Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Kathy Wood
Speaker 1: is joining us with a lot of technical problems, but
Speaker 1: we got are all settled out. She's founder, CEO and
Speaker 1: chief investment officer of ARC Investment, joining us from Connecticut. Kathy,
Speaker 1: it is so great to have you back with us.
Speaker 1: We've been talking a lot about Chinese stocks and you
Speaker 1: getting back into it. Talked to us a little bit
Speaker 1: about your thinking right here, because it was just last
Speaker 1: month that you pulled back on your exposure and we're
Speaker 1: selling what changed. Sure, Yes, uh so, thank you for
Speaker 1: inviting me, Carol. Very happy to be with you again.
Speaker 1: Um So, we had been pulling out of China. We
Speaker 1: started last November actually after after the debacle around the
Speaker 1: ant group I p O and really the banishment it
Speaker 1: seems of Jack Ma, and we saw increasing uh racing
Speaker 1: signs that the government was going to get tough on
Speaker 1: on companies we didn't know exact and and companies which
Speaker 1: were more than unicorns. They had exploded onto the scene
Speaker 1: and they had become so powerful, as had their leaders,
Speaker 1: that they almost seemed to be threatening the government. At
Speaker 1: least that seemed to be our take on the government's response.
Speaker 1: So we were a bit cautious pulled away, and in
Speaker 1: fact our flagship fund Um had moved out of most
Speaker 1: Chinese stocks. I think we were out probably late April,
Speaker 1: late May, somewhere around there. It might have been a
Speaker 1: little bit later. Gradually, you never know of the time.
Speaker 1: I think the online education Um really nationalization there, uh
Speaker 1: was UM was a real valuation killer for the market.
Speaker 1: So I think that the market is going to be
Speaker 1: under pressure from evaluation point of view from a lot
Speaker 1: for a long time now, because that that sort of
Speaker 1: thing was so unexpected, uh even even from those of
Speaker 1: us who saw the government tightening its grip on on
Speaker 1: the country. Uh So, But what we have done, we
Speaker 1: did after this last blood bath in the stocks, we did,
Speaker 1: uh try and sort through, Okay, which companies are are
Speaker 1: doing things the government likes and what we're seeing those
Speaker 1: that are catering to tiers three, tier four cities, logistics groceries.
Speaker 1: So you've seen us by j D dot Com. J
Speaker 1: D Logistics is a big part of j D dot Com.
Speaker 1: I think they owned seventy of it. Uh So that's
Speaker 1: probably been our biggest purchase as well as some pin
Speaker 1: Doo do for the same reason. But if you were
Speaker 1: to look at what we were doing in those portfolios,
Speaker 1: we were really whopping them out of other names that
Speaker 1: we think are are going to be continue to be
Speaker 1: in harm's way or certainly under government pressure, like the
Speaker 1: Ali Baba's for example, which you've been selling. Correct. Yes,
Speaker 1: So in terms of the recent crackdowns cathy that we've seen,
Speaker 1: does it longer term generally making more pessimistic or optimistic
Speaker 1: about investing in Chinese stocks? What's the call here? You're
Speaker 1: a longer term investor, So what's the longer term play here? Well,
Speaker 1: if you think about what China is doing, they're doing
Speaker 1: many of the same things our own government and other
Speaker 1: governments around the world are doing. Uh, you know, they're
Speaker 1: most governments are concerned about data privacy, uh, national security,
Speaker 1: and even even concerned uh in some ways about the
Speaker 1: impact of social media on students and so forth. So,
Speaker 1: but we just haven't We don't have the kind of central,
Speaker 1: centrally controlled government that can you know, wipe those those
Speaker 1: activities and risks off the face of the earth as
Speaker 1: much as possible. That's just not who we are. We
Speaker 1: do know that China wants to wants to be number
Speaker 1: one in the world and economically certainly, and one of
Speaker 1: the ways they want to do it is with innovation,
Speaker 1: with technology. They want to bring more of it back
Speaker 1: into their country. UH. Certainly the manufacturing side, UH, semiconductors
Speaker 1: being one of the most important areas in which they're investing.
Speaker 1: They haven't gotten it right. I've watched them invest in
Speaker 1: semiconductors since the early nineties, UH, where they brought in
Speaker 1: a lot of Taiwan semiconductor talent, and they just haven't
Speaker 1: been able to crack the code. They don't want to
Speaker 1: alienate the global investors, do they are. How important is
Speaker 1: it that global investors stay invested in those Chinese stocks
Speaker 1: and companies. Well, one of the things we've been learning,
Speaker 1: as you know, as Chinese UH citizens have gone out
Speaker 1: into the rest of the world, they've they've actually come
Speaker 1: back many times when they come to New York City
Speaker 1: or other places in the world where the infrastructure is
Speaker 1: in need of an overhaul, they'll come back to go
Speaker 1: back to their country and say, hey, we have it
Speaker 1: pretty good here. I've heard that from a number of
Speaker 1: younger people and so I think China has been able
Speaker 1: to stir up a little bit more of a nationalistic
Speaker 1: hey we haven't kind of good here and um. At
Speaker 1: the same time, there is uh the risk of social
Speaker 1: and rests um because of the rich and the not
Speaker 1: so rich or the outright poor. So they are definitely
Speaker 1: focused on that. The last thing, the biggest risk China
Speaker 1: would have on its hands, I think is a revolution,
Speaker 1: and it could be around that. I think that's why
Speaker 1: it's stepped on on this kind of mega cap stock
Speaker 1: as aggressively as it has. It realized it had just
Speaker 1: mushroomed gotten out of control, certainly government control, and now
Speaker 1: they're coming back to a certain little control. So more
Speaker 1: pessimistic about China long term or more optimistic. I'm more optimistic.
Speaker 1: I'm kind of turn it around a little bit. I'm
Speaker 1: not pessimistic about China longer run because I think, um,
Speaker 1: you know, they're very entrepreneurial society. Sure, the government is
Speaker 1: um putting more rules and regulations in, but I don't
Speaker 1: think the government wants to stop growth and progress at all.
Speaker 1: What I will say though, is I'm a little more
Speaker 1: optimistic about the United States and other economies. So it's
Speaker 1: more of a relative sort of thing. The more insular
Speaker 1: China becomes actually the less competitive in many ways. It
Speaker 1: will be because artificial intelligence. Sure, you can have all
Speaker 1: kinds of data about your own population China or Chinese government. Uh,
Speaker 1: but in order to compete in the world, you're you're
Speaker 1: going to need information everywhere. And I think governments around
Speaker 1: the world are a little suspicious, suspicious of what is
Speaker 1: happening now in China. What do you think the investment
Speaker 1: environment will look like in China in five years from
Speaker 1: now compared to what we're seeing today? And are the
Speaker 1: Because you know, investors, everyone follows what you're doing, So
Speaker 1: are you positioning for the five years from now? Sure,
Speaker 1: we have a five year investment time horizon. I think
Speaker 1: we're consolidating into the few names and these are not
Speaker 1: in our flagship fund These are in other of our
Speaker 1: more specialized funds. So we're consolidating our positions. So we've
Speaker 1: taken it down, continued to take it down, but consolidating
Speaker 1: more towards with higher positions in names like I described,
Speaker 1: they're uh, you know, really focused on pier three, tier
Speaker 1: four groceries, logistics, uh, manufacturing in China. So we'll we'll
Speaker 1: stick with those while we wait and see. You know
Speaker 1: how the government wants to play this if you think
Speaker 1: about it, UM, One of the reasons this may be
Speaker 1: going on now is UH, China saw what the Trump
Speaker 1: administration was like. UH, and the Biden administration has been
Speaker 1: just as tough in some ways, but perhaps not as
Speaker 1: tough as a more conservative or hawkish administration would have
Speaker 1: been around Hong Kong. And so we've got the mid
Speaker 1: term elections UH in November next year. So this is
Speaker 1: their window to do what they want to do, because
Speaker 1: I do believe they're not They're feeling like, um, this
Speaker 1: is a little bit of a window. And if the
Speaker 1: more hawkish administration gets in later, then um, you know
Speaker 1: they will have want to have done whatever it is
Speaker 1: that makes sense. Hey, One more question on China are
Speaker 1: Ben Baine, who follows the sec S down with Gary Gainstler,
Speaker 1: chair of the Securities in Exchange Commission here in the US,
Speaker 1: and he is coming out with the SEC demanding all
Speaker 1: Chinese firms reveal more about investor risks. Basically, they're looking
Speaker 1: for transparency and this requirement applies to companies already trading
Speaker 1: here in the United States. What are your thoughts about
Speaker 1: this good step? Is it going far enough? I mean,
Speaker 1: Chinese companies haven't been great on complying with UH kind
Speaker 1: of opening up things for the past two decades. What
Speaker 1: doesn't need to change? Have we been too patient already?
Speaker 1: I think I think there's been so much opportunity in
Speaker 1: China from from such a low base, UM that a
Speaker 1: lot of investors took more risks when we were at
Speaker 1: a lower base and the growth growth was going to
Speaker 1: be explosive UH, and they were willing to do that.
Speaker 1: But I do believe with investor feedback UH that the
Speaker 1: SEC is saying, wait a minute, this is a more
Speaker 1: mature economy. Transparency is becoming more important now the growth
Speaker 1: growth is not going cover all fins, right, It isn't
Speaker 1: as explosive anymore. And I actually think it's a very
Speaker 1: good move. I don't know if China is going to comply,
Speaker 1: which means within I think it's a three year timeframe. UH.
Speaker 1: Companies here would have to do list so that is
Speaker 1: a risk and we are thinking about that as well.
Speaker 1: All Right, gotta ask about some other names that you've
Speaker 1: been buying, not just Chinese A d R S. I'm
Speaker 1: gonna throw out some number some names, uh Soaring Eagle Acquisition,
Speaker 1: the blank check company, far Fetch, the online retailer Palentiner, Fightser, uh, Semaphore.
Speaker 1: Are some too simple holdings? Are Dave Wilson highlighted it
Speaker 1: a couple of weeks ago. These are names that you've
Speaker 1: been buying. Highlight a couple of them, and you're thinking, um, well,
Speaker 1: uh it's a lot, yes, but well too simple. The
Speaker 1: which has it was just back and uh it fell
Speaker 1: to earth and we were able to get a very
Speaker 1: nice sized position even in our flagship fund. We are
Speaker 1: looking for autonomous plays, and autonomous trucking holds incredible promise. Uh.
Speaker 1: We believe that autonomous trucking will be able to deliver
Speaker 1: freight uh less expensively than rail does. Now. Now, if
Speaker 1: you think about it, human driven truck trucks. Transporting streight
Speaker 1: by human driven trucks costs twelve cents per ton mile.
Speaker 1: That's not the way a lot of people measure it,
Speaker 1: but we think it levels the playing field. Rail is
Speaker 1: four cents per ton miles, and we believe autonomous trucks
Speaker 1: will be three cents per ton miles. So we believe
Speaker 1: that half of the freight in the United States that
Speaker 1: is delivered by rail today has an opportunity to shift
Speaker 1: over to autonomous trucks in the future. It's it's a
Speaker 1: huge opera tunity. Um, let's see some of the uh
Speaker 1: spac names. Uh that that um you have you read out? Yes? Uh, well, uh,
Speaker 1: we're we're getting into um areas within the genomic revolution first,
Speaker 1: very importantly into proteomics, a huge new field. Um. We've
Speaker 1: we've uh been spending a lot of research dollars on
Speaker 1: d n A and r n A, but RNA is
Speaker 1: uh really the messaging for proteins, which actually are the
Speaker 1: earliest where we see the earliest manifestation of disease. So
Speaker 1: it's going to be a huge new space. And so
Speaker 1: some of the names you see coming into the portfolios,
Speaker 1: um are those and um, you're gonna have to uh
Speaker 1: read some of the other ones. Well, I think pal
Speaker 1: Palateers one in next folks are emailing me and said,
Speaker 1: what you know, have Kathy talked about Palenteer and her
Speaker 1: recent buy sure palent here. Uh, we believe that Palentier
Speaker 1: has the opportunity to userve a lot of aws as
Speaker 1: your Google compute over time. It is pushing artificial intelligence
Speaker 1: out to the edge. And palent Here, because I think
Speaker 1: it's roughly sixty of its business has been with the government,
Speaker 1: much of that in intelligence agencies. Palent Here is um
Speaker 1: we believe today UM uh using technologies that we will
Speaker 1: find out about five years from now. They we believe
Speaker 1: are so far ahead because of their expertise uh in
Speaker 1: intelligence UH that is going to accrue to the company's
Speaker 1: benefit in the commercial space as well. So they've entered
Speaker 1: I think a year ago of their business was with
Speaker 1: the government. Today it's closer to sixty uh and so
Speaker 1: we've got um all of the commercial side to go.
Speaker 1: So I don't think people understand how advanced palent Here
Speaker 1: is technologically and how it's platform technologies pushing a out
Speaker 1: to the edge are going to are going to really
Speaker 1: take share over time from the more centralized services. It's
Speaker 1: interesting that we're thinking about them that way now in
Speaker 1: the cloud. So one other name I've got to bring
Speaker 1: up with you. I'd be remiss not to you, And
Speaker 1: I've talked about it a lot elon Musk and Tesla,
Speaker 1: and I think we're all still trying to get our
Speaker 1: head a little bit around what happened on AI D
Speaker 1: and this human humanoid robot that he talked about to
Speaker 1: take over boring work. How do you factor in? I mean,
Speaker 1: Elon is somebody who throws out some really creative ideas NonStop.
Speaker 1: How does that or what? What did you take away
Speaker 1: from that presentation? Yes? What I what I took away,
Speaker 1: especially in reading uh many many of the articles about it,
Speaker 1: is that, um there are not many people who are deeply,
Speaker 1: deeply involved with artificial intelligence, and that is who that
Speaker 1: day was for. They were trying to attract AI talent
Speaker 1: to tackle the most difficult and probably most transformational opportunity,
Speaker 1: certainly in terms of transportation, all kinds of transportation, not
Speaker 1: just cars and trucks, but ultimately drones and plays um
Speaker 1: uh using artificial intelligence. So I think the press took
Speaker 1: away see this was nothing. I was kind of entertainment
Speaker 1: with this robot. But there they go, changing the subject again.
Speaker 1: If anyone who was who has been steeped in an
Speaker 1: AI and and wants to take up the challenge that
Speaker 1: they're offering, uh got um got uh a tremendous perspective
Speaker 1: on how far ahead Tesla is relative to almost anyone else.
Speaker 1: I would say Google is is is up there, but
Speaker 1: in in many ways in autonomous transportation, UH, Tesla is
Speaker 1: is um U in the lead. So I don't think
Speaker 1: it was the AI day was not for investors. It
Speaker 1: was going to go over their heads most of it
Speaker 1: um and and yet for those who tuned in, he
Speaker 1: offered a little bit of entertainment. I suppose our intelligence
Speaker 1: analysts were blown away, and in fact, if you look
Speaker 1: on our website you'll see are we We put out
Speaker 1: an newsletter every Monday morning and we summarized some of
Speaker 1: the more important takeaways we had UH from that day.
Speaker 1: So it sounds like no doubt about you're staying with Tesla.
Speaker 1: You're still in on the company, in on the strategy,
Speaker 1: without a doubt, without a doubt every passing day, especially
Speaker 1: the more we learn about their AI expertise and um
Speaker 1: how they're really driving this space, so to speak, much
Speaker 1: faster than I think anyone else is. Right now, we
Speaker 1: believe they have the pole position too, and we have
Speaker 1: increased our our estimate here in the next ten years,
Speaker 1: we think UH, the autonomous taxi network opportunity in the
Speaker 1: US will be eleven to ten trillion dollars from nothing today.
Speaker 1: Think about that eleven to our economy. Now it's not
Speaker 1: just this economy. That eleven to twelve is a global opportunity.
Speaker 1: But just to give you a sense of the size
Speaker 1: of that opportunity, our autonomy is twenty one two trillion dollars.
Speaker 1: This opportunity alone is twelve trillion. In ten years, the
Speaker 1: market will start to recognize it, and we think we
Speaker 1: will in the marketplace in the middle of this decade,
Speaker 1: the market caps will probably be scaling towards the three
Speaker 1: to five trillion dollar range for nothing. So even with
Speaker 1: you know, the chip shortage is impacting the auto industry tests,
Speaker 1: you know, you still remain steadfast on Tesla despite those
Speaker 1: chip shortages that are impacting the overall industry. You know,
Speaker 1: it's very interesting. On the last quarterly called uh test,
Speaker 1: Elon himself said, you know, the chip shortage might be
Speaker 1: lessening here. I know we're hearing uh GM and others,
Speaker 1: but I have thrown out another thought out there. You know,
Speaker 1: auto sales have dropped from eighteen and a half million units,
Speaker 1: this is just the US at an annual rate in
Speaker 1: April to fourteen point seven five. I do not believe
Speaker 1: that is only because of a chip shortage. I think
Speaker 1: it is the beginning of a massive transformation towards electric
Speaker 1: and so a lot of individuals are not buying cars
Speaker 1: because they know anything they buy now is going to
Speaker 1: depreciate much more quickly now that electric vehicles are taking
Speaker 1: off and they are growing exponentially. So I think something
Speaker 1: else is going on. And it was really interesting on
Speaker 1: the Magna call. I listened in when there's controversy like
Speaker 1: this to these calls. UH one analyst to ask the CEO, Hey,
Speaker 1: did you were you are surprised that GM changed its
Speaker 1: forecast within one month? We're used this price as we are,
Speaker 1: We're And Magna said, yes, something else is going on
Speaker 1: out there, and I do believe it is the beginning
Speaker 1: of a massive transition away from the intern all combustion
Speaker 1: engine to electric. So no, I'm not concerned about the
Speaker 1: chip shortage for for Tesla. So even after I talked
Speaker 1: to you for twenty minutes, I still have twenty minutes
Speaker 1: thirty minutes more of questions, but I've got to wrap up.
Speaker 1: We've only got about a minute, and I so appreciate
Speaker 1: your time here. I know you recently talked with another
Speaker 1: member of the business news community. You said, there's no
Speaker 1: way that we are in a bubble. You feel that
Speaker 1: way about the markets, which is specifically when we look
Speaker 1: at the tech space, we've seen quite a run up.
Speaker 1: Not a bubble at all, Not a bubble at all.
Speaker 1: I can tell you the differences in a bubble, and
Speaker 1: I was in the last one. In that bubble, our
Speaker 1: strategy would have been cheered on. People would have been
Speaker 1: clamoring to get in. And sure we've had We've retained
Speaker 1: our assets beautifully. But the February draw down from mid
Speaker 1: februarye mid May uh was quite a big one. It
Speaker 1: was for our flagship fund. I'm very happy that happened
Speaker 1: because we've tested our retention here. Our clients really know
Speaker 1: what they own, and we've set the stage for the
Speaker 1: next leg up. We have a lot of fear in
Speaker 1: the market. You hear more endless. If you look at
Speaker 1: the ratings by and Sell, you can look at Tesla's ratings,
Speaker 1: they're probably even buy and sell by Now maybe it's
Speaker 1: a little more to the cell side. In a bubble,
Speaker 1: it would be bye bye, bye bye bye. You get
Speaker 1: a lot of fear from the street and we get
Speaker 1: a lot of incoming questions associated with risk, which we
Speaker 1: should get and are happy to answer. Uh. We get
Speaker 1: more questions about risk than opportunity. In a bubble, you
Speaker 1: get more questions about opportunity than risk. All Right, Gonna
Speaker 1: leave it on that note. And I know when you
Speaker 1: talk about the names the companies, you always often talk
Speaker 1: about your research team that is looking into these companies. Uh.
Speaker 1: And I know you credit them a lot with the
Speaker 1: analysis they do as you guys invest in your five
Speaker 1: different platforms. So thank you so much, Kathy, thanks so
Speaker 1: much for giving us some time again here on Bloomberg,
Speaker 1: Bloomberg Radio, Bloomberg TV. Be well. Kathy Wood, of course,
Speaker 1: the CEO, founder and chief investment officer of ARC Invest,
Speaker 1: joining us on the phone from Connecticut. You're listening to
Speaker 1: Bloomberg Radio, Bloomberg Business Week, and this is Bloomberg