Wood Sees Big Impact From Musk's Twitter Stake

to you. How are you? I'm great? How are you doing? Carol delighted to be here as always, Well, it's great to have you here. Trying to keep up with the news flow. And I gotta say, I think a lot of us were a little surprised by Elon Musk and his investment in Twitter, that passive investment nine point two percent. You are a big investor in Tesla, have been for a long time. I think about two and a half percent of your funds are in Twitter as well. Was

this a smart move by Elon? Well? I I do think for the moment it's passive, but he's certainly making a statement, and it's a statement about censorship. He he doesn't agree with censorship. UH. For as smooth functioning democracy as he has tweeted, I believe uh and so I think he's sending a strong signal to the new CEO. UH and I I also know there's some controversy about why Jack left having to do with this new CEO. So a few messages there. Have you talked to Ellen

at all about it? No? I have not, Okay, um, and would you be buying either more Tesla or Twitter on the news and let's throw on Tesla also having this record first quarter? Um, is this a catalyst to buy more of these shares? In your view? On Tesla? We post our our trades at the end of every day, so many will know that we have It is the largest position in our flagship portfolio and in most portfolios

where we hold it. But we have been selling recently because of how well it has done relative to the rest of the stocks in our portfolio. So it had as levitated relative and uh and so it's been a good source of cash. We've taken profits and redeployed them into other stocks that we thought were being unfairly penalized. Here. Uh, and I think one of the reasons for that is Tesla's in the indexes the broad based disease, and most

of our other stocks are not. And uh, that's a big problem out there in terms of the way capital is being allocated these days in the public equity markets. Kathy, how much would Tesla have to fall for you to start buying again? Well, you know, even now, we're going to put out another model on geth hub In. I'm going to say within a week. Our last one is from about a year ago, and uh, you'll see from that model that our price expectation at that time was

three thousand dollars. So there's still a lot of running room ahead for Tesla. But relative to the other names in our PORTFOLI, even though that's a you know, a triple or nearly a triple, other names in our portfolio we believe will deliver much more than that over the

next five years. Because they have been hit so hard, they're not in indexes, and so when there are risk off periods, traditional investors really diversify and sell our stocks as they move closer to their benchmarks, the benchmarks against which they are measured. So it's a great buying opportunity for us. I will say, I can't believe how long that buying opportunity lasts, from February of a year ago

to do a few weeks ago. But we think the concentration of our portfolios towards our highest conviction names will pay off. As for Twitter, Um, well, it's having a beautiful day to day, and I think there are some investors relieved that someone is willing to speak up and say, hey, you're going to ruin this platform if you continue to censor it, uh in somewhat um h random ways. Uh. So, so I think that's good. I will say this could

be setting up for another leadership change at Twitter. Uh you never know, and so that will bring with it perhaps some uncertainly, uncertainty and dislocation, so especially as it relates to advertisers. So so we shall see so cathy uncertainty potentially at Twitter, a potential leadership change. Who are the names that you would like to see lead Twitter? Who could do a great job in your opinion? Oh, I am not going to speculate on that. Um, you know,

and to be honest, we haven't thought about it that carefully. Uh, there are names flying around but I wouldn't want to throw out anything there unless unless we felt very strongly uh so we we will wait to see whose names are put forth. But whoever is put forth, And I'm not jumping to this conclusion automatically. I'm saying it's one

of many possibilities. It will either be our garwall, changing the policy of the company to you know, really open source uh the the censorship, or or call people out on censorship, or it will be a management change. I I don't know what's going to happen at all. You use the platform a lot, Kathy, you own the platform. What are the specific changes that you would like to see? Perhaps Elon Musk, if he would be vocal about it, push for at Twitter. Well, I think I think he's

already pushing for it. He's been pretty vocal talking about censorship not being good for the platform, which is you know, really the world's platform, uh sort of engagement platform. And yes, we do use it liberally. We have not been banished yet, but you never know, you never know. Well, I'm curious to you know, in terms of Elon Musk, Kathy, you know, looking at Twitter making this investment doesn't make you to look at some of the other social opinion platforms that

are out there. In social media platforms, whether it's Meta, which has certainly been beaten up big time. UM, doesn't make you want to kind of look at them as effort either further investments or initial investments. UM. Not really. I think what's happening the ground is shifting underneath social media. I don't think anyone understood until Facebook reported or gave guidance for the first quarter how provocatively disruptive uh TikTok

had become. I mean, I know I've seen my children and and and their generations spend a lot more time on TikTok and and wondered, you know, how how would this impact Facebook? But I also know that there's a huge advertising shift from linear TV to social So you have those two opposing forces. While it appears that TikTok is being much more disruptive than we thought, and not just Facebook, but Netflix has talked about out it as well. This is competition for the consumer's time. Uh. And so

I think again, the ground is shifting. And if you think about it a Facebook, a Facebook, when you think about Instagram and Facebook itself, it's all about me, me, me, it's you know, I am central. If you think about TikTok, it's about how can I entertain you. It's a completely different d n A. So I'm not so sure that that Reels is going to make it the way that Stories did. Stories was about me, me, me, Facebook got that TikTok is a completely different animal here. Hey, Kathy,

gotta ask you about Chinese stocks. You and I have certainly had conversations, and you've made investments in, You've gotten out, You've got you know, and I just want to know where you are in Chinese stocks right now because we've seen quite a bounce back in the last couple of days, still down a lot. If I look at something like the Nasdack Golden Dragon, would you be committing new money?

Do you have faith in Chinese authorities actually making Chinese comping much more transparent for U S investors, especially when it comes to financially sensitive information. Well, I think that the government is showing that at the margin, it's going to make moves, but they're going to be marginal moves. In this case, I think there are three years to um to comply with our audit requirements. Uh, so they're they're they're talking that they're they're they're they're they're talking,

and so we'll see what happens. Uh. You know, common prosperity to us means that profit margins are high. Profit margins are not a good thing, and so we have steered away from anything with a high profit margin. Uh, And we have focused on those companies and we've we've in our flagship strategy, we're out completely. We've shifted towards something like CE Limited in Singapore, but in a more

specialized strategies. We're looking for very low margin companies that are consistent with common prosperity, uh, you know, really distributing goods and services into lower tier cities, for example, or providing transportation so expung uh neo. We have bought their very low margin. It's all about next gen transportation in in a world where you know, human driven cars are are still relative to the eligible drivers, still very low percentage.

So uh, we're we're interested there JD Logistics in the logistics area using drones, but lots of innovation. They're doing a lot again pushing into the lower tier cities. So we're we're a bit gun shy. We don't think that the Chinese government is thinking very much about treating capital well. But we know there are huge opportunities consistent with common prosperity, and so we will have an allocation. But until things change dramatically meaning more of a friendly to capital, we'll

probably keep that exposure pretty low. Hey, Kathy, one thing I mean you and your team are very good about research, right, and you open it up to the world, and you want to have these conversations. I am curious when we look at the world specifically what's going on in Ukraine and Russia. China's relationships specifically with it seems like wanting to continue some kind of relationship with Russia. Um, how

is that problematic? Do you think for investors going forward and ultimately Chinese companies and is there kind of a rethink on what our global markets ultimately will be like longer term? You are a longer term think individual, Yes, yes, Well, one thing I do know about China is uh, it's a survivor and it really does want to be UM. It really wants to be in the lead in terms of innovation. So we, given our will focus on disruptive innovation,

are not going to dismiss China. But these geopolitical strains are not going to be good again. It's capital unfriendly. We do know that innovation solves problems. And starting with COVID, UH, we we we we had a lot of problems. Now with the Ukraine Russia, the Russian invasion of Ukraine, we have a lot more problems. UH. And so we think

innovation generally is going to help solve those problems. And so we're happy that the market is now turning its sites back to innovation being a good thing and non index stocks being uh an area of great opportunity. All right, we are, of course talking with Kathy Would, the founder, chief investment officer and CEO of ARC invest And for those of you watching a Bloomberg TV triple take with our Bloomberg TV colleagues will begin right now on radio.

We're going to continue our conversation with Kathy Would. So, Kathy, you know one thing I want to get to and this is something you guys have been writing about over at ARC, and that is passive versus active when it comes to indexing. There has been, as you know, so much money going into passive indexing UH, and investments not a good thing. Ultimately, do you think investors in that

world are going to ultimately be burned. One of the reasons I founded our invest is I believed that, taken to an extreme, which is where I think it is now, that index based investing was going to lead to the most massive misallocation of capital in history. And I think that's happening. And you saw what happened to our pure play innovation based strategy over the past year. When fears

about inflation and interest rates picked up. There was risk off, UH and this movement back to broad based benchmarks and other benchmarks and away from our strategies. And so we saw a like in vite Go from sixty dollars to seven or eight dollars in the span of a year. UM, this, this doesn't make any sense, UH, we have in our portfolio, and we have used this risk off period to concentrate

towards our highest conviction names. We've gone in the flagship portfolio from fifty eight names I believe, down to thirty five, which is essentially saying, Okay, we're not so sure that these these twenty two or twenty three stocks are going to be UH the as a pure play of disruptive innovation. As we are that these other thirty five are. And

of course Tesla is uh the leader of the gang there. So, UM, yes, we've we've been um, we've been surprised that it, uh, the risk off lasted that long, that the shift into passive and indexed lasted that long, But it set us up for some great opportunities here. Um, as we have so many problems to to solve, and innovation is the

right way to solve those products. Catty, what would you say to somebody who's listening right now who says, study after study that they read shows that the on average, the active manager does not outperform the benchmarks, especially after fees year in and year out. Yes, well, we certainly have our our our time horizon is a five year investment time horizon, and I would agree with you. I

think the vast majority of active managers have underperformed. We have significantly outperformed over that five year period at a compound annual rate. Uh. And I think one of the reasons there is under performance is this benchmark hugging behavior. So they they are very close to their benchmarks and then they and and that to me is is as close to passive investing as you can get and then they charge a fee for it. We are not in those indexed stocks. We are really focused on the future,

not on the past. Indexes are where they are because of what has happened historically. UH and the those at the highest end of the index is the largest positions are there because of past performance. If we are right, we are facing the most UH, the most disrupted innovation in the history of the world. Five innovation platforms genomic sequencing,

adaptive robotics, energy storage, artificial intelligence, gens, blockchain technology. They involve fourteen technologies and there are all kinds of convergences between and among them. So they're setting up for explosive growth opportunities, but they're not being well followed well research. That's one of the reasons we do publish our research. We want to UM. We want to educate investors, but not just investors, we want to educate parents and grandparents.

It's here how, here's how the world is changing. Make sure to guide your children or your grandchildren towards the right side of change so they don't end up working for these companies who are going to be completely disrupted. So I think many people you know a case in point and I don't think Facebook is going to necessarily be a bad stock going forward, but the fact that a disruptor like Facebook could be disrupted so quickly, uh,

is an important case in point. Well, this is what I love, Kathy, and I think about the years we've been talking about, and you go back seven years or so when you started, like your thoughts about disruption and innovation. How has it changed kind of where we are today, especially as we're watching you know, what's going on in Russian Ukraine, And I feel like the energy conversation has pivoted very quickly as well. Yes, well, a couple of things are happening. Many people have focused on my very

long term oil price for twelve dollars, is it? Yes? And I say that to make a point. You know, we started on this journey, uh, you know, towards energy conservation and so forth after OPEC quadrupled oil prices in the early seventies to twelve dollars. That's why I used that as a marker, uh. And so that was the beginning of the journey. Now we are moving into overdrive given what's happened to energy prices on the one hand, but just as important, where we are in the migration

to electric transportation. We have hit escape velocity. UH. Last year there were four point eight million e vs sold when I first spoke to you, Carol, and it was either two thousand fourteen or two thousand fifteen. I believe I H. S. Was predicting that in the year two UH that there would be two d and fifty thousand electric vehicles sold, different four point eight million, and we were much closer to the mark, much closer to the market. Now we see forty million in five years. That will

be almost a half of all autos sold. So I do do believe it is possible that oil demand peaked in two thousand nineteen. It is not back there yet, and I believe this price increase is destroying demand. You're seeing substitution. I see a lot more scooters and bikes around here, for example, or fewer trips. And you're also seeing a shift, now accelerated shift towards electric and China is a huge part of this. Now China may have coal as the biggest part of its electric generation, but

it's not oil. So I have a feeling we're going to be shocked at how much the demand for oil under performs expectations. What's what's the time frame on that though? Like, you're right you say that twelve dollars to shock, But I mean I do wonder what is your longer term? But I mean, so, when is it that we see oil come way down because of this shift being much more aggressive? Well, it's been very interesting. In two thousand eight, the oil price peaked at I think it was a

hundred and forty seven dollars per barrel. Well, given what's happened in Russia Ukraine, I thought, okay, traders are just going back to that old, old high because you know, who knows where this is going now with this supply shock, And uh, it didn't get there. It got to one thirty and then it retested it got to one fourteen. Maybe if it doesn't go any higher than that, maybe again, the all time peak was in two thousand nine at

one and we are going down from here. As as Europe ends up in recession, we think it's probably there. China is slowing down dramatically, and the US is much

slower than we think most people realize. What about when it comes to energy generation in general, Cathy, because you've got to charge these electric vehicles, some way, and we're seeing spikes and commodities, We're seeing spikes and energy across the board, and we're seeing the difficult way or impossible way that Europe is trying to wean itself off of

Russian energy. So so what replaces ultimately those those fossil fuels. Well, I think from a national security point of view right now that our government and I think we're seeing signs that it's starting to move in this direction, should encourage as much oil production as possible. I know E s G and other considerations are out there, but national security is paramount right now and helping our allies as paramount. So that's the first thing, and that's the other thing

that we'll get oil prices going down. Another energy source that we think is on the rise and as actually as we have eel On Musk and others starting to support it is nuclear, new modular nuclear energy. Uh. And that is the cleanest, that's one of the cleanest energy sources out there. We know we've got hydro in the United States. I think that's about nuclear. Is about natural gas and then coal. So obviously natural glass gas is cleaner,

much cleaner than coal. We're we're starting to wean ourselves more and more from that. So I think nuclear is going to make a renaissance in the next few years. We're seeing China rolling out nuclear. We're also seeing I heard recently that Japan, even after the shock of food Kashima, when they decided to close all of their new nuclear facilities down, I think they've started reopening some of them, probably in the safer areas of the country. Safer meaning

from earthquakes and such um. Because because of what's going on in the energy sector now. So I think the

big surprise is going to be nuclear. Hey, Kathy, I gotta ask you, and you've always been so good about you know, the highs and lows of this business, and you know it's it's a lot easier when the returns are coming in and the money flows are coming in and your fund has had a really significant art innovation if I think about it, Uh, you know, has had a significant bounce back, um, but still it's way down

from its highs. Here. You know, what's the difficulty for you and your team, uh and your investors about this pullback? What's the trickier part and kind of being true to your long term investment theories well, I have to say that, UM, we are so grateful to our clients because the retention, the staying power has been phenomenal. Last year, for example, Uh, we net inflowed seventeen billion. Now, the gross inflow last

year was twenty one billion. Most of that was at the ginning of the year, but we kept seventeen billion of that. And I think what's happening is our investors are averaging down. Uh. This year we have been net inflowing and in fact, since you know, there were two very controversial virtual moments on TV associated with ARC, we've inflowed more than a billion. So uh. And what's also very interesting, UH is our inflows picked up. Uh and are and it looks like our our performance turned right

around the time of the first FED hike. We think that the Fed hikes are priced into the market. Uh. Look at the two year treasury yield. You'll see most of those are priced in. And very recently, the first FED president that I heard UM equivocate at all was Cash Kari from Minneapolis, and he said, hm, hmmm, huh. Maybe you know, the yield curve is not suggesting that this this inflation that we're seeing now is going to be sustained, and that was a bit of a breakthrough

I think for the market. Not many people noticed it because other FED presidents and governors are saying, maybe we go up fifty basis points at the next one. Well, if we go up fifty eight basis points, then the inversion of the yield curve that we've seen recently um is going to get worse. Right that he is associated with either uh lower than expected growth or inflation in

the in the following year. Hey, Kathy, we don't have a ton of time with you, and I want to make sure that I'm understanding how you're thinking about the future for ourc invest Now ARC has more than twenty billion dollars in assets under management across just nine e t f I'm wondering, when you think about thematic investing, thematic ETFs, where the next opportunity for ARC is, what's the next E t F? Well? Uh, well, first let

me set this up. So we have, yes, twenty billion in the e t f s about double that in total for the firm, a little more than double that. Uh, and what do we think is next? I think what what many people find interesting is that we have so few e t f s and so much in a U M in E t f s. And the reason is these E t f s are going to scale

with these enormous opportunities. What's what what are we going to do in the future, Well, there are there are a few, we have a few ideas, but what we really expect is what we have out there right now is going to enjoy outsized growth if we're if our research is correct. Uh, and these five innovation UH platforms have hit escape velocity. We believe they have. UH. So in terms of what what what is in UM we did file a registration for a a crossover fun that's a forty act fund, but it is not an E

t F So uh, stay tuned, Stay tuned. All right, Any do you anticipate any kind of announcements anytime soon? Well, we're waiting for the SEC to to approve and then and then we're going to be very excited to share share some some news about you know, a new distribution platform and a new way of doing things and including staying true to our brand, disruptive innovation, transparency and democracy, democratizing the opportunities. All right, We're going to leave it

on that note. Kathy, so appreciate all this time and getting to talk about so many different things. As always, Kathy, thank you, be well. Kathy would of course founder CEO and c I O of our invest investment, joining us on the zoom from Florida, but really covering so much ground of the stories and topics that are so relevant

in today's market environment. Tim. Yeah, especially her comments about Twitter and what potentially Elon Musk could do with Twitter, Uh, you know, realizing that we have to look to Delon Musk has tweeted even though he's a passive investor in Twitter, he's got a lot of thoughts on what the company needs to do and seems like Kathy agrees and and both of them are very familiar with really the power of Twitter and use it really effectively.