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Ark Invest Chief Futurist: Amazing companies are going for ‘fire sale prices’

Ark Investment Chief Futurist Brett Winton joins Yahoo Finance Live to discuss Ark's newest venture fund, energy, inflation, and the outlook for markets.

Video Transcript

JULIE HYMAN: Brett, I would be remiss if I didn't start on markets with you and what we are seeing here in the markets because we, obviously, are seeing-- have been seeing until today a lot of pain within some of the types of stocks that are core holdings for you guys. Interest rates have really been a problem for tech shares. And I know that the head of Ark, Cathie Wood, has been out saying the Fed should not be as aggressive. But they don't seem to be changing their tune. So how much more pain do you think could be in store for these types of stocks with rates going higher?

BRETT WINTON: Well, a lot's already been priced in. I think that it's very clear just from the fact that you're asking these questions, that it's a great time to invest in innovation. When people are focused on things like, oh, what's the Fed going to do when they are really scared by the macroeconomic environment, that's when you can find amazing innovation, companies on fire-- at fire sale prices.

And we believe that from over the course of this decade, by the end of 2030, more than 2/3 of-- or roughly 2/3 of equity market capitalization will be attributable to the disruptive technologies that we invest in. They'll go from roughly 8 trillion in market cap to more than 200 trillion. And so we believe that for investors that take an appropriately long-term point of view with regards to equity markets, this is a great time to take advantage of these prices.

ALEXANDRA SEMENOVA: Brett, I want to shift gears a bit. There have been a series of recent personnel moves at Ark-- Your appointment to chief futurist, Cathie handing over her portfolio manager role on two of the index funds. Can you talk a little bit about this and where Ark stands with a succession plan?

BRETT WINTON: Sure, so it's very clear to us, looking at the technologies that we focus on, that the pace of innovation has picked up here. The underlying technology platforms that we're looking at are achieving product market fit faster. You can just look at the artificial intelligence base where the image generation models, the natural language processing models, everything is happening at a massively accelerating rate.

And so we see the scope of opportunities and the specific innovation platform verticals we focus on-- cryptocurrency, AI, robotics, multi-omics, and energy storage-- as being actually larger than we had even anticipated two years ago. And so we are investing in our research platform by elevating some of the analysts inside the organization into directors in those specific verticals. And then I'm taking on the futurist role because it's never been more important to tune your longer term modeling since the rate pace of innovation is pulling that longer term closer and closer to the present.

Cathie, of course, is fully in charge of the organization. And she manages all the actively managed portfolios as portfolio manager. And I anticipate that she'll be doing so for the next two decades-- I don't know-- or longer. And so the reason for the restructuring was both to hire into our research organization. So we are hiring more associates. I encourage everybody who's passionate about technology to apply and to really lean into the opportunity that we see ahead of us and ahead for disruptive innovation, including on the venture side.

BRIAN SOZZI: Brett, to a lot of the average investors that have lost a lot of money in the Ark Innovation ETF this year because they recognize a lot of the companies in the fund, what should they be doing right now?

BRETT WINTON: Well, I mean, you can just look at what the investors have been doing, which I think is the right move, which is inflowing assets into the fund. We believe that there is an incredible disruptive technology tailwind here. We think that you're going from--

BRIAN SOZZI: So Brett, they should sit on losses.

BRETT WINTON: Well, I can tell you what I'm doing, which is I am reinvesting, as in if you think of your portfolio as being composed of bonds, stocks, and then things with asymmetric skew, opportunities for asymmetric upside. When people are feeling fearful, that's the time to invest in those opportunities with asymmetric skew. If you're investing in equities, they could be up or down 20% in any given year. It's very hard to predict.

And so the money that you put into equities should be money that you're not planning on taking out of the market a year or two from now. It should be 5 plus year money. And I think there's no better opportunity in the marketplace than to be in innovation with that five-year money. And moreover, I think that people are unintentionally short innovation within their core portfolios.

Think of all of the problems that people are talking about happening in the world today. All of the issues with the supply chain, well, what's a company addressing supply chain? Flexport, which is in the venture portfolio. All of the issues with the energy, well, you know, wouldn't you rather own the premier electric vehicle manufacturer that's potentially going to deliver robotaxi within your portfolio? Innovation solves these problems. And so there's no better time to invest in those innovations than when people are feeling the friction and pain of this macroeconomic instability, and market participants are trying to run away from it as if their hair is on fire.

JULIE HYMAN: Brett, it was interesting. We had the head of Advent International come in recently, a big private equity firm, and say this is one of the rare times that valuations are actually more attractive in the public market than in the private markets. So I'm curious about the timing of this launch of this venture capital product at a time when you have all kinds of strange disconnects between valuation and reality and unpredictability, et cetera.

BRETT WINTON: Well, we think we have a great competitive advantage in the Ark Ventures portfolio. For one thing, we can play that arbitrage. In some technology areas, it's very clear to us that the private markets are underpriced relative to the public markets. And in other technology areas, we think the opposite is true. And so since the inception of the firm, we've looked at that arbitrage. And the way in which this portfolio is constructed, it can invest in private companies and will probably be majority invested in private companies. And it will be in public companies as well, playing that arbitrage.

It also means that money that inflows into the portfolio doesn't sit in cash, but instead, gets directly invested into innovation focused equities. So you don't have the cash drag on your portfolio as you invest. And the other unique thing about this portfolio is it's available to pretty much everyone. One of the, I think, great unfairnesses in the market is that people are only allowed to invest in asymmetric private assets if they're already rich. And even if they're rich or they have-- they're an accredited investor, they have trouble getting allocations into the top tier venture portfolios. And they have to put a huge slug of money in order to do so.

Here, with $500, you can invest in venture companies that Ark is providing access to. And we think we provide a great value proposition to investors and to the portfolio companies that we're going to invest in and support.

ALEXANDRA SEMENOVA: Brett, it's been a challenging year for Ark. Your flagship fund is down roughly 60% year to date. How are you going to convince investors who might be skeptical of Ark's performance to allocate to this new vehicle?

BRETT WINTON: I think that all performance, particularly in the equity space, should be measured over a longer time horizon than the year to date performance. When we underwrite positions, both in the venture portfolio and in our public equity book, we do so on a five-year forward basis. And there's a good reason for that. Markets are structurally short-term. There's lots of business and financial pressure that causes people to look quarter to quarter. And we do our underwriting of individual positions and the technologies themselves on, essentially, a business cycle basis.

And I think that's the appropriate way to think about investing in equities. It's not, oh, am I going to get a return here in one year? Instead, it's, how am I going to invest in the core franchises that are going to take advantage of the innovation tailwinds that are happening in this business cycle? I've never seen as large a disconnect between what's happening on the technology side, how fast things are moving, and what's happening on the market side, which suggests to me that this is an amazing opportunity to invest. The velocity, on the one hand, has to be reconciled with the market realization of the enterprise value creation that's going to occur.

BRIAN SOZZI: All right, we'll leave it there. Brent Winton, Ark Investment chief futurist, good to see you, and good to see you as well, Yahoo Finance's Alexandra Semenova.