Cathie Wood Has Billions in Tesla. ARKK Still Struggles With ESG

(Bloomberg) -- Ark Investment Management is known for its huge bet on the world’s hottest electric-car maker. But that hasn’t been enough to put Cathie Wood’s funds at the top of environmental, social and governance standards.

Her actively managed exchange-traded funds ranked below average in a recent study by Jefferies’ analysts Steven DeSanctis and Eric Lockenvitz. That’s even as Wood’s flagship $24 billion Ark Innovation ETF has more than tripled in the past year -- boosted by its investments in Tesla Inc. Elon Musk’s company is ARKK’s biggest holding and currently comprises 10.5% of the fund, according to data compiled by Bloomberg.

“Wood is not ESG focused, the funds are not specifically ESG and the scores show you that,” DeSanctis said in a phone interview. “They’re about innovative growth. Maybe the other way you look at it is that innovative growth doesn’t necessarily coincide with the best ESG rankings.”

Since Ark Investment’s funds make relatively concentrated bets -- compared with other ETFs that include more companies -- a few firms with lower ESG scores can drag down the whole fund. In addition, there isn’t always enough data to score newer companies, DeSanctis said. About 80% of the stocks in ARKK have scores, compared with 99.8% for the broader S&P 500 Index, the Jefferies study showed.

“ESG is still the wild west,” said Mike Bailey, director of research at FBB Capital Partners. “A lot of times, if there is a very short track-record, there’s just not a lot of data to quantify something.”

ARKK had rallied as much as 26% this year before erasing its 2021 gains earlier this month as a surge in bond yields spurred concern over pricey areas of the market. Still, the fund’s popularity shows no signs of slowing down. It has taken in $7.1 billion since the end of 2020 -- with inflows of about $1.7 billion just this month alone.

“Most investors are more worried about making money, right or wrong, than about those ESG scores,” said Barry James, portfolio manager at James Investment Research.

©2021 Bloomberg L.P.