The ARKK ETF: A Sad Lesson in Star-Studded Investing

It is human nature to forget the bad and fail to learn from the past. This rule also applies to the stock market, where the cost of such lessons is often very high due to lost time. A prolonged market rally gives rise to new stars among fund managers and advisors, most of whom eventually meet with an epic failure.

A very telling example in this regard is the story of Cathie Wood, a tech analyst and the portfolio manager of the ARKK fund. From 2017 to 2021, the fund grew at an average annual rate of 65%. However, something went wrong at the end of 2021 when a drop in Nvidia's share price triggered a sharp decline in the tech sector.

Over the next four years, ARKK's share price recovered to its December 2021 level. Its average annual return from the start of 2017 through September 2025 was 20.7%. For the same period, the total return of the Nasdaq index was 21.5%, with a maximum drawdown of 32.5% compared to ARKK's 77%.

It is also important to note that the ARKK fund charged an annual fee of 0.75%, compared to just 0.2% for QQQ, the largest ETF tracking the Nasdaq index. This saved cost can be added as a plus to the investment's overall return.

The history of the stock market is full of such examples. Many traders and fund managers can show high returns over short periods, but it is statistically impossible to outperform the indices over the long term. Therefore, an investor faces a choice: either try to find such managers at the start of their successful run (but how?) and replace them regularly (again, how?), or simply rely on the returns of market indices. The latter approach is far more likely to yield results that significantly outpace deposit rates.