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Earlier this year, Morningstar collated the data on which US investment funds have created the most wealth for investors over the past decade. Booring.
The list was naturally dominated by big index funds. The only outliers were a medley of Capital Group funds and Fidelity’s Contrafund, and they were in the mix simply because of their sheer size. Even a modest percentage return on a massive amount of AUM will produce a large nominal number of dollars of wealth.
However, last week the mutual fund data provider turned its attention to the funds that had destroyed the most value over the past decade. This is a lot more fun, even if anyone who has read Alphaville will probably be unsurprised by the list.
As you might have noticed, going short US technology stocks has been an extremely unsound idea over the past decade. ProShares’ SQQQ ETF is actually up 21.5 per cent so far this year, but that’s not nearly enough to dent the huge losses it accumulated in the decade up to the end of 2024.
The rest are mostly a mix of gimmicky leveraged and inverse ETFs, which Alphaville is no fan of. The marketing is that these are short-term trading tools, but the reality is that the only people that consistently make money out of them are the fund sponsors.
As Morningstar’s Amy Arnott and Jeffrey Ptak diplomatically put it:
ETFs have many things going for them — including low costs, tax efficiency, and typically a passive investment approach that makes them suitable building blocks for diversified portfolios — but they can have a dark side. For instance, some ETFs focus on narrowly defined sectors or themes, which can make them harder for investors to use successfully and can attract speculators.
However, you might have also spotted that an old friend of Alphaville crops up fairly frequently in the above list: Cathie Wood’s ARK funds.
Helpfully, Morningstar also listed the top 10 value-destroying fund families over the past decade, and here ARK reigned supreme.
This is particularly remarkable given how YOLO-ing speculative tech stocks has generally been the best trade of the decade. Indeed, ARK funds have posted positive overall returns over the past decade, but still managed to destroy a prodigious amount of money over the period. Here’s Morningstar’s explanation:
ARK, home of the flagship ARK Innovation ETF ARKK, saw the biggest aggregate losses in dollar terms. 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 strong rebounds in 2023 and 2024, but that wasn’t enough to offset their previous losses.
As a result, ARK funds incurred approximately $13.4 billion in realized and unrealized capital losses over the 10-year period — about twice as much as the next fund family on the list. ARK Innovation alone accounts for about $7 billion of this total. Both ARK Innovation and the other funds in the group earned a positive total return over the 10-year period ended in 2024, but poorly timed flows into its funds proved costly because most shareholders bought in after performance had already peaked.
And naturally, ARK funds have taken another walloping this year, sharply underperforming the US stock market as its medley of hopium stocks have tumbled.
ARKK is now down 15 per cent for the year, and the chart showing its performance over the past decade is a thing of glory.
Still, we’re sure it will all come good when ARK’s forecast of 7 per cent AI-fuelled US economic growth materialises.
Further reading:
— The Cathie “I Hate Alphaville” tote (FTAV merch store)
