Morningstar has published its first rating on ARK Investment Management’s main exchange-traded fund — and it’s not exactly glowing.

The fund research firm on Wednesday initiated coverage of the ARK Innovation ETF, publishing an analysis by Robby Greengold, a strategist on Morningstar’s U.S. equity strategies team. Greengold said the ETF, which trades as ARKK, had earned a neutral rating, citing the fund’s lone manager, inexperienced team, and lack of risk controls as the core contributors to its neutral score.

“The strategy lacks a robust way of mitigating its overall risk exposure,” Greengold said by phone Thursday. “The firm almost exclusively manages its risk through its bottom-up stock research, but it does not seem to have either formal constraints on its overall risk exposure that most of its competitors have nor visibility into those risk exposures.” 

Greengold pointed out that ARK does not have a risk-management team, simply an investment team that assesses risk at the stock level.

“This stands out in the industry and in the category,” he said. “It’s really below industry standard.”

Although the firm generally invests no more than about 10 percent of ARKK’s assets into a single company and no more than half of its assets into a single technology, Greengold emphasized that these limits are among very few portfolio construction rules at ARK. 

“That’s very few,” Greengold said. “Most managers will have many more parameters than that.” 

The ARK Innovation ETF — the flagship fund at Cathie Wood’s ARK Invest — is an actively-managed fund that relies on investments in DNA technologies, industrial innovation in energy, automation and manufacturing, shared technology and services, and fintech.

Its neutral Morningstar rating indicates that Morningstar analysts expect the fund to deliver net-of-fee alpha that is less than or equal to zero. Morningstar uses a five-tier scale for fund ratings, ranging from “gold” to “negative.” A “neutral” rating is one step above “negative.”

The ratings are calculated using what Morningstar describes as the five pillars of investment strategies: people, parent, process, performance, and price. Greengold said that ARKK’s neutral rating is largely a reflection of its scores for process, people, and parent. People and parent received average scores while process received a below-average score, largely due to the lack of risk management.

Greengold also attributed ARKK’s neutral rating to its lone portfolio manager, Wood, who launched the firm in 2014. In Wednesday’s note, Greengold wrote that Wood had employed “similar” strategies at AllianceBernstein from 2001 to 2013, delivering “high volatility, poor downside performance, and underwhelming long-term results.”

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In addition, Greengold cited an inexperienced team of analysts as a key component of ARKK’s score. While most industry analysts have master’s degrees and industry experience, ARK’s research-related job postings rarely demand these requirements, he said.

ARK also struggles with retaining and developing talent, according to Greengold’s note. 

“Those analysts have gone on to become product managers at tech-driven companies,” he said by phone. “So they’re not investment analysts anymore.” 

A representative from ARK was not available for comment by presstime.