Disruption as an Investment Thesis

I'm very excited. Um. She is completely bucking like many trends at once. She is one of the hottest hands in active management, and there aren't many hot hands. As you know, active is struggling in all facets. It's under performing, largely just eating everything. Stock pickers are just they're in essence, they're facing an existential cry if you think about it.

But Cathy Wood came along a couple of years ago and just really shocked the world by coming in and getting a ton of inflows for being active, discretionary, high cost, and she's an independent, no big distribution to help her. She had different about t f s like talk like it's like five hurdles stacked on on one another. And she overcame that largely on great performance. That was part of it. But what she does which is interesting, is

she just focuses on disruptive innovation. That's her main thing. So she's active because, um, she don't get stuck in one sector or one theme. She wanted a room to move and she's a formerly an active manager. Um. And in retrospect, I gotta say, it makes sense if you are going after things that are moving quickly and you have a strategy, Uh, it kind of makes sense to be active in this space. She's also very thematic. What are her et f s. The Arc Innovation e t F which is a r k K that's the main

one that goes across all sectors. That's sort of like the flagship product. But then she's got one called the Genomic Revolution, web X point oh um, the Industrial Innovation, Fintech Innovation, three D printing, and Israel Tech ETF. So you can say that a common thread here, which is she's in a way she is living and investing in the future that's five years out. Yeah, when every time I talked to her, I feel like I'm just a little like um slow, like I'm not I need to

learn more about what's happening. She's really dynamic. She also makes some big bets, one being the one that she's probably most famous for. If you on the Twitter tes, yeah, she she said Testa is going to four thousand dollars in five years. That just riled up all of the haters on social media and sopecially the year when the stocks down or something. Yeah. I mean she's one of the rare bulls out there, but she just and she's been with it for a long thing. She owns the stock.

It's the top waiting in her fun I'm not sure why people get so piste off when she's actually owning it. I mean, it's not like she's just saying something she hasn't known and she trades. It's not like it's not like a buy and hole position. Yeah. And so she's actually had Elon Musti has a podcast. She had Elon Musk on her podcast. So I think he was happy to find some people out there who were, you know, with him, because there's a lot of haters of that stock.

But really with Kathy, one of the thing I want to say is as we find that active is looking to, you know, how to move forward in this passive world. I think Kathy has developed one way forward, a blueprint,

which is to be high active share. Really you just very concentrated going for the gold, so to speak, with only like thirty stocks, a lot of bold bets, bold calls like Tesla, high conviction, not wavering if the stock goes down, and transparency shows her holdings every day, shows her trades every day, She crowdsources research, and she got a big social media presence pretty much all those things

traditional active funds do not do. Oh and by the way, we recorded this while I was on vacation, which is why you'll have to understand that I was calling from the phone this time on Trilliance. Kathy would of our convestments. Kathy, thanks for joining us on Trilliance. Happy to be here, Joel. So when you think about what you do, how do you describe it to your friends and family. Yes, we are investors, asset managers focused exclusively on disruptive innovation, nothing else.

And these disruptive innovations are technologically enabled. They're going to transform the way the world works and really make it a better place. And why do you use E t F. Well, I started with E t f s because as we were studying thematically UH, the aftermath of the O eight oh night meltdown, we were trying to discern trends, and what we were seeing was an accelerated trend towards E t f s taking market share. This usually happens, UH

in any disruptive innovation. The cheaper, better, faster winds and gains increased traction throughout a very turbulent period. This was holding true with E t S and I thought, well, while the rappers terrific, it solves so many problems for the end investor, why can't we do active in in an E t F uh? And the answer was there's no reason you cannot if you're willing to disclose your holdings at the end of every day. UM, I want to go back to the innovation and these broader themes.

Black Rock just had a press conference talking about mega trends and it kind of sounded like what you've been talking about for a while. And I want to bring in Rachel because Rachel has been covering thematic investing heavily and she met you a while ago and just set us up on this whole idea of thematic investing in your experience with Kathy. Yeah, so I first met Kathy back in I think it was October, so it's been

a while now. She set up her funds back in fourteen, so they've been running for about a year at that stage. And my interest was piqued because I heard down the grape vine that Kathy was using these e t f s to actually invest in disruptive industries, but also bitcoin, which got my attention at the time because I was writing about orencies and I thought, hang on a second, here's a way we can write about something really interesting

without staying too far from my beat. And I went in to meet Kathy and learn a bit more about it, and I was really blown away, really but how kind of sort of sophisticated that the strategy was at the time. Not only was it kind of bitcoin, it wasn't just crypto focused. It was actually kind of looking at anything that was disrupting things that were different kind of threads of investment, looking at blockchain, different threads, looking at genomics.

It all seemed very kind of like futuristic and new wave, and I found it was so interesting that I kept kind of like following the progression of these funds and then actually ended up writing a story all about kind of Kathy and that the success of her her business last year until Kathy, take us back. You started the et, but you were doing themes back at your previous job. What turned you onto themes and and why do you ultimately go out in your own well A couple of reasons.

I was turned onto themes, specifically technologically enabled innovation, which is which which impacts every sector of these days. When I was started in the business, I started in economics, but I knew very quickly I wanted to become an analyst and then ultimately a portfolio manager. And at Jennison Associates, great firm, wonderful mentors, six Agallis. He said, fine, you can do that here, but you're gonna have to find

your own universe. And the analysts there were lifers. They weren't going anywhere, so I had to just wait around for, you know, new names to show up that kind of fell through the cracks, like database publishing, Reuter's tele rate. We called it database publishing at the time. Nobody wanted to follow that. It didn't belong in either publishing or technology. It was a fall through the crack stock, and so I said, I want to follow that. This sounds really interesting.

And of course it was the precursor to the Internet. So very often when ideas are discarded or you know, dismissed uh leetly as ridiculous. Uh, there there can be often something very interesting lurking there. It may not show up right away, but sometimes the ideas that are dismissed out of hand become the most important investment opportunities. We're going to see internet being one of them. I'm thinking of Xerox and the PC. Yes, that was another one.

But yeah, and so you started getting into these and then you were a portfolio manager. Yes, and our Lions Bernstein I headed up. I was c i O of the Global Thematic Strategies and I joined during the tech and telecom bust. Uh so uh it was at that time we were just focused on disruption. Uh. And in that case, it was the bust, and we were trying to figure out, okay, what are the ramifications of the bust and how is this going to change technology? And one of the one of the articles that came out

at the time was I t it doesn't matter. It was a Harvard Business Review. We were trying to get our head around this. Remember we had the market had gone wild on technology, and here was here was an article in HBr saying it doesn't matter. And that was that was, uh, you know, a precursor or a foreshadowing of Amazon Web Services, the cloud. And so again, most people were buying the dip even in oh one when I was when I started, and we already were onto

the next thing. Wait a minute, there's a disruption here, what could this possibly mean? So um, we did everything we did was around disruption. But because a lot of technologies were not ready, you know they were they were birthed too many of them during the Internet bubble or even way before, but they needed time to just hate. So we we were focused on other disruptions, and one of them was, Okay, investors have been disrupted. The tech

and telecom bust has turned people off. Stock interest rates are only six percent long rates, so nobody's going to want bonds. That of course was wrong. Uh, where else are they going? And then we moved into housing as a new asset class. Just to give you a sense of how we were looking at disruption at the time now,

the technologies are ready for prime time. They were they've been jest stating these last twenty years, and we are hitting tipping points now where demand demand for electric vehicles we think will go up twenty fold during the next UH during the next five six years, demand for DNA sequencing is going to go up fortyfold. These are unit growth numbers because costs are moving down so rapidly, and I don't think economists or analysts or portfolio managers are

ready for this right now. I don't think research departments are ready for this. They have to restructure because every analyst is going to have to become very conversant and comfortable with technology. And we're focused on five technology platforms or innovation platforms. Not only is technology seeping into every sector, blurring sector lines, which I know is important in ETFs,

but these three innovation platforms, they are converging. So analysts broke their responsibilities broken out by very specialized segments of sectors are not going to be able to analyze these innovations correctly without again a restructuring of their responsibilities. So what are these five platforms that you've divided and are using to sort of organize your university. Yes, and these would be in Silicon Valley. They would be considered general

purpose technology platforms. Uh there there there. We didn't choose these, um, but they're at All of these are at tipping points in terms of adoption. And I can tell you how we get to tipping points, but they are DNA sequencing.

The tipping points always happen because costs are collapsing, and they're collapsing there so that we believe that the number of whole human genomes sequenced, which was two point four million last year, that's half of all the genomes ever sequenced in the world ever that happened just last year. We think that's going to a hundred million in five years. Uh and we're and we think it's going ultimately into billions.

And it's because costs are collapsing here. And we will get our genome sequenced every every every year, every other year to figure out what's mutating in our bodies so we can catch cancer in stage one and then we can edit it out with gene editing. So that's one huge platform that's an e t F A r KG right, the genomic revolution on that one that does and it's unusual for US to have a fund that looks like a healthcare sector fund, but it is a slice of healthcare.

It is futuristic healthcare if you look at it. Uh, it includes DNA sequencing, molecular diagnostic testing companies, cart technology companies, so with immunotherapy, crisper, gene editing, other kinds of gene therapy. So again, our funds are very forward looking. You'll find many sector funds are where they are because of what

has happened historically. That's true of any index. Our funds tend to be very active relative to you know, their counterparts, if there are any in the market, because most counterparts, even if they call themselves innovation, are based on some index. That's the screen. Our screen is not an index. Our

screen is our research. So very different. So DNA sequencing, UH, robotics with collaborative robots, the cost or collapsing here, energy storage, so electric vehicles, UH, elon musk leading the charge, so to speak. Artificial intelligence is really part of the next generation Internet. It's it's going to turbocharge the Internet, the

cloud if you'd like. UH, and it's it's ready for prime time because uh, we've pulled human programmers largely out of the equation, and then finally blockchain technology, which is also part of the next generation Internet. Yeah, and I find this really kind of fascinating because when you look at what's happened since Kathy set up her funds back in you've really seen a proliferation of these types of strategies coming through in the E T F industry, But

most of these are passive. If you look at kind of the proportion of passive to active around the numbers, and I think it's only eleven percent that are actively managed,

and significant number of those are run by Kathy. So it's quite interesting to me that this is a very different approach because inherently it makes quite a lot of sense when you're thinking about sort of you know, futuristic looking industries to try and think about something where you're not necessarily pinned down to indexes that that can only really rebalance on a twice annual or annual kind of basis.

So I find that kind of like, sort of very interesting about this this approach that a lot of our people have kind of followed it, but they've chosen to go to the passive, whereas Kathy has has has the active kind of DNA as well. Thank you. Can I just add one thing to that, and thank you Rachel for saying that. Um. One of the other things. The other benefits of active management is we trade around our names aggressively because disruptive innovation is inherently controversial and I

we just lie there and wait. We know that Tesla when it was in the three eighties, we knew it was going to come down. We sold up there. Even though our price target is as high as it is. We knew we were going to get opportunities. It never left the top position in the fund, but instead of being at twelve or thirteen percent, we took it down to eight percent. If you just isolate the trading activity in Tesla alone, and we do this with all of our names last year, and we had a number of

round trips. If you just isolate that trading alone, the stock itself off was up six and a half percent last year, but the our trading activity alone added another hundred and seventy five basis points to our performance last year, just that one stock, and we do that with every stock now. It is true Tesla is probably one of the most volatile and most controversial, so we have a lot of opportunities, but that is one of the benefits

of active management. And I think before you though, when when I met you, I was I met you at a conference somewhere downtown, like the Millennial Hotel or something, and when you talked about these, I said, I don't think it's going to go that well. I said, you know, I don't know why she doesn't do him passive, because that's just what everybody wants right now. The fact that you made him active at the time, I thought, man, that that could sink these just because people want stuff

cheap and passive. Yours are a little on the price your side and they're active. Um, but you've defied the odds active equity mutual funds have seen. I don't know what the number is, it's probably close to a trillion dollars and outflows since you launched. You've taken in two point five billion in the past three years, so you've completely bucked the trend. Talk about that why you had to go active. Was it just because you couldn't be

locked into anything, You had to have that freedom. Yes, So the number you quoted there are e t f s, they're they're close to three billion now, but we we had to do something else. And I'll explain why we had to pivot, because I funded the company for the first three years and what you said that Eric was actually happening. I the network I had in the financial community. And remember I've been around a long time in this business and I do have a very wonderful network. My

network was nowhere to be found on the passive. On the passive side, on the e t F side, I was shocked that most people I was talking to did not understand what active management was. They just didn't understand it. And so we had to We had to start um using other rappers because while we were being asked, would we do it? And that's what you do as a small business. We are now up to nine and a half billion dollars all active, but any rapper. We've got

two distributors. You know. We subadvised for mutual funds throughout Asia, pack UH and e t f s of course here mostly in the United States, but interestingly, sovereign wealth funds in other parts other parts of the world have been buying some of our et f s because they don't have to go through all of the due diligence that you know, a traditional separately managed account would go through.

We also have separately managed accounts. I went to the Morning Star conference in October of thirteen, and this was right before we started the company, and on stage was Eugene Fama being interviewed a fireside chat, and he said at that conference, he said, active management is dead, it is disappearing. And you know this was there might have been two thousand people in the room, and everybody was cheering, and and I looked around. I really understood at that moment,

Oh my goodness, I'm the only active manager here. This is crazy. I would have thought, you know, doesn't everybody want to know about this wrapper, which is so good and so interesting. Um, So we went to active when it comes to innovation, it's the only way to manage money. Um. To me, the idea of passive and innovation, well, that's an oxymoron, right. And the screen for our research is the screen for our portfolios is our research. We are

constructing autonomous vehicles. What is it? What goes into it? We're doing first principles research and we're using something called rights law in order to understand the learning curves which caused cost declines in these new technologies, and then we use price elasticity of demands, so there's a lot of top down you know, how big is this market going to be? If you don't have perspective when you're investing

in innovation, you don't have the courage of conviction. Um, now you came out and you just basically hit a home run right out of the gate. Your fund went up like two or three times. The SMP five undered I called the shiny object moment. I'm sure you've got a lot of people just giving you looks because of that. How much of the flows that have come in do you think are just people who just saw this and crazy performance and bought in versus you know, talk to

you believe in Cathy and are there for the long haul? Uh. In the beginning, it's interesting Rachel mentioned bitcoin. Most people dismissed us because it was bitcoin. So in in in eighty seven alone we were up eighty seven and a half percent. But if you had put if you had just left our bitcoin in cash, which we wouldn't do of course, so a conservative way of calculating non bit poorn bitcoin performance, we would have been up a low sixties percent, so I was more than double the market.

Uh No. In the beginning, we got oh, they're using bitcoin as a as a gimmick for from from from some journalists in the et F space that I respect and like not a lot. I thought, Wow, they didn't read our white papers. We've done so much work on this, so there was an automatic dismissal as this is a gimmick. And we also have had that. We've had that a little bit with Tesla as well. You know, you're just you just want to get out there, and and and and if they only saw the research that we put

into this. So we've had a great social media and marketing presence and this has been building slowly. But I think the main thing has been slowly it's demand pull. The wirehouses were slow to put us on where we're on a few now, we have a few more to go. But it's been demand pulled because investors, whether they see us on social media or on other media, they know

we are right. They know because they feel technology changing their own line lives so quickly, or their children's lives or their grandchildren's lives, and they know they're missing it in their portfolios. They they do not have a piece of the action, and they want to you know, they would like to ride, whether it's five of their portfolio.

The other thing that I think we've done pretty well is helped people understand that traditional indexes are filling up with value traps because of this innovation, So why not use us as a hedge. Even if you're completely passive, you're you're you have value traps building up in your value portfolios and in your growth portfolios. That's how fast innovation is evolving. Who would you say, are are you

bias for for the E T s? Is it primarily an institutional marketplace, or are you getting your funds into financial advisors or even direct to retail? Uh it's financial advisors direct to retail. For sure. We're seeing increasing institutional interest, but that's more funds outside the rest of the world. Who will you know, get a taste of innovation through our E t f s and then perhaps invite us

into pitch for an s m A a separately managed account. Uh. But what happened in March of two thousand sixteen, UH is we got our first institutional account, a large state employee retirement system in the Midwest who was my client at my former firm, and uh, they found us. We had tried to find them, but their gatekeepers wouldn't let us in. And then they had a young analyst who was charged with finding out what's going on in innovation. He contacted us and after five months we realized, oh,

I know your boss, I know you know. And so anyway, they gave us two hundred million dollars when we only had twenty million dollars. And so in March nineteen we have our three year record. Now we're making a big institutional push. And so whether again we're rapper agnostic. Now, if an institution wants to use et F s, fantastic, If separately managed accounts, whatever the reason, fine, uh sub

advising for mutual funds. So I think like have these experience, like illustrate something that's very common for new issues in the et F space as well. Though, it's just it's very hard to get that institutional money, which is obviously where the big bucks lie when you are small, and you have to kind of like have the longevity to get past that three year track record before you can really pitch the decision makers that have those millions to spend.

Yes and it's been very interesting. Yeah, performance has been very helpful. Thanks be to God. I always add that, but I I will say, uh, you know, we for a US based manager, more than half of our assets are in the rest of the world. I think the most important strategic decisions we made were to outsource distribution. So Nico Asset Management our partner in the rest of

the world. They are scaling us through quickly because Asia is hungry for innovation, particularly the kind of innovation we're researching. They're hungry for our research. And uh, of course Resolute Investment Managers in the United States is scaling us here. So Kathy, one of the things that I'm really interested in is this idea of your research. So walk us through how you go about finding companies and then from identifying them to allocating to them. Sure, well, it starts

with our research. So since I started on the autonomous vehicle example, I'll keep going there. Uh. We charged our analysts to figure out what was going to make an autonomous vehicle work. And so our director of research, Brett uh Intin is an M I T engineer by by training, and he needs to break everything down and then build it up and and has really guided our analysts to do the same. So to give you an example, uh,

Tasha Kini comes into our brainstorming on a Friday. She's been working on the autonomous model and and and our brainstorm. You're welcome to it anytime you'd like to join. It's from one to three and it's research driven. Our analysts come in with the most interesting or controversial, provocative ideas they've heard or the biggest breakthrough they've had in their own research. This week, Tasha comes in and said, it appears that the brains of an autonomous vehicle are going

to be GPUs. And I looked at her and I said, this was two thousand fourteen. I said what I said the Nvidia that that stock is being thrown out because it's a PC proxy. M PCs are dropping at a double digit rate. It was selling it, I think eleven times earnings. And then James piped it. He was at a video for nine years and he said, okay, well that makes a lot of sense because autonomous vehicles are artificial intelligence projects and GPUs have of of all of

the doer, of all the training and artificial intelligence. And I said, James, nobody knows that no analyst out there knows that I've been around a while. I know what people think in video is. And so in video, which was already in our portfolios for gaming, it was just a small position, that was a one percent position. It started moving up pretty and and you know, the trading range that Tesla has been in for these last four years in video was in the same kind of trading range.

While while computer PCs shipments were dropping. Every time it dropped to the low end sort of that fourteen dollars, we would pick it up, and when it got to twenty dollars, we would sell some and then fourteen and twenty. And what happens over time if you get a long enough base, which I believe we have now in Tesla

and certainly did back then in in Vidia. UH, at one point it's going to break out of that base because a number of research analysts and then portfolio managers decide, hey, we need some exposure to artificial intelligence and autonomous vehicles. This became the go to. So it went from fourteen dollars in two thousand fifteen UH to three hundred dollars

in two thousand eighteen. This is venture like in terms of its returns, and we consider ourselves the closest you'll find to a venture capital firm in the public equity market. So some fourteen to three hundred, uh, it went from one percent of our portfolios. While it was in that fourteen to twenty range, we got it into it would be in the top five, so that would have been in the five to ten percent range, depending on the portfolio.

And as it got to that three hundred level, and it no longer met our minimum hurdle rate of return, which is a fifteen percent annualized rate of return over five years, so that means of doubling every five years. If we can't say to ourselves that this stock is going to do that in the next five years, then we say, even if it's a core position, we will

take it down to the bottom five. So it started in the bottom five, got to the top five in two thousand seventeen, and then by the time October rolled around last year, when it was at three, was back in the bottom five. And then as you know, it dropped more than almost in one quarter and we and we put it back into the top five because it is going to be one of the biggest autonomous vehicle plays, so so much of that was just identifying sort of a special ingredient that was gonna you know that you

guys are just gonna like double down on. And I guess what I'm wondering is like, you know that that makes sense for driving, and it makes sense for AI and clearly you know when you think about these five areas that you guys are combing through looking for some of those things. But the other thing that you brought up there was the fact that you're effectively a VC fund, right, And so I'm interested in also the fact that, like sometimes you might identify something that doesn't come to fruition.

How often has that happened? Uh? The reason I use we are the closest you'll find to a VC fund is the time. It's because of our time horizon is five years. What what happens before that? Though? The reason we have so much of a better um shot at a big winner is there's a vetting process that our stocks have gone through. It's called the I p O. You've got regulators sell side by side bankers. We're not going to run into a THEOMS. That's for sure that

these are products, they really exist. Uh, So I don't think we're venture firm in terms of any failures in the portfolio, but with time and what's great about having a five year time horizon and building autonomous vehicles from the bottom up electric vehicles, uh, you know, really understanding battery technology G is we can see because of our time horizon, we can see where the inefficiencies are in

the market. One of the biggest is Tesla today. You know that we're associated with it UM and it's because we've done more work on batteries, artificial intelligence, and data big data collection than anyone out there when it when it comes to Tesla and and Tesla's competitors, uh, and so our confidence is very high. We can't understand why people can't see this. The reason they can't see it

is because they haven't done that research. And the reason they haven't done that research is because auto analysts are following this, not robotics analysts, not artificial intelligence analysts, uh, not big data analysts. So you need a combination, and our analysts are our combination. UM. And let me tap into Tesla because to me, Tesla hits at many attributes that to me set you apart from a typical active equity manager for of all, you have bold calls saying

four thousand is your price target in five years. Um, that's bold. Gunlock does the same thing. He's very good at bold calls. You know, you gotta breakthrough. A lot of people are a lot of competition for attention conviction. You bought Tesla even this year when it was down, you kept buying transparency, the transparency you show when you buy Tesla. You actually put your trades on the site

every day. You can see the holdings every day. And then obviously, you know, the crowdsourcing, the research you put out what you think of Tesla. I think you had an error somewhere where someone pointed out that actually you got fixed. But either way, you're putting it out there. You're getting feedback instantly. And then finally, the strong social media presence, which you just said. Social media is good for you, but you take a lot of crap. I mean,

I've looked we actually ransom analysis. You're you get more tweets than like Rock pretty much, I mean, and a lot of them are negative though, mostly because Tesla. You just piss people off with the Tesla thing. But anyway, an active equity manager at like a t roller leg Mason. I just don't see them doing any of those things, and it seems like it might be holding them back. Maybe they don't have to go all the way you've gone, But what do you think is going on there? Why

do you do it? And yet you don't see many stock pickers doing the same. Well a couple of reasons. Uh One, their compliance departments will not allow it. Now, I think this is a huge competitive advantage for us. We are the only one public managers really out there, uh that are willing to share our research and talk about we can't hype that we have dues and don't believe me are chief compliance officer is an attorney who spent four years at the SEC when they were evolving

standards and guidelines for social media and marketing. So he is maniacal about making sure we do not say something that puts us on the wrong side of regulation. But in terms of sharing our research, what has happened I believe we're the first sharing economy company in the asset

management space when it comes to research. What has happened now is we're living in the communities were researching because uh, we have people who are who are connecting with us saying hey, that's our world and yes, you're getting this right, or you're not getting that right, and maybe you should think about this. Uh. So we are getting insights from the the innovators were researching that others cannot get because they're not living in those communities and they're not sharing

what they're doing. I think it is a huge competitive advantage and um I think compliance departments will have to let up because I do believe Twitter and other social networks are going to be very important knowledge networks. And this is almost in like contrast to the other kind of big sort of theme that we're seeing uh this year, which is sort of about active managers looking to get in two et f s but not disclose their holdings. You know, obviously Presidian kind of coming through and getting

that approval from the SEC to start these funds. The whole idea there is to help active managers into the space that previously were put off because they didn't want to share that secret source that they feel kind of sets them apart. So it's kind of really interesting that on the one hand, you have, you know, these funds that the Cathy's kind of brought out that have been able to deliver these returns and do rely on having

this kind of crowdsource information. And yet you also have at the same time active managers that are trying to preserve that secret source and see that as very much their way that they can get equivalent returns and deliver for investors. And do you think active managers out there there's you know, there's six trillion inactive equity funds that are eyeing this Presidium model. It's a lot of money.

Do you think they over estimate the front running issue or and or overestimate people even caring about their picks. I can tell when we are being played with, you know, by high frequency traders or so forth. But that's easy to deal with it. As an active manager. You just put a limit you don't buy if someone's playing this is. This has happened to me my entire career. You know, when I used to put give models to the wire houses for sam as someone out there knew what we

were doing. This is. That's why I think it's overstated. They all put their portfolios out there every day to these wire houses to populate their separately managed account So I've never understood that really, uh, And they have control limit orders you can do that, so I've never bought that. I will say it's easier for us because we're liquidity providers. You'll notice what I said, We're quite contrarian in our trading.

So when when we've got hedge funds dumping all over our some of our stocks, we're gonna be buyers that if there are high conviction stocks. Same on the other side, Uh, we we catch a lot of flaks sometimes when we sell as well, because they say, wait a minute, your price target is this, and the ideas there's going to be controversy around these ideas. You've got the old guard and the new guard, and you've got a lot of fear, uncertainty and doubt, and you've got new technologies that are

going to blow away some of the old guards. So so there's a big tug of war there, and we can play that as a liquidity providers. Others are more momentum oriented. They're going to be stopped out if people start chasing them. But I just think it's great that active, you know, allocating capital to its highest and best use, meaning looking to the future, trying to make the world a better place. I think active is the next big way for e t F S. So you know, personally

I prefer transparent. And you know why I prefer transparent, It is because our clients prefer transparent. They want to be a part of this process, they want to understand. And you know, we also on Friday's put out any stock that's moved up or down more than fifteen percent in any day, we put it out there and say, hey, this happened. We want you to know why, and you know how we feel about it. So I think oh eight oh nine caused so much distrust in the financial

services industry that transparency became paramount. The one thing that these active managers who are planning to come over may the six trillion. The problem with many of them is they are benchmarks sensitive, and I don't believe there's nearly as much a market for that as there once was. When it comes to active, you've got the whole et F industry is fully fulfilling a lot more needs UH

than than it did in the past. And is you know, stealing the march from active if if they're not if they're not bold and is speaking of that boldness now? I put out a tweet about you're known for tesla but some of your other stock picks have actually done well and offset some of the Tesla losses this year. You're up at a r k K since launching, and SMP is up. But that's a lot of beta names like this could reverse. Like let's say the fed Raises has, you know, like a two thous eight but on steroids.

Somebody replied to me and said, won't end well, like we've seen this before the Janice twenty. What do you say to those skeptics that this high active share, high octane, high beta methodology has a downside. Well, I that is why I like to trade these names. We like to again lie in wait. But when it comes to disruptive innovation, if we get into a really turbulent period oh eight o nine perfect example, because our names are not big names in the indices, they are going to be hurt

disproportionately in the beginning of that move down. But oh eight O nine was very instructive. Now I was at another firm at the time, but we started out and and we were had moved much more towards disruptive innovation technologically enabled. We started out performing November eight and in the first quarter oh nine, when the market was down ten percent. We were flat. Why it's because cooler heads prevailed.

Analysts and portfolio managers started looking at the fundamentals, and they learned that Amazon's worst quarter worst remember Amazon was destroyed back then. Amazon's worst quarter as retail sales were down ten Amazon's worst quarter was up four Salesforce dot COM's worst quarter when tech spending was down up revenue growth, but even though it had been destroyed. So they started

they started looking at the fundamentals. Our companies gain traction because they're better, cheaper, faster, more productive and gained tremendous share during downturns. So when we first met, we were talking about bitcoin, and I know that you kind of sold down Bitcoin and kind of reduced your positions in that as we came off those those incredibly meteorit chives. Obviously, bitcoin's back in the news again. It's been going back up again. Have you guys been increasing your holdings? Where

do you see bitcoin at the moment? This is very important, UH Forum investors to understand what we learned in two thousands seventeen. And we had the wild Rider right and we cut it at a great time, But we almost had to because when it started for King, we learned that we had unqualified income, and when it hit ten percent of our funds, we had to sell it below that that created unqualified income. Only ten percent of gross

profits can be in the form of unqualified income. The rest will be confiscated by the I r S. So we have taken it. This is simply because of we're a registered investment company and these are forty ACT funds, so we've taken it out of a r k K. We've minimized it in a rk W. It's about a two percent position in our discretionary accounts separately managed accounts. It's our number two position at an eight percent weight. Our conviction and bitcoin has only increased in the last

two years. We think it is. It is being battled did as the global digital currency, and there will only be a few cryptocurrencies at the end of the day. Okay, So, so another but bold call. But I want you to be bold and look yourself in the mirror. You're We've talked a lot about the future. Five years from now, Cathy,

what what does Cathy look like? What does our look like? Well, I I love the way our research ecosystem is evolving to embrace universities and venture capitalists are coming in because they know we're doing the first principles research that is

not done enough out there. So I really want our research ecode system to flourish, partly because one of our missions and values is to educate and educate our investor base and really increase the efficiencies in uh an inefficiently price market right now, so so that, of course we'd love to scale globally. We're doing that right now. As I mentioned, more than half of our assets are outside the United States. UM, we'd like to do more in

terms of education. UM, you know our capacity. We get asked about capacity a lot, and UH people say, well, this is niche capacity, you know. It's if we are right and these innovation platforms are are ready for prime time and are scaling exponentially, our capacities should be able to scale exponentially as well, so we do not have the capacity problem that a lot of other managers might have.

And then just on a personal basis in terms of this innovation, I have found it so interesting since starting the firm in the early days, I had a lot of self selection women asking you know, to join. Now that we've been this successful. I'm getting fewer women much more men. And so one of my objectives, and I've already started this in my high school. I went to an all girl high school. Is I've started at an innovation center in my father's honor. He's the radar expert

and my inspiration. Uh. And I want to inspire these girls with a curriculum around disruptive innovation so that they are inspired at a young enough age to really just want it and want to run hard with it. Uh. So that's just on a little personal note. But I think I think you know, if you compare what's happening today, uh with any other time in history, First you have to go back to the late eighteen hundreds, early nine hundreds, uh, telephone, electricity,

internal combustion engine. If you look at the amount of innovation that's going to take place today, we have a paper on this on our site. UH. And if you use a Richter scale for your to try and understand how different this is going to be, you would measure the fifty years ended at uh maybe a six or six and a half. But in terms of what's about to happen, I think it's going to measure an eight or nine. Now, you never want to be in an earthquake like that. You want to you don't. In other words,

you do not want to be disrupted. You want to embrace this change. And uh, you know this is not a linear you know six to eight or nine is not linear. This is an exponential change. So I really feel every portfolio needs exposure to it. And you know, we'd like we'd like to be a part of that. Okay, there you go, Cathy, Rachel, thanks for joining us a trillion, Thank you for having me, Thanks for having a fun,

Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show. He's at Eric Fautunus. You can find Kathy at Kathy d Wood that's Kathy with the C and an i E as well as at ARC invest and Rachel is at Rachel Evans Underscore and Why. Trillions is produced by

Magnus Hendrickson. Francesca Levy is the head of Bloomberg Podcast. Bye