And we're going back out to Chicago, where archivists ranked the opening bell this morning, with benchmark ten year Treasury yields hovering near 5% and the Fed Reserve set to announce its rate decision later today. High growth tech stocks do face a new reality around the cost of capital. At the same time, Wall Street is weighing hundreds of billions in AI and for CapEx against market volatility.
And to navigate this environment, Ark Invest is expanding its toolkit and offering strategies to harness disruptive tech both for long term growth and for equity linked income. Joining me, fresh off ringing the bell in Chicago is Tom Staudt, Ark Invest president and COO. Tom, great to have you on the show.
Thank you so much for joining us. Well, first and foremost, today is a big day. It is Fed Day. And benchmark Treasury yields are near 5% as the Fed meets. So how are higher long term borrowing costs impacting valuations across high growth disruptive tech companies today.
You know, I think you look at the strength of the economy in terms of the jobs numbers we've seen. You look in terms of some of the sales numbers that we've seen. Overall, this economy is very strong. Tech continues to stand out, though. If you look at the last quarter's earnings growth, the S&P was a little over 50% annualized on earnings growth.
The Nasdaq was about a little over 80%, obviously showing strength on both an absolute and relative basis. We look at the leading edge innovation companies, though, defined by Ark's ETF for the equities focused on technologically enabled disruptive innovation. And that was actually about double the Nasdaq.
And so yes, the cost of capital is going up. But this is a strong economy. And the leaders are emerging during this rising cost of capital environment. And I think what you're going to see here is really a separation between true innovators and companies that are trying to hang on in this environment as capital costs go up.
Yeah. And expanding on this, hyperscalers as well as enterprises are pouring hundreds of billions into AI infrastructure. So where is Ark seeing the most sustainable return on invested capital in the AI ecosystem versus areas that are exposed to overcapacity risks?
I think we're still so early in terms of the penetration of AI. Depending on what metric you use, we are really closer to the early 90s relative to the penetration of AI, depending on how you think about it, relative to mobile, relative to the internet and the diffusion across browsers. So much of the conversation seems to be around a bubble or overcapacity or valuations.
And given the growth rates that we've seen, given the valuations of some of these companies, it's understandable. But that's the conversation. But when you actually look at the growth rates, when you actually look at the penetration rates, this is still very, very early. And so there's a number of different places, both in terms of the actual leading edge models, where we still see tremendous upside despite what people perceive to be high valuations, but also in the beneficiaries and enablers. The companies that are not able to incorporate and drive synergies in terms of both the top line and bottom line are really starting to fall behind.
Yeah. And traditionally, Ark is known for high conviction growth. But you recently launched Aki to harvest equity volatility for yield. So tell us the why behind this Ark.
Why is a new effort for us? We certainly have been known for high appreciation in terms of equity, some of the highest growth stocks in the economy based on leading edge innovation and technologically enabled. In this case, though, we don't have a lot of stocks that are producing income that are for investors, for advisors who are focused on coupon, on yield, on income.
Our stocks tend not to have a lot of exposure to fixed income markets. They also don't have these are not high dividend or really dividend paying companies. And so as we look at the market for investors who have a need for income, a need for yield, a need for coupons, we are able to harness the volatility that are inherent to this part of the market and turn that into income for customers, certainly those who either are looking for more yield out of their fixed income portfolio.
This is an interesting alternative for those who have dividend paying stocks as part of an equity allocation, as we've seen more growth in private credit, even chasing those yields, all of these become very interesting for the auto callable note space, as we are able to turn that volatility into an income stream for customers.
And remember, volatility is often perceived as a measurement of risk. But in reality, volatility is a measurement of uncertainty. And it's the research that our team has. It's our long term views and diversifying across that spectrum that gives us the confidence and conviction to put these innovation names together in the portfolio, create an overall allocation, diversified, but also democratizing access to the note instrument.
That's very difficult for individual advisors and even for investors themselves, to get more than maybe one or two names or an index name. And that's really what Ark provides. The average weighted yield on coupon for this product right now is about 26% annualized. Obviously, that's very attractive for customers who are willing to take a little bit more risk than their traditional bond portfolio for the income allocation.
Aki is an extremely interesting application to total portfolio construction and another way to benefit from Ark's research.
Yeah. And Tom, finally, before I let you go, we have about 60 seconds left. How do your portfolio managers think about pairing traditional disruptive growth ETFs with volatility based income strategies?
You know, the income strategy does not have the equity upside. Certainly, as we think long term, we believe that these are the equities that are transforming the economy, transforming the financial capital markets. Ark, for us, certainly the flagship. As we look forward in this rate environment, we're still very confident, given the growth rates of about 160% for these companies.
So for the upside equity, that is still the exposure and the allocation. But we think this pairs very well, as I said, replacing some of fixed income, a little bit of dividend paying stocks, perhaps private credit, adding a little bit of risk into the income portion of a portfolio allocation can yield a very attractive yield.
And of course, auto callable notes have downside protection as well for this volatility. And we think they pair very nicely in overall portfolio construction.
Okay, Tom. Well, we will have to leave it there. Thank you so much for joining us this morning. And thank you so much for all of your insights.
