WEBVTT - Wood on Innovation Gaining Traction

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Jason

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<v Speaker 1>Kelly on Bloomberg Radio. I have to say, last time

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<v Speaker 1>she joined us, I got a bunch of tweets that like,

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<v Speaker 1>you didn't have enough time with her, and we never do.

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<v Speaker 1>Kathy Wood is back with us. She's CEO at ARC Investment.

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<v Speaker 1>She's someone who I certainly looked too regularly for her

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<v Speaker 1>view on how our world is changing, the technologies and

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<v Speaker 1>trends and companies that you really need to pay attention.

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<v Speaker 1>You can say as a result week. Yes, I'm going

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<v Speaker 1>to say week because you and I always are talking

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<v Speaker 1>about her all the time. Yeah, exactly. From what I understand,

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<v Speaker 1>she's pulled aside. Uh, she's in a car pulled on

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<v Speaker 1>the side of the road and joins us as we speak. Kathy, UM,

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<v Speaker 1>great to have you back with us. How are you?

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<v Speaker 1>I'm great, Carol and Jason, thank you so much for

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<v Speaker 1>having me well. I have to say I was looking

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<v Speaker 1>up all of your funds, man, you are just hitting

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<v Speaker 1>it out of the park again this year. I mean,

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<v Speaker 1>the Innovation Fund is up more than sixty next Generation

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<v Speaker 1>Internet Fund is up like sixty six percent, Genomic is up.

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<v Speaker 1>I think at least seventy two percent this year. I mean,

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<v Speaker 1>it is unbelievable. How do I mean, tell me how

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<v Speaker 1>you're managing this environment. Well, it's been very interesting. I

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<v Speaker 1>always say during risk off periods that innovation gains traction

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<v Speaker 1>during tough times because it solves problems and because consumers

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<v Speaker 1>and businesses are willing to do things differently when they're afraid.

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<v Speaker 1>And that's exactly what's happened. I mean the coronavirus crisis.

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<v Speaker 1>You know, we had a we had a few days

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<v Speaker 1>of the indigestion in terms of performance that we started

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<v Speaker 1>to pull away. When this notion you know, we've been

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<v Speaker 1>beating the drum long enough on it that innovation is

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<v Speaker 1>going to get in traction here really began to sing.

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<v Speaker 1>And I think that's what's happened this year. So I

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<v Speaker 1>have to ask you, Kathy. We're gonna talk a little

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<v Speaker 1>bit about Tesla in a minute, but you know a

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<v Speaker 1>name that we've been talking a lot about this week

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<v Speaker 1>is Nvidio, you know, eclipsing Intel as the world's biggest

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<v Speaker 1>chip maker by market value. Tell us about that name,

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<v Speaker 1>because I feel like people who weren't watching it closely

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<v Speaker 1>that caught them by surprise. Uh. Well, actually I was

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<v Speaker 1>just discussing this with our analysts are artificial intelligence analysts

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<v Speaker 1>who who came from in Video. He was there for

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<v Speaker 1>for nine years and has just done a bang up

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<v Speaker 1>job on the whole AI world with us. Uh in

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<v Speaker 1>Video is the number one AI chip company out there,

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<v Speaker 1>and it just acquired Melanox, and so it's probably going

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<v Speaker 1>to gain a bigger share of the data center generally

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<v Speaker 1>from a networking point of view. Uh. So we we

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<v Speaker 1>still think it's a great story, but we will also

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<v Speaker 1>tell you that it has dropped below our percent hurdle.

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<v Speaker 1>We have a five year minimum of fifteent annualized returns

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<v Speaker 1>uh and it has dropped below that. I think it's

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<v Speaker 1>dropped maybe two eight ten percent. So it will still

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<v Speaker 1>be a productive stock. We think that we've pulled it

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<v Speaker 1>out of our flagship portfolio. It's still in our next

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<v Speaker 1>Generation Internet and it still is also in our Autonomous

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<v Speaker 1>Technology and Robotics fund because it's so key to the

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<v Speaker 1>data center and artificial intelligence and also to autonomous driving,

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<v Speaker 1>which is an AI project. UH. And that's what we've

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<v Speaker 1>primarily focused on in a r k Q. Well, you

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<v Speaker 1>cute us up really well for what we got on

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<v Speaker 1>Tesla today and Elon Muscus he put out that he

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<v Speaker 1>is on the verge of developing technology that will make

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<v Speaker 1>his vehicles fully capable of driving themselves. He said this

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<v Speaker 1>though you know, Kathy, before he's not been able to

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<v Speaker 1>achieve it. Do you think something is different this time around? Well,

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<v Speaker 1>it's interesting when we heard the words he used last year,

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<v Speaker 1>he was using that it would be featured, which by

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<v Speaker 1>the end of the year. Now he's saying it will

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<v Speaker 1>have basic functionality. That sounds like it's it's more real

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<v Speaker 1>and it's more realistic. Right, baseline functionality, my guess is

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<v Speaker 1>it will start out slowly and and learn as as

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<v Speaker 1>AI machines, algorithms and so forth do over time. So

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<v Speaker 1>baseline functionality sounds like we're getting very close, Kathy, Kathy,

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<v Speaker 1>I want to ask you because you you've had the

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<v Speaker 1>benefit of spending time with him, and I know you

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<v Speaker 1>had a virtual seminar I think a while ago where

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<v Speaker 1>you were you know that went out online where used

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<v Speaker 1>at and talked with him. I mean, what is it

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<v Speaker 1>that we need to understand about Elon musk Uh. Well,

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<v Speaker 1>he's a visionary and and Carol, you were so kind

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<v Speaker 1>to have me on your show when in two thousand

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<v Speaker 1>and fourteen, I believe when we had not even forty

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<v Speaker 1>million dollars under management, and I remember talking about him

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<v Speaker 1>at that time as our the Edison of our time,

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<v Speaker 1>and I do believe that's what he is. You know,

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<v Speaker 1>he's uh, he's seen the future, and he's seen the

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<v Speaker 1>convergence of technologies that is going to take us to

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<v Speaker 1>the future. In the case of autonomous vehicles, it's uh robotics.

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<v Speaker 1>Autonomous vehicles are robots. It's energy storage, they will be electric.

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<v Speaker 1>Those costs are dropping dramatically, and and and we'll wipe

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<v Speaker 1>out the gas powered world. And uh, artificial intelligence. Uh.

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<v Speaker 1>He saw those coming together. And he also took a

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<v Speaker 1>leaf from Apple's book and basically said, you know what,

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<v Speaker 1>I'm going to design my own AI chip. I am

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<v Speaker 1>so far ahead of the other auto manufacturers. I have

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<v Speaker 1>to do this, just like Apple had to do this

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<v Speaker 1>against Nokia, Motorola, and ericson the rest was history, right,

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<v Speaker 1>You think the same things about to happen in the

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<v Speaker 1>auto market. Uh. And it's not because in videos doing

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<v Speaker 1>anything wrong. It's not. It's just there's a four to

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<v Speaker 1>five years design cadence at the traditional auto manufacturers and

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<v Speaker 1>US lose in the one year design cycle, so you know,

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<v Speaker 1>two different paradigms. So, Kathy, let's talk a little healthcare,

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<v Speaker 1>because obviously the entire scientific and medical world, it feels like,

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<v Speaker 1>is focusing a huge amount of energy on COVID nineteen.

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<v Speaker 1>Solving this riddle. As an investor who invests in the

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<v Speaker 1>notion of innovation and disruption, where do you look here. Well,

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<v Speaker 1>one of the most exciting things happening in healthcare is

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<v Speaker 1>there's a convergence and we use that word a lot,

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<v Speaker 1>convergence of free technologies DNA sequencing, so the flagship there's

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<v Speaker 1>a Lumina artificial intelligence. So of course we've mentioned in

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<v Speaker 1>video and Crisper gan editing, and we're actually looking at

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<v Speaker 1>not just looking at seeing diseases being cured very early stages,

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<v Speaker 1>early human trials, but when it comes to fickle cell

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<v Speaker 1>disease in betaslasmia, we're seeing cures and Cristper Therapeutics UH

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<v Speaker 1>has been leading the charge there, so it's it's been

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<v Speaker 1>a very productive stock UH. And then of course Illuminate

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<v Speaker 1>has been has been great. We sequenced the coronavirus, the

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<v Speaker 1>COVID nineteen in two days. I shouldn't say we it

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<v Speaker 1>was China, but it was with aluminium machines. We we

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<v Speaker 1>believe two days, whereas in OH three to sequence the

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<v Speaker 1>Stars coronavirus it took five months. We couldn't have had

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<v Speaker 1>any of the tests today that we have had it

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<v Speaker 1>not been for that sequencing and Twist Biosciences, a synthetic

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<v Speaker 1>biology stock which was able to take the reading of

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<v Speaker 1>the genome UH that that the sequencers were able to

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<v Speaker 1>generate and then write the instructions to the testing company.

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<v Speaker 1>So Abbott's test said owned by Danaher. All of the

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<v Speaker 1>testing companies they would not have had their tests either

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<v Speaker 1>were it not for some for a company like Twist

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<v Speaker 1>bio Sciences, it just wasn't possible before. So we're in

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<v Speaker 1>the golden age for healthcare for for for this reason,

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<v Speaker 1>that convergence of of sequencing AI and Crisper gene editing,

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<v Speaker 1>and we think the R and D, the return to

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<v Speaker 1>R and D dollars spent in healthcare generally are going

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<v Speaker 1>to triple or quadruple from here. We had the first

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<v Speaker 1>golden age that Jeannette Tech launched in UM in the eighties,

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<v Speaker 1>that launched really the biotech industry. We got up to

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<v Speaker 1>the sort of twenty two per cent returns back then.

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<v Speaker 1>We are now down to seven percent because of generics,

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<v Speaker 1>a lack of innovation. We weren't ready for some of

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<v Speaker 1>the breakthroughs UH. And now we think we're getting ready

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<v Speaker 1>for those companies that use these three technologies to shorten

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<v Speaker 1>the trial times, reduce the failure rates, and actually cure disease.

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<v Speaker 1>We think the returns are going are going to UH

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<v Speaker 1>triple or quadruple from here, Cathy, what is it mean

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<v Speaker 1>for traditional UM pharmaceuticals then do they go to the wayside?

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<v Speaker 1>Do they make acquisitions of these companies? How do you

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<v Speaker 1>see you know their role going forward? Well, traditional pharma

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<v Speaker 1>companies had to get with the program. When the biotech

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<v Speaker 1>age UH began really in earnest in the eighties and

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<v Speaker 1>so far, pharmacists or pharmaceutical companies increasing were populated by

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<v Speaker 1>chemists had to bring along molecular biologists. They did that.

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<v Speaker 1>And for those who are harnessing these three technologies correctly,

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<v Speaker 1>meaning using companion diagnostic testing as they're taking as their UH,

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<v Speaker 1>doing their trials and targeting the right patients. If they

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<v Speaker 1>are using these three some of these value stocks out there,

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<v Speaker 1>and they are very low multiple stocks because they've been

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<v Speaker 1>down and out for so long. They actually could see

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<v Speaker 1>a resurgence, a rejuvenile shin uh now. And these technologies

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<v Speaker 1>have been around long enough, these these three that I'm

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<v Speaker 1>talking about now that we're seeing, we're seeing a Regeneron

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<v Speaker 1>certainly is embracing them, Vertex certainly is embracing them. Bristol

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<v Speaker 1>Myers of course. So we're seeing progress. But our funds

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<v Speaker 1>tend to be populated more by the pure plays and

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<v Speaker 1>less like what we would consider conglomerates. Yeah. Well, I

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<v Speaker 1>feel like we always learned so much, Kathy Um, thank

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<v Speaker 1>you so much. We were so grateful that you were

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<v Speaker 1>available today so that we could just tap into some

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<v Speaker 1>of the news, certainly with Tesla, and just really dig

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<v Speaker 1>a little bit deeper into the world that you invest in.

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<v Speaker 1>So thank you, Thank you. Kathy would she is CEO

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<v Speaker 1>at our investment, joining us on the phone from her car.