Cathie Wood, Ark Investment Management’s asset manager, has a new pitch for investors who may be worried about the huge losses the asset manager suffered due to the rising interest rates. Think of the tax write offs.
Morningstar reports that Wood’s flagship product, the $6.3bn ARK Innovation Exchange Traded Fund, also known as ARKK, has lost more than 25% in the last three months.
ARKK generated a three-year annualised return of -28% after an exceptional 2020, despite gaining 17 percent since January 1. This is due largely to the catastrophic 2022 when it fell by about 67 percent.
The company says that because Ark has lost so much since the US Federal Reserve began raising rates in March 2020, investors will not be taxed on capital gains distributions through ARKK or Wood’s actively managed ETFs at least for the next two.
Rob Kamentsev, director of financial accounting and fund reporting, said in an Ark Research Note that “this means that current and potential shareholders of ARK ETFs could remain invested in disruptive innovations in a compounded manner, without being subject to tax, for two or more years.”
The tax relief expected is due to both the size of Ark’s losses as well as the structure of ETFs. These ETFs hold securities similar in nature to mutual funds, but trade on similar exchanges to stocks. They also benefit from a separate tax treatment.
Wood’s company says that the losses of billions of dollars Ark’s ETFs has suffered since early 2022 will be “released” to offset any net gains to shareholders.
Ark stated in its Thursday quarterly fund webcast, that its December 2025 estimation was conservative and that its losses on capital could be enough to offset taxes as far as September 2027.
ARKK’s biggest holdings, including Zoom and Block, are down this year. This is offset by Coinbase and Roku, which have performed better. Tesla, the perennial top holding of ARKK, is up almost 100 percent year-to-date. However its stock remains well below its peak in late 2021 or early 2022.
Wood said on the Thursday webinar that her ETFs offered a potential tax savings.
Wood stated, “I don’t believe many people realize what a valuable asset we have when it comes to those tax loss carry-forwards.”
Ark, who did not respondto requests for further comment after reportingany income or distributions of capital gains in 2022, did not reply to requests.
Investors are attracted to ETFs by their ability to defer tax on capital gains. ETF providers regularly tout the tax benefits of their products over other US funds types. Ark’s choice to announce the tax advantages for its losses and to provide an estimated timeline is unusual, even though Ark’s founder is known for making bold predictions.
Todd Rosenbluth is the director of research for VettaFi. He said, “They’re aiming to be transparent, but are also making projections that are forward-looking. That’s unusual in asset management.”
The specific timing of the ETF and its positive spin on a challenging performance in history is unique compared to other ETFs.
According to, the ETFs’ mechanism for handling redemption requests of underlying securities results in lower tax burdens compared to mutual funds. The most recent example of this phenomenon occurred at the end 2021 when many active mutual funds had to pay large capital gains distributions, sometimes up to 20 percent of their net asset value. For most ETFs however, the amount was 1 percent or less.
The possibility of paying less taxes is a factor that has driven investors to invest in ETFs and pull money out of mutual fund investments. Mutual funds continue to have a larger share of US investments than ETFs.