What's up guys and welcome back to wall street millennial on this channel, we cover everything related to socks and investing today, kathy wood is the most famous investment manager. By far, she has become the face of disruptive technology, investing and manages over 20 billion dollars of assets, but just three years ago she was an obscure manager and very few people on wall street took her seriously in april of 2019. She went on cnbc to talk about her 4 000 price target for tesla, which represented more than 15 times upside at the time wall street had a near consensus that tesla was egregiously overvalued with many short sellers saying the company faced risk of bankruptcy when tesla stocks Started skyrocketing in early 2020, it took kathy wood's arc innovation etf up with it after the pandemic started the arc innovation etf, massively outpaced, the s, p 500 increasing more than 160 at its peak in february of 2021. At this point, wood was managing more than 50 billion dollars, making the ark family the largest, actively managed etf by a huge margin.

But since then the disruptive innovation bubble has popped, arc has been more than cut in half the out performance versus the s. P 500 has been almost completely erased woods. Critics are saying that she just got lucky with the fed printing trillions of dollars to artificially inflate a bubble in high growth, tech stocks, and now that bubble has finally burst in this video. We'll look at how kathy would grew to become the face of disruptive technology and whether her etfs will amount to come back.

Kathy wood first thought the idea for arc invest when she was working as a chief investment officer at the asset management firm alliance bernstein. She saw tremendous opportunity for new technology, such as electric vehicles, artificial intelligence and genomics to disrupt the economy and create the next trillion dollar companies and she wanted to make an investment product so that these types of stocks can be available to everyone. While she was interested in disruptive technology in the real economy, she realized she could also leverage recent innovations in the financial markets. Over the past couple decades, exchange traded funds or etfs have exploded in popularity before the days of etfs.

The only option for individual investors was mutual funds. If you want to invest in a mutual fund, you need to sign up for an account with the company and fill out a bunch of paperwork with an etf. You can buy it directly from your existing brokerage. In a matter of seconds, it's also very easy to trade in and out of etfs whenever you want with minimal transaction fees.

The etf is a far simpler and more efficient option. In the past, most etfs have been passively managed and track an index such as the s p, actively managed funds were still mostly structured as mutual funds. Wood thought that there was no reason this had to be the case if she could make an actively managed etf. It would be very easy for her to increase her assets under management, because it's so easy for retail investors to buy in it would also be cheaper to operate, so she could charge a lower expense ratio.

In 2014. She pitched the senior management team of alliance bernstein with her proposal. She wanted to create an actively managed etf, focused on disruptive technology stocks. The managers told her.

The idea was too risky and turned it down, so she left and founded arkan vest for initial seed capital. She went to her friend and fellow devout christian bill huang. You might remember huang, as the investment fund manager who blew up in an epic fashion when he used five times leverage to buy stocks, including viacom and ten-cent music. Having secured her first few million dollars of investment from huang, she launched her flagship arc innovation, etf on the new york stock exchange, most actively managed investment funds specialize on sectors or geographies.

For example, you might have someone who's an expert at north american utility stocks and someone else who's. An expert at european automobile stocks. Kathy wood thought that this type of rigid investment philosophy causes analysts to get caught up in the weeds and fail to see the big picture. Wood thinks that every few decades there's a new technology that completely disrupts the economy, such as the rise of the personal computer.

In the 1990s or the telephone in the early 1900s, if you can identify the upcoming technology platforms before anyone else, you'll have the opportunity to buy the amazons of the next decade, while they're still cheap, or at least that's the idea. Wood identified five innovation platforms that she thinks will revolutionize the economy over the next five to ten years. These are artificial intelligence, energy storage, robotics, dna, sequencing and blockchain technology. Using this framework, one of the first stocks she identified was tesla.

At the time, most hedge fund managers on wall street thought that tesla was absurdly overvalued. The incumbent automakers like ford and gm had price earnings ratios of less than 10. tesla was losing money, so they had an infinite pe. So why would anyone want to buy a stock like that, but wood viewed tesla, not as a car company, but instead a disruptive technology company, their full self-driving technology, fits in with the artificial intelligence technology platform.

The work they're doing with the power wall, as well as their commercial battery solutions, fits in with the energy storage platform. On top of all that, they are benefiting from the rapid shift from internal combustion engines to electric vehicles. In 2019, she went public with her 4 000 price target for the electric vehicle maker - this represented more than 15 times upside, and they would have to become the most valuable automaker in the world. By far to achieve this, most people laughed at wood.

Thinking that this price target was absurd, but in 2020 tesla started to massively outperform expectations, they finally refined their factory automation and started pumping out model 3s and wise at an alarming pace. In 2020, they delivered half a million cars despite covert related headwinds and in 2021. This almost doubled to more than 900 thousand, while they had burned cash for many years. Their investments finally started to pay off and they swung into strong profitability.

Musk was able to prove the short sellers wrong and kathy wood was one of the biggest beneficiaries. When you adjust for the 5 for 1 stock split tesla's, current price is 4 656. well above wood's price target. Her successful tesla investment caused her public image to skyrocket, making her into one of the most famous fund managers on wall street by the end of 2020, and it wasn't even just tesla.

She also invested heavily in technology socks like zoom and teledog, which benefited tremendously from the pandemic. This pushed her arc innovation etf up more than 160 at its peak in february of 2021., between all of their various etfs arc, invest had 50 billion dollars of assets under management for comparison. This made them bigger than citadel, even though they only charge a 0.75 percent expense ratio on a base of 50 billion dollars. This adds up to 375 million dollars per year in fees.

However, the party wouldn't last forever as arc invest, became bigger and more successful. They started to become the victim of their own success. Actively managed etfs are required by law to publish a full list of their holdings at the end of every trading day because of the success that wood had with tesla and some of her other investments in 2020. Retail investors started looking at her disclosures and copying her whenever she made a new position.

This was likely exacerbated by algorithmic traders, who tried to front run the retail investors. This created the wood effect whereby stocks would increase substantially in the days following inclusion into an arc. Etf, this can clearly be seen with robinhood in late july, robin hood ipo'ed at a valuation of 38 dollars per share. The price dipped a little after the listing date and kathy would use this as an opportunity to buy about 45 million dollars worth of shares in the weeks following the purchase.

Retail investors started pouring in and pumped the stock up to an intraday high of 85 dollars per share. This is a big problem for wood. If she wants to make a new position, she has to do all the buying within one trading day. If she buys a stock over multiple days, the wood effect will force her to buy at a worse price and in fact, because of the etf structure, the wood effect is unavoidable.

The arc etfs are open-ended. That means that if you buy 100 worth of an arc etf, that 100 is automatically divided up into buying more shares of the constituent companies. So as long as your funds are growing she's, effectively forced to keep buying shares at higher and higher prices, another thing to consider is: why did kathy wood stocks benefit so much during the pandemic? To support the economy? The federal reserve printed trillions of new dollars and cut interest rates to zero. At the same time, the federal government started unprecedented stimulus programs to put cash in the pockets of ordinary people which boosted inflation.

This combination caused real interest rates to turn sharply negative. A lot of woods holdings are money losing or in some cases, pre-revenue companies any potential profits. They'll make are many years in the future when real interest rates go down the value of these types of stocks skyrockets. This isn't why she bought those stocks.

She just got lucky that her investment strategy happens to benefit tremendously from the fed's money printing experiment, but this situation is not sustainable. With inflation running at seven percent, the fed will be forced to raise interest rates back to normal levels. The wood stocks that benefit the most from the bubble inflating are naturally the hardest hit as interest rates go up in the bubble deflates, while the fit has not increased interest rates just yet, the stock market is a forward-looking mechanism. Once it became obvious that the fed would have to act, the arc stocks gave back almost all their outperformance that they experienced during the covet era and for a lot of these stocks, the downfall has been spectacular.

The single worst performing stalk in the arc invest family is a speculative biotech company called berkeley lights, they've developed a new technology which uses light to identify and analyze cells. While the technology might be promising, they are likely many years away from profitability. They expect to make 90 million dollars of revenue in 2021 and are losing tens of millions of dollars every quarter if a company is sustainably making money, it's very difficult for the stock price to fall by ninety percent. If the price to earnings multiple was thirty.

A ninety percent decrease would take you down to three times earnings which would be absurd, but for a company like berkeley lights, there is no price to earnings. Multiple, so stock can have insane swings based purely on market sentiment. That's what makes early stage disruptive innovation stock. So risky, despite her poor recent performance, wood is sticking to her conviction.

She says that fears about higher interest rates are overblown and the recent declines in innovation stocks set them up for a massive rebound going forward and to be fair. Her long-term track record is still good since the arc etf's inception in 2014 is returned, 278 percent or more than doubled. The s p, 500, 125 gain. The pandemic.

Error of 2020 and 2021 was a bit of an anomaly with a bubble, inflating and then deflating, but her long run out. Performance is still maintained, at least for now. Alright guys that wraps it up for this video. What do you think about kathy wood? Do you think she can make a comeback? Let us know in the comments section below as always.

Thank you so much for watching and we'll see in the next one wall, street millennial signing out.