Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Ali Masarwah. He is our editor in Germany. Hello.
Ali Masarwah: Hello, Holly.
Black: So, Ali, you've been doing some research into these ARK ETFs which are causing an absolute sensation in the US. Even in the first few weeks of this year alone, they've seen inflows in the tens of billions. So, what's going on? What are these ETFs?
Masarwah: Well, those ETFs capture the very hot story of technological innovation, digitalisation. These are thematic ETFs which aim to capture disruptive companies, disrupting old industries, and they're very much capturing the minds and the imaginations of investors in the US.
Black: And the company was set up by Cathie Wood, who has got some good investor pedigree. Where did she come from?
Masarwah: Well, she was the CIO for thematic investments at AllianceBernstein, running quite a lot of money there, too. And she founded ARK Investment back in 2014. And actually, it didn't grow that quickly, as quick as you might expect. Actually, investors have started investing these ridiculous sums of money only 12 months ago when these trends became manifest. And so, they are – she is an old hand, if you want, regarding to thematic investments. So, yeah, that's…
Black: So, the ETFs are focused on finding disruptive companies. That's a very hot word at the moment in the investor world. But there are so many funds out there that hold Tesla and the likes. So, why are these ones so popular?
Masarwah: Well, I think this disruption theme is a very focused one. So, the focus is really quite clear. The other thing is that those companies in those funds did really, really well during the Corona crisis. So, in the past year, some of those ARK funds gained 150%, 180%. So, investors tend to chase performance, and I think this is also a big part of the story.
Black: So, I think a lot of European investors will be wondering if they can get a piece of the action. Can European investors access these funds?
Masarwah: Well, actually, at the current stage, I don't think they necessarily should, but they can, at least in some countries in Europe, by investing in an open-end fund which replicates this main strategy of ARK Investment. So, yes, it's there. It's available for sale in Germany and Switzerland, not in a lot of other countries if I'm informed correctly. And as mentioned, at the current stage, it's a really, really risky choice investing in those vehicles.
Black: And anyone considering maybe setting up a specialist brokerage account to get access to them directly, there are a lot of complications and added costs with that as well. So, that also is probably not a sensible route for the average investor, is it?
Masarwah: Probably not. It can be costly as mentioned and taking the German example, I'm familiar with that one, there are also drawbacks in the taxation side. So, investors really need to very carefully weigh their options. And maybe it's, as mentioned, not the best idea to invest in those really, really hot stories at the current stage where prices really have skyrocketed already, and with those stories, future returns tend not to be as spectacular as in the past.
Black: Ali, thank you so much for your time. For Morningstar, I'm Holly Black.
