Do you really think you'd have stuck with QQQ after it dropped 80% during the tech crash and went sideways for a decade? I know I wouldn't have had the stomach for it.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by SlowMovingInvestor »

Bwlonge wrote: Sat Feb 13, 2021 7:28 pm
I don't know if people can be that mad about tech crashing in 2000 when even if you had a significant chunk in QQQ starting in 2000 and DCA'd from 2000 to now, you would still have the same situation with VTI beat by a lot.
Those of us who lived through it would have seen lots of companies shutting their doors, AMZN dropping dramatically, even mainstream techs like MSFT and CSCO taking a beating, Telcos going bust, lots of accounting fraud (WCOM) etc.

It's very easy to say long after the fact that one should have invested in QQQ, it would be much harder to do that in 2000 or even 2005, especially if your company was badly impacted by the collapse and was cutting jobs.

Real Estate was the big boom market for much of the 2000s ! Surely, one should invest there !
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Ed 2 »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
I was 29-30 years old back in 1999-2000 and had some of my money invested in Janus Fund . Back then they were as ARK funds outperformed mostly all their competitors. They were heavily invested into dotcom companies and Nasdaq. The reason they claimed of their best performance was because a fresh of Colorado mountain air according their infomercial online. I lost more than 70% of my holding , cashed out the rest and moved into Vanguard . Most new “ investors “ follow the get rich quick momentum investments . They argue “ this time is different “ , I’d say nothing different just people have short memory and greed all over again. It shall pass. I learned the lesson. I think this every generation has to go trough the same mistakes to learn something.
Last edited by Ed 2 on Sat Feb 13, 2021 8:57 pm, edited 1 time in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by birdog »

I guess you do you. I’m content owning VTI and knowing that I will outperform 95% of professional investors over the long term. The data overwhelmingly suggests that ARKK won’t do that same thing over 40 years.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by HMSVictory »

Reversion to the mean is a powerful force..... buying into the super hot fund up 161% in a year always ends in disaster. When the performance slips the hot money will run for the exits and someone will be left without a chair.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by adave »

I dip my toe in some tech ETFs like QQQ and XLK (VGT tlh partner). I would agree that Tech is not going anywhere and only increasing it’s presence in our lives. But chasing ARK right now is pure speculative performance chasing. Cathie Wood is fairy old and I don’t see anything in her background that makes me feel she understands any of these innovation topics better than anyone else. She basically found a hot area with everyone looking for the next Amazon or Google and has some good marketing.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by 000 »

If looking at past performance was all it took to beat the market, everyone would be doing it.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by RXfiles »

Selection bias. You're picking QQQ and ARKK because they previously outperformed. Not because they will outperform going forward. Its hard to wrap your head around that at first.

Look at the top preforming funds 10 years ago compared to VTI the last 10 years. Almost all of them lost to VTI. If you constantly buy to top preforming fund you're almost certain to lose to the market. You have to pick them before they blow up. Thats what's so difficult about it
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by 000 »

A thread that may be of interest: Why QQQ instead of Tobacco stocks?.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by mokaThought »

Some sectors outperform other sectors over a period of time. Which one does best next? Are you willing to act upon your prediction?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by bumbojumbo »

OP picked a convenient starting point. If you start in 2000, QQQ has basically been behind SPY the entire time, only recently coming out ahead.


https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by SuperXmas »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
Know your audience bro
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by an_asker »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.

But then take a step forward on tech and move back to the ARK funds. Genomics, automation, fin tech, space exploration- all emerging technology. By throwing down on an ARK fund with .75 ER, its like hiring a team of analysts to pick winners as the fields develop. Companies that do or will do incredibly valuable things. Of course, it requires conviction on my part to believe in the manager's ability to pick and manage. But if I was to hire someone for a tech fund, it would be for emerging tech, not establish tech.

To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.

I don't own any ARKs yet, but am planning to go 30% allocation next week, only because I can't allocate more in my 403b.
Let's say you had $1 million in January 2020 in VTI. When the market crashed, it went down to $700k. You are today at $1.5 million.

Let's say you move it all into QQQ tomorrow. One month later, it crashes. You now have $350,000 - in QQQ.

No worries, you can stomach it. You are DCAing in month after month.

Three years later - we are now in March, 2024.

Your balance is now $450,000 (this includes your contributions of the last three years). QQQ is still right around where it as when it crashed +/- 10%.

Meanwhile, your buddies who were slightly below you in 2021 and who exclusively own bitcoin are now at $2 million.

Your ARK buddies are at $1.7 million.

Your VTI buddies are at $750k.

What will you do? Will you stay the course with QQQ for 17 more years? Or will you switch to either ARK, VTI or Bitcoin?
=======================================================================================================
If you think this is fiction, no, this is NOT fiction. [Look at the chart for QQQ from 2000 to 2010. Assume today is August 2000. Run your numbers]

This is the truth (except I didn't have $1 million in 2000; maybe mid five figures, but the ratios are similar). But the losses were gut wrenching.

I switched to VTI. I might dip my toes, but I don't think I can be convinced to go all in into QQQ.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by CurlyDave »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm ...Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT...
I have personally been mostly invested in QQQ rather than SPY since 2005. (I have some of my main portfolio in XBI and then my fun money which I will leave out of this for now). I think the difference between VTI and VOO or SPY is negligible. I will freely admit that I started out performance chasing between QQQ and SPY back then.

Why only those two? Both are rules-based index funds. Fund managers come and go but the rules for inclusion in SPY or QQQ stay the same. And they are both great big behemoth entities. Watching them over the years is like watching two big rigs compete against each other on the Le Mans race course. Once one pulls out in front, it is going to be a long time before the other one comes up from behind and passes it.

So every year or so I look at relative performance and am ready to DCA from one to the other over the course of a year or two, but that is about as exciting as I want my investing life to get.

So far, I haven't ever had to switch back, and it has been a good run. But the possibility is always there. And you are right, I did come out way ahead.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Nathan Drake »

Simple: I can retire off a 3 fund portfolio with a 3.5% SWR

I can’t retire off a portfolio of ARK funds. They may not exist for 30 years, or they encounter huge 80% corrections that wipe me out during a ten year period while I’m withdrawing funds.

Read up on sequence of return risk.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by CurlyDave »

bumbojumbo wrote: Sat Feb 13, 2021 9:19 pm OP picked a convenient starting point. If you start in 2000, QQQ has basically been behind SPY the entire time, only recently coming out ahead.


https://www.portfoliovisualizer.com/bac ... ion2_2=100
The problem with your analysis here is that QQQ inception date is in 1999. Right before the dot.com bust.

This is sort of like analyzing market performance starting in June 1929 to sometime in 1949 and then thinking that the results are "typical". That period encompassed two huge bear markets, the great depression and WWII. Other than those trivial events it was very typical.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by WarAdmiral »

nisiprius wrote: Sat Feb 13, 2021 7:48 pm Also, why are we reading about ARKK? Because it has outperformed. The question is, who was posting about ARKK in the forum in 2018?

The latest SPIVA scorecard, for US mid-year 2020, over the preceding 15 years...

87% of actively managed funds underperformed the S&P Composite 1500 index.

87%!

But of course nobody writes about those.

Image
I always wondered why most everyone stops at 15 years of comparison. If you are to hold total market, shouldn't you compare 25+ year period which is more representative of a typical investors holding period. The only mention i ever found of a 25 year time period was in Jack Bogle's "little book of common sense investing"
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by White Coat Investor »

Bwlonge wrote: Sat Feb 13, 2021 6:52 pm I've been looking into the ARK ETFs and this forum is a place I tend to look for financial opinions.

The posts I've seen here, unsurprisingly, have negative sentiments toward ARK funds. Bogleheads are happy to have money in passive low ER funds. I followed that advice for a while but it ended up leaving a ton of money on the table.

Pre-pandemic, 2015-2020, QQQ out performed VTI 117% to 60%. ARKK outperformed VTI 161% to 60%.

What am I missing here? For a 401k or IRA that's going to sit for 30 years, is the total market fund advice really relevant anymore?

By following traditional advice to get the cheapest total market fund, it has ended up costing people thousands of dollars more in opportunity cost.
Google "Janus Funds" for details of the last time there was a family of high-flying growth stock mutual funds that crushed the index funds. It didn't end well. Look at QQQ/Nasdaq while you're at it. It took 15 years to get back to its high.
Last edited by White Coat Investor on Sat Feb 13, 2021 9:37 pm, edited 1 time in total.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by Jacotus »

The first reply says it all.
KyleAAA wrote: Sat Feb 13, 2021 6:55 pm Sure, if you could predict the future you would just buy the highest performing fund. But who knows what will outperform over the next 5 years?
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by amphora »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm Forget ARK for a second though. Even something as mundane as QQQ. If you invested everything in QQQ over the last 20 years over VTI, you would have come out way ahead. I'm assuming similar for VGT.

At this point, why wouldn't a broad tech fund get the same respect as VTI? I'm thinking that technology is a fundamental "sector" in how we've developed and will continue to develop. I feel like at this point if you're waiting for tech to come back down to VTI levels, you're doing the same thing as someone not investing because they expect the market to crash any second.
It’s certainly reasonable to have a tech tilt in your portfolio if you so choose. (I invest a portion of my portfolio in individual stocks and am partial to small and value tilts.)
I think some of the skepticism about ARKK and ARK funds is because of the outperformance and concern that simply investing in the best performing fund of the previous year often ends badly.
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Re: Why the disdain for managed funds like ARKK that destroy total market funds?

Post by nisiprius »

Bwlonge wrote: Sat Feb 13, 2021 8:14 pm...To grossly oversimplify with a poor analogy, 100% VTI strikes me as like not buying blu ray because the VCR plays movies just fine and thinking something else will just replace blu ray some day. Yeah, but, you get the value from blue ray then move on to the next emerging sector.
I'll try this again. Over the past fifteen years VTI has outperformed about 87% of all actively managed mutual funds.

You've been posting in this forum since 2017. This thread is the first time you've mentioned ARKK. How come?

Because it is not easy to "move on to the next emerging sector." You didn't know that this fund was going to "emerge" until after it already had.

There is always something that is outperforming Total Stock. That doesn't mean that anyone with a little gumption can always be in the thing that it outperforming Total Stock, while always staying out of the thing that is underperforming Total Stock.

This is what I think you believe. Please correct me if I am wrong.

1) You think that because ARKK has averaged 68% annual returns for four years, that it is almost certain that it is going to go on doing it for long enough to make a nice little bundle; and if it stops doing it you will spot it and get out in time before you lose most of the gains.

2) You think that constantly shifting your portfolio into mutual funds that have had superior returns over the last three-to-five years is going to get you much better results than just staying 100% in VTI.
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