Interview with Cathie wood, CIO of ArK invest

Interview with Cathie wood, CIO of ArK invest

How would you define the vision and mission of Ark Invest Europe?

Ark Invest Europe? Yes, we've recently launched our own UCITS ETFs.
Our mission is to provide asset allocators with unique exposure to disruptive innovation across five key platforms: robotics, energy storage, artificial intelligence, blockchain technology, and multiomic sequencing in life sciences.
I founded the firm to focus solely on disruptive innovation and to create an open-source research ecosystem.
We share our research on social media, fostering dialogue among analysts who specialize by technology rather than sector. This approach enables connections that traditional firms might find challenging.

What specific criteria do you use to identify disruptive technologies worth investing in?

Yes, there are three major criteria:
the first is that these technologically enabled platforms, they follow a learning curve and what that means is that costs fall over time the more units of a given technology are produced and So we try and measure what is the rate of cost decline for each of the of the technologies.
So very important that costs are falling opening up the technology to more and more industries and sectors.
The second criteria is just that, that they are cross sector meaning they're going to scale not just in one sector, so take the take DNA sequencing or multiomic sequencing for example.
Sure that's very related to health care but it's also very related to farming so animals and plants and all of the new technologies coming out gene editing technologies to make crops better and and to yield higher yields with less water, that sort of thing ; so scaling across sectors is the second characteristic.
And then the third is that these technologies, Innovation platforms, are launching pads for more innovation so a good example there, again in the multiomic space, is if we could not uh read a a person's code- we have six billion bits of code in our genome- if we were not able to read what was going on, in other words sequence the genome and find out what was going wrong, what was mutating, we would have no invention like gene editing.

How does ARK approach the valuation of companies in emerging sectors without clear comparables but with potential?

Yes so we have a five- year investment time horizon, that's very important to understand.
So for most of the companies in the portfolio, with the exception of some in the multiomic space, which that's very early stage, we believe they will all reach profitability, we've got lots of profitability now, but we've got companies that are sacrificing short- term profitability investing aggressively in R& D in order to really take the lead in some of these' win or take most' opportunities.
So we do believe however that they will reach profitability and our valuation metric is Enterprise Value to EBITDA.
So Enterprise Value is taking into account the entire cap structure capital structure so equities fixed income and so forth.
EBITDA we're avoiding games associated with EPS especially Financial engineering with share repurchases and so forth, so Enterprise Value to EBITDA.
Typically our portfolios, our companies and our portfolios therefore, are selling at a premium and sometimes a significant premium to the market in the short term because they're sacrificing short- term profitability but the assumption we make in our valuation is that that valuation premium shrinks to a market multiple over five years so that's a headwind that all of our stocks are facing, and a as analysts and portfolio managers, we have to believe that revenue growth and margin expansion is going to overwhelm the valuation compression and deliver to us a compound annual rate of return of 15% or more.
Now I'll just say something about that: our compound annual rate of return of our flagship strategy has been 10% over the last 10 years, so we have not achieved the 15% yet.
however we were achieving it before the FED shocked the global financial system with a 24- fold increase in interest rates, we had never seen that before.
Now we believe interest rates are going to start coming down and we will catch up over time to that 15% and we think exceed noticeably over time.
Well those were really valuable Insight Cathie, I want to talk about also about the start of the show which would be artificial intelligence.