Ark Funds Are Taking In As Much Flows As BlackRock: BI's Balchunas

you later. At Ark invest has gotten a lot of attention lately. Her stellar fund performance has been marred after a sell off in Gulf some of their biggest bets. Would spoke with Bloomberg's Carol Master and Tim Stenovac on Bloomberg Business Week. Here's what she had to say. Well, I do believe we we love a wall of worry, and we were seeing the wall of worry starts to build. I saw it on social media, a lot of chatter, some just waiting for our funds in particular to take

a tumble. Uh. Some maybe to buy, and some happy to sell and short and all of that. We love the liquidity that this provides us. We think it's very healthy and very healthy shakeout. So that's uh. I guess she needs no introduction, Carol Masser is what I'm talking about. Talking to Cathy wood Um really interesting because she kind of marked the bottom there. She bought the dip, and so did a number of others. Let's bring it, Eric Balcunas to talk about it, senior E t F analyst

for Bloomberg Intelligence. Is this the most popular um of the new E t F s? Eric? I mean, of course g l D and j n K and some of the sort of plain vanilla ones, But is this the most popular special et F? Oh? Yeah, I mean this is the fastest growing asset manager in the country, if not the world, in terms of percentage growth. And it's not growth from like one million to ten million UM. It's basically from like four billion to forty fifty billion,

so it's tenfold over a year. You rarely see that kind of growth, and you rarely see it from a stock picker. Those have been out of favor and in the issuer. There's not much distribution. She didn't have a lot of distribution network when she started, and also high cost. I mean her funds are seventy five basis points. Any one of those three things makes life very difficult in the et F industry. She's all three and is now basically taking in as much flows as black Rock, and

it's the story is tremendous. Can't take my ass off of it. And obviously the performance is what is driving this. You look at her performance and you know, maybe half of it is a growth tech the cues, but the other half is really a hot hand and that's why she's getting the money. And you know, other people who are doing well but not that well, are not Eric.

You know, some criticism of Cathy and of Arc is that it's just a derivative play on Tesla's at derivative play on maybe Bitcoin and maybe some of the hot names Apple, Amazon or whatever. It's really just reflective of what's going on in the nastack. What do you make of that? I mean, there's this a little truth of that. The testa call was major, but then that's about a fifth of a r k k's return though, so a fifth is major, but it's not it's not nearly it's

not even close to half. You look, she's got internet stocks, also, biotech, software, commercial services, it's pretty it's across the board, and that's part of what I think she really tapped into. Back in the day, there was a lot of sector ets and some industry ets, but she said, you know, I don't be locked into a gig sector or an industry here,

and also don't be locked into rules. So she said, we're gonna go after innovation, and she I think really tapped into this nature of how stocks are hard to classify these days, namely Tesla and Amazon UM. But if you look at her performance, so I think it's interesting about it is she only has a one percent overlap with the S and P five hundred, so is wells

the SMP has done. She's figured out returns that aren't even in those benchmarks, which has also helped her in terms of marketing because she can say, look, you own the SMP, you don't need this active manager that has basically most of the SMP plus a couple of bets. You should go with me. I'm completely different and I can head you from the value stock stocks that you have in your SMP. And that's a pretty powerful pitch in my opinion, that goes even beyond just coming in

and saying, hey, my return rules. By the way, a fifth isn't even half of a half. I wanted to point out that's how far away it is. Not the mathematician. Um, you know. It's It's funny because when Cathy would when the inflows were like supercharged, um, all the critics were like, oh, this is bad, she's got too much money. She she can't work with such what's such a high amount of inflows? Um. So I thought it was interesting that she did say this is healthy yesterday. I mean, Um, it's difficult to

be to have so much firepower, isn't it. Yeah. So, on one hand, there's some stocks where she's over a ten percent owner, maybe about a dozen or so. That's tough because when you see inflows, you're gonna have to buy those stocks. People have impact costs, and there's been a front running. People know what she holds every day. We are in kind of a new world here because she's transparent. Back in the day, when you had to Peter Lynch or a hot manager, you didn't know really

what they held. Um. In addition, she shows the holdings every day in the trades, and so you can go ahead and front run her or at least invest with her, But the flows, I think that you know, this is part of the issue, which it can create a little bit of upward spiral. The flows come in, you buy the stocks, stocks go up, you get more flows, and it could go a little bit on the downward. However, I know she's taken a couple there's a couple of things you can do with some megacap names to help

with cash management. She can do cash and lou there's a few tricks there. Her argument as well, I'm investing in stocks. They're going to grow a lot anyway. And I also think that spacks and I p o s are going to replenish the market. So um. I've heard some people pushed back on both of those, but that's her argument. But largely she said they were built for scale. I will say, though, if you look at her small cap holdings, they had dwindle down to nothing. Um. They

used to be about and they are gone. So she is going to be forced into large caps a little. I think that's the reality of the situation, but it certainly hasn't done too much the performance yet. Hey, Eric, thanks so much for joining us. Eric. We really appreciate that update. Just a fascinating story on Kathy Wooden arc and you've been on top of it. From a research perspective. Eric valcunis senior E t F analysts for Bloomberg Intelligence.

I'll tell you, within the whole Bloomberg complex, I don't think there's anybody who is smarter uh and more on top of this whole ETS funds and the funds flows there have just been extraordinary and Eric has been all over it, so we appreciate his lots. Daniel DiMartino Boots. She's the CEO of Quill Intelligence UH and the former FED advisor UM. So we are going to bring her in in order to get more on what we heard from Powell yesterday and what we expect from FED chair

Pale today. Danielle Um, what do you think of the chairman? I thought yesterday was like Goldilocks Powell. He was basically saying, No, rates aren't rising because of inflation, it's because of optimism for the economy. And that's exactly right, except for what Bloomberg Sebastian boyd Uh said a few hours ago that

I tweeted out. You know, it's all good at rates are rising to reflect a reflating happy economy and you hear the birdies chirpid in the background, except for that fact that the stock market is the economy, and futures were down, and so this is this is the ultimate trade off and the sensitivity that we're seeing in housing, but also what we're seeing in investment grade bonds. You know, if you look at the are just E t F H y G, it's flat as a pancake. You're to date.

If you look at l q D, which the Fed intervened directly in the largest investment grade E t F with its facilities that were shut down at year end, it's down more than four percent. So the market is telling you where your pressure points are in no uncertain terms. And in press conferences in the past, Powell has been very articulate about interest rate sensitive sectors. You've you've got your Barkley's Commercial Mortgage backed Securities index about to turn

negative for the years interest rate sensitive sectors. So you can have all the reflating you want, you can have the vaccine narrative pulled off perfectly, flawlessly, but we still have a massively over indebted economy that is acutely sensitive to even I won't I won't even say the smallest since August the fourth, we've had the yield on the tenure trip bowl, and people forget that even though rates are very low on an absolute basis, that the delta,

the starting point matters and to be triple off your lows in a matter of months, that that can be dramatical markets. So Daniel again, Chairman Pale's message, certainly from yesterday is consistent, which is lower for longer as it as it relates to interest rates. But is there a risk that the markets are just going to pass him by and uh it just kind of move on without him. Well, that is indeed the risk. And if you go back and read what laal brainer It has said about what

yield curve control would look like. She's talking about the short end of the curve. She's speaking about two year paper, three year paper, the market has this ingrained thinking that the that the fet is referring to the tenure or the long bond, that's not what the original narrative, that's not what the original game plan was to be. It

yield curve control was to be implemented. And that's why a lot of market participants were paying closer attention are saying further out on the maturity spectrum, further out on the maturity spectrum for the FED to target long term rate, which is why the wheels are falling off. He's not concerned about inflation, even though you know, if I look at a chart of the five year break evens it it almost goes vertical. And the government's about to spend

another two trillion in stimulus. After that, they're gonna want to talk about the next two three four trillion dollar stimulus plan. Not I'm not exaggerating with those numbers. Um,

are you worried about it? So? You know, I mean part of this is going to be withdrawing cash from the Treasury General account that the government's checking account that's housed at the FED stands at one point seven trillion right now, exactly, So part of this is already part of this check has already been written, if you will. But that being said, this massive thing just happened where

I am in Texas. So you are going to have a fundamental source of support for all of the things we've been talking about are driving inflation because of the supply chain disruption copper, steel, lumber, things that have been doing things that are already out of control, expensive that the Fed is anticipating as being transitory in nature, are going to have a longer impact. To say nothing, a

freight costs which we anticipate staying very high. And it was interesting Bloomberg did a great story a few weeks ago about the fact that we talked about all these deadhead freighters headed from the West coast ports back to Shanghai empty. This is causing a huge disruption in the global food chain. You've got sugar that can't get out of India, You've got coffee they can't get out of

Vietnam because there's not there's not enofreighter's out there. So my concern for Powell is that that the persistence of inflation is going to be look and feel in the data be on summer as more than a transitory moment. He's also talking about just citing some of the commentary from yesterday, you know, talking about the vaccines as a single best policy. Expects economic activity to bounce back strongly, expect especially in the second half of the year GDP

may grow six. Is that sound reasonable to you or is he perhaps a little optimistic? You know, that's the remains to be seen. If you do pure math and say this amount of money is going to get put into the economy, then then you get that at the other end. But we have to bear in mind the houses have been purchased. Home people even even put out a slight morning yesterday that said people might not redo

their decks again. They just did them. And you know, people who were forced to stay at home, they're not gonna be pouring as much good spending into the economy, and they can't make up for the vacations that they that they didn't take, and they can't make up for

the restaurant meals that they didn't have. So you'll see that big bold in service spending, but you'll also see an offset as people leave their homes because they're no longer going to be you know, basically inside of their homes and trapped and saying, God, I've got to redo this bathroom. It really is awful. So that that level of spending on goods just because there's a vaccine is going to take a hit. All right, Daniel, what's the biggest concern for you as we think about this reopening

trade here in the economy. It seems like again We're getting some really good numbers the metrics on the pandemic. We're getting some really good UH data on the new vaccines Johnson and Johnson today, what's some of the what are some of the big concerns that you think maybe the market's overlooking. So again, I am following credit like

a hawk. And we've also had the third test failed of if you if you add up pandemic and employment assistance to non seasonally adjusted state claims, you you may recall the Department of Labor change the methodology midway through panic. So I add up those two initials every week, and we've crossed through one point four million three times in a row when we shouldn't be. We should be in the process of a slow decline and steady decline in

jobless claims, and yet we're not seeing that. So I'm looking for that to show sustained improvement and get below that line and continue to improve. By the way, um John Farah was interviewing Brian Deese the other day and trying to get trying to get a picture of whether or not um Biden has met with Powell. He couldn't get an answer out of dees, do you think this relationship is going to be a lot different than Powell Trump.

I don't think that there's anything to suggest that the relationship will be in any way, shape or form contentious. And we know that Powell has a great working relationship with Yellen. So the line of communication is technically wide open to the White House. Um, what I would say is I am not personally sure that a man of his means necessarily wants to sign up for four more years.

Come next to February, by the way, the birthday, so February Powell's birthday, So that may be something that is making it to where there is not justification to build this wonderful working relationship. Powell himself is not positive he wants to sign on for four more years, But again, Powell and Yellen have a very close working relationship. I wouldn't read too much into it. Hey, Danielle, thank you

so much once again for joining us. Danielle di Martino bout cio and director of Intelligence at QUILL, former advisor also at the Dallas Federal Reserve. Right now we go to FED Chair Jerome pal testifying before the House Financial Services Committee with Chairwoman Maxine Waters kicking off the Q and a story. Certainly that's been over the last couple of days. FED Chairman poun As testimony in front of Congress, and I think the takeaway is lower for longer, but

the bond market says otherwise. We've had a nice move up in yields here the ten years up about five basis points just today one point three nine percent. Will call it the thirty year up six basis points two point to four to help us get some perspective. We love chatting with Ted Ravel. He's the chief Tad Ravel, chief investment officer for fixed income at t c W. Boy, when I went out to l A on my marketing trips, t c W was the first meeting you had to

get on your calendar. Tad, thanks so much for joining us here. What do you make of FED Chairman Pal's comments. I guess more of the same. Would you say, are you reading anything else into it? It was totally more of the same. I mean, I think a fair disaggregation of where the where the Fed's heads at is that they have pretty well committed to KIWI at the current pace well through two thousand and say call it this

year twenty one. It takes at least twelve months to tape or if in fact you were going to do it, So that takes you through two thousand and twenty two, and then um, if there were going to be any rate rises, we're looking out into the next year beyond

that two thousand and twenty three. Obviously, as you sort of alluded to, the market may have its own ideas about the advisability of a course of action of a zero percent policy, a one d and twenty billion per month QUEI policy in the face of a fiscal stimulus package that is just shy of two trillion dollars, and given that the forecasts from the Atlanta Fed and so forth have projected actually relatively elevated GDP in two thousand and twenty one, and that's probably why you're seeing the

bond market react the way it is, which is to say, the tens and the thirties selling off as hard as as they have in the last two to three months. So, I mean, one of the things I noticed that Powell said yesterday was that it's not inflation driving rates higher,

it's optimism for the economic recovery. But at the same time I look at break evens, it seems like the market does anticipate inflation to come back, And I can't imagine it's transient either, because you're not going to stop needing to buy copper or lumber in the face of rebuilding better. Um, what do you think, Dad, Well, I think that the discussion about inflation is um is always

a bit squishy. And this is what I mean by it that it can be defined narrowly the way the Fed prefers to define it, which is to say that inflation is a form of currency debasement with respect to goods and services. But it can be defined a little bit more broadly. I don't know why it cannot be to include asset price and UH inflation. I think that if you ask the man on the street, what what does inflation mean to me? It means that I have to work longer and harder in order to get the

things that I want. Now. If the if the reality is that, uh, the home that you want to live in has doubled in price, and you have to come up with twice the down payment, depending upon what your income and your savings and so forth, it could take quite a long number of years. That represents a deterioration in your lifestyle. So to ignore asset price inflation and

to substitute it with the owner's equivalent rent. This sort of this wonky construct that looks at the carry costs of a house, but not really the primary issue that I think confronts particularly first time home buyers, which is they can make the payment all right, if someone would give them the down. So if we're thinking about currency debasement in a larger context, maybe we've already had, you know,

some measure of inflation. And I also think that FED pronouncements, not just FED but central banking pronouncements about inflation are are inherently suspect because, first of all, they want they are committed to a zero rate policy, and they because they have, in the case of the US, a statutory um constraint to uh TO to not allow quote unquote inflation get out of hand um. Naturally they're going to forecast low rates of inflation. But look at their history.

The history of central banks forecasting inflation is abysmal. It is really, it is really bad when you look at at the numbers that they have projected versus what's been realized. And then if you want to take a slightly academic and a longer you, let's say a fifty perspective on it. Let's look at it this way. In the sixties, the FED and their colleagues said, we know inflation. We got this, it's Phillips curves. When unemployment gets too low. Whoops. In

the seventies you throw that in the trash. So then you say, okay, well, it's about monetary aggregates and the growth there there too. Well that kind of went out at the windows as well. And by the way, M two broad monetary aggregates have grown about over the last year. Interestingly, now the FED says it's kind of psychological, it's your expectations and so forth. I guess my point is is that when you have a feat currency, they are all

kinds of ways that inflation can probably rear. It's it's very ugly head, simply because it really just comes down to the extent to which people trust the currency and trust in its long term stability. If you're going to buy an apartment building in dollars today and you have a ten year horizon associated with it or lend against it, you have to have some faith that, uh, that that dollars that you're going to receive or pay ten years from now is going to be within spitting distance of

what you contemplate in today's contract. Yeah yeah, yeah, yeah, yeah right, just exactly like bitcoin, which is why you can't make a long term contract in bitcoin, because you have no idea whether you're gonna um be really unhappy or whether your counterparty is going to be really unhappy about it. So so anyway, my point is is that the FED is going to say what it needs to say, which is inflation is well controlled. Even though they don't

really know what inflation is. They define it narrowly, and they have had a terrible history of forecasting it. All right, So had the Fed is doing its job, it is, you know, keeping rates, keeping liquidity into the marketplace. What do you expect or what do you need to see here? What do you think the market needs to see coming out of Washington? In terms of stimulus, it appears that the one point nine trillion is pretty much good to go. How are you viewing that? And maybe even a backup

stimulus on the on the back of that. Right, So, uh, you know, I was asked this question, you know recently, that doesn't the market response of the last year and the Fed's actions sort of prove the people that advocated modern monetary theory, weren't they right that basically you can just print money and you know, just do helicopter drops and there's only benefits associated with it. And I guess

time will tell. But the the thought that occurred to me was if you ask a doctor, what they'll tell you is that many medicines become poisonous at higher dosages or different dosages. And many poisons or medicines botox for instance, if you if you regulate, if you regulate the dosage. Okay, so when you're in the middle of a pandemic and you dose it the way you did, Uh. I give

credit to all of the policymakers. They they appeared to have have under great darrests actually calculated and done very well. So does that mean that you just keep giving the patient the medicine because when they were sick, uh, they got better and now that they are, you know, looking a lot better. In some ways, I don't mean to minimize the pain and restaurant industries, hotel industries and so forth. That is very very very serious and maybe very structural.

But if it is in fact structural, doing more helicopter drops isn't going to solve the problem. You can't. You can't stimulate. I mean, I hate to say it, but if I could, you can stimulate a hotel that just no longer has an economic function, You'll have somebody's has to make good the operation a lot zombie hotel. Hey, Tad, thanks so much for joining us. We really appreciate it. Tad Rovelle, chief investment officer for fixed income at tc W Group. Let's talk a little bit about vaccines. We

just got a story out from Johnson and Johnson. It's COVID vaccine was found to be pretty effective. Seventy two percent is the mark that they got in an arrow when I'm personally thinking like it's got to be eighty year ninety or I don't want it. Let's bring in Sam Fazeli to uh sent me straight here. He's our senior pharmaceutical analyst and head of a media research for Bloomberg Intelligence. Sam, I know that actually seventy that's better

than the typical flu vaccines that that we get every year. Right, Oh yes, oh yes, Um, and Matt, I mean these are all these vaccines have so far been better than the usual typical flu vaccine. Efficacy that you're seeing. So um, yeah, absolutely. And also we have to be careful that when we look at these things, because we haven't we have to dissect away what are we what are we worried about?

Are we worried about ending up in hospital and getting severe disease or are we worried about catching the sniffles as they call it some people. So this this certainly gets better when you look at just the severe disease. Hey, Sam, I know in the UK you guys have had some pretty good success with the astra zenica vaccine. My question is it's working well for you guys. How come it's not approved here in the US. The Germans don't want

it either. Yeah, well no, And I don't get that because wasn't somebody one of the politicians Germany recently said I'm going to go and get this astro vaccine or something. I mean, they're trying to walk some of that back because I think people are realizing that in Europe. And

I'll come back to you, Paul in a second. In Europe they've kind of potentially shooting themselves in the foot after having shouted at the company for several weeks about supply and contract, and they've this the vaccine so much that there's a risk that they're the people will just turn the nose up at it. So so there's at

the risk. But back in the US, of course, we you know, they're running a large US toil from which we expect data any day, any week, any day, So I think the regulator of the USA would require that I'll give you the low down here. So what happened was the Germans were I think frustrated because they really dropped the ball when it came to stocking up on vaccines, and they were there were some back and forth with

astra Zenica. At the same time, Germany's biggest paper, which is actually I believe the most widely circulated newspaper in the world, the Builds Tongue Um, released a story saying the astros Ennica vaccine doesn't work for people over sixty five, and they cited a German government source. So it looked like the Germans were kind of throwing astro Zenica under the bus because of this spat that they were having. Turns out it was because the newspaper kind of understood

the facts incorrectly. It was a couple of newspapers and so ever since then. Um, here in Germany, people don't think it works for the old for the older crowd, But the real m, the real facts were that it just wasn't tested on the older crowd, right, Sam, that's right, that's right. The fact is that there was only like six subjects in the sixty plus sixty five plus range,

So you just don't know the answer. And we know that the vaccine in separate trials induced just as good as immune response in people of older age than those of younger age. Um. Listen. Bottom line air Affinity came out today and said the EU is finally ramping up its vaccines and if they can get the shots and arms, um, we should be to seventy five cent vaccinated by August. In the US. I know it's been widely panned, but there was one JOHNS. Hopkins professor who said we could

see her immunity by April. Even if you think he's way too optimistic, Sam, are we gonna be good by the end of the year in the western world? Okay? Uh, yeah, Matt. The answer to that is yes, so long as we

don't fall foul of the variants. So long as they don't end up taking hold in our regions while we're vaccinating, and so long as they don't actually prove more problematic as regards to the vaccines, and if that ends up being the case, then and I think we have a possibility that will end up with certainly fewer hospitalizations even in that case, but we will need to go back and re vaccinate everybody with a booster shot. Sam, Should

people care which vaccine they get? I'm sending that Matt Miller's gonna a little bit of a vaccine snob here. He's only going to want the one with the highest efficacy. Or should we just whatever they jab in our arms will take it? I mean, with the with the current story that we have today, if I go into a doctor and he says to me, Sam, I've got your vaccine, this is it, I'll just take you whatever it is. M I have the least confidence in And this is

not because they come from China. Is because I don't in the data that I've seen in the Sino farm a sign of act vaccine uh spot Nick five or the astrodenic Johnson and Johnson, whatever it is, I'll take them old. I'll tell you what for me, this is the honest truth, much like um Eric Baucuna speaks gospel when it comes to E. T. F S. For me, whatever Sam says is what I end up believing because

I have fun with these crazy conspiracy theories. And yeah, I want spot Nick five because of the collectibility of it. But at the end of the day, if Sam says, just take what they give you, I'm gonna take whatever they want, and that's got to give thing. I think that's smart. And I've known Sam for twelve years and he is the farmer guy out there. He's our go to guy, and we appreciate him giving us some time here. Sam Fazelli senior Farmer analyst for Bloomberg Intelligence. He also

has some management duties. He manages all of the European research efforts for Bloomberg Intelligence. He's located somewhere in Europe. I never know where he is. How cool would it be, though, to get spot Nick five, Like, yeah, in your neighborhood, you'd probab to be the only one who got it. For Shell, the kid who had it. I heard it's effective, so I mean, you know, it's interesting. I mean, there's a lot of Sam was saying yeah, exactly. I mean there's a lot out there. More and more is coming.

The scientists have really come through. Now it's up to the supply chain to get it out here. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on fall Sweeney. I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio.