WEBVTT - Wood Sees Big Impact From Musk's Twitter Stake 0:00:00.040 --> 0:00:03.600 You're listening to Bloomberg Business Week with Carol Messer and 0:00:03.720 --> 0:00:08.280 Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. You're listening 0:00:08.320 --> 0:00:11.400 to Bloomberg BusinessWeek on Bloomberg Radio. We welcome everyone who's 0:00:11.440 --> 0:00:14.280 watching on Bloomberg TV, and really welcome Kathy would who 0:00:14.360 --> 0:00:16.520 is back with us. She's the founder, CEO and CIO 0:00:16.640 --> 0:00:20.000 of our investment and she joins us on zoom from Florida. Cathy, 0:00:20.079 --> 0:00:21.480 is so good to have you here with us. I 0:00:21.480 --> 0:00:24.160 feel like I have a million questions, um to talk 0:00:24.200 --> 0:00:26.960 to you. How are you? I'm great? How are you doing? 0:00:27.000 --> 0:00:29.560 Carol delighted to be here as always, Well, it's great 0:00:29.560 --> 0:00:31.000 to have you here. Trying to keep up with the 0:00:31.040 --> 0:00:32.680 news flow. And I gotta say, I think a lot 0:00:32.720 --> 0:00:35.720 of us were a little surprised by Elon Musk and 0:00:35.760 --> 0:00:39.400 his investment in Twitter, that passive investment nine point two percent. 0:00:40.000 --> 0:00:42.640 You are a big investor in Tesla, have been for 0:00:42.680 --> 0:00:44.560 a long time. I think about two and a half 0:00:44.560 --> 0:00:47.640 percent of your funds are in Twitter as well. Was 0:00:47.680 --> 0:00:51.520 this a smart move by Elon? Well? I I do 0:00:51.680 --> 0:00:54.640 think for the moment it's passive, but he's certainly making 0:00:54.640 --> 0:00:58.480 a statement, and it's a statement about censorship. He he 0:00:58.520 --> 0:01:03.560 doesn't agree with censorship. UH. For as smooth functioning democracy 0:01:03.600 --> 0:01:07.040 as he has tweeted, I believe uh and so I 0:01:07.080 --> 0:01:11.199 think he's sending a strong signal to the new CEO. 0:01:11.640 --> 0:01:14.920 UH and I I also know there's some controversy about 0:01:15.200 --> 0:01:17.840 why Jack left having to do with this new CEO. 0:01:18.000 --> 0:01:20.960 So a few messages there. Have you talked to Ellen 0:01:21.000 --> 0:01:24.880 at all about it? No? I have not, Okay, um, 0:01:24.959 --> 0:01:27.919 and would you be buying either more Tesla or Twitter 0:01:28.040 --> 0:01:30.280 on the news and let's throw on Tesla also having 0:01:30.720 --> 0:01:34.640 this record first quarter? Um, is this a catalyst to 0:01:34.720 --> 0:01:38.520 buy more of these shares? In your view? On Tesla? 0:01:38.920 --> 0:01:41.160 We post our our trades at the end of every day, 0:01:41.240 --> 0:01:44.640 so many will know that we have It is the 0:01:44.720 --> 0:01:49.600 largest position in our flagship portfolio and in most portfolios 0:01:49.600 --> 0:01:53.040 where we hold it. But we have been selling recently 0:01:53.160 --> 0:01:57.280 because of how well it has done relative to the 0:01:57.320 --> 0:01:59.960 rest of the stocks in our portfolio. So it had 0:02:00.040 --> 0:02:03.640 as levitated relative and uh and so it's been a 0:02:03.680 --> 0:02:08.120 good source of cash. We've taken profits and redeployed them 0:02:08.200 --> 0:02:14.320 into other stocks that we thought were being unfairly penalized. Here. Uh, 0:02:14.360 --> 0:02:15.960 and I think one of the reasons for that is 0:02:15.960 --> 0:02:19.880 Tesla's in the indexes the broad based disease, and most 0:02:19.919 --> 0:02:22.040 of our other stocks are not. And uh, that's a 0:02:22.080 --> 0:02:24.640 big problem out there in terms of the way capital 0:02:24.800 --> 0:02:28.080 is being allocated these days in the public equity markets. Kathy, 0:02:28.120 --> 0:02:30.200 how much would Tesla have to fall for you to 0:02:30.240 --> 0:02:34.800 start buying again? Well, you know, even now, we're going 0:02:34.840 --> 0:02:40.520 to put out another model on geth hub In. I'm 0:02:40.520 --> 0:02:43.760 going to say within a week. Our last one is 0:02:43.840 --> 0:02:47.200 from about a year ago, and uh, you'll see from 0:02:47.200 --> 0:02:51.080 that model that our price expectation at that time was 0:02:51.200 --> 0:02:54.920 three thousand dollars. So there's still a lot of running 0:02:55.000 --> 0:02:59.240 room ahead for Tesla. But relative to the other names 0:02:59.240 --> 0:03:01.760 in our PORTFOLI, even though that's a you know, a 0:03:01.800 --> 0:03:05.440 triple or nearly a triple, other names in our portfolio 0:03:05.520 --> 0:03:08.760 we believe will deliver much more than that over the 0:03:08.800 --> 0:03:11.320 next five years. Because they have been hit so hard, 0:03:11.760 --> 0:03:15.760 they're not in indexes, and so when there are risk 0:03:15.840 --> 0:03:21.680 off periods, traditional investors really diversify and sell our stocks 0:03:21.720 --> 0:03:24.720 as they move closer to their benchmarks, the benchmarks against 0:03:24.720 --> 0:03:28.280 which they are measured. So it's a great buying opportunity 0:03:28.360 --> 0:03:31.320 for us. I will say, I can't believe how long 0:03:31.360 --> 0:03:34.920 that buying opportunity lasts, from February of a year ago 0:03:35.280 --> 0:03:38.760 to do a few weeks ago. But we think the 0:03:38.840 --> 0:03:42.520 concentration of our portfolios towards our highest conviction names will 0:03:42.600 --> 0:03:46.480 pay off. As for Twitter, Um, well, it's having a 0:03:46.520 --> 0:03:50.000 beautiful day to day, and I think there are some 0:03:50.200 --> 0:03:53.680 investors relieved that someone is willing to speak up and say, hey, 0:03:53.720 --> 0:03:56.560 you're going to ruin this platform if you continue to 0:03:56.640 --> 0:04:04.000 censor it, uh in somewhat um h random ways. Uh. So, 0:04:04.000 --> 0:04:07.440 so I think that's good. I will say this could 0:04:07.480 --> 0:04:10.960 be setting up for another leadership change at Twitter. Uh 0:04:11.000 --> 0:04:13.560 you never know, and so that will bring with it 0:04:13.640 --> 0:04:19.200 perhaps some uncertainly, uncertainty and dislocation, so especially as it 0:04:19.240 --> 0:04:22.760 relates to advertisers. So so we shall see so cathy 0:04:22.880 --> 0:04:26.920 uncertainty potentially at Twitter, a potential leadership change. Who are 0:04:26.920 --> 0:04:28.880 the names that you would like to see lead Twitter? 0:04:28.920 --> 0:04:31.640 Who could do a great job in your opinion? Oh, 0:04:31.680 --> 0:04:34.760 I am not going to speculate on that. Um, you know, 0:04:35.080 --> 0:04:39.080 and to be honest, we haven't thought about it that carefully. Uh, 0:04:39.120 --> 0:04:42.320 there are names flying around but I wouldn't want to 0:04:42.360 --> 0:04:46.039 throw out anything there unless unless we felt very strongly 0:04:46.600 --> 0:04:49.440 uh so we we will wait to see whose names 0:04:49.440 --> 0:04:52.880 are put forth. But whoever is put forth, And I'm 0:04:52.920 --> 0:04:56.440 not jumping to this conclusion automatically. I'm saying it's one 0:04:56.640 --> 0:05:00.880 of many possibilities. It will either be our garwall, changing 0:05:01.360 --> 0:05:04.799 the policy of the company to you know, really open 0:05:04.920 --> 0:05:11.479 source uh the the censorship, or or call people out 0:05:11.560 --> 0:05:15.920 on censorship, or it will be a management change. I 0:05:15.920 --> 0:05:18.680 I don't know what's going to happen at all. You 0:05:18.800 --> 0:05:21.279 use the platform a lot, Kathy, you own the platform. 0:05:21.320 --> 0:05:23.719 What are the specific changes that you would like to see? 0:05:23.839 --> 0:05:26.359 Perhaps Elon Musk, if he would be vocal about it, 0:05:26.400 --> 0:05:30.400 push for at Twitter. Well, I think I think he's 0:05:30.440 --> 0:05:34.599 already pushing for it. He's been pretty vocal talking about 0:05:34.680 --> 0:05:39.120 censorship not being good for the platform, which is you know, 0:05:39.320 --> 0:05:45.240 really the world's platform, uh sort of engagement platform. And yes, 0:05:45.320 --> 0:05:49.560 we do use it liberally. We have not been banished yet, 0:05:49.640 --> 0:05:53.799 but you never know, you never know. Well, I'm curious 0:05:53.800 --> 0:05:56.600 to you know, in terms of Elon Musk, Kathy, you know, 0:05:56.839 --> 0:06:00.159 looking at Twitter making this investment doesn't make you to 0:06:00.160 --> 0:06:03.359 look at some of the other social opinion platforms that 0:06:03.360 --> 0:06:05.599 are out there. In social media platforms, whether it's Meta, 0:06:05.640 --> 0:06:08.200 which has certainly been beaten up big time. UM, doesn't 0:06:08.200 --> 0:06:10.240 make you want to kind of look at them as 0:06:10.360 --> 0:06:14.679 effort either further investments or initial investments. UM. Not really. 0:06:15.240 --> 0:06:18.880 I think what's happening the ground is shifting underneath social media. 0:06:19.279 --> 0:06:25.520 I don't think anyone understood until Facebook reported or gave 0:06:25.560 --> 0:06:32.000 guidance for the first quarter how provocatively disruptive uh TikTok 0:06:32.080 --> 0:06:35.440 had become. I mean, I know I've seen my children 0:06:35.480 --> 0:06:39.239 and and and their generations spend a lot more time 0:06:39.320 --> 0:06:43.080 on TikTok and and wondered, you know, how how would 0:06:43.080 --> 0:06:46.080 this impact Facebook? But I also know that there's a 0:06:46.279 --> 0:06:50.240 huge advertising shift from linear TV to social So you 0:06:50.279 --> 0:06:54.080 have those two opposing forces. While it appears that TikTok 0:06:54.240 --> 0:06:57.240 is being much more disruptive than we thought, and not 0:06:57.360 --> 0:07:00.760 just Facebook, but Netflix has talked about out it as well. 0:07:00.800 --> 0:07:05.239 This is competition for the consumer's time. Uh. And so 0:07:05.400 --> 0:07:08.240 I think again, the ground is shifting. And if you 0:07:08.279 --> 0:07:11.760 think about it a Facebook, a Facebook, when you think 0:07:11.800 --> 0:07:15.880 about Instagram and Facebook itself, it's all about me, me, me, 0:07:16.240 --> 0:07:20.120 it's you know, I am central. If you think about TikTok, 0:07:20.240 --> 0:07:23.720 it's about how can I entertain you. It's a completely 0:07:23.800 --> 0:07:27.520 different d n A. So I'm not so sure that 0:07:27.840 --> 0:07:30.680 that Reels is going to make it the way that 0:07:30.880 --> 0:07:34.800 Stories did. Stories was about me, me, me, Facebook got 0:07:34.880 --> 0:07:39.240 that TikTok is a completely different animal here. Hey, Kathy, 0:07:39.280 --> 0:07:41.160 gotta ask you about Chinese stocks. You and I have 0:07:41.200 --> 0:07:44.320 certainly had conversations, and you've made investments in, You've gotten out, 0:07:44.320 --> 0:07:46.000 You've got you know, and I just want to know 0:07:46.040 --> 0:07:48.120 where you are in Chinese stocks right now because we've 0:07:48.160 --> 0:07:51.000 seen quite a bounce back in the last couple of days, 0:07:51.040 --> 0:07:52.600 still down a lot. If I look at something like 0:07:52.600 --> 0:07:56.920 the Nasdack Golden Dragon, would you be committing new money? 0:07:57.000 --> 0:08:01.400 Do you have faith in Chinese authorities actually making Chinese 0:08:01.400 --> 0:08:05.200 comping much more transparent for U S investors, especially when 0:08:05.240 --> 0:08:08.760 it comes to financially sensitive information. Well, I think that 0:08:08.920 --> 0:08:12.040 the government is showing that at the margin, it's going 0:08:12.080 --> 0:08:14.720 to make moves, but they're going to be marginal moves. 0:08:14.880 --> 0:08:16.800 In this case, I think there are three years to 0:08:17.680 --> 0:08:24.080 um to comply with our audit requirements. Uh, so they're 0:08:24.160 --> 0:08:27.760 they're they're talking that they're they're they're they're they're talking, 0:08:27.920 --> 0:08:30.920 and so we'll see what happens. Uh. You know, common 0:08:30.960 --> 0:08:36.040 prosperity to us means that profit margins are high. Profit 0:08:36.080 --> 0:08:39.200 margins are not a good thing, and so we have 0:08:39.320 --> 0:08:43.439 steered away from anything with a high profit margin. Uh, 0:08:43.440 --> 0:08:47.280 And we have focused on those companies and we've we've 0:08:47.679 --> 0:08:51.800 in our flagship strategy, we're out completely. We've shifted towards 0:08:51.800 --> 0:08:57.040 something like CE Limited in Singapore, but in a more 0:08:57.080 --> 0:09:01.240 specialized strategies. We're looking for very low margin companies that 0:09:01.360 --> 0:09:06.439 are consistent with common prosperity, uh, you know, really distributing 0:09:06.480 --> 0:09:10.320 goods and services into lower tier cities, for example, or 0:09:10.400 --> 0:09:14.800 providing transportation so expung uh neo. We have bought their 0:09:14.960 --> 0:09:19.640 very low margin. It's all about next gen transportation in 0:09:19.640 --> 0:09:23.720 in a world where you know, human driven cars are 0:09:24.360 --> 0:09:30.040 are still relative to the eligible drivers, still very low percentage. 0:09:30.080 --> 0:09:34.640 So uh, we're we're interested there JD Logistics in the 0:09:34.679 --> 0:09:38.480 logistics area using drones, but lots of innovation. They're doing 0:09:38.520 --> 0:09:42.599 a lot again pushing into the lower tier cities. So 0:09:43.520 --> 0:09:46.600 we're we're a bit gun shy. We don't think that 0:09:47.559 --> 0:09:52.040 the Chinese government is thinking very much about treating capital well. 0:09:52.880 --> 0:09:57.839 But we know there are huge opportunities consistent with common prosperity, 0:09:58.320 --> 0:10:03.280 and so we will have an allocation. But until things 0:10:03.400 --> 0:10:07.880 change dramatically meaning more of a friendly to capital, we'll 0:10:07.920 --> 0:10:12.000 probably keep that exposure pretty low. Hey, Kathy, one thing 0:10:12.040 --> 0:10:14.839 I mean you and your team are very good about research, right, 0:10:14.880 --> 0:10:16.800 and you open it up to the world, and you 0:10:17.000 --> 0:10:19.640 want to have these conversations. I am curious when we 0:10:19.679 --> 0:10:23.360 look at the world specifically what's going on in Ukraine 0:10:23.440 --> 0:10:28.319 and Russia. China's relationships specifically with it seems like wanting 0:10:28.360 --> 0:10:32.120 to continue some kind of relationship with Russia. Um, how 0:10:32.240 --> 0:10:35.280 is that problematic? Do you think for investors going forward 0:10:35.320 --> 0:10:38.000 and ultimately Chinese companies and is there kind of a 0:10:38.080 --> 0:10:41.559 rethink on what our global markets ultimately will be like 0:10:42.080 --> 0:10:47.280 longer term? You are a longer term think individual, Yes, yes, Well, 0:10:47.440 --> 0:10:51.200 one thing I do know about China is uh, it's 0:10:51.200 --> 0:10:55.440 a survivor and it really does want to be UM. 0:10:56.240 --> 0:10:58.000 It really wants to be in the lead in terms 0:10:58.000 --> 0:11:02.000 of innovation. So we, given our will focus on disruptive innovation, 0:11:02.720 --> 0:11:07.120 are not going to dismiss China. But these geopolitical strains 0:11:07.160 --> 0:11:09.640 are not going to be good again. It's capital unfriendly. 0:11:10.559 --> 0:11:16.080 We do know that innovation solves problems. And starting with COVID, UH, 0:11:16.520 --> 0:11:19.480 we we we we had a lot of problems. Now 0:11:19.520 --> 0:11:24.920 with the Ukraine Russia, the Russian invasion of Ukraine, we 0:11:25.000 --> 0:11:27.800 have a lot more problems. UH. And so we think 0:11:27.840 --> 0:11:31.920 innovation generally is going to help solve those problems. And 0:11:31.960 --> 0:11:34.800 so we're happy that the market is now turning its 0:11:34.840 --> 0:11:38.280 sites back to innovation being a good thing and non 0:11:38.320 --> 0:11:43.280 index stocks being uh an area of great opportunity. All right, 0:11:43.280 --> 0:11:45.680 we are, of course talking with Kathy Would, the founder, 0:11:45.760 --> 0:11:49.680 chief investment officer and CEO of ARC invest And for 0:11:49.720 --> 0:11:52.640 those of you watching a Bloomberg TV triple take with 0:11:52.720 --> 0:11:55.480 our Bloomberg TV colleagues will begin right now on radio. 0:11:55.520 --> 0:11:59.679 We're going to continue our conversation with Kathy Would. So, Kathy, 0:11:59.679 --> 0:12:01.080 you know one thing I want to get to and 0:12:01.080 --> 0:12:03.600 this is something you guys have been writing about over 0:12:03.640 --> 0:12:07.080 at ARC, and that is passive versus active when it 0:12:07.080 --> 0:12:09.840 comes to indexing. There has been, as you know, so 0:12:09.920 --> 0:12:14.800 much money going into passive indexing UH, and investments not 0:12:14.920 --> 0:12:17.200 a good thing. Ultimately, do you think investors in that 0:12:17.200 --> 0:12:20.520 world are going to ultimately be burned. One of the 0:12:20.559 --> 0:12:24.920 reasons I founded our invest is I believed that, taken 0:12:24.960 --> 0:12:27.520 to an extreme, which is where I think it is now, 0:12:28.040 --> 0:12:31.640 that index based investing was going to lead to the 0:12:31.679 --> 0:12:36.080 most massive misallocation of capital in history. And I think 0:12:36.160 --> 0:12:39.720 that's happening. And you saw what happened to our pure 0:12:39.840 --> 0:12:45.040 play innovation based strategy over the past year. When fears 0:12:45.080 --> 0:12:49.679 about inflation and interest rates picked up. There was risk off, 0:12:50.280 --> 0:12:54.760 UH and this movement back to broad based benchmarks and 0:12:54.880 --> 0:12:59.160 other benchmarks and away from our strategies. And so we 0:12:59.240 --> 0:13:02.599 saw a like in vite Go from sixty dollars to 0:13:03.280 --> 0:13:07.800 seven or eight dollars in the span of a year. UM, this, 0:13:07.800 --> 0:13:11.599 this doesn't make any sense, UH, we have in our portfolio, 0:13:11.640 --> 0:13:14.599 and we have used this risk off period to concentrate 0:13:15.360 --> 0:13:18.080 towards our highest conviction names. We've gone in the flagship 0:13:18.120 --> 0:13:21.760 portfolio from fifty eight names I believe, down to thirty five, 0:13:21.840 --> 0:13:25.480 which is essentially saying, Okay, we're not so sure that 0:13:25.559 --> 0:13:29.680 these these twenty two or twenty three stocks are going 0:13:29.760 --> 0:13:34.880 to be UH the as a pure play of disruptive innovation. 0:13:35.280 --> 0:13:38.839 As we are that these other thirty five are. And 0:13:38.880 --> 0:13:44.600 of course Tesla is uh the leader of the gang there. So, UM, yes, 0:13:44.840 --> 0:13:49.600 we've we've been um, we've been surprised that it, uh, 0:13:49.840 --> 0:13:52.800 the risk off lasted that long, that the shift into 0:13:52.800 --> 0:13:56.360 passive and indexed lasted that long, But it set us 0:13:56.440 --> 0:14:00.360 up for some great opportunities here. Um, as we have 0:14:00.400 --> 0:14:04.680 so many problems to to solve, and innovation is the 0:14:04.760 --> 0:14:06.640 right way to solve those products. Catty, what would you 0:14:06.640 --> 0:14:09.200 say to somebody who's listening right now who says, study 0:14:09.280 --> 0:14:12.760 after study that they read shows that the on average, 0:14:12.800 --> 0:14:18.120 the active manager does not outperform the benchmarks, especially after 0:14:18.320 --> 0:14:24.200 fees year in and year out. Yes, well, we certainly 0:14:24.240 --> 0:14:27.720 have our our our time horizon is a five year 0:14:27.800 --> 0:14:29.840 investment time horizon, and I would agree with you. I 0:14:29.880 --> 0:14:35.400 think the vast majority of active managers have underperformed. We 0:14:35.480 --> 0:14:39.160 have significantly outperformed over that five year period at a 0:14:39.160 --> 0:14:42.600 compound annual rate. Uh. And I think one of the 0:14:42.680 --> 0:14:46.960 reasons there is under performance is this benchmark hugging behavior. 0:14:47.560 --> 0:14:51.280 So they they are very close to their benchmarks and 0:14:51.320 --> 0:14:53.960 then they and and that to me is is as 0:14:54.360 --> 0:14:57.440 close to passive investing as you can get and then 0:14:57.480 --> 0:15:00.400 they charge a fee for it. We are not in 0:15:00.480 --> 0:15:05.280 those indexed stocks. We are really focused on the future, 0:15:05.360 --> 0:15:08.440 not on the past. Indexes are where they are because 0:15:08.480 --> 0:15:12.840 of what has happened historically. UH and the those at 0:15:12.840 --> 0:15:15.440 the highest end of the index is the largest positions 0:15:15.480 --> 0:15:18.800 are there because of past performance. If we are right, 0:15:19.240 --> 0:15:23.800 we are facing the most UH, the most disrupted innovation 0:15:24.320 --> 0:15:30.160 in the history of the world. Five innovation platforms genomic sequencing, 0:15:30.200 --> 0:15:36.560 adaptive robotics, energy storage, artificial intelligence, gens, blockchain technology. They 0:15:36.560 --> 0:15:41.040 involve fourteen technologies and there are all kinds of convergences 0:15:41.080 --> 0:15:44.320 between and among them. So they're setting up for explosive 0:15:44.360 --> 0:15:49.040 growth opportunities, but they're not being well followed well research. 0:15:49.200 --> 0:15:51.720 That's one of the reasons we do publish our research. 0:15:52.200 --> 0:15:56.760 We want to UM. We want to educate investors, but 0:15:56.880 --> 0:16:00.000 not just investors, we want to educate parents and grandparents. 0:16:00.040 --> 0:16:03.360 It's here how, here's how the world is changing. Make 0:16:03.440 --> 0:16:07.320 sure to guide your children or your grandchildren towards the 0:16:07.440 --> 0:16:10.240 right side of change so they don't end up working 0:16:10.280 --> 0:16:13.760 for these companies who are going to be completely disrupted. 0:16:14.240 --> 0:16:16.360 So I think many people you know a case in 0:16:16.440 --> 0:16:19.600 point and I don't think Facebook is going to necessarily 0:16:19.600 --> 0:16:23.480 be a bad stock going forward, but the fact that 0:16:23.560 --> 0:16:29.400 a disruptor like Facebook could be disrupted so quickly, uh, 0:16:29.600 --> 0:16:31.840 is an important case in point. Well, this is what 0:16:31.920 --> 0:16:33.840 I love, Kathy, and I think about the years we've 0:16:33.880 --> 0:16:36.320 been talking about, and you go back seven years or 0:16:36.360 --> 0:16:39.760 so when you started, like your thoughts about disruption and innovation. 0:16:40.080 --> 0:16:42.760 How has it changed kind of where we are today, 0:16:42.840 --> 0:16:45.480 especially as we're watching you know, what's going on in 0:16:45.520 --> 0:16:48.320 Russian Ukraine, And I feel like the energy conversation has 0:16:48.360 --> 0:16:53.320 pivoted very quickly as well. Yes, well, a couple of 0:16:53.400 --> 0:16:58.000 things are happening. Many people have focused on my very 0:16:58.040 --> 0:17:03.040 long term oil price for twelve dollars, is it? Yes? 0:17:03.160 --> 0:17:05.040 And I say that to make a point. You know, 0:17:05.160 --> 0:17:11.639 we started on this journey, uh, you know, towards energy 0:17:11.800 --> 0:17:16.560 conservation and so forth after OPEC quadrupled oil prices in 0:17:16.600 --> 0:17:19.440 the early seventies to twelve dollars. That's why I used 0:17:19.440 --> 0:17:22.199 that as a marker, uh. And so that was the 0:17:22.240 --> 0:17:26.880 beginning of the journey. Now we are moving into overdrive 0:17:26.960 --> 0:17:30.399 given what's happened to energy prices on the one hand, 0:17:31.000 --> 0:17:35.040 but just as important, where we are in the migration 0:17:35.160 --> 0:17:40.840 to electric transportation. We have hit escape velocity. UH. Last 0:17:40.880 --> 0:17:45.280 year there were four point eight million e vs sold 0:17:45.400 --> 0:17:48.679 when I first spoke to you, Carol, and it was 0:17:48.720 --> 0:17:52.240 either two thousand fourteen or two thousand fifteen. I believe 0:17:52.320 --> 0:17:56.520 I H. S. Was predicting that in the year two 0:17:57.440 --> 0:18:00.520 UH that there would be two d and fifty thousand 0:18:00.640 --> 0:18:04.880 electric vehicles sold, different four point eight million, and we 0:18:04.880 --> 0:18:07.880 were much closer to the mark, much closer to the market. 0:18:08.160 --> 0:18:11.520 Now we see forty million in five years. That will 0:18:11.560 --> 0:18:16.000 be almost a half of all autos sold. So I 0:18:16.040 --> 0:18:20.320 do do believe it is possible that oil demand peaked 0:18:20.440 --> 0:18:24.800 in two thousand nineteen. It is not back there yet, 0:18:25.119 --> 0:18:28.800 and I believe this price increase is destroying demand. You're 0:18:28.800 --> 0:18:32.000 seeing substitution. I see a lot more scooters and bikes 0:18:32.040 --> 0:18:36.560 around here, for example, or fewer trips. And you're also 0:18:36.640 --> 0:18:41.600 seeing a shift, now accelerated shift towards electric and China 0:18:41.800 --> 0:18:44.719 is a huge part of this. Now China may have 0:18:44.840 --> 0:18:49.879 coal as the biggest part of its electric generation, but 0:18:50.200 --> 0:18:53.920 it's not oil. So I have a feeling we're going 0:18:54.000 --> 0:18:57.800 to be shocked at how much the demand for oil 0:18:58.359 --> 0:19:02.560 under performs expectations. What's what's the time frame on that though? Like, 0:19:02.600 --> 0:19:04.600 you're right you say that twelve dollars to shock, But 0:19:04.640 --> 0:19:07.440 I mean I do wonder what is your longer term? 0:19:07.440 --> 0:19:09.320 But I mean, so, when is it that we see 0:19:09.400 --> 0:19:12.880 oil come way down because of this shift being much 0:19:12.880 --> 0:19:17.080 more aggressive? Well, it's been very interesting. In two thousand eight, 0:19:17.720 --> 0:19:19.639 the oil price peaked at I think it was a 0:19:19.720 --> 0:19:23.680 hundred and forty seven dollars per barrel. Well, given what's 0:19:23.680 --> 0:19:28.879 happened in Russia Ukraine, I thought, okay, traders are just 0:19:28.920 --> 0:19:32.000 going back to that old, old high because you know, 0:19:32.040 --> 0:19:36.040 who knows where this is going now with this supply shock, 0:19:36.640 --> 0:19:39.040 And uh, it didn't get there. It got to one 0:19:39.080 --> 0:19:42.200 thirty and then it retested it got to one fourteen. 0:19:43.000 --> 0:19:47.040 Maybe if it doesn't go any higher than that, maybe again, 0:19:47.160 --> 0:19:50.800 the all time peak was in two thousand nine at 0:19:50.320 --> 0:19:55.000 one and we are going down from here. As as 0:19:55.440 --> 0:19:58.560 Europe ends up in recession, we think it's probably there. 0:19:59.040 --> 0:20:02.880 China is slowing down dramatically, and the US is much 0:20:03.119 --> 0:20:07.080 slower than we think most people realize. What about when 0:20:07.080 --> 0:20:09.800 it comes to energy generation in general, Cathy, because you've 0:20:09.800 --> 0:20:11.960 got to charge these electric vehicles, some way, and we're 0:20:12.000 --> 0:20:14.919 seeing spikes and commodities, We're seeing spikes and energy across 0:20:14.920 --> 0:20:18.200 the board, and we're seeing the difficult way or impossible 0:20:18.240 --> 0:20:21.240 way that Europe is trying to wean itself off of 0:20:21.640 --> 0:20:28.000 Russian energy. So so what replaces ultimately those those fossil fuels. Well, 0:20:28.040 --> 0:20:30.680 I think from a national security point of view right 0:20:30.720 --> 0:20:34.240 now that our government and I think we're seeing signs 0:20:34.280 --> 0:20:37.280 that it's starting to move in this direction, should encourage 0:20:37.600 --> 0:20:42.199 as much oil production as possible. I know E s 0:20:42.280 --> 0:20:46.520 G and other considerations are out there, but national security 0:20:46.600 --> 0:20:50.000 is paramount right now and helping our allies as paramount. 0:20:50.080 --> 0:20:52.120 So that's the first thing, and that's the other thing 0:20:52.119 --> 0:20:57.040 that we'll get oil prices going down. Another energy source 0:20:57.080 --> 0:21:00.359 that we think is on the rise and as actually 0:21:00.359 --> 0:21:02.960 as we have eel On Musk and others starting to 0:21:03.000 --> 0:21:08.679 support it is nuclear, new modular nuclear energy. Uh. And 0:21:08.760 --> 0:21:11.480 that is the cleanest, that's one of the cleanest energy 0:21:11.480 --> 0:21:14.679 sources out there. We know we've got hydro in the 0:21:14.760 --> 0:21:20.360 United States. I think that's about nuclear. Is about natural 0:21:20.400 --> 0:21:26.960 gas and then coal. So obviously natural glass gas is cleaner, 0:21:27.080 --> 0:21:30.640 much cleaner than coal. We're we're starting to wean ourselves 0:21:30.640 --> 0:21:33.119 more and more from that. So I think nuclear is 0:21:33.160 --> 0:21:35.440 going to make a renaissance in the next few years. 0:21:35.680 --> 0:21:40.359 We're seeing China rolling out nuclear. We're also seeing I 0:21:40.400 --> 0:21:45.040 heard recently that Japan, even after the shock of food Kashima, 0:21:45.080 --> 0:21:47.840 when they decided to close all of their new nuclear 0:21:47.880 --> 0:21:52.359 facilities down, I think they've started reopening some of them, 0:21:52.400 --> 0:21:55.960 probably in the safer areas of the country. Safer meaning 0:21:56.000 --> 0:22:00.920 from earthquakes and such um. Because because of what's going 0:22:00.960 --> 0:22:03.639 on in the energy sector now. So I think the 0:22:03.760 --> 0:22:06.199 big surprise is going to be nuclear. Hey, Kathy, I 0:22:06.240 --> 0:22:08.280 gotta ask you, and you've always been so good about 0:22:08.359 --> 0:22:11.320 you know, the highs and lows of this business, and 0:22:11.840 --> 0:22:14.040 you know it's it's a lot easier when the returns 0:22:14.040 --> 0:22:15.800 are coming in and the money flows are coming in 0:22:15.960 --> 0:22:18.720 and your fund has had a really significant art innovation 0:22:18.760 --> 0:22:20.959 if I think about it, Uh, you know, has had 0:22:21.000 --> 0:22:25.439 a significant bounce back, um, but still it's way down 0:22:26.080 --> 0:22:29.919 from its highs. Here. You know, what's the difficulty for 0:22:30.040 --> 0:22:33.680 you and your team, uh and your investors about this pullback? 0:22:33.760 --> 0:22:36.080 What's the trickier part and kind of being true to 0:22:36.160 --> 0:22:40.840 your long term investment theories well, I have to say that, UM, 0:22:40.920 --> 0:22:45.240 we are so grateful to our clients because the retention, 0:22:45.800 --> 0:22:51.399 the staying power has been phenomenal. Last year, for example, Uh, 0:22:51.480 --> 0:22:57.040 we net inflowed seventeen billion. Now, the gross inflow last 0:22:57.119 --> 0:22:59.760 year was twenty one billion. Most of that was at 0:22:59.760 --> 0:23:03.359 the ginning of the year, but we kept seventeen billion 0:23:03.440 --> 0:23:06.960 of that. And I think what's happening is our investors 0:23:07.000 --> 0:23:10.720 are averaging down. Uh. This year we have been net 0:23:10.720 --> 0:23:14.200 inflowing and in fact, since you know, there were two 0:23:15.160 --> 0:23:19.919 very controversial virtual moments on TV associated with ARC, we've 0:23:20.000 --> 0:23:23.760 inflowed more than a billion. So uh. And what's also 0:23:23.920 --> 0:23:28.240 very interesting, UH is our inflows picked up. Uh and 0:23:28.280 --> 0:23:31.200 are and it looks like our our performance turned right 0:23:31.240 --> 0:23:34.680 around the time of the first FED hike. We think 0:23:34.880 --> 0:23:39.359 that the Fed hikes are priced into the market. Uh. 0:23:39.600 --> 0:23:43.560 Look at the two year treasury yield. You'll see most 0:23:43.640 --> 0:23:47.320 of those are priced in. And very recently, the first 0:23:47.440 --> 0:23:51.600 FED president that I heard UM equivocate at all was 0:23:51.680 --> 0:23:56.200 Cash Kari from Minneapolis, and he said, hm, hmmm, huh. 0:23:56.560 --> 0:24:01.080 Maybe you know, the yield curve is not suggesting that 0:24:01.520 --> 0:24:05.320 this this inflation that we're seeing now is going to 0:24:05.359 --> 0:24:08.280 be sustained, and that was a bit of a breakthrough 0:24:08.400 --> 0:24:10.719 I think for the market. Not many people noticed it 0:24:10.760 --> 0:24:15.159 because other FED presidents and governors are saying, maybe we 0:24:15.280 --> 0:24:17.520 go up fifty basis points at the next one. Well, 0:24:17.560 --> 0:24:19.960 if we go up fifty eight basis points, then the 0:24:20.000 --> 0:24:23.600 inversion of the yield curve that we've seen recently um 0:24:23.760 --> 0:24:26.720 is going to get worse. Right that he is associated 0:24:26.760 --> 0:24:31.000 with either uh lower than expected growth or inflation in 0:24:31.040 --> 0:24:33.760 the in the following year. Hey, Kathy, we don't have 0:24:33.760 --> 0:24:34.919 a ton of time with you, and I want to 0:24:34.920 --> 0:24:37.399 make sure that I'm understanding how you're thinking about the 0:24:37.440 --> 0:24:40.560 future for ourc invest Now ARC has more than twenty 0:24:40.600 --> 0:24:43.240 billion dollars in assets under management across just nine e 0:24:43.359 --> 0:24:46.480 t f I'm wondering, when you think about thematic investing, 0:24:46.840 --> 0:24:50.440 thematic ETFs, where the next opportunity for ARC is, what's 0:24:50.440 --> 0:24:54.959 the next E t F? Well? Uh, well, first let 0:24:55.040 --> 0:24:57.760 me set this up. So we have, yes, twenty billion 0:24:57.800 --> 0:25:00.719