Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Look, we have to talk about Kathy Wood and the ARC disruptive innovation ETF, but we're going to

try to be nice. Things have not been going well for ARC investors. The ETFs had a bad year so far in

2022, where it's lost almost half of its value. 2021 wasn't so good either, where the disruptive

innovation ETF lost just over 22%. Tech stocks in general did quite well that year with the NASDAQ up 27.5%, which made the ARC fund's performance even more surprising and disruptive.

Now, most of the investors in the ETF are of course doing a bit worse than Cathy would, the fund manager, as Cathy has a few advantages over them.

First, she invested in her fund on day one, and since inception, the fund has had positive

returns. And apart from its extreme volatility, its overall performance has been roughly

in line with the S&P 500.

Most investors unfortunately didn't invest on day one along with Cathy.

Bill Huang did, but the recent sell-off in Arc is in truth the least of his problems.

If he's still invested, it might be one of his best investments over the period in question.

Most investors, though, we find invested in late 2020 and in early 2021. And for that reason, most of them are deep underwater

right now. So why didn't they invest on day one? Well, for one thing, they hadn't heard of the ETF on day one. They heard of

it after it delivered returns of more than 150% in 2020. It was all over the news at the time,

and all over YouTube too. Now, it might surprise you that 2021 will have been a much better year for Cathy than 2020

was when the fund was up more than 150%.

This is because the disruptive innovation ETF started out 2020 with less than $2 billion

in assets under management.

The management fee is 75 basis points, so fees would have been

under $15 million on that asset base. At the peak in 2021, fees would have been over $200

million, and this is because so much more money had come in. So not a bad year for Kathy and her

...