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One of the most disruptive and innovative forces in the ETF world today, the investor queen Kathy Wood.
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The ARC Innovation ETF trading now near a 52- week high returned an astounding 148%
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returning more than 170% last year now has $17 billion under management. My conviction is so high because of what I
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do on a day-to-day basis. We are doing original research trying to figure out these companies that are going to
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transform the world. Ladies and gentlemen, please welcome Art Invests Kathy Wood.
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[Music] Well, greetings. I'm so delighted to be here. Uh my maiden voyage. uh and I am
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here to talk about how the world's going to transform uh during the next 5 to 10
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years uh and how much more rapidly we will see real GDP grow and how low inflation is going to be and why. So
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here we go. Here is a timeline of innovation and uh you can see it goes into the
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1700s and our chief futurist Brett Winton in conjunction with academics pulled this
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together and what you're seeing here is the impact of innovation on productivity
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and you can see in this time we've had two great eras. The first one was in the late 1800s, early 1900s. Telephone,
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electricity, internal combustion engine, huge boost in GDP growth. And in fact, prior to that, for the 400 years prior
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to that, real GDP growth had been averaging about 0.6% per year. Very slow. After that, we went
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into a 125 year period of 3% real GDP growth. So, a five-fold increase from 0.6 to 3%. You have to move uh to
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forward to today to see multiple innovation platforms evolving at the same time. So for the first time in 125
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years this time there are five platforms not three major platforms and they involve 15 different technologies. This
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is very important in terms of how to research and analyze the world. It's not going to be by sector or industry
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anymore. It is going to be by technology because technology is permeating every sector, every industry and blurring the
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lines between them. So you can see five here. We believe that the productivity uplift here is going to be so strong
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during the next 5 to 10 years. And I think President Trump's tax package is going to turbocharge this that real GDP
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growth will accelerate from that 3% where it has been for the last 125 years towards 7% plus. And we think that could
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be conservative. That's a little more than two times as opposed to the five-fold uplift before. So, get ready.
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But the other thing that we think is going to happen is that inflation is going to surprise
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significantly on the low side of expectations. We would not be surprised to see 0% inflation or less as we exit
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the tariffs here. and and the way they're uh getting through the indexes and and move forward into this new age
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of technological explosion. One of the reasons for this explosion is not just the five platforms. So I should have
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named them robotics, energy storage, artificial intelligence, blockchain technology and multiomic sequencing.
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five major platforms involving 15 different technologies. And here you can see why we think we're going to see
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explosive growth. It is the convergence between and among these technologies. So
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just to give you uh two e examples of convergence in the autonomous mobility space that is the convergence of
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robotics, energy storage and artificial intelligence. Now, each one of those technologies or platforms is following
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its own scurve and we are moving into the sweet spot of the S-curve now that autonomous taxis
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are debuting in the case of Tesla in Austin and San Francisco. Whimo's been there for a while. Just think about
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that. One Scurve feeding another Scurve feeding another Scurve. That's why we're
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going to see explosive growth. Another example is in the healthc care space. While the autonomous mobility space
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might be the biggest revenue generator in the short term, we believe that the most profound application of AI is in
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healthcare and that's the convergence of sequencing technologies and artificial intelligence and technologies like
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crisper gene editing. And I think this is the sleeper. It's the most inefficiently priced part of the market.
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So you can see why it's going to be so important to set up research departments by technology, not by sector or
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industry. And on this last page here, here is what we think is going to happen to the equity market in terms of
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valuations. So you can see in the turquoise there, that's the MAG Six. The Mag Six. Uh, it
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used to be called the Mag 7, but they threw Tesla out when it wasn't behaving like the rest of the MAG 6. So, you can
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see from 2019 to 2024, the MAG 6 tripled, they tripled in valuation in the market market cap. Whereas truly
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disruptive innovation in the purple at the bottom there went up only 30%. And that's because investors were playing it
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safe and they were uh they were investing only in the largest most cashrich stocks in the market. That was
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a very difficult time for innovation for venture capital generally and you can see what we expect to happen
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between well really the next five years the uh mag six some of them will do well
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some are facing headwinds. Apples in the AI space are well documented and now we
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think it is truly disruptive innovation's time to shine in the market. I feel as though a rubber band
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has been stretching for the last four years and it let go with the election of Donald Trump. That's when truly
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disruptive innovation started to to shine and the stock market started to broaden out from the very concentrated
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max six strategies into much more widespread disruptive innovation. In other words,
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risk appetite and time horizon is starting to extend here. And I think the tax package, especially the corporate
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tax cuts, which most people haven't focused on, full depreciation of structures first year they're put in
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service, full expensing of equipment, R&D domestic and software in year 1. These are huge, huge incentives to
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invest now. And I think that's exactly what's going to happen. And you can see the difference here. the truly
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disruptive innovation we would expect. Now we did this chart at the end of last year during the next five years to
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deliver a compound annual rate of return of roughly 50%. Now we've had some of that so maybe it's 40 to 45% compound
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annual rate of change. Uh and this is in the public equity world. in the private
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world. Uh just wait until you see with that disclosures. Of course, they know the disclosure.
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Ladies and gentlemen, Kathy Wood. Kathy, join us. Thank you. Thanks for watching.
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Thank you so much for coming. I know you're very busy. My pleasure. You're projecting in 5
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years, Bitcoin hits 3.8 million per coin. That's five times the market cap of gold, which has hit an all-time high.
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Walk us through the math here. So, uh, I'm going to just correct that a bit. So,
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okay. Uh, our official for bull case is 1.5 million. Okay. Now, what what got us to that 3.8 8 is
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using modern portfolio theory. Uh if we were to include uh Bitcoin in portfolios at its optimal
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weight, so maximizing the sharp ratio that would have provided that increment to 3.8 million. Now, believe it or not,
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that position size when we did that analysis was 19% of a diversified portfolio.
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That's a lot. That's a lot. Yeah. I have more in mine. Well, you swing for the fences. When
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your cousins, your when civilians ask you, "Hey, how much Bitcoin should I own?" What's the number you would say in
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private to a family member? To a family member. Yeah. you you want to protect them.
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You're not like, "Hey, we're we're swinging for the fences. This needs to be our home run." But
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I'll tell you what I've told my children for a long time now is average in. I mean, you know, average in, you know,
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every month, every just average in and uh and and then I would leave it to them in terms of their comfort factor.
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Got it. Kathy, can I ask you about Yes. So ARC has this ability to be a vehicle for a lot
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of folks that are just living their normal day-to-day lives and they want the answer to what is going to do well
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in the future and they can go and they can they can buy your ETFs and then they can participate in that future. There's
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a lot of people that are frustrated palpably frustrated with an inability to sort of get ahead and break through
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build wealth first. What is economically happening in in America that prevents so many people?
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What do you see? Number one. And then number two, what characteristics and responsibility
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do retail investors have? If they're going to yolo this and if they're going to buy this other thing and they're
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going to try to go further out on the risk spectrum, what is their responsibility so that there's no crying
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in the casino? There are ways to access innovation. And one of the question many ways of course
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uh we have packaged it up. We don't look anything like a traditional benchmark. So if they're diversifying we're a very
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good uh source of diversification especially in trying to uh get exposure to innovation. We also have a venture
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fund. One of the questions I get regularly from retail investors used to be, why can't we access the private
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markets? We know more about those technologies than most of the institutions who are buying them. They
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have no idea. We're passionate about it. And so we've gotten more vocal and this
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administration is certainly uh becoming more vocal and and and um more more focused on this this particular idea
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because it is unamerican, right? To you have to meet this price. Well, you use chat GPT every day, but
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you can't buy OpenAI. Exactly. But you can buy a lottery ticket or you can bet on sports
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and it makes no sense. And I do think it's going to change and I think this administration
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How should it change? Should we just have and I've advocated for this before on the pod uh and I believe you've
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talked about it 6% of the country 5 6% are accredited you got small number who are QPS should we just have a test you
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know you get a license to own a gun or drive a car cut hair in this country why not just have a simple accreditation
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test you understand diversification you understand private versus public assets how to read a balance sheet wouldn't
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that just solve the problem right quick I mean I used to say you know it would be what we're doing in the investment
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world right now would be the equivalent of saying you can't drive because you don't h make enough money or you do not
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have enough net worth. Take a test. Take a test. And we we have this big question in the country about
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polarization of wealth. 50 60% of the country has some exposure equities, but the people who don't, they tend to trend
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towards socialism or handouts. Maybe they don't feel they're part of what we experience, which is we meet great
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founders and you get to do public and private and we get to say, "Yeah, you know, I drove in a FSD car
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when Tesla was private or whatever it is, and or I looked at Coinbase when it was private or Uber. Yeah, I got the
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sense I want to put one or two% into that." Yes. Yeah. It does feel profoundly unfair,
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doesn't it? Yes. Yes. Kathy, there's a lot of u market signals right now that are flashing green.
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there's a lot of market signals that are flashing red. Do you feel that you have
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to position actively to all of those things or do you say you know what I can't control this I need to look 5
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years out. So how do you manage the risk and how do you view the markets today? Yes. Uh so the risk question obviously
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we get a lot because our portfolios are volatile. they don't look like the benchmarks. And uh when markets get uh
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uh into a bearish period, investors tend to hug their benchmarks and we're moving
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in the opposite direction. Uh so I just want to say we do what we do and you know that's what our adviserss expect.
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They don't expect us to raise cash or or do anything. They might that's their decision, right? In terms of what we do
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to control risk during bare markets, we will concentrate towards our highest conviction names. We have a scoring
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system based on management, execution, moat or barriers to entry, product, service, leadership, valuation
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importantly and thesis risk. So uh with those scores we concentrate during bull markets which I do believe we are in a
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bull market that is broadening out. we tend to diversify because the IPOs start appearing again and um we have more
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information on some of the companies we've sold during the bare market. Give us the read on Elon's trillion
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dollar pay package. You know what's so interesting about it? Uh and this happened with the first
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model we put out. We put out a model uh once a year of Tesla and with our price target five years out. We looked at his
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first package and we said that looks like our model and we looked at this one and we said that looks like our model
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and our model is your 10 year forecast has Tesla at 8 and a half n trillion. Well, right and we we put out there five
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years. Yeah. Yeah. So, uh and I think if he delivers on humanoid robots the way he thinks he is, we don't have enough in
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there. So our price target is 2600. I think it's at 330 today. Something like that.
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Exactly. Yeah. 2600. And and we have very little for humanoid in. But what Elon is
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capitalizing on is this convergence that I mentioned. Robotics, energy storage, and AI. That convergence in the robo
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taxi space is pretty much the same convergence in the humanoid robot space. Do you underwrite
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compensation as part of your model? Meaning like when you look at a package like that, if you compare it to other
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CEOs, Zuck or whomever, different styles of compensation, Bezos famously took no
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compensation post the IPO. How do you think about that as a motivating factor or a necessary condition in 2025 to get
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results? I think it's huge. I mean, I I wish more CEOs would do this. Elon's not going to
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be paid unless unless he reaches these milestones either. So I think it's very motivating to him. I think it also, you
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know, it's uh kind of an incentive to, you know, shoot for the stars, but do it in a a very first principles way. You
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know, everything's physics-based and everything's milestone based. And he's very disciplined. If people do not know
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that, they should. And when a milestone misses way, he's in there on the floor. Final quick question. As a stock picker,
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do you care where the companies are incorporated? Like do you look at Delaware now and say there's fundamental
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business risk. I need to sort of and or andor do you cajol these folks now to maybe reinccorporate in different
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places? We're not an activist investor. I have to ve be very careful and say that we
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are moving out of Delaware. Uh you as your own business. Why? You don't trust them to be predictable? Is that
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the issue? They're not predictable now and they're activist. Activist. Activist. It's
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in a bizarre way. What business do they have overriding the shareholders of Tesla when it comes
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to a pay package? And all those shareholders who did that drive by lawsuit twice. They did it twice.
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Yes. I mean, it's unbelievable that guy owned 10 shares. He he did a 20 act 20 bagger
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and then he's got the right to take away. It's like J suing Uber. Kathy, it's kind
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of Kathy Wood. Kathy Wood, thank you so much for sharing so much knowledge. You're amazing. Thank you so much for
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taking the time. Great to see you all. Thank you.