Forget the Magnificent 7: It’s the Era of Mag 6 and... | Cathie Wood, ARK Invest

I'm thrilled to be here, Dan. Thank you.

I think one number that no one really is focused on, I haven't seen it in the press at least, is the unemployment rate for new college graduates. And that jumped from August to September from 9.3% to 10.2%. Now that's in the double digits. The overall unemployment rate ticked up to 4.4%. So this is more than twice the overall unemployment rate. And the other thing on the inflation front is oil prices have cracked below $60 as measured by West Texas Intermediate. I think we're in the 58-59 range. And on a year-over-year basis, that's about a 20% decline. And we're also seeing broader-based declines in rent in the United States, and that will get into the inflation rate slowly but surely over the next year. And then finally, our research is focused on the deflation associated with all of the technologies that we research and invest in, and the deflationary pressures especially from AI. Many people think, 'Oh, these large language models are so expensive, so many GPUs.' People using these models and not building them are enjoying some of it for free, and then there's the step up in subscriptions, but most is free, certainly for the consumer world, and the testing is also free for the corporate world.

Well, I think first of all, let's say that the market is beginning to understand that the Fed is beginning to understand. So it has already turned. Maybe it's premature. I don't think it is. Many people say, 'Oh, well then all this means for your strategy is you need lower interest rates or else this is not going to work.' Both on the AI side and on the crypto side. We disagree mightily on that. In fact, we already have proof in 2017 and 2018. Interest rates moved up and we had two very significant outperformance years, outperforming the benchmarks. Now, we don't measure ourselves against benchmarks, but most other people do. So we give that as a comparison. And it wasn't just in an up year. 2018 was a down year and ARK outperformed. So I just want to diffuse that myth that if interest rates are going up, ARK's kind of strategy will underperform. That has not generally been so, except for the massive interest rate hike we saw during COVID or in the aftermath of COVID. And by the way, I don't think we'll see that again. And the reason is, while we might have another pandemic, hopefully not, but if we did, I don't think governments would react the same way. They see all of the ramifications that are still lingering. And just like China in 2008, it was the most disciplined in terms of COVID and not throwing money at it because it had learned from 2008. I think most other governments have learned from the COVID crisis.

I think that a lot of our strategies, innovation, they are hitting escape velocity in terms of the costs are low enough and the technologies are ready to scale. Unlike in the tech and telecom bubble, what I think for the broader markets, and you can see this in our Big Ideas 2025 in Brett Winton's section. Brett's our chief futurist. We put a table which delineated what we expect in terms of market appreciation from three categories. One was the MAG 6, one was truly disruptive innovation companies technologically enabled, and one was the rest of the market. Now consider the source. But if we're right, if our research is correct and we're both top-down and bottom-up in coming to these numbers, we believe that the MAG 6, and we take Tesla out, it was banished because it didn't act like the rest of them, we think that the MAG 6 will do fine. We wouldn't be surprised at 15 to 25% appreciation. Of course, there's going to be some disruption or disintermediation to their models potentially. So maybe one or two will fall out. We think that technologically enabled disruptive innovation emerging will appreciate in the 40 to 50% compound annual rate again because they're ready for prime time. And we think the rest of the market, which is really a representation of the traditional world order, will probably depreciate because technologically enabled innovation is going to disrupt every sector, every industry, every sub-industry.

Okay, I'll clarify that. So the wonderful thing about ETFs as a portfolio manager, I don't have to worry about flows. Mutual funds have to worry about flows, when to put inflows to work and how, and they have to meet redemptions as well. With ETFs, the infrastructure around ETFs is outside of ARK largely and any ETF provider. So the authorized participants, which are primarily all the brokers out there and the market makers, are managing the flows. Now, what you do see when we, and I know the most controversial sales are Tesla for example, when you see Tesla taken down, what are we doing? Typically, it's gone through a nice appreciation move relative to other stocks. And in the latest round, we used Tesla to take some profits from Tesla, which is nearer to its high, and allocated some of those profits into crypto, which just went through a flash crash on October 10th and thanks to MSCI's press release or information flow saying that it was reconsidering including DATs in its indices. That happened on the same day as the flash crash but nobody noticed it, and so that information got out more slowly. So those two dynamics hit crypto hard, and Tesla was appreciating. As of today, it's roughly 12.5% of the portfolio. So we tend to rebalance the portfolio in that way when one stock moves up relative to others that are going through a painful moment.

Absolutely. What we will do in a down round like we've just seen, it was kind of a compressed down round, and I think we're on the other side of it though one never knows. We consolidated towards higher conviction names. And one of our companies is being taken out at the same time. So Exact Sciences, I think we had roughly a 1.5% position in it. The acquisition of Exact Sciences by Abbott Labs got the whole multiomic sector going, and believe me, it's lagged so far behind that we think it has miles to go. So we weren't taking profits per se from them, but we were selling Exact because it went to within 5% of the takeout price. Pretty high probability that it's going to happen within the next six months. So that became a source of cash, as did another name, GitLab. So what we do is we concentrate towards our highest conviction names. GitLab because of a changeover in a number of people on its management team has reduced one of our bottom-up scores. Whereas Tempest AI, we put more into within the AI space. Both of them are touch AI in important ways. We recycled some of the funds into Tempest, which had been hit hard. And we bought some Coinbase. We bought some Circle and Bitmine Immersion. So it was very interesting. The AI hype fears occurred at the same time as the crypto fears, and they almost seem to be feeding one another. And so we took a takeout name and put it into AI and crypto. We did the same by swapping a little bit from one of our AI names into a higher conviction AI name.