Cathie Wood on Bitcoin Holdings, Tesla, AI, 2024 Outlook

Cathie Wood, CEO and CIO at ARK Invest explains the shake-up in the ARK Next Generation Internet ETF and discusses the performance of the ARK Innovation ETF and her 2024 outlook for Tesla, AI, and more.
——–
Follow Bloomberg for business news & analysis, up-to-the-minute market data, features, profiles and more: http://www.bloomberg.com
Connect with us on…
Twitter: https://twitter.com/business
Facebook: https://www.facebook.com/bloombergbusiness
Instagram: https://www.instagram.com/bloombergbusiness/

We’re as optimistic about Bitcoin as we ever have been. But there were there are a few regulatory and tax uncertainties, and we had been waiting for the discount between BTC and NAV two to narrow. It was as high as 50% at one point last year when there was great uncertainty

Around all of the turmoil in crypto generally and now it’s single digit and there are no other products out there that we can use to gain exposure to Bitcoin in this moment. And it’s just a moment of uncertainty between now we think, and January, January 8th to 10th, somewhere in that

Range perhaps. But we will, out of an abundance of caution, didn’t want to take any risk. And I mean, let’s get a little bit specific here because we’re talking about the ARK next generation Internet ETF. The ticker there is Ark W And I think

What caught a lot of people’s attention is that you completely sold down your remaining stake of the grayscale Bitcoin trust. Instead, on the same day you bought into the ProShares Bitcoin Strategy ETF, of course, that tracks Bitcoin futures. It doesn’t actually hold the physical Bitcoin. Can you explain that shuffle?

What was the thinking there? Sure. A couple of things. First of all, Bitto the ProShares is already approved. There’s no regulatory uncertainty having to do with it. So we chose to maintain our exposure through BITTO for the time being. And as I mentioned before, there are

Some tax and regulatory uncertainties still as part of this process. We don’t know exactly who’s going to be approved and and whether they’ve met all the criteria that the SEC has put before us. We know we have, but we don’t know if others, including Gbtc, have.

We just we just don’t know. So so again, out of an abundance of caution and Djibouti’s discount again, it was as much as 50% relative to NAV. So not only have we enjoyed this year the run in bitcoin itself, but we’ve had

The nice closing of that discount. So it’s been, you know, double good news for us. Well, you’ve talked about January ten, Cathie. I think in another report. Is that possible, whether it’s you or somebody else in terms of the first spot, Bitcoin ETF actually getting approval?

Well, we think the probabilities have gone up because the SEC has been highly engaged compared to what was happening before. Before it was just denying approval, denying approval. And we just kept putting our filing in again, you know, try, try, try, you know, how good and determined. And so here we are.

We think we’re we’re first in line. And that’s why there is this January 10th deadline. But we like the idea that the SEC has been so engaged. And it’s not just with us, it’s others as well. We think a number of a number of funds could be approved at the same time.

And they’ve been asking not only one set of questions, but follow up questions. And again, that’s a very good sign. Well, speaking of engaged. Oh, go ahead, please. No, no, no. The last few questions have been very technical and and so more de rigueur.

And, you know, you’d expect them to be asking these questions as we head toward an approval. No, it’s not 100% certain. And so we want to make that clear as well. This is the SEC, and we never know, you know, what might happen along the way. Regulators can be tricky, that’s for sure.

Hey, listen, you mentioned engagement. Let’s talk about engagement with your funds overall, and especially the Ark Innovation Fund, up 72% year to date, easily outperforming some of the major market benchmarks, still down 65% from the high back in February of 2021. For you, though, a lot of critics, we

Bring up your name, we bring up Ark, and you have a lot of fans and you have a lot of critics. Is a lot of discussion. Does it feel, though, a little bit like a victory lap this year? Well, you know, we are very happy that a couple of things have happened,

That this idea that interest rates, we’re going to continue moving higher has been proven incorrect. And I think even the Fed, while there is that small possibility, even the Fed is now starting to talk about the other side of the interest rate move. And so I do believe all we’ve seen so

Far is a reaction to that macro phenomenon or judgment call. We went through our flagship strategy and all of our strategies. Went through a very difficult time from February 21 through December of 22, as interest rates, first of all, were presumed to move up or forecasted to

Move up. And then when they did move up, so it was almost like a double discounting. And so we’ve seen the first installment of the the the correction there to the upside for our funds with this notion. And it’s again, the forecast that interest rates will come down.

And we would presume that if they do come down for the reasons we think they’re going to come down, the most important one being deflation, then our funds will be in good shape because we are very our companies thrive on deflation. Technologically enabled innovation is

Deflationary. So, Cathie, a very good morning to you. It’s madness. First time we’ve met on. So we’re going to move to a deflationary environment. We’ll come back to the big macro call in a moment. Just let let’s squared away before I talk to you about the flows in the

Funds, which is how much interest rate cuts do you presume are you forecasting leave the forecast of everybody else aside? What what do you what do you presume will happen next year? Well, we put up a chart in one of our in the in the nose, which is a YouTube

Video that I do every every month. Employment Friday. And in that chart you will find a ratio it’s the metals to gold ratio. So metals price to gold price. And there has been an extremely tight correlation between that ratio and long term interest rates. In October we we published it or early November.

And what you will see is that there was a very wide gap that had developed the metals to gold ratio was near its low for the past 1215 years and interest rates were at their highs 5%. The correlation, if you just eyeballed that chart, the correlations suggested that rate should go to 2%.

Now maybe they will go all the way to 2%. But we think that long term interest rates are way above where they’re going to and because of deflation. Okay. Well, let’s we’ll come back to that and see whether we get to the 2% level.

I’ve got to ask you about the flows into the funds, which is obviously, you know, is kind of just edgy. You’ve got a bit of a victory lap going on at the moment, but this is the first year of outflows. Have those outflows stopped? You’ve had a great performance in the

Back part of this year. Have the outflows stopped and has that bleed stopped? Yes. Well, we were very gratified at our asset retention in 21 and 22. In fact, we had net inflows. If you combine both years of more than

8 billion and this year one might expect that those who average down into the very steep declines that we were seeing in 22 especially might take some profit. So we have had I know for our flagship strategy, it’s roughly $500 million in outflows, maybe for all of our

Strategies, 1.8 million. So maybe 10% of the inflows that we enjoyed during 21 and 22. So again, we’re very gratified and grateful to our our clients for the support that we continue to receive. So has has the outflows stopped? We have had days of on balance very recently. Yes.

And I think part of this is many people do tax management towards the end of the year. And so some of the outflows might have been associated with with clients who got in at a high cost base and we’re just harvesting some tax

Losses, but I think we’re through that. Do you find it a little surprising, though, Cathie, considering the run up or do you I’m curious about the conversations you do have with investors considering the year that you’re having and then to see those flows, It’s got to be a little disheartening.

Yeah. Oh, no, no, no, no, not at all. Actually, we put out a piece for Resolute, our distributor, who and we basically showed them if you rebalance our strategy when there have been big moves one way or the other, if you rebalance regularly or based on a rule

Like when when the fund’s up 15% relative to everything else, take some profits. And what it showed that studies showed that if you are disciplined that way, that over any rolling five year period, it is highly. Likely almost 100%.

I’m not quite sure if it’s quite that high, but that that it will beat the market. Meaning, as measured by the Nasdaq or the S&P over a rolling five year period. And so a lot of our funds are with advisors who are very sophisticated and responded somewhat, perhaps in this tech

Tax management part of the year to that message. I feel like we can’t talk. We have to talk about Tesla and Elon Musk. I know you just had a conversation on Twitter X. This has been, I think from day one, right. In terms of you starting out that you’ve

Had this investment in Tesla. And I remember when we first talked and you were getting started, you talked about him being the next Thomas Edison and how his vehicles would turn the US economy upside down. Having said that, there’s an evolution and the world has changed.

How are you thinking? It’s still a top holding? How are you thinking about the Tesla story right now? Well, first of all, Carol, thank you very much for letting me interview that time. That was nearly ten years ago. And Target is about to celebrate its 10th year anniversary.

And you gave us that opportunity. So thank you. The world is evolving, actually, I think, even more closely to what we expected because we expected a lot of traditional auto manufacturers to see the writing on the wall and rush as quickly as they could into scaling big

Time into electric vehicles. And what has happened recently, both GM and Ford have said we’re stepping back. We’re not going to do this until it’s profitable. The problem with that is in order to be profitable, they need to scale. That’s how this works.

These are learning curves that they are writing down and those are expressed in cost declines. So the fact that they’re pulling back means they’re more there’s more share for Tesla and others who choose to go for it. And Kathy, I want to keep the

Conversation going on, Elon Musk, but I want to bring it to the Ark Venture Fund. Of course, it’s not an ETF. You invest in private companies, etc., in there. And you take a look at the portfolio, you have Space X in there and you also

Have X formerly known as Twitter. And in July you had told the Wall Street Journal that you had written down your Twitter stake by 47%. Fill us in on the past couple of months. Have you written it down further or how is that changed? No, I think it’s still there.

You know, we have to be very careful. This is an interim fund. It is a 40 act fund, and we have to mark to market every day. The good news is our clients can get in and have access to these amazing companies for just $500 and they get quarterly liquidity.

So so that’s the good news. The markdowns are simply, you know, if we see in the secondary market employee stock trading at a steep discount, we have to take that into account. If we see others in the more traditional asset management world like Fidelity and others marking their holdings down, we

Need to take that into consideration during our daily mark to market. So it’s an abundance of caution. We have a five year investment time horizon. Do we think that’s where X belongs in terms of valuations? Absolutely not. Absolutely not. A roughly $20 billion valuation for what

We believe truly will become the everything app. Think WeChat pay. Elon started his entrepreneurial career in the payments industry and he’s been thinking about this for a long time. He now has money transmitter licenses in more than half of all of the states,

Which we learned on Twitter spaces or on X spaces, I should say the other day when we had our interview with him. So that’s exciting. He’s going for it. He’s going for it. We’ll see if that one lands. But let’s talk a little bit more about

The private markets, because obviously the private credit market has gotten a lot of attention right now. You’re looking at the private markets through this interval fund that you have. When you think about the opportunities there on that five year horizon that you

Have, do you see more so in the public markets or in the private markets right now? Well, now that we’ve had this very nice run this year, we think the answer to that question is in the private markets, they’re close. They’re close.

What’s fascinating to us is that the public markets have been leading the private markets for the past three years as our funds were were falling in 21. Private evaluations were going through all time highs, along with the Nasdaq. They were taking their cues, I suppose, from the Nasdaq, but.

Real innovation, if you looked at our portfolios, was starting to revalued to the downside and even more so in 2022. We are still seeing major down rounds taking place in the private markets. And I’m always surprised at this sort of thing because you would think that the private markets lead the public markets.

That has not been the case in the last few years. Hey, Cathie, I got to be honest with you. I think whenever we think about Elon Musk, brilliant but also erratic, and I’m curious how you think about Elon, the individuals versus Elon, the companies he’s creating, the things he’s

Doing, because I think that there is time. Any other CEO of a major publicly held company would, I think it’s safe to say, not be able to get away with a lot of what he has done. So help us educate us how you make sense of it if someone you have followed

Talked with for many years. Well, first of all, very often we just look at what he does, not exactly what he’s saying, which can often be a distraction or it can be an advertisement for his cars or for X or or for space X and so forth. So.

But we have a scoring system as we are evaluating companies and their founders and their management teams and their six metrics. And one of them is moat and barriers to entry. And I think Elon is a maestro of raising barriers to entry with innovation, which

That is so much faster than anyone else. Why? Because he’s so first principles physics driven in his analysis of how to approach a new idea, a big idea. So tell me this then, Cathie. I mean, if you look at the cohort of years of CEOs that you backed, Brian

Armstrong, does he hit that bar? Does he is he above Elon or is he at the money? You’ve got Elon, you’ve got Brian, you’ve got Tony Wood at Rocco. Does anybody come close to Elon or is Brian Armstrong maybe even at the money with Elan or above?

Well, we don’t actually look at the world that way, one relative to the other. In terms of management teams, we do look from our scoring system at the scores, which include most management people and culture execution, a valuation that might surprise people and product and

Service leadership and thesis risk closer to six scores and both but but well, all three of them score very highly which one scores the highest? They are actually very close to one another, to be honest. They’re very close to one another. So I mean, obviously Coinbase is one of

Your key holdings. We’ve talked a little bit about that. The other the other feature that we want to talk about is a I, I’m curious to know an open air, the valuations have ranged between 80 billion to 100 billion. Will you take a position in open air?

Is that going to be part of your holdings as you explore the next development of AI in your holdings? Well, in our private portfolios, we are already exposed to anthrax traffic, which has been a major beneficiary of the drama around open air that we all witnessed a few months ago.

But if you look at GPT four, which is the latest large language model that that open air has published, it is way above others in terms of performance. So there you have it, the pros and the cons. So we can’t tell you what we’re going to do in that portfolio.

But we are so impressed at how open air has led the industry. We’re also impressed, however, at the open source models and and we’d like to encourage more of that movement. We know that Metal platforms has helped with Lomita and it’s working on others. It is moving very quickly and making

Great strides. So for much lower cost, open source is free. Companies can get close not not, not at GP 84, but close. So we want to see the open source movement in in the venture fund. We also own Cathie. We’ve got to it. Oh, sorry.

No, no, no. We never have enough time with you. Can I ask you a really quick question? 5 seconds. Any new ETFs coming our way from you guys next year? Well, real quickly, as you may know, we bought a company in London. Yeah, they have some very interesting funds.