That fund is only a couple of weeks old. Black has been at the investing game for about 30 years, starting as a research analyst at Bernstein in 1992.
After Bernstein, Black moved to the buy-side with stints at Goldman Sachs Asset Management, Janus and Aegon, among others. After a brief respite following Aegon, Black jumped into the world of actively managed ETFs.
He sat down with Barron’s to talk about his new fund, his approach to investing and some of the stocks he’s invested in. An edited version of the conversation follows.
Barron’s: We probably have to start with Tesla (TSLA). How do you value Tesla stock?
Black: I take where I think global [car sales are] going to be in about five years, and I take the EV adoption–it will get to 25% by 2025. This is the big investment controversy on Tesla: As competitors enter the market, can it keep its roughly 25% EV share? If it can, I get about $32 or so of earnings in 2025. And if I even put a 50 multiple on it, which is pretty low given projected 55% average annual earnings growth. I get a $1,600 price. And that’s worth about $1,100 today.
Market share is the big controversy? What about self-driving cars?
Stop saying Tesla has valuation equal to $1,000 a share because of the EV business. And then another $1,000 because of robotaxis.
Tesla robotaxis like Waymo won’t be a thing?
I think you’re going to have commercial robotaxi. And you’re going to have consumer robotaxi.
Tesla has a head start, but competitors, especially those from China, are offering more expensive systems with vision, lidar, radar and HD mapping allowing them to close the gap. Everyone will get there eventually–which Elon has said. Tesla’s features will still let Tesla sell more Teslas.
Why did you start the Future Fund ETF?
Secular growth [is] its cornerstone. We’re looking to capitalize on 10 secular megatrends that are changing the world.
What are they?
They are:  24/7 information and entertainment,  social networking,  mobility–working from anywhere– e-commerce,  fintech innovation,  big data and security,  people living longer,  lifestyle betterment,  automation and  sustainability. Those are the 10.
And so what we try to do is find companies that [have] the megatrends as tailwinds. No. 1, we’re looking for high growth, 20% revenue growth. We’re looking for unlevered brands, meaning, brands that are very successful in, say, one segment, and they bring them into other segments, or brands that are successful in one geography, and can go global.
No. 2, we’re looking for investment controversy. We’re looking for something where there is a fight, and where investors don’t agree. And that’s what creates opportunity.
What’s your research process like?
We go out, and I talk. We talk to a lot of competitors. When I was an analyst, I used to do focus groups. For 2,000 bucks, you could get 10 people in a room, and ask them why they don’t like about Beyond Meat [BYND] versus Impossible [Foods]. We can usually find information that gives me a research edge to answer the controversy.
And how do you build your portfolio?
We want a portfolio that’s high conviction, meaning no more than about 40 names. The top 10 names are about 40% of the portfolio. So that’s high conviction to me.
We think we have very strong buy and sell discipline. When we put something in the portfolio, we want it to have at least 2:1 risk-adjusted upside versus downside.
What else do you like, besides Tesla?
We have Google [parent Alphabet ], which is changing the world. Google is a mega cap stock just like Tesla is. But we think You Tube is 24/7 information and entertainment. YouTube is way undervalued. They’re still monetizing [search]. It has good 15% to 20% revenue growth. At 22 times projected earnings, it’s still [an attractive] price to us.
Another name we have is Chipotle Mexican Grill [CMG]. It fits with this megatrend of eating healthy, staying fit. We call it lifestyle betterment. Their product innovation has been superb–they launched these rolled quesadillas, which are going to have monster 15% same-store sales comps for them in the third quarter. It’s a great stock for us. Not cheap. But it has high growth.
How about a couple more?
One of the names that’s controversial we own is Tencent [TCEHY]. It’s one of the largest Internet companies in the world. It has 1.2 billion WeChat users. We believe that Chinese regulatory fears are overdone. Tencent is now trading at about 25 times next year’s earnings. We view it as having probably 20% revenue growth for at least the next few years.
Generac [GNRC] is another one. We’ll call it a climate change stock. Because climate change is happening, you have a lot of wildfires. You have a lot of weather patterns that aren’t normal. And in new homes today, one of the most common features that people are putting is a generator.
Can Generac sales be disrupted by battery storage in homes?
Battery and solar powered walls and roofs are still expensive–$40,000. A Generac system starts at $2,000.
Snap [SNAP] is another name. If you have kids, Snap is one of the [apps] everybody’s using. The ARPU [or average revenue per user] is $13 annually, up about 30% over a year ago. Active users will be up about 20% this year. Do you use Tik Tok?
The biggest risk to Snap is something else comes along that the 18 to 25-year-old crowd wants to use that’s better. And Tik Tok is a disrupter to Snap. But I have kids in this age group, three of them, and they all use Snap.
The monetization has just begun. The global expansion has just begun. I think you have got at least three or four years of [growth].
Write to Al Root at email@example.com