August 5, 2024 • 38 mins
Tesla stands to benefit from the rise of robotaxis, and Ark Investment Management CEO Cathie Wood is betting that autonomous driving can power the EV maker’s shares to a tenfold gain. Wood also weighs in on Bitcoin, which she predicts could hit $1.5 million by 2030. Nvidia, China, and artificial intelligence have reshaped the investing landscape, and Wood muses about where they’ll take the markets next. She speaks with David Ingles of Bloomberg Television and Rebecca Sin of Bloomberg Intelligence on a special episode of Tiger Money.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This podcast is brought to you by HKX, Asia's ETF marketplace. Well,
you'll find a gateway to liquidity and a diverse selection
of opportunities across asset classes, sectors and themes in Asia
and beyond. Search HKX to learn more.
Speaker 2 (00:18):
Good morning, good afternoon, good evening, and good nights wherever
in this vast, beautiful planet.
Speaker 3 (00:23):
You're joining us from.
Speaker 2 (00:25):
Welcome to Tiger Money, a Bloomberg podcast about investing stocks, commodities, bonds,
crypto and everything in between, with a focus on ETF
in Asia and also beyond. I'm your host, David Ingless,
Chief Markets Editor for the Asia Pacific, host of a
China I should also notte non award winning journalist joining
me in my co pilot on this journey as we
(00:45):
recassent head of Asia Pacific ETF Research at Bloomberg Intelligence. Now,
if you like what you hear, do not forget, please
to like, subscribe and also to share.
Speaker 4 (00:56):
Today we're very excited to have a very special guest,
Katy with CEO it Cio of ARC Investment Management. She
has over forty years of experience in investment management and
her focus is on disruptive innovation technology including DNN sequencing, robotics, AI,
energy storage, and blockchain technology. An interesting fact about her
(01:17):
was when she lived in Ireland, she was fluent in Gaelic.
Welcome Kathy, and we're so excited to have you here
today on Tiger Money.
Speaker 5 (01:23):
Oh, thank you Rebecca and David. Great to be here.
Thank you for inviting me.
Speaker 2 (01:29):
Right, I can't let that go without asking you, Kathy,
to just say hello to our viewers in Gaelic. We
won't know what you're gonna say, but we'll trust it's
something like good day, good evening, or whatever the case
may be.
Speaker 5 (01:39):
Go ahead, Kathy, you know what I will say. I'll
be more polite than that. I will say thank you
since that word was drummed into my head when I
was a child. Got a mahugate.
Speaker 3 (01:50):
Okay, you're welcome.
Speaker 2 (01:53):
So, Kathy, in the slightest chance there is a viewer
or listener out there that is not from familiar with
what you guys do, could you just give us a
very brief overview of how.
Speaker 3 (02:05):
Many strategies do you guys run?
Speaker 4 (02:06):
Now?
Speaker 2 (02:07):
How much is AUM at the moment? Essentially, what are
you guys busy with?
Speaker 5 (02:12):
Right? Our invest I founded it in twenty fourteen, so
we're ten years old. We are approaching twenty five billion
dollars in assets under management in the world of ETFs.
We have eight ETFs here in the United States, but
we also subadvise for Nico Asset Management a number of
(02:33):
mutual funds in Japan. So we've actually gotten some interesting
ETF ideas here in the United States from our partner
in Japan. In two thousand I think it was twenty sixteen,
Japan saw or Nico saw fintech on our roadmap for
two thousand nineteen, I think, and they wanted it right away,
(02:55):
and they were right because of course, back then China
with we chat pay was teaching all of us how
the world was going to work, and so it was
a very good time to start that fund perfect.
Speaker 2 (03:07):
I was hoping to just pick your brain and understand,
you know, this concept of disruptive technology, which underscores a
lot of your investment thesis. By virtue of being disruptive,
there's also a component of not knowing really what it
is until it becomes disruptive. So how do you predict
into the future and how do you know what the
future looks like?
Speaker 3 (03:26):
I guess it's the starting point there.
Speaker 5 (03:28):
Well, we are focused on all new technology that is evolving,
and we are focused, as Rebecca said, on the five
major innovation platforms that have been evolving believe it or
not since the late nineties. So the tech and telecom
bubble was the dream. Today is the reality that bubble
(03:50):
happened for many companies. You know, ten, fifteen, twenty, twenty
five years too early. Now we're in the middle of
time time for a lot of these themes. Certainly energy
storage evs. EV's are taking massive share, right, but so
far they account for a little more than ten percent
(04:12):
of total vehicle sales around the world. We think that's
going to seventy five percent in the next five years. Now,
why do we say that the centerpiece of our research
is Right's law. Right's law is a relative of Moore's law.
So many people know Moore's law in the semiconductor space, right,
(04:36):
and it basically says, you know, you get twice the
power for the same cost every eighteen months to two
years in the world of semiconductors. Right, that's a function
of time. Rights law, however, is a function of units,
and it says for every cumulative doubling in the number
(04:56):
of units produced of a given technology, cost decline at
a consistent percentage rate. So this is very important because
when costs fall and those are passed through into prices,
then access to new technologies is opened up to more
and more sectors. And we're looking for very big opportunities
(05:19):
that are going to scale across sectors, and we're also
looking for platforms that are going to become launching pads
for other technologies. So to give you an example of
that in the world of multiomics that sounds complicated, it's
life sciences, But until very recently, it has been prohibitively
(05:42):
expensive to sequence the human genome. Now we can for
around two hundred to four hundred dollars. Twenty years ago
that was two point seven billion dollars. We've come a
long way now that we can sequence the six billion
bits of code inside our genome. We're able to isolate mutations,
(06:06):
and so what has happened because of that sequencing technology
has been a launching pad for crisper gene editing. So
these technologies didn't exist, and they're truly disruptive in the
sense that with gene editing we can now cure disease right,
(06:26):
we have not been able to cure diseases before. That's
one of the ways we describe truly disruptive innovation.
Speaker 2 (06:33):
Your investment horizon, by virtue of what you just described,
seems to be that you need to look at returns
over a much longer period of time. And yes, seeming
paradox that you're operating in this market that judges you
based on a yearly, if not even quarterly basis in
terms of returns. I have to note, of course, the
(06:55):
market's not extremely well this year.
Speaker 3 (06:57):
You guys have underperformed the market.
Speaker 2 (06:59):
Over the longer term, maybe we can make a different assessment,
of course, but just give us a sense of how
you navigate that space on keeping investors patient when this
is really not a business of patients.
Speaker 5 (07:12):
It isn't a business of patients. And I'll take you
back to twenty twenty and twenty one when we could
do no wrong during COVID because technology innovation was solving
big problems back then, so our kind of strategy was
really in vogue and the inflows were incredible to the
(07:32):
point where I said, please keep some powder dry, especially
towards the end of twenty twenty and early twenty one,
and yet we couldn't fire our clients and we couldn't
prevent the inflows in the ETF world, right, and so
we ended up in twenty one and twenty two when
first the whiff of interest rates going up and then
the reality of interest rates going up crucified long duration assets.
(07:57):
Long bonds had their worst performance since the seventeen hundreds
if we can measure back that far, and our strategy
was going to have a very difficult time in that
kind of an environment. And of course it's because interest
rates went up twenty two fold, record breaking. We had
never seen that in not much more than a year's time,
(08:18):
so those two years were extremely difficult. Twenty three, on
the other hand, the width of falling interest rates, we
had a wonderful year. It was quite lumpy, but we
significantly outperformed the broad based benchmarks this year. As those
six interest rate cuts which were expected at the end
(08:40):
of December for twenty four, as those were taken off
the table. Again, as you say, very short term oriented
shareholders just you know, they took their profits from last
year and they redeployed them elsewhere. So, yes, we've been
seeing outflows, and I think this is the flip side
of where we were in late twenty and early twenty one.
(09:04):
Obviously we disagree with outflows, just like I said, keep
your powder dry at the top, and that was the
right advice. Now we're saying leaving our strategy now right before.
We believe interest rates are going to come down and
going to come down more dramatically than most people think,
because our economy is much weaker and inflation we think
(09:27):
is going to be much lower than expected. Now would
be the wrong time to sell our strategy. What we
do say to clients is truth will win out. If
we are right, then we believe that truly disruptive innovation
will scale from roughly fifteen trillion dollars in the global
equity markets, which is roughly where it is right now
(09:49):
a little more than ten percent of global equity markets
to two hundred and twenty trillion by twenty thirty. If
we're right, that will be leaving a lot of appreciation
on the table. Now, we do need the macros to
come our way, and we think they will so.
Speaker 4 (10:09):
ARC has a very different definition of what disruptive technology is.
Tesla is your largest holding in your flagship ARC Innovation
Fund at sixteen percent, followed by Roku at nine percent,
Coinbase eight percent, in Roadblock six percent. So what's your
veal on scaling up and the monetization of this business
and what are some of the hurdles.
Speaker 5 (10:29):
So we believe Tesla is the largest AI project, and
I say that believing they will complete the project on Earth.
Autonomous taxi platforms are the biggest AI project evolving today,
and we believe this will be an eight to ten
(10:51):
trillion dollar global revenue opportunity for the entire ecosystem, with
the taxi network providers the autonomous network providers taking half
of that. We believe this is a winner take most project,
meaning the company getting people from point A to point
(11:11):
B the safest and the quickest, that company is probably
going to win the lion's share of the market. We
believe in the US that is Tesla. Interestingly, we've been
focused on China thinking Tesla would not be granted much
of an opportunity for autonomous in China, and as you
probably know, they have been allowed in China. And what
(11:34):
we've learned from Baidu recently Apollo it's autonomous driving platform,
it has shifted its strategy to Tesla's strategy exactly, which
is very interesting to us. It seems that Tesla could
get more of the opportunity in China than we once thought.
(11:56):
So if you look at the way Tesla is valued,
it is no longer valued just an ev manufacturer. So
some of this autonomous opportunity is getting into the stock.
And yet if we are right, the stock has miles
to go, and we've been valuing primarily the autonomous opportunity
and we see a tenfold increase. Why is that It
(12:19):
is because Tesla will shift from an auto manufacturer, so
that's one and done. You sell the car, and with
the full self driving software, that's pretty much the commercial opportunity.
With autonomous it will shift from one and done to
a recurring revenue. SaaS like model Tesla will take a
(12:41):
piece of the action from every fleet owner using its network,
deploying on its network, and we think they could take
anywhere from thirty to fifty percent of the economics of
the top line from the fleet owners, and the margins
associated with that will be more like north of fifty percent.
(13:05):
I mean SaaS margins are in the eighties and nineties.
You combine that with their electric vehicle right now, those
gross margins are sixteen percent. The blended margin is going
to be well above fifty percent. That is what we
think people are missing, the size of the opportunity, how
quickly it's going to scale, and how profitable it's going
to be.
Speaker 2 (13:25):
Right, you have a sixteen percent based on what Rebecca said,
sixteen percent of the flagship ark innovation is Tesla.
Speaker 3 (13:31):
I mean, are you looking to increase that weighting?
Speaker 2 (13:34):
Is there a maximum cap within the strategy for a
single stock and then let's take it from there.
Speaker 5 (13:39):
Sure, so we can buy any stock up to ten
percent of the portfolio. We cannot buy beyond, but we
can let a stock ride. Now normally we will start
taking profits well before sixteen percent. But the reason we
have let Tesla run. We've taken some profits, but let
(14:00):
it run to a higher percentage than normal of the
portfolio is because that Tesla is about to give us
a lot more information about the robotaxi opportunity. Now. Originally
August eighth, so eight eight and I know in China
that's a very lucky number.
Speaker 3 (14:18):
Double infinity.
Speaker 5 (14:19):
Yeah, there you go, there you go. And we thought
that's why Elon chose the date at first it was
August eighth. Today they pushed it to October, and that
just tells me that we're probably getting closer to this
robo taxi opportunity. He wants to show us something more
(14:40):
I think awe inspiring than we might have seen on
August eighth, and he believes as possible by October. And
what does that mean. It means that analysts will have
to build into their models. They'll have to think about this.
Wait a minute, this is no longer a one and done.
This is a recurring revenue model with explosive cash flows. Oh.
(15:01):
By the way, ARCS model suggests there's significant upside if
Elon and team deliver on this opportunity. And this is
truly disruptive, meaning transportation will go autonomous, and not just
electric passenger vehicles, but trucks and drones. This is going
(15:23):
to create a completely new world for transportation. And even
in the case of rails, I know Warren Buffett has
had a constant exposure to rails because they've been so
dependable as investments over the years. But autonomous trucks, we
believe could undercut rail pricing and go point to point,
(15:45):
which rail cannot do. And so rails. Ultimately out there
somewhere could be stuck with stranded assets unless they turn
them into high speed passenger.
Speaker 2 (15:56):
Yeah, it looks like we'll need to build more highways
than if that comes out to be true. I know
you speak with Elon. I know he's a friend. If
I'm not mistaken, I'm wondering how you look at this.
I'm wondering if you could give us an insight on
how Elon might look at this to key Man Risk, right,
if something were to happen to Elon Musk, what happens
with the project and how do you look at that
from an investment point of view.
Speaker 5 (16:18):
I think many people would be surprised at how little
Elon and I speak, and that's kind of by design.
We have great relationship with the broader team, the financial
people and so forth. We speak to him occasionally.
Speaker 2 (16:31):
We did a.
Speaker 5 (16:31):
Podcast with him if Autonomous, We're not as far along
as it is. What I'm telling you is three years
ago key Man Risk, in terms of where we think
the stock is going, might have been more significant. But
the talent that Elon has attracted to Tesla. This is
(16:52):
a very hard AI project and the best engineers in
the world want to work on very high are difficult projects.
So the talent he has surrounded himself with is phenomenal,
and we think we're almost there. In terms of autonomous
Elon is a visionary. He is our renaissance man. I
(17:14):
don't think there are many other executives out there who
are able to deal with the convergences that are taking
place between and among technologies. This is why we never
called Tesla an auto company. We called it a robot company,
an energy storage company, an artificial intelligence company. Tesla has
(17:35):
never been an auto company. It is one of the
most profound examples of how the convergences among technologies are
going to manifest into super exponential growth long term.
Speaker 2 (17:51):
You also mentioned earlier on this is almost winner takes most.
If I'm not mistaken, how you phrased that winter takes most.
Conversation Tesla and China. I need to ask you about
b White Tesla or BYD. Do I have to pick
between it? Is that a binary choice? How would you
approach that?
Speaker 5 (18:05):
No, I don't think so. I don't think so. What's
been great about BYD and its success is very important
to our analysis of cost declines of technologies including electric
drive trains is units. As I mentioned, Right's law, BYD
(18:26):
has been very helpful in scaling the units in evs
to help costs come down. So BYD actually has helped
Tesla and all electric vehicle manufacturers because electric drive train
costs continue to come down as units scale. So it's
not either or, and in fact we own both. We
(18:48):
own both in one of our ETFs. Of course, in
the flagship ETF we own Tesla. Our flagship has to
be exposed to all technologies, so we're more careful there
in terms of selection.
Speaker 1 (19:00):
This podcast is brought to you by HKX Asia's ETF marketplace,
where you can get exposure to themes ranging from AI
to virtual assets, small cap to large cap Greater China
to global search. HKX to learn more, let's.
Speaker 4 (19:17):
Shift geared to crypto. Your spot Bitcoin ETF is now
the fourth largest by assets under management with almost three
billion in assets, and a lot of your best performing
funds this year are in the crypto space, whether it's blockchain,
digital economy, ethereum, and I think when we last spoke
about a year ago, you mentioned that bitcoin could reach
as high as one point five million dollars by twenty thirty.
(19:42):
So what are you seeing in the crypto space? Can
just share any insights into the crypto space and what
you want people to know.
Speaker 5 (19:48):
Sure, it's a little bit of a David Goliath story.
Great scale was the BMTH and it donated a lot
of share to black Rock and and us we're number
three of the recipients of that share, so we're very
proud of that. As far as where we think bitcoin
(20:11):
is going to go, yes, that one point five million
is our bowl case. Our base case is in the
six hundred and fifty thousand dollars range. With the approval
of the spot Bitcoin ETFs, the probability of our bowl
case went up dramatically. This is a new asset class.
So not only is bitcoin a global rules based digital
(20:35):
private monetary system first time in history, a very big idea.
Not is it only a technology, but it is also
a new asset class that institutions must consider. Why because
new asset classes mean the correlation of returns with this
new asset class are low relative to other asset class,
(21:00):
and so institutions and others have a fiduciary responsibility to
consider Bitcoin and other crypto assets because the low correlations
mean that over the long term, the returns per unit
of risk will be higher, and so I think institutions
are thinking very carefully about this. They have to, They
(21:22):
have a fiduciary responsibility to do so.
Speaker 3 (21:25):
Is the unbridled bullishness?
Speaker 2 (21:27):
Correct me if I'm mischaracterizing your views on bitcoin specifically.
Is that limited to bitcoin or like? At some point
is Ether going to be part of the conversation. Why
did you guys file for an Ether spot ETF, for example,
or do you have plan?
Speaker 5 (21:38):
Do we actually have private funds? One is one we
call the Crypto Asset Revolution Fund, and so that has
about ten assets in it. We're still very selective. I
think there are thousands of crypto assets out there, so
ten suggests that we think very few are going to
(22:00):
scale very dramatically in the years ahead. In terms of Ether,
we believe in it. We think it's the leader in
the financial services revolution, and we're looking for better ways
to exploit it to unlock its full benefits. As you
probably notice that SEC is not going to allow staking,
(22:23):
so that is not really providing investors with the full
benefits that Ether will offer over time. So we're trying
to figure out how to pick our spots there, right.
Speaker 2 (22:33):
You know, I need to ask you to interesting how
you split up the Mag seven into you know you
have I would imagine Tesla and then the Mag six,
and you mentioned it.
Speaker 3 (22:43):
I need to ask you about Nvidia. And I don't
mean this. It's a gotcha question, right.
Speaker 5 (22:47):
Believe me. I'm used to answering this question.
Speaker 2 (22:51):
Yeah, Well, you know what wasn't obvious at that point
that we do know now that if we had a
little bit more information at that point, you wouldn't have sold.
I guess that is also part of what some of
your investors are asking and talking about concentration risk.
Speaker 3 (23:03):
Where is our Nvidia in your strategy?
Speaker 5 (23:06):
Well, Nvidia already has been to answer your question directly
about we sold and it has tripled since we were
in for the first one hundredfold increase, so we wrote
it up one hundredfold. Would we have liked another triple? Sure,
and if we had known it was going to triple, absolutely,
(23:28):
But here is the most important question for Nvidia to
deserve where it is right now. From a valuation point
of view, other companies out there must be having phenomenal results,
provocative results that are turbo charging them and moving forward
(23:50):
We think we have a lot of companies in our
portfolio that will enjoy the AI swish, but it is
going to take time, and I think that is what
a lot of people are missing. And this is what
we were thinking as we were selling in Vidia and
moving more into Tesla, right, I mean, or in the
(24:13):
early days when we sold in video, we bought Coinbase
because it was being destroyed by the SEC. Coinbase last
year did better than in Vidia. That doesn't mean we
wouldn't have loved to have owned Nvidia as well. I'm
not saying that. I'm just saying you have to look
to the other side of a cell. What did you
(24:33):
buy now? Why do I say it's going to take time? Well,
Palanteer itself, which is in our top ten, is telling
us that for large enterprises to be able to harness
AI in a profound way, meaning to transform their own business,
is going to take time. These are big ships and
(24:57):
what do they have to do. They have to gather
day from all around the world. These multinationals data that
they don't even know exists, are having trouble finding it,
centralize it, clean it up, integrate it. They're going to
have to map out their workflows throughout the enterprise, these
huge enterprises in excruciating detail, and then maybe they're ready
(25:21):
to harness AI. Sure, right now we can all write
emails and poems if that's what we do much more
quickly and effectively. But those aren't the profound uses of
AI to transform business models. Those are very useful from
productivity point of view. We're not dismissing them. But even
a company like UiPath, which is in our top ten,
(25:44):
its fourth quarter was up thirty one percent revenue growth,
and then all of a sudden, here is one of
a software provider which is using AI a federated model,
using all the foundation models out there, and building specialized
models to help companies with their workflows, which is the
first thing that's probably going to happen. And what happens.
(26:07):
It's growth rates slowed down from thirty one percent to
I think it was eighteen percent in the first quarter,
and the stock drop thirty percent? What was that all about?
That is what I just told you. Wait a minute,
there's a little bit of a paralysis here as strategic
decision makers say, wait a minute, this is important and
(26:28):
we need to figure this out, and we agree it's
going to be transformational, but it is going to take time,
and I think that a lot of Nvidia's move has
not incorporated the time it is going to take. All
I know is that Nvidia is one of the most
cyclical semiconductor companies that I have witnessed in my career.
(26:52):
So again, call it experience, call it stupidity, call it
whatever you want. There was a lot behind that decision.
Speaker 4 (27:02):
So for our listeners who may not know, Kathy actually
bought in Video when it was just four dollars back
in twenty fourteen, and so you were definitely one of
the early investors into this.
Speaker 5 (27:15):
Thank you, No, it was forty cents, Rebecca. We wrote
that pre ten for one split, so we bought it
at forty cents and we wrote it to almost forty dollars,
and then of course it tripled from there. But that's
one hundredfold increase and it is the number four contributor
(27:36):
from inception to date to our flagship funds performance.
Speaker 4 (27:40):
So if we go beyond AI, keeping with the innovation theme,
what are some of your most compelling adjacent industry that
you're focused on. I know you guys have gene editing,
DNA sequencing, how do you find the speed of development changing,
and what's your expectation or forecast in these To David's point,
a lot of these companies may not even exist right
(28:01):
now or are only in its infancy state.
Speaker 5 (28:05):
Sure, AI is going to impact every industry, every sector.
Every company we're now calling the multiomix revolution is probably
going to show some of the most profound results because
of artificial intelligence. We have six billion bits of code
in our genomes.
Speaker 2 (28:26):
Right.
Speaker 5 (28:26):
It was impossible until recently to understand what was going
wrong in those six billion bits of code because it
was too expensive to sequence our genomes, and so God
bless them, doctors didn't have the science or the knowledge
just it wasn't there. It was too expensive to get.
(28:49):
Now we have that information, six billion bits of code.
We've got all kinds of things going on in the body, DNA, RNA, proteins, epigenetics, metabolics.
It's the most complicated organism out there. Right. The only
way we're really going to understand it is with the
convergence between sequencing and artificial intelligence. And now that we
(29:13):
are seeing that we're able to diagnose cancer. And one
of the names in our venture fund, Freenome, is able
to diagnose colorectal cancer. It seems this is early days,
still in trials in stage one, and one of the
co founders until recently an advisor to ARC now having
(29:34):
joined ARC, Charlie Roberts leading a venture fund, now believes
we'll be able to diagnose cancer before stage one. Think
polyps in cholarectal cancer right, Those shed two into the bloodstream.
Speaker 2 (29:48):
So with a.
Speaker 5 (29:49):
Blood test, diagnosing cancer in stage one or before stage
one couldn't happen without artificial intelligence and sequencing. So in
the sequencing space, we own specific biosciences in the molecular
diagnostic space Vericite, which uses artificial intelligence when it comes
to prostate cancer, thyroid cancer, and so forth. We have
(30:13):
names like Recursion Therapeutics, and Nvidia invested in Recursion Therapeutics.
Recursion is in the drug discovery area, and it is collapsing.
The time and the cost to discover new targets for
therapies to address. The numbers are astonishing, like AI itself is.
(30:34):
But what's so interesting the reason you're not hearing a
lot about this and the reason we're investing aggressively in it,
is AI is going to create these cures if we
didn't have that convergence of sequencing technologies AI and now
Crisper gene editing, we would not be able to cure disease.
Speaker 2 (30:55):
Interesting, so catching it early seems to be for all
things cancers has to be the secret sauce and for investing.
I'm curious to get your take. It seems like for
you to catch these early winners, do you have to
go early into the public market space or do you
have to even go further before they become public companies?
As an investor that picks and chooses where to play
(31:16):
your game, is it easier to go into the private
markets at better valuations?
Speaker 3 (31:20):
Where are the better deals right now?
Speaker 5 (31:22):
So I'm trying to go no, no, no, the better valuations,
by far are in the public markets. Now. Remember the
private markets lag the public markets, So the best valuations
in the multiomic space are in the public sector. These
stocks have been destroyed by algorithms that have been looking
at just a couple of things one cash cushion, two
(31:46):
cash flow, and three revenue growth. Today they don't care
about five years, they don't care about one year or
two years. But these are the gems out there that
are right for the picking because the markets have destroyed them.
Speaker 2 (32:04):
Okay, Kathy, I can't let you go without asking you
about China.
Speaker 3 (32:08):
You've been doing this for forty years.
Speaker 2 (32:10):
There seems to be up until this point, a massive
risk premium baked into this entire equity market. It's trading
at half the SMP, It's trading at thirty forty percent
of India. I can see some of the reasons why
that's so. Some of the money's gone out hasn't come
back right now, What do you make of this premium?
Do you think it's justified or do you think this
(32:31):
market is too cheap?
Speaker 5 (32:33):
I think it's a great market for value investors. For
growth investors like us, we can see a big positive
and a big negative. The big positive is new productive forces,
so not just common prosperity, but new productive forces means
China wants to be number one in innovation, which we love.
(32:57):
That's a huge positive. The problem is, given all of
the policy moves that started in late twenty until very
recently when they started loosening up more, there were a
lot of reasons to see that the innovators in the
Chinese market were not being incentivized. In fact, all of
(33:20):
them had to go and do charitable work. So what
kind of message does that send to those people who
have great ideas and want to innovate. Maybe some of
them won't or they won't do it in China, So
that is the negative. And I do think China has
to earn its way back into growth investor portfolios with
(33:43):
more incentives for those who have great ideas and want
to deploy them in China as opposed to elsewhere in
the world. You know, I think China will get it right,
but it has been very discouraging from an innovator point
of view. One of the recent things that China has
done was allowed Tesla to come in and participate in
(34:05):
the autonomous taxi network world. We didn't think that was
going to happen. Okay, now we're talking. That's a plus.
Let's see what other pluses are out there and definitely
could earn its way back into our portfolio.
Speaker 4 (34:20):
Okay, we like to end our podcast with some fun questions.
So the first one is you mentioned that you've had
Elon Musk on your podcast. Have you ever had lunch
or dinner with him? What's he like?
Speaker 5 (34:31):
No, I haven't had lunch or dinner with him. Around
the podcast, the people who surround him. I think they
were giving us forty five minutes for the podcast and
that was it. He spent more than two hours with us,
and so we had a wonderful opportunity to get into
his head a little bit more understand who he is.
And one of the wonderful things he said was he
(34:53):
said one of the things that I ask people I respect,
and he was saying he respected our and our research
and how we go about investing. He said, when I
respect a person or a team, my one request is
that they come back at me when they disagree with me.
(35:14):
If they disagree with something that I'm doing, and they
let me know, then that will make an impact on
my decision making. And it is interesting that I don't
know if you kept track of the trial around his
Twitter post when he said funding secured when he was
thinking about going private and the sec it went after him.
(35:36):
Well during that trial, he used our research and our conversation,
especially around well, the podcast hadn't taken place at that point,
but I had written a shareholder letter by that point
to him and to the board of directors, and it
was an open letter and said don't go private and
so he said that had an impact on him and
(36:00):
his board of directors in not going private. Now I
don't know if he still agrees that staying public was
a good thing, although especially given all the hullabaloo and
drama around his pay package.
Speaker 2 (36:13):
But well, do you think he's worth his pay package?
Speaker 5 (36:15):
Definitely, no question. When they struck the pay package at
that price, the package maxed out would have been worth
two point three billion dollars. The only reason it got
to fifty six billion is it was such a spectacular success,
so much sooner than he expected and the board expected.
(36:37):
So think about what I just said about China. You
put in place the right incentives, and true visionaries can
accomplish anything or anything beyond one's imagination.
Speaker 4 (36:49):
You've had a challenging year this year. How have these
challenges made you a better investor?
Speaker 5 (36:55):
Well, we know we have mistakes in the portfolio. Everyone does.
By the way, ours get highlighted because we post our trades.
But if you were to see the trading record of
any portfolio team, you would see a lot of mistakes
being sold. But a down market gives us a chance.
Wait a minute, everything's down this one we weren't quite
(37:16):
right on this one, we feel even more confident about
let's just swap some of this into this. So it's
not that it's making us a better investor, but it
is giving us opportunities to concentrate towards our highest conviction names,
which is what we always do in a down market.
Speaker 4 (37:35):
Okay, I think we're going to end there because you've
given us so much insights today. Thank you so much
for your time. We went from everything from Tesla to cancer,
so I think we've covered it all.
Speaker 2 (37:47):
Yes, Seed, Kathy would thank you so much of course
for joining us today, and so all our listeners out there,
thank you for listening to Tig Your Money, your Boomberg
podcast about investing clients in financial markets in Asia and beyond.
If you like what you hear, please do not forget
to like, share, and subscribe until next time. Of course,
you can find us on the Bloomberg terminal or on LinkedIn.
(38:08):
We look forward, of course to hearing from all of you.
Speaker 3 (38:11):
This podcast was produced by Clara Chan
This podcast is brought to you by HKX, Asia's ETF marketplace. Well,
you'll find a gateway to liquidity and a diverse selection
of opportunities across asset classes, sectors and themes in Asia
and beyond. Search HKX to learn more.
Speaker 2 (00:18):
Good morning, good afternoon, good evening, and good nights wherever
in this vast, beautiful planet.
Speaker 3 (00:23):
You're joining us from.
Speaker 2 (00:25):
Welcome to Tiger Money, a Bloomberg podcast about investing stocks, commodities, bonds,
crypto and everything in between, with a focus on ETF
in Asia and also beyond. I'm your host, David Ingless,
Chief Markets Editor for the Asia Pacific, host of a
China I should also notte non award winning journalist joining
me in my co pilot on this journey as we
(00:45):
recassent head of Asia Pacific ETF Research at Bloomberg Intelligence. Now,
if you like what you hear, do not forget, please
to like, subscribe and also to share.
Speaker 4 (00:56):
Today we're very excited to have a very special guest,
Katy with CEO it Cio of ARC Investment Management. She
has over forty years of experience in investment management and
her focus is on disruptive innovation technology including DNN sequencing, robotics, AI,
energy storage, and blockchain technology. An interesting fact about her
(01:17):
was when she lived in Ireland, she was fluent in Gaelic.
Welcome Kathy, and we're so excited to have you here
today on Tiger Money.
Speaker 5 (01:23):
Oh, thank you Rebecca and David. Great to be here.
Thank you for inviting me.
Speaker 2 (01:29):
Right, I can't let that go without asking you, Kathy,
to just say hello to our viewers in Gaelic. We
won't know what you're gonna say, but we'll trust it's
something like good day, good evening, or whatever the case
may be.
Speaker 5 (01:39):
Go ahead, Kathy, you know what I will say. I'll
be more polite than that. I will say thank you
since that word was drummed into my head when I
was a child. Got a mahugate.
Speaker 3 (01:50):
Okay, you're welcome.
Speaker 2 (01:53):
So, Kathy, in the slightest chance there is a viewer
or listener out there that is not from familiar with
what you guys do, could you just give us a
very brief overview of how.
Speaker 3 (02:05):
Many strategies do you guys run?
Speaker 4 (02:06):
Now?
Speaker 2 (02:07):
How much is AUM at the moment? Essentially, what are
you guys busy with?
Speaker 5 (02:12):
Right? Our invest I founded it in twenty fourteen, so
we're ten years old. We are approaching twenty five billion
dollars in assets under management in the world of ETFs.
We have eight ETFs here in the United States, but
we also subadvise for Nico Asset Management a number of
(02:33):
mutual funds in Japan. So we've actually gotten some interesting
ETF ideas here in the United States from our partner
in Japan. In two thousand I think it was twenty sixteen,
Japan saw or Nico saw fintech on our roadmap for
two thousand nineteen, I think, and they wanted it right away,
(02:55):
and they were right because of course, back then China
with we chat pay was teaching all of us how
the world was going to work, and so it was
a very good time to start that fund perfect.
Speaker 2 (03:07):
I was hoping to just pick your brain and understand,
you know, this concept of disruptive technology, which underscores a
lot of your investment thesis. By virtue of being disruptive,
there's also a component of not knowing really what it
is until it becomes disruptive. So how do you predict
into the future and how do you know what the
future looks like?
Speaker 3 (03:26):
I guess it's the starting point there.
Speaker 5 (03:28):
Well, we are focused on all new technology that is evolving,
and we are focused, as Rebecca said, on the five
major innovation platforms that have been evolving believe it or
not since the late nineties. So the tech and telecom
bubble was the dream. Today is the reality that bubble
(03:50):
happened for many companies. You know, ten, fifteen, twenty, twenty
five years too early. Now we're in the middle of
time time for a lot of these themes. Certainly energy
storage evs. EV's are taking massive share, right, but so
far they account for a little more than ten percent
(04:12):
of total vehicle sales around the world. We think that's
going to seventy five percent in the next five years. Now,
why do we say that the centerpiece of our research
is Right's law. Right's law is a relative of Moore's law.
So many people know Moore's law in the semiconductor space, right,
(04:36):
and it basically says, you know, you get twice the
power for the same cost every eighteen months to two
years in the world of semiconductors. Right, that's a function
of time. Rights law, however, is a function of units,
and it says for every cumulative doubling in the number
(04:56):
of units produced of a given technology, cost decline at
a consistent percentage rate. So this is very important because
when costs fall and those are passed through into prices,
then access to new technologies is opened up to more
and more sectors. And we're looking for very big opportunities
(05:19):
that are going to scale across sectors, and we're also
looking for platforms that are going to become launching pads
for other technologies. So to give you an example of
that in the world of multiomics that sounds complicated, it's
life sciences, But until very recently, it has been prohibitively
(05:42):
expensive to sequence the human genome. Now we can for
around two hundred to four hundred dollars. Twenty years ago
that was two point seven billion dollars. We've come a
long way now that we can sequence the six billion
bits of code inside our genome. We're able to isolate mutations,
(06:06):
and so what has happened because of that sequencing technology
has been a launching pad for crisper gene editing. So
these technologies didn't exist, and they're truly disruptive in the
sense that with gene editing we can now cure disease right,
(06:26):
we have not been able to cure diseases before. That's
one of the ways we describe truly disruptive innovation.
Speaker 2 (06:33):
Your investment horizon, by virtue of what you just described,
seems to be that you need to look at returns
over a much longer period of time. And yes, seeming
paradox that you're operating in this market that judges you
based on a yearly, if not even quarterly basis in
terms of returns. I have to note, of course, the
(06:55):
market's not extremely well this year.
Speaker 3 (06:57):
You guys have underperformed the market.
Speaker 2 (06:59):
Over the longer term, maybe we can make a different assessment,
of course, but just give us a sense of how
you navigate that space on keeping investors patient when this
is really not a business of patients.
Speaker 5 (07:12):
It isn't a business of patients. And I'll take you
back to twenty twenty and twenty one when we could
do no wrong during COVID because technology innovation was solving
big problems back then, so our kind of strategy was
really in vogue and the inflows were incredible to the
(07:32):
point where I said, please keep some powder dry, especially
towards the end of twenty twenty and early twenty one,
and yet we couldn't fire our clients and we couldn't
prevent the inflows in the ETF world, right, and so
we ended up in twenty one and twenty two when
first the whiff of interest rates going up and then
the reality of interest rates going up crucified long duration assets.
(07:57):
Long bonds had their worst performance since the seventeen hundreds
if we can measure back that far, and our strategy
was going to have a very difficult time in that
kind of an environment. And of course it's because interest
rates went up twenty two fold, record breaking. We had
never seen that in not much more than a year's time,
(08:18):
so those two years were extremely difficult. Twenty three, on
the other hand, the width of falling interest rates, we
had a wonderful year. It was quite lumpy, but we
significantly outperformed the broad based benchmarks this year. As those
six interest rate cuts which were expected at the end
(08:40):
of December for twenty four, as those were taken off
the table. Again, as you say, very short term oriented
shareholders just you know, they took their profits from last
year and they redeployed them elsewhere. So, yes, we've been
seeing outflows, and I think this is the flip side
of where we were in late twenty and early twenty one.
(09:04):
Obviously we disagree with outflows, just like I said, keep
your powder dry at the top, and that was the
right advice. Now we're saying leaving our strategy now right before.
We believe interest rates are going to come down and
going to come down more dramatically than most people think,
because our economy is much weaker and inflation we think
(09:27):
is going to be much lower than expected. Now would
be the wrong time to sell our strategy. What we
do say to clients is truth will win out. If
we are right, then we believe that truly disruptive innovation
will scale from roughly fifteen trillion dollars in the global
equity markets, which is roughly where it is right now
(09:49):
a little more than ten percent of global equity markets
to two hundred and twenty trillion by twenty thirty. If
we're right, that will be leaving a lot of appreciation
on the table. Now, we do need the macros to
come our way, and we think they will so.
Speaker 4 (10:09):
ARC has a very different definition of what disruptive technology is.
Tesla is your largest holding in your flagship ARC Innovation
Fund at sixteen percent, followed by Roku at nine percent,
Coinbase eight percent, in Roadblock six percent. So what's your
veal on scaling up and the monetization of this business
and what are some of the hurdles.
Speaker 5 (10:29):
So we believe Tesla is the largest AI project, and
I say that believing they will complete the project on Earth.
Autonomous taxi platforms are the biggest AI project evolving today,
and we believe this will be an eight to ten
(10:51):
trillion dollar global revenue opportunity for the entire ecosystem, with
the taxi network providers the autonomous network providers taking half
of that. We believe this is a winner take most project,
meaning the company getting people from point A to point
(11:11):
B the safest and the quickest, that company is probably
going to win the lion's share of the market. We
believe in the US that is Tesla. Interestingly, we've been
focused on China thinking Tesla would not be granted much
of an opportunity for autonomous in China, and as you
probably know, they have been allowed in China. And what
(11:34):
we've learned from Baidu recently Apollo it's autonomous driving platform,
it has shifted its strategy to Tesla's strategy exactly, which
is very interesting to us. It seems that Tesla could
get more of the opportunity in China than we once thought.
(11:56):
So if you look at the way Tesla is valued,
it is no longer valued just an ev manufacturer. So
some of this autonomous opportunity is getting into the stock.
And yet if we are right, the stock has miles
to go, and we've been valuing primarily the autonomous opportunity
and we see a tenfold increase. Why is that It
(12:19):
is because Tesla will shift from an auto manufacturer, so
that's one and done. You sell the car, and with
the full self driving software, that's pretty much the commercial opportunity.
With autonomous it will shift from one and done to
a recurring revenue. SaaS like model Tesla will take a
(12:41):
piece of the action from every fleet owner using its network,
deploying on its network, and we think they could take
anywhere from thirty to fifty percent of the economics of
the top line from the fleet owners, and the margins
associated with that will be more like north of fifty percent.
(13:05):
I mean SaaS margins are in the eighties and nineties.
You combine that with their electric vehicle right now, those
gross margins are sixteen percent. The blended margin is going
to be well above fifty percent. That is what we
think people are missing, the size of the opportunity, how
quickly it's going to scale, and how profitable it's going
to be.
Speaker 2 (13:25):
Right, you have a sixteen percent based on what Rebecca said,
sixteen percent of the flagship ark innovation is Tesla.
Speaker 3 (13:31):
I mean, are you looking to increase that weighting?
Speaker 2 (13:34):
Is there a maximum cap within the strategy for a
single stock and then let's take it from there.
Speaker 5 (13:39):
Sure, so we can buy any stock up to ten
percent of the portfolio. We cannot buy beyond, but we
can let a stock ride. Now normally we will start
taking profits well before sixteen percent. But the reason we
have let Tesla run. We've taken some profits, but let
(14:00):
it run to a higher percentage than normal of the
portfolio is because that Tesla is about to give us
a lot more information about the robotaxi opportunity. Now. Originally
August eighth, so eight eight and I know in China
that's a very lucky number.
Speaker 3 (14:18):
Double infinity.
Speaker 5 (14:19):
Yeah, there you go, there you go. And we thought
that's why Elon chose the date at first it was
August eighth. Today they pushed it to October, and that
just tells me that we're probably getting closer to this
robo taxi opportunity. He wants to show us something more
(14:40):
I think awe inspiring than we might have seen on
August eighth, and he believes as possible by October. And
what does that mean. It means that analysts will have
to build into their models. They'll have to think about this.
Wait a minute, this is no longer a one and done.
This is a recurring revenue model with explosive cash flows. Oh.
(15:01):
By the way, ARCS model suggests there's significant upside if
Elon and team deliver on this opportunity. And this is
truly disruptive, meaning transportation will go autonomous, and not just
electric passenger vehicles, but trucks and drones. This is going
(15:23):
to create a completely new world for transportation. And even
in the case of rails, I know Warren Buffett has
had a constant exposure to rails because they've been so
dependable as investments over the years. But autonomous trucks, we
believe could undercut rail pricing and go point to point,
(15:45):
which rail cannot do. And so rails. Ultimately out there
somewhere could be stuck with stranded assets unless they turn
them into high speed passenger.
Speaker 2 (15:56):
Yeah, it looks like we'll need to build more highways
than if that comes out to be true. I know
you speak with Elon. I know he's a friend. If
I'm not mistaken, I'm wondering how you look at this.
I'm wondering if you could give us an insight on
how Elon might look at this to key Man Risk, right,
if something were to happen to Elon Musk, what happens
with the project and how do you look at that
from an investment point of view.
Speaker 5 (16:18):
I think many people would be surprised at how little
Elon and I speak, and that's kind of by design.
We have great relationship with the broader team, the financial
people and so forth. We speak to him occasionally.
Speaker 2 (16:31):
We did a.
Speaker 5 (16:31):
Podcast with him if Autonomous, We're not as far along
as it is. What I'm telling you is three years
ago key Man Risk, in terms of where we think
the stock is going, might have been more significant. But
the talent that Elon has attracted to Tesla. This is
(16:52):
a very hard AI project and the best engineers in
the world want to work on very high are difficult projects.
So the talent he has surrounded himself with is phenomenal,
and we think we're almost there. In terms of autonomous
Elon is a visionary. He is our renaissance man. I
(17:14):
don't think there are many other executives out there who
are able to deal with the convergences that are taking
place between and among technologies. This is why we never
called Tesla an auto company. We called it a robot company,
an energy storage company, an artificial intelligence company. Tesla has
(17:35):
never been an auto company. It is one of the
most profound examples of how the convergences among technologies are
going to manifest into super exponential growth long term.
Speaker 2 (17:51):
You also mentioned earlier on this is almost winner takes most.
If I'm not mistaken, how you phrased that winter takes most.
Conversation Tesla and China. I need to ask you about
b White Tesla or BYD. Do I have to pick
between it? Is that a binary choice? How would you
approach that?
Speaker 5 (18:05):
No, I don't think so. I don't think so. What's
been great about BYD and its success is very important
to our analysis of cost declines of technologies including electric
drive trains is units. As I mentioned, Right's law, BYD
(18:26):
has been very helpful in scaling the units in evs
to help costs come down. So BYD actually has helped
Tesla and all electric vehicle manufacturers because electric drive train
costs continue to come down as units scale. So it's
not either or, and in fact we own both. We
(18:48):
own both in one of our ETFs. Of course, in
the flagship ETF we own Tesla. Our flagship has to
be exposed to all technologies, so we're more careful there
in terms of selection.
Speaker 1 (19:00):
This podcast is brought to you by HKX Asia's ETF marketplace,
where you can get exposure to themes ranging from AI
to virtual assets, small cap to large cap Greater China
to global search. HKX to learn more, let's.
Speaker 4 (19:17):
Shift geared to crypto. Your spot Bitcoin ETF is now
the fourth largest by assets under management with almost three
billion in assets, and a lot of your best performing
funds this year are in the crypto space, whether it's blockchain,
digital economy, ethereum, and I think when we last spoke
about a year ago, you mentioned that bitcoin could reach
as high as one point five million dollars by twenty thirty.
(19:42):
So what are you seeing in the crypto space? Can
just share any insights into the crypto space and what
you want people to know.
Speaker 5 (19:48):
Sure, it's a little bit of a David Goliath story.
Great scale was the BMTH and it donated a lot
of share to black Rock and and us we're number
three of the recipients of that share, so we're very
proud of that. As far as where we think bitcoin
(20:11):
is going to go, yes, that one point five million
is our bowl case. Our base case is in the
six hundred and fifty thousand dollars range. With the approval
of the spot Bitcoin ETFs, the probability of our bowl
case went up dramatically. This is a new asset class.
So not only is bitcoin a global rules based digital
(20:35):
private monetary system first time in history, a very big idea.
Not is it only a technology, but it is also
a new asset class that institutions must consider. Why because
new asset classes mean the correlation of returns with this
new asset class are low relative to other asset class,
(21:00):
and so institutions and others have a fiduciary responsibility to
consider Bitcoin and other crypto assets because the low correlations
mean that over the long term, the returns per unit
of risk will be higher, and so I think institutions
are thinking very carefully about this. They have to, They
(21:22):
have a fiduciary responsibility to do so.
Speaker 3 (21:25):
Is the unbridled bullishness?
Speaker 2 (21:27):
Correct me if I'm mischaracterizing your views on bitcoin specifically.
Is that limited to bitcoin or like? At some point
is Ether going to be part of the conversation. Why
did you guys file for an Ether spot ETF, for example,
or do you have plan?
Speaker 5 (21:38):
Do we actually have private funds? One is one we
call the Crypto Asset Revolution Fund, and so that has
about ten assets in it. We're still very selective. I
think there are thousands of crypto assets out there, so
ten suggests that we think very few are going to
(22:00):
scale very dramatically in the years ahead. In terms of Ether,
we believe in it. We think it's the leader in
the financial services revolution, and we're looking for better ways
to exploit it to unlock its full benefits. As you
probably notice that SEC is not going to allow staking,
(22:23):
so that is not really providing investors with the full
benefits that Ether will offer over time. So we're trying
to figure out how to pick our spots there, right.
Speaker 2 (22:33):
You know, I need to ask you to interesting how
you split up the Mag seven into you know you
have I would imagine Tesla and then the Mag six,
and you mentioned it.
Speaker 3 (22:43):
I need to ask you about Nvidia. And I don't
mean this. It's a gotcha question, right.
Speaker 5 (22:47):
Believe me. I'm used to answering this question.
Speaker 2 (22:51):
Yeah, Well, you know what wasn't obvious at that point
that we do know now that if we had a
little bit more information at that point, you wouldn't have sold.
I guess that is also part of what some of
your investors are asking and talking about concentration risk.
Speaker 3 (23:03):
Where is our Nvidia in your strategy?
Speaker 5 (23:06):
Well, Nvidia already has been to answer your question directly
about we sold and it has tripled since we were
in for the first one hundredfold increase, so we wrote
it up one hundredfold. Would we have liked another triple? Sure,
and if we had known it was going to triple, absolutely,
(23:28):
But here is the most important question for Nvidia to
deserve where it is right now. From a valuation point
of view, other companies out there must be having phenomenal results,
provocative results that are turbo charging them and moving forward
(23:50):
We think we have a lot of companies in our
portfolio that will enjoy the AI swish, but it is
going to take time, and I think that is what
a lot of people are missing. And this is what
we were thinking as we were selling in Vidia and
moving more into Tesla, right, I mean, or in the
(24:13):
early days when we sold in video, we bought Coinbase
because it was being destroyed by the SEC. Coinbase last
year did better than in Vidia. That doesn't mean we
wouldn't have loved to have owned Nvidia as well. I'm
not saying that. I'm just saying you have to look
to the other side of a cell. What did you
(24:33):
buy now? Why do I say it's going to take time? Well,
Palanteer itself, which is in our top ten, is telling
us that for large enterprises to be able to harness
AI in a profound way, meaning to transform their own business,
is going to take time. These are big ships and
(24:57):
what do they have to do. They have to gather
day from all around the world. These multinationals data that
they don't even know exists, are having trouble finding it,
centralize it, clean it up, integrate it. They're going to
have to map out their workflows throughout the enterprise, these
huge enterprises in excruciating detail, and then maybe they're ready
(25:21):
to harness AI. Sure, right now we can all write
emails and poems if that's what we do much more
quickly and effectively. But those aren't the profound uses of
AI to transform business models. Those are very useful from
productivity point of view. We're not dismissing them. But even
a company like UiPath, which is in our top ten,
(25:44):
its fourth quarter was up thirty one percent revenue growth,
and then all of a sudden, here is one of
a software provider which is using AI a federated model,
using all the foundation models out there, and building specialized
models to help companies with their workflows, which is the
first thing that's probably going to happen. And what happens.
(26:07):
It's growth rates slowed down from thirty one percent to
I think it was eighteen percent in the first quarter,
and the stock drop thirty percent? What was that all about?
That is what I just told you. Wait a minute,
there's a little bit of a paralysis here as strategic
decision makers say, wait a minute, this is important and
(26:28):
we need to figure this out, and we agree it's
going to be transformational, but it is going to take time,
and I think that a lot of Nvidia's move has
not incorporated the time it is going to take. All
I know is that Nvidia is one of the most
cyclical semiconductor companies that I have witnessed in my career.
(26:52):
So again, call it experience, call it stupidity, call it
whatever you want. There was a lot behind that decision.
Speaker 4 (27:02):
So for our listeners who may not know, Kathy actually
bought in Video when it was just four dollars back
in twenty fourteen, and so you were definitely one of
the early investors into this.
Speaker 5 (27:15):
Thank you, No, it was forty cents, Rebecca. We wrote
that pre ten for one split, so we bought it
at forty cents and we wrote it to almost forty dollars,
and then of course it tripled from there. But that's
one hundredfold increase and it is the number four contributor
(27:36):
from inception to date to our flagship funds performance.
Speaker 4 (27:40):
So if we go beyond AI, keeping with the innovation theme,
what are some of your most compelling adjacent industry that
you're focused on. I know you guys have gene editing,
DNA sequencing, how do you find the speed of development changing,
and what's your expectation or forecast in these To David's point,
a lot of these companies may not even exist right
(28:01):
now or are only in its infancy state.
Speaker 5 (28:05):
Sure, AI is going to impact every industry, every sector.
Every company we're now calling the multiomix revolution is probably
going to show some of the most profound results because
of artificial intelligence. We have six billion bits of code
in our genomes.
Speaker 2 (28:26):
Right.
Speaker 5 (28:26):
It was impossible until recently to understand what was going
wrong in those six billion bits of code because it
was too expensive to sequence our genomes, and so God
bless them, doctors didn't have the science or the knowledge
just it wasn't there. It was too expensive to get.
(28:49):
Now we have that information, six billion bits of code.
We've got all kinds of things going on in the body, DNA, RNA, proteins, epigenetics, metabolics.
It's the most complicated organism out there. Right. The only
way we're really going to understand it is with the
convergence between sequencing and artificial intelligence. And now that we
(29:13):
are seeing that we're able to diagnose cancer. And one
of the names in our venture fund, Freenome, is able
to diagnose colorectal cancer. It seems this is early days,
still in trials in stage one, and one of the
co founders until recently an advisor to ARC now having
(29:34):
joined ARC, Charlie Roberts leading a venture fund, now believes
we'll be able to diagnose cancer before stage one. Think
polyps in cholarectal cancer right, Those shed two into the bloodstream.
Speaker 2 (29:48):
So with a.
Speaker 5 (29:49):
Blood test, diagnosing cancer in stage one or before stage
one couldn't happen without artificial intelligence and sequencing. So in
the sequencing space, we own specific biosciences in the molecular
diagnostic space Vericite, which uses artificial intelligence when it comes
to prostate cancer, thyroid cancer, and so forth. We have
(30:13):
names like Recursion Therapeutics, and Nvidia invested in Recursion Therapeutics.
Recursion is in the drug discovery area, and it is collapsing.
The time and the cost to discover new targets for
therapies to address. The numbers are astonishing, like AI itself is.
(30:34):
But what's so interesting the reason you're not hearing a
lot about this and the reason we're investing aggressively in it,
is AI is going to create these cures if we
didn't have that convergence of sequencing technologies AI and now
Crisper gene editing, we would not be able to cure disease.
Speaker 2 (30:55):
Interesting, so catching it early seems to be for all
things cancers has to be the secret sauce and for investing.
I'm curious to get your take. It seems like for
you to catch these early winners, do you have to
go early into the public market space or do you
have to even go further before they become public companies?
As an investor that picks and chooses where to play
(31:16):
your game, is it easier to go into the private
markets at better valuations?
Speaker 3 (31:20):
Where are the better deals right now?
Speaker 5 (31:22):
So I'm trying to go no, no, no, the better valuations,
by far are in the public markets. Now. Remember the
private markets lag the public markets, So the best valuations
in the multiomic space are in the public sector. These
stocks have been destroyed by algorithms that have been looking
at just a couple of things one cash cushion, two
(31:46):
cash flow, and three revenue growth. Today they don't care
about five years, they don't care about one year or
two years. But these are the gems out there that
are right for the picking because the markets have destroyed them.
Speaker 2 (32:04):
Okay, Kathy, I can't let you go without asking you
about China.
Speaker 3 (32:08):
You've been doing this for forty years.
Speaker 2 (32:10):
There seems to be up until this point, a massive
risk premium baked into this entire equity market. It's trading
at half the SMP, It's trading at thirty forty percent
of India. I can see some of the reasons why
that's so. Some of the money's gone out hasn't come
back right now, What do you make of this premium?
Do you think it's justified or do you think this
(32:31):
market is too cheap?
Speaker 5 (32:33):
I think it's a great market for value investors. For
growth investors like us, we can see a big positive
and a big negative. The big positive is new productive forces,
so not just common prosperity, but new productive forces means
China wants to be number one in innovation, which we love.
(32:57):
That's a huge positive. The problem is, given all of
the policy moves that started in late twenty until very
recently when they started loosening up more, there were a
lot of reasons to see that the innovators in the
Chinese market were not being incentivized. In fact, all of
(33:20):
them had to go and do charitable work. So what
kind of message does that send to those people who
have great ideas and want to innovate. Maybe some of
them won't or they won't do it in China, So
that is the negative. And I do think China has
to earn its way back into growth investor portfolios with
(33:43):
more incentives for those who have great ideas and want
to deploy them in China as opposed to elsewhere in
the world. You know, I think China will get it right,
but it has been very discouraging from an innovator point
of view. One of the recent things that China has
done was allowed Tesla to come in and participate in
(34:05):
the autonomous taxi network world. We didn't think that was
going to happen. Okay, now we're talking. That's a plus.
Let's see what other pluses are out there and definitely
could earn its way back into our portfolio.
Speaker 4 (34:20):
Okay, we like to end our podcast with some fun questions.
So the first one is you mentioned that you've had
Elon Musk on your podcast. Have you ever had lunch
or dinner with him? What's he like?
Speaker 5 (34:31):
No, I haven't had lunch or dinner with him. Around
the podcast, the people who surround him. I think they
were giving us forty five minutes for the podcast and
that was it. He spent more than two hours with us,
and so we had a wonderful opportunity to get into
his head a little bit more understand who he is.
And one of the wonderful things he said was he
(34:53):
said one of the things that I ask people I respect,
and he was saying he respected our and our research
and how we go about investing. He said, when I
respect a person or a team, my one request is
that they come back at me when they disagree with me.
(35:14):
If they disagree with something that I'm doing, and they
let me know, then that will make an impact on
my decision making. And it is interesting that I don't
know if you kept track of the trial around his
Twitter post when he said funding secured when he was
thinking about going private and the sec it went after him.
(35:36):
Well during that trial, he used our research and our conversation,
especially around well, the podcast hadn't taken place at that point,
but I had written a shareholder letter by that point
to him and to the board of directors, and it
was an open letter and said don't go private and
so he said that had an impact on him and
(36:00):
his board of directors in not going private. Now I
don't know if he still agrees that staying public was
a good thing, although especially given all the hullabaloo and
drama around his pay package.
Speaker 2 (36:13):
But well, do you think he's worth his pay package?
Speaker 5 (36:15):
Definitely, no question. When they struck the pay package at
that price, the package maxed out would have been worth
two point three billion dollars. The only reason it got
to fifty six billion is it was such a spectacular success,
so much sooner than he expected and the board expected.
(36:37):
So think about what I just said about China. You
put in place the right incentives, and true visionaries can
accomplish anything or anything beyond one's imagination.
Speaker 4 (36:49):
You've had a challenging year this year. How have these
challenges made you a better investor?
Speaker 5 (36:55):
Well, we know we have mistakes in the portfolio. Everyone does.
By the way, ours get highlighted because we post our trades.
But if you were to see the trading record of
any portfolio team, you would see a lot of mistakes
being sold. But a down market gives us a chance.
Wait a minute, everything's down this one we weren't quite
(37:16):
right on this one, we feel even more confident about
let's just swap some of this into this. So it's
not that it's making us a better investor, but it
is giving us opportunities to concentrate towards our highest conviction names,
which is what we always do in a down market.
Speaker 4 (37:35):
Okay, I think we're going to end there because you've
given us so much insights today. Thank you so much
for your time. We went from everything from Tesla to cancer,
so I think we've covered it all.
Speaker 2 (37:47):
Yes, Seed, Kathy would thank you so much of course
for joining us today, and so all our listeners out there,
thank you for listening to Tig Your Money, your Boomberg
podcast about investing clients in financial markets in Asia and beyond.
If you like what you hear, please do not forget
to like, share, and subscribe until next time. Of course,
you can find us on the Bloomberg terminal or on LinkedIn.
(38:08):
We look forward, of course to hearing from all of you.
Speaker 3 (38:11):
This podcast was produced by Clara Chan
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.