We recently released our returns, which continue to be robust despite the risk-off environment in tech. Notably, we are a hyper-growth, high-beta tech fund and we do not switch our positioning by allocating to other industries that might be temporarily in favor, such as energy or commodities. Rather, we believe that tech is the premier sector that is best positioned for long-term growth, and we expect to remain fully allocated to tech throughout the cycle.
However, this doesn’t mean that we do not manage risk, as we constantly look for favorable entries and reduce exposure near tops. We believe that our results highlighted below are strong considering the volatile market in tech during 2021. We discussed our 2021 results during our Q2 2022 Webinar Update, and also discussed our positioning for 2022. For Q2, we believe that we are positioned well to benefit from key trends such as Big Tech Capex, Automotive, and Reduced Cloud Spend and Big Data/Analytics.
Since we are a tech-focused team, we compare our results to leading actively managed tech funds, such as the Ark Innovation ETF and the Morgan Stanley Innovation Inception Fund. As you’ll see in the chart below, we handily beat both of these actively managed funds in a year where high beta tech was out of favor. Notably, this is performance only and excludes dividends, fees and tax distributions.
Our success during the year is attributable to our concentrated holdings in leading industries, such as semiconductors and cryptocurrencies. The I/O Fund made the bold move of placing blockchain assets, such as Bitcoin, Ethereum and Chainlink, into our audited portfolio. Furthermore, we held an average 20% allocation to blockchain assets throughout the year, as we actively managed the position but maintained exposure despite the volatility in the risky asset class. You can read our official press release on the 2021 performance here in Business Wire.
Our exposure to semiconductors has also helped us outperformed other active tech funds. For instance, Ark does not have a single semiconductor company in its top 10 holdings, nor its top 20. We view semiconductors as a major component in the broader cloud complex, which provides the necessary infrastructure to drive key trends forward, such as cloud computing and the adoption of electric vehicles. Stated differently, semiconductors are instrumental in technology innovation. While semiconductors have historically been a highly cyclical asset class, we see signs that the industry is becoming more predictable, which deserves a premium valuation.
We also have high exposure to leading cloud stocks, such as Datadog and Snowflake. We purchased Datadog throughout 2021 and booked gains of around 80% during the year, and also purchased and reduced exposure to leading cloud stocks such as Asana. We note that markets tend to overshoot on the way up and on the way down, which is why it is important to manage risk in a highly concentrated tech portfolio.
We believe that our strong performance during a risk-off environment for high-beta tech proves our deep understanding of tech and our ability to structure a winning portfolio. We remain agile in volatile markets and utilize both fundamental and technical research to understand when and where to allocate in tech.
Performance Review:
We launched the I/O Fund on May 9th, 2020 and our performance through the end of the 2020 was 115.5%. Our 1-year returns from May 9th, 2020 to May 9th, 2021 was 236% and our initial audit for a 7-month period during 2021 was 28%. You can view this press release here.
We have now reported a full calendar year of performance:
Our full year returns from January 1st 2021 through December 31st 2021 were 11.4%. These returns were independently audited and highlight the I/O Fund’s ability to deliver favorable results in a period when our sector, high-beta tech, was relatively out of favor. Since inception, our cumulative returns were 141%. We discussed our returns in more detail during our Q2 2022 Premium Webinar Update.
Please note that we do not share the dollar value in our portfolio, so this has been omitted from the report. However, the audited numbers are taken directly from the report shown below. Furthermore, the below performance review takes two to three months to complete, and in this case it took longer. Therefore, we are showing you our 2021 returns today and will update our readers on our 2022 performance in early 2023.
For comparison purposes, we do not calculate total returns on our portfolio. Rather, this is a performance audit that highlights the results from picking stocks, and excludes any fees, dividends and taxes. Total returns from our benchmarks may slightly differ due to dividends, management fees or tax consequences. However, we do take into account the distributions made by the Morgan Stanley Institutional Inception Fund to avoid overly penalizing the mutual fund for year-end distributions. We believe this approach provides a more clear apple-to-apples comparisons of our performance relative to other actively managed funds.
How the I/O Fund Compares:
As noted above, for comparison purposes, we do not calculate total returns on our account. As stated, total returns on Ark Innovation may slightly differ due to dividends and management fees being factored in. In the below table, we highlight a stock-pickers comparison of our performance relative to other funds with no additional income factored in other than stock performance:
We believe that our performance demonstrates our ability to navigate turbulent markets and remain fully invested in tech. While tech may go through periods of high volatility and underperformance, we believe that it will remain the best sector for long-term gains. As such, we remain fully allocated to the sector throughout all cycles but tactfully look to hedge our exposure by moving into stronger industries, such as semiconductors and blockchain tech, when we see signs of strength, and also raising cash when the market appears weak.
We also want to thank our members for believing in a small team that is focused on beating Wall Street. When we launched our retail-focused fund, we aspired to bring institutional level research to investors by forming a small, focused team that cares very much about their chosen specialty. We continue to improve upon on processes and look to strengthen our returns going forward.