{"id":4261,"date":"2023-10-22T12:49:44","date_gmt":"2023-10-22T12:49:44","guid":{"rendered":"https:\/\/infundpros.com\/business\/ark-finds-silver-lining-in-massive-etf-losses-years-of-tax-benefits\/"},"modified":"2023-10-22T12:49:44","modified_gmt":"2023-10-22T12:49:44","slug":"ark-finds-silver-lining-in-massive-etf-losses-years-of-tax-benefits","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=4261","title":{"rendered":"Ark finds silver lining in massive ETF losses: years of tax benefits"},"content":{"rendered":"<div>\n<p>Stay informed with free updates<\/p>\n<p class=\"article__content-sign-up-topic-description\"><span>Simply sign up to the <!-- -->Exchange traded funds<!-- --> myFT Digest &#8212; delivered directly to your inbox.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=d3c44129-fd4c-45ff-ba4c-21c366279357&amp;concept-id=df274e2a-c554-4cb6-ab93-deeff9928e91\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>Cathie Wood\u2019s Ark Investment Management has a new pitch to investors who might be concerned by the asset manager\u2019s huge losses owing to rising interest rates \u2014 think of the tax write-offs. <\/p>\n<p>Wood\u2019s flagship investment product \u2014 the $6.3bn ARK Innovation exchange traded fund, known as ARKK \u2014 is down more than 25 per cent over the past three months, according to Morningstar. <\/p>\n<p>After an exceptional 2020 and despite being up about 17 per cent since January 1, ARKK has generated an annualised three-year return of -28 per cent. That is largely owing to a catastrophic 2022, when it plunged about 67 per cent.<\/p>\n<p>Because Ark\u2019s strategies have lost so much money since the US Federal Reserve started raising rates in March 2022, the company is telling investors that they are unlikely to incur taxes on capital gains distributions via ARKK and Wood\u2019s other actively managed ETFs for at least the next two years. <\/p>\n<p>\u201cThis means that current and future shareholders of ARK ETFs can remain invested in disruptive innovation in a compounded fashion, without being taxed, for potentially two more years or longer,\u201d said an Ark research note by director of financial reporting and fund accounting Rob Kamentsev. <\/p>\n<p>The expected tax relief has to do both with the scale of Ark\u2019s losses and the structure of ETFs, which hold securities similar to mutual funds but trade on exchanges similar to stocks and benefit from separate tax treatment. <\/p>\n<p>In effect, the billions of dollars in losses Ark\u2019s ETFs have sustained since early 2022 can be \u201creleased\u201d over time to offset net taxable gains distributed to shareholders, according to Wood\u2019s company.<\/p>\n<p>Ark said in its Thursday quarterly fund webinar that its December 2025 estimate was a conservative one, and that its capital losses could be sufficient to offset tax liabilities as far out as September 2027.<\/p>\n<p>Several big holdings for ARKK, such as Zoom and Block, have been down this year, offsetting stronger performance by the likes of Coinbase and Roku. While perennial top holding Tesla is up nearly 100 per cent year to date, its stock is still well below its highs of late 2021 and early 2022. <\/p>\n<p>Wood noted on Thursday\u2019s webinar that she thought the potential to save on taxes offered by her company\u2019s ETFs was underappreciated. <\/p>\n<p>\u201cI don\u2019t think many people understand what an asset we have in terms of those tax-loss carry-forwards,\u201d Wood said. <\/p>\n<p>Ark, which did not report any income or capital gain distributions in 2022 after doing so in 2021, did not respond to requests for additional comment. <\/p>\n<p>One of the main draws of an ETF for investors is its ability to manage holdings to defer capital gains tax liabilities. ETF providers routinely tout the various tax advantages of their product over other US fund types. Ark\u2019s decision to broadcast the tax advantages of its losses while offering up an estimated timeline for tax benefits is less common, even for a group whose founder is known to make bold predictions. <\/p>\n<p>\u201cThey are aiming for transparency, but they are making forward-looking projections \u2014 that\u2019s abnormal to see in asset management,\u201d said Todd Rosenbluth, director of research at the VettaFi consultancy.<\/p>\n<p>\u201cThe specific timing and putting a more positive spin on the challenging historical performance stands out relative to other ETFs.\u201d<\/p>\n<p>Research has shown that the ETF\u2019s mechanism for handling requests to redeem underlying securities leads to lower tax burdens than mutual funds. This phenomenon was most recently on display at the end of 2021, when numerous active mutual funds faced sizeable year-end capital gains distributions \u2014 sometimes more than 20 per cent of net asset value \u2014 while for most ETFs the figure was 1 per cent or less. <\/p>\n<p>The prospect of paying less in taxes has been a driving factor for investors, who have steadily been putting money into ETFs while pulling out of mutual funds. Even so, mutual funds collectively continue to hold a much larger piece of the US investment pie than ETFs. <\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.ft.com\/content\/d3c44129-fd4c-45ff-ba4c-21c366279357\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stay informed with free updates Simply sign up to the Exchange traded funds myFT Digest &#8212; delivered directly to your inbox. Cathie&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-4261","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Ark finds silver lining in massive ETF losses: years of tax benefits | inFundPros<\/title>\n<meta name=\"description\" content=\"Stay informed with free updatesSimply sign up to the Exchange traded funds myFT Digest -- delivered directly to your inbox.Cathie Wood\u2019s Ark Investment\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/infundpros.com\/?p=4261\" \/>\n<meta property=\"og:locale\" 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