Kevin Kelly – How To Invest in Genetic Editing, Residential Real Estate, & The Hotel Industry | #429

Episode Summary

Executive Summary: Kevin Kelly discussed how he built ETF strategies around overlooked, high-conviction themes: covered calls, sector-specific REITs, CRISPR/gene editing, residential housing, and hotels. He emphasized concentrated, rules-based portfolios, real-world ETF design, and the importance of owning idiosyncratic exposures as markets and correlations shift.

Main Topics: Kevin Kelly’s ETF origin story and QYLD (Priority: 5/5): Kelly described launching QYLD after the 2012 taper tantrum, noticing covered calls worked well while option investing was under-democratized. He stressed fixing an index flaw to make the ETF more practical and investor-friendly. Why sector-specific REIT ETFs matter (Priority: 5/5): He argued that real estate is too heterogeneous for broad REIT exposure, citing major differences in lease terms and inflation sensitivity across hotels, residential, industrial, towers, and data centers. This led to SRVR and INDS. Launching Kelly ETFs and controlling the vertical (Priority: 4/5): After prior success, Kelly formed his own trust and RIA to launch concentrated ETFs with personal capital at stake, aiming to control product design, governance, and strategy execution. CRISPR and gene editing as a long-term growth theme (Priority: 5/5): Kelly framed gene editing as publicly traded venture capital, with XDNA focused on the commercialization of CRISPR, sequencing, and related tech. He sees sickle cell treatment as the key near-term inflection point. Residential real estate and housing affordability (Priority: 4/5): RESI targets single-family rentals, apartments, manufactured housing, and student housing. Kelly argued housing underbuilding, rising rents, and fixed-rate balance sheets make residential REITs attractive in today’s environment. Hotel and lodging as the reopening trade (Priority: 4/5): H0TL is positioned as the best way to play travel and tourism recovery, extended-stay demand, and rising RevPAR. Kelly sees hotels benefiting from consumer, business, and group travel normalization. ETF industry outlook and future launches (Priority: 4/5): Kelly expects more active ETFs, more options strategies, and continued investor demand for transparent, tax-efficient vehicles. He also previewed future products, including Internet of Things and a geopolitics-driven Taiwan risk strategy.

Key Arguments: Covered call ETFs became compelling because investors wanted income during volatility, and QYLD succeeded after Kelly fixed a flawed index implementation. Broad REIT ETFs obscure major differences in lease duration, inflation sensitivity, and operating drivers; sector-focused REIT funds are more useful. CRISPR/gene editing is at an early commercialization stage, so a diversified public-market basket is effectively investing in the next wave of biotech innovation. Sickle cell treatment is likely to be the pivotal proof point for gene editing adoption, similar to a medical breakthrough that changes the whole category. Residential REITs benefit from underbuilding, household formation, and higher rents; many also have long-duration fixed debt that cushions rate pressure. Hotel/lodging should benefit from demand normalization, especially as business and group travel return, with supply still constrained. ETF investors should look under the hood because similar-sounding products can have very different holdings, exposures, and outcomes. Kelly believes more investors are ready for actively managed ETFs and options-based products as the category matures. Geopolitical risk, especially Taiwan/China, may require dedicated portfolio tools that combine resource exposure, semiconductors, and conflict-sensitive hedges.

Data Points: CROPLAND lost to urbanization: approximately 4.8 acres per minute - Mentioned in the farmland sponsorship copy to illustrate long-term farmland scarcity. QYLD status: number one covered call ETF by AUM - Kelly said QYLD became the leading covered call ETF after launch. Estimated performance drag from flawed index print: about 7% a year - He said fixing the index removed a bad opening quotation mechanism that hurt investors. REIT market size: about 250 names - Kelly used this to explain why sector specialization is feasible in real estate. REITs in broad fund example: 234 names - He cited a broad REIT fund as over-diversified versus targeted sector funds. Kelly ETFs launched: first three ETFs in mid-January 2022 - He said the initial trio launched on January 13. XDNA holdings: 24 names - He described XDNA as a concentrated biotech/gene-editing portfolio. CRISPR industry history: about 10 years - He referenced a decade since seminal CRISPR-Cas9 research. Genome coverage: 92% mapped, then 99 new genes identified after final mapping - Used to illustrate progress in genomic science and remaining opportunity. Single-family rental fund fee: 0% management fee until next May - Kelly said RESI was launched fee-free to encourage early adoption. Residential REIT debt mix: 70% or more fixed-rate - He argued this reduces interest-rate sensitivity. Residential REIT leverage: about 25% debt on balance sheet - Used to describe balance-sheet strength and opportunistic buying power. Hotel and tourism industry size: $8 trillion - Kelly described travel and tourism as a massive addressable market. Airbnb long-stay growth: 28 days or longer is its fastest-growing and largest revenue segment - Used to support the extended-stay hotel thesis. Hotel room price example in Vegas: $622 weekday rate - Kelly used his own hotel example to show demand strength in Las Vegas. RevPAR growth: almost 125% in the previous quarter - He said hotel revenue per available room had rebounded sharply. Connected devices today vs future: 10 billion today to 40 billion expected - Used to justify the Internet of Things strategy. China timeline: 2025, 2035, 2049 goals - Kelly referenced China’s stated technology, military, and global-power targets in discussing Taiwan risk.

Pivotal Quotes: "There’s a difference between indexes and ETFs, and you want to make them real-world applicable." — Kevin Kelly: Explaining why he fixed the QYLD index and his philosophy on product design. "This is publicly traded venture capital." — Kevin Kelly: His framing of CRISPR/gene editing investing as early-stage risk with long-term upside. "I wanted to remove one of the obstacles of, oh, well, your fee is too high... you have no reason not to invest in this product if you want to." — Kevin Kelly: Explaining the 0% fee launch on the residential real estate ETF.

Implications: Listeners should expect more niche, concentrated ETFs that solve specific portfolio problems. The discussion highlights how thematic ETFs can offer targeted exposures, but investors need to understand what’s under the hood and match products to the cycle and their time horizon.