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One of the most disruptive and
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innovative forces in the ETF world
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today, the investor queen Kathy Wood.
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The ARC Innovation ETF trading now near
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a 52- week high returned an astounding
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148%
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returning more than 170% last year now
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has $17 billion under management. My
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conviction is so high because of what I
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do on a day-to-day basis. We are doing
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original research trying to figure out
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these companies that are going to
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transform the world.
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Ladies and gentlemen, please welcome Art
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Invests Kathy Wood.
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[Music]
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Well, greetings. I'm so delighted to be
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here. Uh my maiden voyage. uh and I am
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here to talk about how the world's going
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to transform uh during the next 5 to 10
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years uh and how much more rapidly we
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will see real GDP grow and how low
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inflation is going to be and why. So
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here we go. Here is a timeline of
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innovation
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and uh you can see it goes into the
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1700s
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and our chief futurist Brett Winton in
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conjunction with academics pulled this
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together and what you're seeing here is
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the impact of innovation on productivity
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and you can see in this time we've had
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two great eras. The first one was in the
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late 1800s, early 1900s. Telephone,
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electricity, internal combustion engine,
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huge boost in GDP growth. And in fact,
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prior to that, for the 400 years prior
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to that, real GDP growth had been
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averaging about 0.6%
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per year. Very slow. After that, we went
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into a 125 year period of 3% real GDP
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growth. So, a five-fold increase from
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0.6 to 3%. You have to move uh to
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forward to today to see multiple
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innovation platforms evolving at the
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same time. So for the first time in 125
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years this time there are five platforms
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not three major platforms and they
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involve 15 different technologies. This
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is very important in terms of how to
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research and analyze the world. It's not
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going to be by sector or industry
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anymore. It is going to be by technology
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because technology is permeating every
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sector, every industry and blurring the
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lines between them. So you can see five
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here. We believe that the productivity
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uplift here is going to be so strong
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during the next 5 to 10 years. And I
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think President Trump's tax package is
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going to turbocharge this that real GDP
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growth will accelerate from that 3%
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where it has been for the last 125 years
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towards 7% plus. And we think that could
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be conservative. That's a little more
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than two times as opposed to the
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five-fold uplift before. So, get ready.
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But the other thing that we think is
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going to happen is that inflation is
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going to surprise
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significantly on the low side of
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expectations. We would not be surprised
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to see 0% inflation or less as we exit
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the tariffs here. and and the way
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they're uh getting through the indexes
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and and move forward into this new age
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of technological explosion. One of the
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reasons for this explosion is not just
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the five platforms. So I should have
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named them robotics, energy storage,
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artificial intelligence, blockchain
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technology and multiomic sequencing.
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five major platforms involving 15
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different technologies. And here you can
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see why we think we're going to see
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explosive growth. It is the convergence
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between and among these technologies. So
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just to give you uh two e examples of
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convergence in the autonomous mobility
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space that is the convergence of
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robotics,
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energy storage and artificial
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intelligence. Now, each one of those
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technologies or platforms is following
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its own scurve
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and we are moving into the sweet spot of
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the S-curve now that autonomous taxis
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are debuting in the case of Tesla in
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Austin and San Francisco. Whimo's been
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there for a while. Just think about
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that. One Scurve feeding another Scurve
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feeding another Scurve. That's why we're
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going to see explosive growth. Another
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example is in the healthc care space.
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While the autonomous mobility space
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might be the biggest revenue generator
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in the short term, we believe that the
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most profound application of AI is in
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healthcare and that's the convergence of
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sequencing technologies and artificial
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intelligence and technologies like
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crisper gene editing. And I think this
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is the sleeper. It's the most
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inefficiently priced part of the market.
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So you can see why it's going to be so
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important to set up research departments
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by technology, not by sector or
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industry. And on this last page here,
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here is what we think is going to happen
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to the equity market in terms of
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valuations.
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So you can see in the turquoise there,
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that's the MAG Six. The Mag Six. Uh, it
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used to be called the Mag 7, but they
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threw Tesla out when it wasn't behaving
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like the rest of the MAG 6. So, you can
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see from 2019 to 2024, the MAG 6
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tripled, they tripled in valuation in
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the market market cap. Whereas truly
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disruptive innovation in the purple at
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the bottom there went up only 30%. And
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that's because investors were playing it
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safe and they were uh they were
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investing only in the largest most
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cashrich stocks in the market. That was
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a very difficult time for innovation for
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venture capital generally
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and you can see what we expect to happen
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between well really the next five years
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the uh mag six some of them will do well
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some are facing headwinds. Apples in the
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AI space are well documented and now we
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think it is truly disruptive
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innovation's time to shine in the
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market. I feel as though a rubber band
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has been stretching for the last four
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years and it let go with the election of
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Donald Trump. That's when truly
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disruptive innovation started to to
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shine and the stock market started to
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broaden out from the very concentrated
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max six strategies into much more
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widespread
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disruptive innovation. In other words,
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risk appetite and time horizon is
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starting to extend here. And I think the
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tax package, especially the corporate
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tax cuts, which most people haven't
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focused on, full depreciation of
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structures first year they're put in
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service, full expensing of equipment,
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R&D domestic and software in year 1.
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These are huge, huge incentives to
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invest now. And I think that's exactly
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what's going to happen. And you can see
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the difference here. the truly
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disruptive innovation we would expect.
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Now we did this chart at the end of last
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year during the next five years to
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deliver a compound annual rate of return
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of roughly 50%. Now we've had some of
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that so maybe it's 40 to 45% compound
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annual rate of change. Uh and this is in
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the public equity world. in the private
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world. Uh just wait until you see with
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that
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disclosures. Of course,
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they know the disclosure.
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Ladies and gentlemen, Kathy Wood. Kathy,
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join us.
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Thank you.
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Thanks for watching.
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Thank you so much for coming. I know
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you're very busy.
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My pleasure. You're projecting in 5
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years, Bitcoin hits 3.8 million per
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coin. That's five times the market cap
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of gold, which has hit an all-time high.
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Walk us through the math here.
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So, uh, I'm going to just correct that a
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bit. So,
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okay.
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Uh, our official for bull case is 1.5
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million.
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Okay.
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Now, what what got us to that 3.8 8 is
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using modern portfolio theory. Uh if we
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were to include
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uh Bitcoin in portfolios at its optimal
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weight, so maximizing the sharp ratio
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that would have provided that increment
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to 3.8 million. Now, believe it or not,
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that position size when we did that
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analysis was 19% of a diversified
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portfolio.
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That's a lot.
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That's a lot.
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Yeah.
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I have more in mine.
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Well, you swing for the fences. When
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your cousins, your when civilians ask
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you, "Hey, how much Bitcoin should I
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own?" What's the number you would say in
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private to a family member?
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To a family member.
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Yeah. you you want to protect them.
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You're not like, "Hey, we're
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we're swinging for the fences. This
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needs to be our home run." But
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I'll tell you what I've told my children
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for a long time now is average in. I
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mean, you know, average in, you know,
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every month, every just average in and
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uh and and then I would leave it to them
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in terms of their comfort factor.
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Got it. Kathy, can I ask you about Yes.
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So ARC has
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this ability to be a vehicle for a lot
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of folks that are just living their
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normal day-to-day lives and they want
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the answer to what is going to do well
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in the future and they can go and they
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can they can buy your ETFs and then they
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can participate in that future. There's
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a lot of people that are frustrated
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palpably frustrated with an inability to
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sort of get ahead and break through
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build wealth
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first. What is economically happening in
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in America that prevents so many people?
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What do you see? Number one. And then
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number two,
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what characteristics and responsibility
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do retail investors have? If they're
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going to yolo this and if they're going
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to buy this other thing and they're
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going to try to go further out on the
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risk spectrum, what is their
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responsibility so that there's no crying
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in the casino?
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There are ways to access innovation. And
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one of the question many ways of course
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uh we have packaged it up. We don't look
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anything like a traditional benchmark.
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So if they're diversifying we're a very
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good uh source of diversification
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especially in trying to uh get exposure
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to innovation. We also have a venture
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fund. One of the questions I get
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regularly from retail investors used to
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be, why can't we access the private
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markets? We know more about those
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technologies than most of the
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institutions who are buying them. They
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have no idea. We're passionate about it.
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And so we've gotten more vocal and this
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administration is certainly uh becoming
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more vocal and and and um more more
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focused on this this particular idea
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because it is unamerican, right? To you
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have to meet this price.
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Well, you use chat GPT every day, but
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you can't buy OpenAI.
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Exactly.
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But you can buy a lottery ticket or you
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can bet on sports
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and it makes no sense. And I do think
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it's going to change and I think this
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administration
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How should it change? Should we just
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have and I've advocated for this before
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on the pod uh and I believe you've
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talked about it 6% of the country 5 6%
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are accredited you got small number who
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are QPS should we just have a test you
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know you get a license to own a gun or
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drive a car cut hair in this country why
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not just have a simple accreditation
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test you understand diversification you
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understand private versus public assets
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how to read a balance sheet wouldn't
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that just solve the problem right quick
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I mean I used to say you know it would
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be what we're doing in the investment
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world right now would be the equivalent
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of saying you can't drive because you
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don't h make enough money or you do not
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have enough net worth. Take a test.
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Take a test. And we we have this big
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question in the country about
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polarization of wealth. 50 60% of the
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country has some exposure equities, but
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the people who don't, they tend to trend
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towards socialism or handouts. Maybe
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they don't feel they're part of what we
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experience, which is we meet great
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founders and you get to do public and
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private and we get to say,
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"Yeah, you know, I drove in a FSD car
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when Tesla was private or whatever it
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is, and or I looked at Coinbase when it
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was private or Uber. Yeah, I got the
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sense I want to put one or two% into
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that."
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Yes.
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Yeah. It does feel profoundly unfair,
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doesn't it?
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Yes. Yes.
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Kathy, there's a lot of u market signals
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right now that are flashing green.
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there's a lot of market signals that are
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flashing red. Do you feel that you have
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to position actively to all of those
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things or do you say you know what I
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can't control this I need to look 5
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years out. So how do you manage the risk
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and how do you view the markets today?
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Yes. Uh so the risk question obviously
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we get a lot because our portfolios are
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volatile. they don't look like the
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benchmarks. And uh when markets get uh
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uh into a bearish period, investors tend
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to hug their benchmarks and we're moving
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in the opposite direction. Uh so I just
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want to say we do what we do and you
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know that's what our adviserss expect.
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They don't expect us to raise cash or or
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do anything. They might that's their
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decision, right? In terms of what we do
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to control risk during bare markets, we
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will concentrate towards our highest
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conviction names. We have a scoring
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system based on management, execution,
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moat or barriers to entry, product,
00:15:39
service, leadership, valuation
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importantly and thesis risk. So uh with
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those scores we concentrate during bull
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markets which I do believe we are in a
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bull market that is broadening out. we
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tend to diversify because the IPOs start
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appearing again and um we have more
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information on some of the companies
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we've sold during the bare market.
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Give us the read on Elon's trillion
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dollar pay package.
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You know what's so interesting about it?
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Uh and this happened with the first
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model we put out. We put out a model uh
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once a year of Tesla and with our price
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target five years out. We looked at his
00:16:22
first package and we said that looks
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like our model and we looked at this one
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and we said that looks like our model
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and our model is
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your 10 year forecast has Tesla at 8 and
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a half n trillion.
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Well, right and we we put out there five
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years. Yeah. Yeah. So, uh and I think if
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he delivers on humanoid robots the way
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he thinks he is, we don't have enough in
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there. So our price target is 2600. I
00:16:50
think it's at 330 today. Something like
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that.
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Exactly.
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Yeah. 2600. And and we have very little
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for humanoid in. But what Elon is
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capitalizing on is this convergence that
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I mentioned. Robotics, energy storage,
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and AI. That convergence in the robo
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taxi space is pretty much the same
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convergence in the humanoid robot space.
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Do you underwrite
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compensation as part of your model?
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Meaning like when you look at a package
00:17:20
like that, if you compare it to other
00:17:22
CEOs, Zuck or whomever, different styles
00:17:25
of compensation, Bezos famously took no
00:17:27
compensation post the IPO. How do you
00:17:29
think about that as a motivating factor
00:17:31
or a necessary condition in 2025 to get
00:17:33
results?
00:17:34
I think it's huge. I mean, I I wish more
00:17:37
CEOs would do this. Elon's not going to
00:17:39
be paid unless unless he reaches these
00:17:41
milestones either. So I think it's very
00:17:44
motivating to him. I think it also, you
00:17:47
know, it's uh kind of an incentive to,
00:17:51
you know, shoot for the stars, but do it
00:17:55
in a a very first principles way. You
00:17:58
know, everything's physics-based and
00:18:01
everything's milestone based. And he's
00:18:03
very disciplined. If people do not know
00:18:05
that, they should. And when a milestone
00:18:08
misses way, he's in there on the floor.
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Final quick question. As a stock picker,
00:18:12
do you care where the companies are
00:18:14
incorporated? Like do you look at
00:18:16
Delaware now and say there's fundamental
00:18:17
business risk. I need to sort of and or
00:18:20
andor do you cajol these folks now to
00:18:22
maybe reinccorporate in different
00:18:23
places?
00:18:24
We're not an activist investor. I have
00:18:25
to ve be very careful and say that we
00:18:28
are moving out of Delaware. Uh
00:18:30
you as your own business. Why? You don't
00:18:32
trust them to be predictable? Is that
00:18:34
the issue? They're not predictable now
00:18:36
and they're activist.
00:18:37
Activist. Activist. It's
00:18:40
in a bizarre way.
00:18:42
What business do they have overriding
00:18:44
the shareholders of Tesla when it comes
00:18:45
to a pay package? And all those
00:18:47
shareholders who did that drive by
00:18:48
lawsuit
00:18:49
twice. They did it twice.
00:18:50
Yes.
00:18:50
I mean, it's unbelievable that guy owned
00:18:52
10 shares. He he did a 20 act 20 bagger
00:18:55
and then he's got the right to take
00:18:57
away.
00:18:57
It's like J suing Uber. Kathy, it's kind
00:18:59
of
00:19:01
Kathy Wood.
00:19:02
Kathy Wood, thank you so much for
00:19:04
sharing so much knowledge.
00:19:06
You're amazing. Thank you so much for
00:19:08
taking the time.
00:19:09
Great to see you all. Thank you.
