Ark Investment Management LLC, renowned for its innovative strategies, spearheaded the creation of the best-performing ESG fund in 2023, the $2.4 billion Nikko AM Ark Positive Change Innovation Fund . Surprisingly, it achieved an impressive 68% return, outpacing the S&P 500’s gains twofold. Notably, the fund’s major success was fueled by a significant investment in the crypto space, with Coinbase Global Inc. constituting nearly 10% of its portfolio.
Amid a challenging year for ESG-themed funds, particularly those centered on traditional clean-tech assets like wind and solar, the Nikko-Ark fund opted for a tech-focused approach, steering clear of headwinds faced by conventional ESG investments. The S&P Global Clean Energy Index experienced a 21% decline, contrasting sharply with Coinbase’s fivefold surge in market value.
The fund’s performance was buoyed by the approval of Bitcoin exchange-traded funds by the US Securities and Exchange Commission at the beginning of 2024. However, recent market dynamics have led to a retracement of Bitcoin gains, emphasizing the “buy the rumor, sell the fact” phenomenon.
Thomas Hartmann-Boyce, a portfolio manager at Ark, sees significant potential for Coinbase, attributing its robust position to being the primary custodian for underlying Bitcoin assets. Despite acknowledging Bitcoin’s energy-intensive mining process, Hartmann-Boyce emphasizes the fund’s sustainability rationale, focusing on transaction transparency and providing financial services to the underbanked.
Managed by Ark Investment Management and implemented by Nikko Asset Management, the fund invests in disruptive technologies aligned with the United Nations sustainable development goals. The strategy encompasses a model portfolio from Ark, founded by Cathie Wood, and places a strong emphasis on tech innovations.
In the realm of ESG funds, those veering away from traditional green assets and embracing technology-intensive sectors excelled in 2023. Another standout performer, the JPMorgan US Technology Fund, demonstrated a robust return of almost 65%. Both the Nikko Ark portfolio and the JPMorgan fund are categorized under “promoting” ESG, falling under Article 8 of the European Union’s Sustainable Finance Disclosure Regulation.
Despite a remarkable gain of over 50% in 2023 following a more than 50% slump in 2022, the Nikko Ark fund has experienced a 5% loss so far in 2024. Similarly, Coinbase is down approximately 23% year-to-date, leading 11 out of 28 analysts to recommend selling.
Peter Graf, the Chief Investment Officer for Nikko in the Americas, remains steadfast in the fund’s strategy, emphasizing its commitment to long-term exposure to sustainability-related innovation. Graf acknowledges the volatility in the macroeconomic landscape and the challenging start for tech stocks but underscores the fund’s dedication to innovation regardless of the business cycle.
