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Morningstar’s Amy C. Arnott published ARKK: An Object Lesson in How Not to Invest this week, providing valuable insight into the dangers of chasing hot market sectors. The column focuses on the Ark Innovation ETF, a fund that has been among the top 10 performing U.S. portfolios over the past five years with a 41.3 per cent average annual return.

These returns are fantastic for investors that got in early. But, the vast majority of holders in the ETF piled in late, chasing the high returns, and are now suffering as volatility hits. “Most of the returns came when fewer shareholders were around to benefit,” writes Ms. Arnott. “When [the ETF] posted an impressive gain of 87.4 per cent [in 2017] it averaged only about US$116-million in assets.” The ETF’s market cap peaked at US$25.5 billion in June of 2021, and the price has dropped 29 per cent since.

Ms. Arnott used monthly market capitalization data to estimate the average return for investors in the fund.

Because the majority of the investment occurred after the strong returns, and just before the sell-off, Morningstar calculates that the average investor in ARKK Innovation endured a 12 per cent decline from November 30, 2020, to the end of November this year. This performance is three times as bad as the 4.4 per cent decline for the fund.

Investors getting burned chasing high-flying performance, in funds or individual stocks, is not a new story – it’s virtually a cliché. The story highlights the fact that no matter how much money is spent on investor education, there will always be a segment of market participants that can’t stop themselves from giving in to temptation.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

REIT sector offers safe haven for investors after spectacular rebound

Investors looking for dependable income in a low return world may want to consider real estate investment trusts, writes our Ian McGugan. The REIT sector spans everything from apartment buildings to warehouses and has enjoyed a spectacular rebound this year. And more good news may be on the way, according to Lee Goldman, senior portfolio manager at CI Global Asset Management.

The very strange year that was

Strange is the best word to describe 2021 as the year winds down, says Gordon Pape. It began on an optimistic note, as tests of new vaccines reported positive results in the effort to defeat the coronavirus. Today, with about two weeks left in 2021, we’re staring at an uncertain future. The Omicron variant threatens to undermine the progress we’ve made on the vaccine front. Gordon explains why it may be time to cash in a few chips while share prices are high.

Contra Guys: This is how our stock picks turned out for 2021

Last year, Benj Gallander and Ben Stadelmann (AKA The Contra Guys) had success with all 13 of their stock picks. This year? Not so much. Here’s their review of how things turned out.

Ontario’s delays to mutual fund reforms have cost investors $13.7-billion in fees

Investor advocates are slamming Ontario’s securities watchdog after a recent report by the province’s Auditor-General found the regulator’s unwillingness to ban some types of mutual fund fees has cost investors billions in commissions since 2016. Clare O’Hara reports.

How companies can lower the bar in sustainability bond binge

Companies are selling a record number of bonds with penalties attached if they fail to meet environmental and social targets, but there’s a catch - some goals are so soft that firms can actually take their foot off the gas. Because so-called sustainability-linked bonds (SLBs) are in high demand from investors keen to burnish their green credentials, those companies are also rewarded with lower borrowing costs. A Reuters analysis of 48 SLBs issued by the 18 biggest borrowers in 2021 showed that nearly half, or 23, included a target which lets them improve at a slower rate than they have done previously. And as Reuters reports, one example is Canadian energy pipeline operator Enbridge.

Once-hyped ‘Buy UK’ equity trade proves cheap and unloved

The “Buy UK” equity trade that many viewed as a no-brainer at the start of 2021 looks as if it has backfired, with British equities suffering record outflows this year despite being at their cheapest in more than three decades. Reuters reports on what went wrong.

Is gold over inflation? A historic market trend may be ending

Gold has so far failed to rally in the face of the highest U.S. inflation in almost 30 years, suggesting that a long-held market orthodoxy may be breaking down. Clyde Russell of Reuters explains why.

Others (for subscribers)

Canaccord Genuity’s top Canadian stock picks for 2022

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CFO buys on the dip when this stock tumbled into bear market territory

Tuesday’s Insider Report: CEO invests over $500,000 in this stock that’s projected to more than double in value

Number Cruncher: How are top airline stocks navigating the pandemic?

Number Cruncher: Which of these eight Canadian entertainment stocks are undervalued?

Ark’s Cathie Wood remains concerned about deflation, not inflatio

Ask Globe Investor

Question: How can I find out how much TFSA contribution room I have?

Answer: If you have registered with the Canada Revenue Agency’s “My Account” service, you can check your TFSA contribution room online any time. But be careful: The number the CRA provides won’t reflect any TFSA transactions you made in the current year. For example, I deposited the maximum into my TFSA back in January, but the CRA is still showing $6,000 of contribution room that I don’t actually have.

Worse, it will likely be several months into 2022 before financial institutions get around to filing updated 2021 TFSA transaction records to the CRA. By that time, many Canadians will have already made their 2022 contributions. So, if you check your CRA account in, say, February, your TFSA contribution room could be two years out of date.

That’s why it’s important to stay on top of your TFSA contribution room. The formula is straightforward: Add up your unused TFSA room for years when you were at least 18 and eligible to contribute, plus any withdrawals you have made. Withdrawals are added to your contribution room on Jan. 1 of the year following the withdrawal, along with the annual dollar limit for that year.

For example, say you entered 2021 with $15,000 of unused contribution room, including the $6,000 dollar limit for this year. If you contributed $5,000 to your TFSA in March, then withdrew $7,000 in November, your TFSA contribution room as of Jan. 1, 2022, would be $23,000 ($15,000 minus your $5,000 contribution in 2021, plus your $7,000 withdrawal in 2021, plus $6,000 of new contribution room for 2022.)

--John Heinzl

What’s up in the days ahead

The money-losing growth stocks that retail investors fell in love with over the last year are completely collapsing. Tim Kiladze takes a look at why it’s happening.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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