This is Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. I have to say, last time she joined us, I got a bunch of tweets that like, you didn't have enough time with her, and we never do. Kathy Wood is back with us. She's CEO at ARC Investment. She's someone who I certainly looked too regularly for her view on how our world is changing, the technologies and trends and companies that you really need to pay attention.
You can say as a result week. Yes, I'm going to say week because you and I always are talking about her all the time. Yeah, exactly. From what I understand, she's pulled aside. Uh, she's in a car pulled on the side of the road and joins us as we speak. Kathy, UM, great to have you back with us. How are you? I'm great, Carol and Jason, thank you so much for having me well. I have to say I was looking up all of your funds, man, you are just hitting
it out of the park again this year. I mean, the Innovation Fund is up more than sixty next Generation Internet Fund is up like sixty six percent, Genomic is up. I think at least seventy two percent this year. I mean, it is unbelievable. How do I mean, tell me how
you're managing this environment. Well, it's been very interesting. I always say during risk off periods that innovation gains traction during tough times because it solves problems and because consumers and businesses are willing to do things differently when they're afraid. And that's exactly what's happened. I mean the coronavirus crisis. You know, we had a we had a few days of the indigestion in terms of performance that we started
to pull away. When this notion you know, we've been beating the drum long enough on it that innovation is going to get in traction here really began to sing. And I think that's what's happened this year. So I have to ask you, Kathy. We're gonna talk a little bit about Tesla in a minute, but you know a name that we've been talking a lot about this week is Nvidio, you know, eclipsing Intel as the world's biggest
chip maker by market value. Tell us about that name, because I feel like people who weren't watching it closely that caught them by surprise. Uh. Well, actually I was just discussing this with our analysts are artificial intelligence analysts who who came from in Video. He was there for for nine years and has just done a bang up
job on the whole AI world with us. Uh in Video is the number one AI chip company out there, and it just acquired Melanox, and so it's probably going to gain a bigger share of the data center generally from a networking point of view. Uh. So we we still think it's a great story, but we will also tell you that it has dropped below our percent hurdle. We have a five year minimum of fifteent annualized returns uh and it has dropped below that. I think it's
dropped maybe two eight ten percent. So it will still be a productive stock. We think that we've pulled it out of our flagship portfolio. It's still in our next Generation Internet and it still is also in our Autonomous Technology and Robotics fund because it's so key to the data center and artificial intelligence and also to autonomous driving,
which is an AI project. UH. And that's what we've primarily focused on in a r k Q. Well, you cute us up really well for what we got on Tesla today and Elon Muscus he put out that he is on the verge of developing technology that will make his vehicles fully capable of driving themselves. He said this though you know, Kathy, before he's not been able to
achieve it. Do you think something is different this time around? Well, it's interesting when we heard the words he used last year, he was using that it would be featured, which by the end of the year. Now he's saying it will have basic functionality. That sounds like it's it's more real and it's more realistic. Right, baseline functionality, my guess is it will start out slowly and and learn as as
AI machines, algorithms and so forth do over time. So baseline functionality sounds like we're getting very close, Kathy, Kathy, I want to ask you because you you've had the benefit of spending time with him, and I know you had a virtual seminar I think a while ago where you were you know that went out online where used at and talked with him. I mean, what is it
that we need to understand about Elon musk Uh. Well, he's a visionary and and Carol, you were so kind to have me on your show when in two thousand and fourteen, I believe when we had not even forty million dollars under management, and I remember talking about him at that time as our the Edison of our time, and I do believe that's what he is. You know, he's uh, he's seen the future, and he's seen the convergence of technologies that is going to take us to
the future. In the case of autonomous vehicles, it's uh robotics. Autonomous vehicles are robots. It's energy storage, they will be electric. Those costs are dropping dramatically, and and and we'll wipe out the gas powered world. And uh, artificial intelligence. Uh. He saw those coming together. And he also took a leaf from Apple's book and basically said, you know what, I'm going to design my own AI chip. I am
so far ahead of the other auto manufacturers. I have to do this, just like Apple had to do this against Nokia, Motorola, and ericson the rest was history, right, You think the same things about to happen in the auto market. Uh. And it's not because in videos doing anything wrong. It's not. It's just there's a four to five years design cadence at the traditional auto manufacturers and US lose in the one year design cycle, so you know,
two different paradigms. So, Kathy, let's talk a little healthcare, because obviously the entire scientific and medical world, it feels like, is focusing a huge amount of energy on COVID nineteen. Solving this riddle. As an investor who invests in the notion of innovation and disruption, where do you look here. Well, one of the most exciting things happening in healthcare is there's a convergence and we use that word a lot, convergence of free technologies DNA sequencing, so the flagship there's
a Lumina artificial intelligence. So of course we've mentioned in video and Crisper gan editing, and we're actually looking at not just looking at seeing diseases being cured very early stages, early human trials, but when it comes to fickle cell disease in betaslasmia, we're seeing cures and Cristper Therapeutics UH has been leading the charge there, so it's it's been a very productive stock UH. And then of course Illuminate has been has been great. We sequenced the coronavirus, the
COVID nineteen in two days. I shouldn't say we it was China, but it was with aluminium machines. We we believe two days, whereas in OH three to sequence the Stars coronavirus it took five months. We couldn't have had any of the tests today that we have had it not been for that sequencing and Twist Biosciences, a synthetic biology stock which was able to take the reading of the genome UH that that the sequencers were able to generate and then write the instructions to the testing company.
So Abbott's test said owned by Danaher. All of the testing companies they would not have had their tests either were it not for some for a company like Twist bio Sciences, it just wasn't possible before. So we're in the golden age for healthcare for for for this reason, that convergence of of sequencing AI and Crisper gene editing, and we think the R and D, the return to R and D dollars spent in healthcare generally are going
to triple or quadruple from here. We had the first golden age that Jeannette Tech launched in UM in the eighties, that launched really the biotech industry. We got up to the sort of twenty two per cent returns back then. We are now down to seven percent because of generics, a lack of innovation. We weren't ready for some of
the breakthroughs UH. And now we think we're getting ready for those companies that use these three technologies to shorten the trial times, reduce the failure rates, and actually cure disease. We think the returns are going are going to UH triple or quadruple from here, Cathy, what is it mean for traditional UM pharmaceuticals then do they go to the wayside? Do they make acquisitions of these companies? How do you see you know their role going forward? Well, traditional pharma
companies had to get with the program. When the biotech age UH began really in earnest in the eighties and so far, pharmacists or pharmaceutical companies increasing were populated by chemists had to bring along molecular biologists. They did that. And for those who are harnessing these three technologies correctly, meaning using companion diagnostic testing as they're taking as their UH,
doing their trials and targeting the right patients. If they are using these three some of these value stocks out there, and they are very low multiple stocks because they've been down and out for so long. They actually could see a resurgence, a rejuvenile shin uh now. And these technologies have been around long enough, these these three that I'm talking about now that we're seeing, we're seeing a Regeneron certainly is embracing them, Vertex certainly is embracing them. Bristol
Myers of course. So we're seeing progress. But our funds tend to be populated more by the pure plays and less like what we would consider conglomerates. Yeah. Well, I feel like we always learned so much, Kathy Um, thank you so much. We were so grateful that you were available today so that we could just tap into some of the news, certainly with Tesla, and just really dig a little bit deeper into the world that you invest in.
So thank you, Thank you. Kathy would she is CEO at our investment, joining us on the phone from her car.