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Ark Investment Management founder and CEO Cathie Wood

Fund News Advisors Can Use: Morningstar Sees Risk in Cathie Wood’s ARKK

In this week’s fund news, Morningstar points to lax risk controls and personnel issues at Ark, CFRA acquires technical research shop Lowry, and Goldman will soon bring cryptos to private wealth clients.

Morningstar announced this week that it’s now providing analyst coverage for the ARK Innovation ETF (ARKK), Cathie Wood’s well-known flagship actively managed ETF that has returned nearly 200% in the past 12 months. But Morningstar analyst Robby Greengold says the fund’s lax risk controls and personnel issues “make it ill-prepared to grapple with a major plot twist.” He assigns it a Morningstar Analyst Rating of Neutral.

While Greengold acknowledges the ETF’s outperformance and large asset inflows, he argues that it has a key person risk, with Wood as the primary investment decision-maker. He says Brett Winton, director of research, would likely be her successor, but he lacks portfolio management experience.  

“Exacerbating that key-person risk is the firm’s inability to develop and retain talent: Many of the analysts supporting the funds’ research have come and gone, and most of the remaining nine lack deep industry experience,” Greengold writes.

He also criticizes the firm’s risk management process; he says risks are managed primarily by Wood’s instincts, and the firm has no risk management personnel.  

Many of these factors make it hard for the firm to prepare for future market crises, which will not look like previous ones, he argues.

“Without risk-management professionals to stress-test the portfolio’s risk exposures, estimate its potential losses during historical or hypothetical market environments, and gauge worst-case scenarios, the team is poorly positioned to prepare and react.”

CFRA Acquires Technical Research Shop

Investment research shop CFRA has acquired Lowry Research Corporation, an independent technical investment advisory in North Palm Beach, Fla.

The firm was founded in 1938 by L.M. Lowry and provides stock market analysis using its exclusive "Buying Power" and "Selling Pressure" indices.

CFRA also announced this week the launch of five new ESG-focused model portfolios, including portfolios focused on climate exposure, gender diversity in corporate leadership and a portfolio of ESG ETFs.

“The ESG ETF category has exploded in recent years and investor demand is starting to keep pace with the rate at which the fund industry has been introducing new approaches,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA, in a statement. “This model leverages our industry-leading ETF data, research and ratings methodology to arrive at a global core ESG ETF portfolio that includes both equity and fixed income funds.”

Goldman Sachs to Open Up Cryptos to Wealth Clients

Goldman Sachs is currently working on getting private wealth clients access to Bitcoin and other cryptocurrencies, according to Bloomberg.

The big wirehouses have primarily steered clear of cryptocurrencies—with many not allowing advisors to recommend the products to clients. But that trend may be reversing. This month, Bloomberg also reported that Morgan Stanley will offer wealthy clients access to three funds that enable ownership of Bitcoin.

Last week, a Fidelity-affiliated fund applied for a Bitcoin ETF with the SEC. This week, Capitect, an advisor platform for client account performance reporting, billing and rebalancing, announced it was integrating digital currency wallet Coinbase's open API in read-only mode to pull in and integrate client crypto data. Coinbase itself filed for an expected April 14 IPO. The firm's most recent valuation in the private markets was $90 billion, according to Bloomberg.  

Hamilton Lane Takes $90 Million Stake in Russell Investments

Hamilton Lane, an alternative investments shop that has been pushing further into the wealth management space, announced a new partnership with Russell Investments to provide its outsourced CIO clients with private markets data, research and investment access. As part of the deal, Hamilton Lane takes a $90 million stake in Russell.

Hamilton Lane, which has historically targeted institutional investors, recently announced plans to acquire 361 Capital, a Denver-based boutique alternative manager, in an effort to expand its presence in the U.S. private wealth channel.

The firm also recently launched a new '40 Act fund that will bring its private equity and private credit strategies to a wider pool of investors. The Hamilton Lane Private Assets Fund, a closed-end fund, will be available to qualified U.S. clients with a minimum $50,000 investment.

DFA Now Has More Than $1 Billion in ETFs

Dimensional Fund Advisors, which has historically distributed its mutual funds exclusively through retail financial advisors, made a splash last summer when it filed to launch some strategies as exchange traded funds. Now, after just four months of going to market, the fund family has more than $1 billion in total assets in its three active equity ETFs, according to Bloomberg.

The funds have taken in $607 million in inflows during 2021, half of which went to the Dimensional US Core Equity Market ETF (DFAU), Bloomberg reports.

In early March, DFA filed to convert four equity mutual funds, with $26 billion in assets, into ETFs “on or about” June 11.  

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