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Stocks More Attractive Than Alternatives: Bill Miller · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
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Speaker 1: Along with my co host Lisa Brahma Waits. Each day
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Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money. Whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. We are so lucky, Paul Uh
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Speaker 1: to be able to have the opportunity to sit down
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Speaker 1: with Bill Miller, legendary investor widely respected for his ability
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Speaker 1: to outperform the SMP five hundred with his like Mason
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Speaker 1: Value Trust for fifteen consecutive years, an unheard of track record,
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Speaker 1: and he joins us here currently chairman and Chief Investment
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Speaker 1: Officer of Miller Value Partners with two billion dollars of
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Speaker 1: assets under management. So Bill, thank you for being with us.
0:48
Speaker 1: I want to start with this idea of out performance
0:52
Speaker 1: because you have achieved that, and I'm wondering as people
0:55
Speaker 1: talk about Bill Gross, for example, talking about how it's
0:58
Speaker 1: increasingly difficult to outperform in an era of indexed funds,
1:02
Speaker 1: do you agree. I think it's always been difficult to
1:06
Speaker 1: to outperform. In fact, when Warren Buffett set up his
1:08
Speaker 1: partnership in the nineteen fifties, he said that he would
1:12
Speaker 1: consider a good result if he could outperform the Dow
1:15
Speaker 1: Jones Industrial Index and pointed out that I think there
1:17
Speaker 1: might have been eight or eighty five mutual funds at
1:19
Speaker 1: the time, and only about five percent of those had
1:21
Speaker 1: been able to do that over the past ten years.
1:23
Speaker 1: So it's always been difficult. I think it's it's trickier
1:26
Speaker 1: now a little bit, not because of index funds, but
1:29
Speaker 1: because of the changed i'd say polarity of the market
1:32
Speaker 1: after the financial crisis, and specifically that the financial crisis
1:35
Speaker 1: was so devastating to so many people that that effectively
1:38
Speaker 1: people are risk and volatility phobic, and so whenever there's
1:42
Speaker 1: a perception of increased risk or the stock market volatility
1:45
Speaker 1: goes up, everybody rushes to quote reduce their risk exposure,
1:49
Speaker 1: and that leads to these kind of cascading events like
1:51
Speaker 1: we saw in the fourth quarter. Well, but we've seen
1:53
Speaker 1: a tremendous move towards passive investment across the investment horizon.
1:58
Speaker 1: Maybe that was accelerated a little bit by some of
2:00
Speaker 1: the things come out of the financial crisis. Is that
2:02
Speaker 1: a trend you expect to continue or do you think
2:04
Speaker 1: there's a day for active advisers. I know, I think
2:08
Speaker 1: the trend is likely to continue. I saw a study,
2:11
Speaker 1: but I think Mercer that UH indicated that the market
2:15
Speaker 1: could still performance functions of price discovery if even if
2:19
Speaker 1: over seventy percent of the market stock market we're indexed.
2:22
Speaker 1: And I think the trend is you know, it's it's
2:24
Speaker 1: long standing UM and I think it's there for a
2:26
Speaker 1: good reason, which is that UM, it's very difficult to
2:28
Speaker 1: outperform and be so many people that are trying to
2:32
Speaker 1: outperform are afraid of tracking error going away from the market,
2:35
Speaker 1: especially in the downside that they're effectively closet indexers, so
2:38
Speaker 1: they're they're basically high priced passive investors. And so the
2:41
Speaker 1: movement isn't so much from active to passive, it's from
2:44
Speaker 1: expensive passive to cheap passive. Well, it seems like that's
2:48
Speaker 1: a no brainer as to what people would want. You know,
2:50
Speaker 1: you talked about how it's always been hard to outperform,
2:53
Speaker 1: and yet you did so for more than a decade's
2:56
Speaker 1: rate with your fund. What's the secret please reveal it
3:00
Speaker 1: right now, you know I think that that, Um, I'll
3:04
Speaker 1: answered slightly different ways. It in two different ways, right,
3:07
Speaker 1: the way in which we invest and people cannot perform
3:11
Speaker 1: a wide read different strategies. But we're value investors, and
3:14
Speaker 1: so we're looking to buy businesses at a discount or
3:16
Speaker 1: what they're worth. And I'd say that the secret is
3:19
Speaker 1: that the earnings have very little to do with what
3:21
Speaker 1: they're worth. Probably the best example is Amazon, where people
3:25
Speaker 1: for fifteen or eighteen years would say, oh, it's grossly
3:27
Speaker 1: over priced because they make no money. And my answer
3:30
Speaker 1: to that was My answer to that was always, well,
3:32
Speaker 1: they came public with a four hundred million dollar market
3:36
Speaker 1: value and now they have an eight hundred billion dollar
3:39
Speaker 1: market value and they never sold any stock. Where where'd
3:43
Speaker 1: that value come from? And the answer is that they
3:45
Speaker 1: created a lot of value. They just didn't didn't report
3:48
Speaker 1: a lot of profits under gap accounting. And one of
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Speaker 1: the one of the things that I try to impress
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Speaker 1: upon people is there's a reason it's called generally accepted
3:55
Speaker 1: accounting principles and not divinely inspired account of principles or
3:59
Speaker 1: accurately conceived the counting. Well, it's interesting as you talk
4:04
Speaker 1: about how the amount of money that they actually are
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Speaker 1: bringing in any given time isn't necessarily what the company
4:11
Speaker 1: is worth. Interesting to say this at a time when
4:13
Speaker 1: Lift it just started trading, and we have all of
4:16
Speaker 1: the I p O is the big tech tour links
4:18
Speaker 1: that are slated to go public later this year. Do
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Speaker 1: you think that that's a similar situation to Amazon or
4:23
Speaker 1: do you think it's different because they waited for so
4:25
Speaker 1: much longer and they're coming it's sort of a peak
4:29
Speaker 1: market valuation time. You know, I don't. I haven't looked
4:31
Speaker 1: at Lift carefully enough to have an informed judgment about it. Um.
4:36
Speaker 1: I think all of those companies that you're talking about
4:38
Speaker 1: are are very rapidly growing companies doing something different from
4:42
Speaker 1: what other people had done ten or twenty years ago,
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Speaker 1: and so they generated a lot of excitement because they've
4:48
Speaker 1: grown revenues very rapidly. It's it's less clear to me
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Speaker 1: what the economic model of the business is sustainably longer term. So,
4:56
Speaker 1: but we've had some tremendous volatility, you know, just over
4:58
Speaker 1: the last four or five months. That meltdown in December,
5:01
Speaker 1: you know, I guess hitting the trough Christmas Eve and
5:04
Speaker 1: then there's a great start to twenty uh nineteen with
5:07
Speaker 1: the SMP up over twelve percent. What is your view
5:09
Speaker 1: of the market right now? Oh, I think the market
5:12
Speaker 1: you know, we're gonna end the quarter up somewhere twelve um.
5:17
Speaker 1: I think the market is very attractively priced relative to alternatives.
5:21
Speaker 1: You know, the bonds, you what two point four percent something.
5:24
Speaker 1: Let's they trade at forty times a cash flow stream
5:27
Speaker 1: that isn't gonna grow, and stocks trade around sixteen times
5:30
Speaker 1: forward earnings and with a cash flow stream that's gonna
5:32
Speaker 1: grow around six percent, generating a lot of free cash.
5:35
Speaker 1: So I don't think I don't think that the alternatives
5:37
Speaker 1: two stocks are particularly attractive. And I think that stocks,
5:40
Speaker 1: by the way, are are actually cheap well explay. There
5:43
Speaker 1: are a lot of stocks out there that are very
5:46
Speaker 1: cheap and that um that I think are going to
5:48
Speaker 1: do very very well in the United States. Oh yeah, yeah,
5:51
Speaker 1: names yeah, Well, well, Amazon is still twenty percent off
5:54
Speaker 1: the high and if you look at a w S
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Speaker 1: Amazon Web Services, and you look at the advertising business
6:00
Speaker 1: that they've just recently been growing those two businesses alone
6:04
Speaker 1: in about three and a half years. If they're valued
6:07
Speaker 1: similarly to what Facebook and Google were valued at when
6:10
Speaker 1: they were in the high growth phase or that um,
6:13
Speaker 1: something like uh Salesforce is currently valued at those two
6:16
Speaker 1: businesses alone will be worth more than Amazon's entire market account.
6:20
Speaker 1: What about the banking sector because we've seen them really
6:23
Speaker 1: beaten up based on the narrowing yield curve and fears
6:27
Speaker 1: of growth. If stocks still look good, then that means
6:30
Speaker 1: growth isn't that bad? Attract evaluations there? Oh? Yeah, yeah,
6:34
Speaker 1: we love what we love the financials broadly speaking, but
6:36
Speaker 1: we young you know, we own JP Morgan, um, we
6:39
Speaker 1: do Bank America. Are you adding here? We have we
6:42
Speaker 1: have full positions in those. If we didn't have them,
6:44
Speaker 1: we would be buying them here. Yeah, what are some
6:46
Speaker 1: of the other Is there any sector that just scares
6:49
Speaker 1: you right here that whether from a valuation perspective, you
6:51
Speaker 1: just you can't get your hands around the fundamentals because
6:54
Speaker 1: it seems like again with a twelve percent move here
6:55
Speaker 1: and yes and P has been pretty broad performance here,
6:59
Speaker 1: I think that you abilities and consumer staples are unattractive
7:02
Speaker 1: in here. They're trading high valuations relative history. That's because
7:05
Speaker 1: they're they're low volatility, they're predictable, and so they perform
7:09
Speaker 1: a risk mitigation function in many people's portfolios. But in
7:13
Speaker 1: terms and and so obviously if we if we have
7:15
Speaker 1: a deflation, if if the world gets a lot worse,
7:17
Speaker 1: they'll continue to do fine. But I think we're going
7:19
Speaker 1: to settle in here to a one point eight percent
7:22
Speaker 1: to two point one percent growth rate, and and they're
7:25
Speaker 1: not competitive in that in that kind of an environment.
7:27
Speaker 1: There seems to be a real kind of dissonance in
7:30
Speaker 1: the market right now because there are a lot of
7:33
Speaker 1: people saying that US equities are still very attractive, But
7:37
Speaker 1: then you also have bonds that are gaining dramatically, yields
7:41
Speaker 1: dropping and indicating some sort of downturn slow down. Do
7:46
Speaker 1: you think that those two ideas are incoherent? That basically,
7:49
Speaker 1: you can't have bonds continuing to rally with yields continuing
7:52
Speaker 1: to go lower with stocks still ripping higher. Well, I's
7:58
Speaker 1: put it in a little broader content. X SO bonds
8:01
Speaker 1: had a thirty five year bull market from night one too,
8:04
Speaker 1: roughly with two thousand and thirteen fourteen right, and so
8:07
Speaker 1: bond bonds are in a bearer market right now. Bond
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Speaker 1: yields bottomed in two thousand and sixteen so at one
8:14
Speaker 1: one thirty eight, I think and uh, and so now
8:16
Speaker 1: we're at two thirty two forty, So yes, they've rallied
8:20
Speaker 1: from where they were last year. But I think that
8:23
Speaker 1: you know, if you look at stocks, stocks are a
8:25
Speaker 1: lot higher than they were in two thousand and sixteen.
8:27
Speaker 1: So I think that stocks and that's the reason for
8:29
Speaker 1: that is that stocks are more attractive than bonds. And
8:31
Speaker 1: and bonds will protect you on uh, you know if
8:34
Speaker 1: if we have a recession, but um, they're not going
8:37
Speaker 1: to help you. If growth just chugs along at one
8:39
Speaker 1: and a half or two percent, you're gonna gradually lose
8:41
Speaker 1: money in bonds over time. You mentioned the R word recession.
8:45
Speaker 1: What is your view of this inverted yield curve and
8:48
Speaker 1: how much concern should investors have as it relates to
8:51
Speaker 1: potentially recession? Very little? Um, you know, people are you're
8:56
Speaker 1: not thinking about? I think the yield curve in a
8:58
Speaker 1: in a way that reflects what's going on there. So
9:01
Speaker 1: you've got you've got ten trillion dollars worth of sovereign
9:03
Speaker 1: bonds of negative yields, and you've had this financial repression,
9:07
Speaker 1: whether it be Japan buying half of the j g
9:09
Speaker 1: B s or what DROG did or what the U
9:12
Speaker 1: s FET has done, so that that has suppressed yields
9:15
Speaker 1: globally and uh and actually us the yields in the
9:19
Speaker 1: in the US I think are reflective of that. And
9:21
Speaker 1: also to emphasize again, the financial crisis change people's perceptions
9:25
Speaker 1: of risk. So here we are at the Game conference.
9:28
Speaker 1: They're all these students here who are looking to go
9:30
Speaker 1: into the business. What advice would you give a budding
9:33
Speaker 1: young professional looking to go into finance right now? Well,
9:37
Speaker 1: I think you know, finances. Actually this is not uh,
9:41
Speaker 1: something that I think people are happy up to. Finance
9:43
Speaker 1: has been gradually gaining market share in the global economy
9:46
Speaker 1: for a long time, and it changes the where the
9:48
Speaker 1: where the you know, where the action is, so that
9:50
Speaker 1: you know, right now the action is in VC and
9:53
Speaker 1: startups and things like that. Maybe maybe hedge funds, not
9:55
Speaker 1: in mutual funds, which you're in secular decline, But I'd
9:58
Speaker 1: say that I'd say the most important thing is get in,
10:00
Speaker 1: you know, get a job in finance, and once you're in,
10:03
Speaker 1: then it's easier to move around to something that might
10:05
Speaker 1: be more attractive. But as it management is still an
10:07
Speaker 1: attractive career. Yes, yeah, it's it's it's a good business.
10:11
Speaker 1: It's a business it's under secular pressure for the reasons
10:13
Speaker 1: I talked about, which is the move to passive uh
10:16
Speaker 1: for example. And uh. And I think there's you know,
10:19
Speaker 1: there's it's it's highly regulated. So that's that's a negative
10:22
Speaker 1: in my in my opinion. But but no, it's it's
10:25
Speaker 1: an attractive business. It's interesting you mentioned regulation, and obviously
10:28
Speaker 1: a significant layer of regulation came upon the financial services
10:31
Speaker 1: industry after the financial crisis. Is that just the new
10:35
Speaker 1: way of life? Already? Think that the you know, as
10:38
Speaker 1: time moves on, some of those regulations may peel off
10:40
Speaker 1: this industry and will allow maybe improve the profitability of
10:43
Speaker 1: the financial services industry. Um. You know, I think I
10:46
Speaker 1: agree with Jamie Diamond. Uh. And when when Jamie said
10:49
Speaker 1: it's it's not a question of more or less regulation,
10:51
Speaker 1: it's a question of good or bad regulation. So I
10:54
Speaker 1: think we want to get rid of bad regulations and
10:56
Speaker 1: good regulations we can have more of those. Bill Miller,
10:59
Speaker 1: thank you so much for all the time you've given us.
11:00
Speaker 1: We really appreciate it. Bill Miller is chairman and chief
11:03
Speaker 1: investment officer at Miller Value Partners. With two billion dollars
11:07
Speaker 1: under management. But Bill Miller, legendary investor, he outperformed his
11:12
Speaker 1: leg basin value trust outperformed the SMP five hundred benchmark
11:17
Speaker 1: for fifteen straight years. It can be done. It's difficult,
11:21
Speaker 1: It's always been difficult, but Bill Miller has done it well.
11:38
Speaker 1: Today we are closing out what is shapes up to
11:41
Speaker 1: be the best quarter performance for the SMP five hundred
11:44
Speaker 1: since two thousand nine. The question a lot of investors
11:46
Speaker 1: have is what's left to help. We're gonna pose that
11:49
Speaker 1: question to our next guest, Kate Moore, Kate's chief equity
11:52
Speaker 1: strategist for black Rock with get this assets on the
11:55
Speaker 1: management's Lisa six trillion with a T. It's just amazing. Uh.
12:01
Speaker 1: Kate joins us here at in New York at the
12:03
Speaker 1: ninth annual Quinnipiac Game Conference here in midtown. K thanks
12:07
Speaker 1: so much for joining us. So I'll put that question
12:09
Speaker 1: to you. God, we've had such a run here this
12:11
Speaker 1: first quarter. I think the bulls will tell you yeah,
12:13
Speaker 1: but we're just kind of clawing back what we lost
12:15
Speaker 1: in the fourth quarter last year. How do you see it?
12:18
Speaker 1: Glass half full or half empty? Uh? Glass neutral? At
12:21
Speaker 1: the moment. Look, as an equity investor, I think you
12:24
Speaker 1: always have to be a little bit of an optimist
12:25
Speaker 1: and you have to really look for long term opportunities.
12:28
Speaker 1: But I'll be honest with you, as much of a
12:29
Speaker 1: bull as I've been over the last ten years this cycle,
12:32
Speaker 1: I have to say the run that we have in
12:34
Speaker 1: the fourth first quarter is gonna be really difficult to
12:37
Speaker 1: replicate in the second quarter. So much of the returns,
12:40
Speaker 1: not just in the US equity market, but across all
12:42
Speaker 1: regions have really been driven by multiple expansion and not
12:45
Speaker 1: so much about an upgrade of fundamentals. So I am
12:48
Speaker 1: very focused as companies are reporting their first quarter earnings
12:52
Speaker 1: for more positive guidance and for sort of a sense
12:55
Speaker 1: that the downward revisions we've had to two thousand nineteen
12:58
Speaker 1: expectations are kind of behind us. We're not gonna get
13:00
Speaker 1: another big multiple snap back like we had um in
13:05
Speaker 1: terms of multiple expansion this year. So so Lift Chairs,
13:08
Speaker 1: I should just mention because we've been talking about this
13:10
Speaker 1: throughout the day. Lift shares did open up for trading
13:14
Speaker 1: on the Nasdaq. They opened at eighty seven dollars and
13:16
Speaker 1: twenty four cents to share, a huge pop from the
13:19
Speaker 1: seventy two dollars uh that it was initially priced at
13:22
Speaker 1: yesterday when it had its I p O And I
13:24
Speaker 1: just wonder, Kate, this will be viewed as a huge
13:27
Speaker 1: win for the slate of I p O s that
13:30
Speaker 1: are lined up for later in this year. I'm thinking Pinterest,
13:32
Speaker 1: I'm thinking Uber, I'm thinking Palin here all these big
13:36
Speaker 1: tech darlings. Do you view this as a positive sign
13:40
Speaker 1: or a negative sign for equity markets? I think there's
13:43
Speaker 1: an almost insatiable demand for tech companies. What we need
13:47
Speaker 1: to see is that all the companies that come to
13:49
Speaker 1: market end up becoming profitable and not just good stories
13:52
Speaker 1: or have a good consumer base to begin with. This
13:54
Speaker 1: is a story about sustainability. At this point in the cycle.
13:57
Speaker 1: We're not in the early stages where at the later stages,
14:00
Speaker 1: you know, once we get you know, these shares treating,
14:02
Speaker 1: it's going to be a show me moment, I say,
14:04
Speaker 1: over the coming quarters. So I'm not going to comment
14:06
Speaker 1: specifically on LIFT, but to say, you know, we are
14:09
Speaker 1: long term roles on technology. We see a lot of
14:12
Speaker 1: these companies coming to market. It's kind of broadening the
14:15
Speaker 1: landscape for that sector. But we really want to see
14:18
Speaker 1: them earn good money and earn it through slower growth periods.
14:22
Speaker 1: Can you imagine that that's actually something that investors care
14:25
Speaker 1: about making money? I mean, he's sitting in I don't
14:27
Speaker 1: know if Kate was in the New York lunch or
14:28
Speaker 1: there's probably hundreds of investors. I wonder if people were
14:30
Speaker 1: really pushing back on the profitability. It doesn't seem the
14:33
Speaker 1: lack thereof the lack thereof the lack thereof So okay,
14:35
Speaker 1: you know, one of the things that's been driving the
14:37
Speaker 1: market this year and arguably pushed it down in the
14:39
Speaker 1: fourth quarter last year, or some of the not non
14:43
Speaker 1: earnings things, some of the geo political issues, you know,
14:45
Speaker 1: and one of the things is trade for example. So
14:48
Speaker 1: I mean, I know, we're our folks are over in
14:50
Speaker 1: China right now. How important is that still to the
14:53
Speaker 1: market to get something done with China, something meaningful. I
14:56
Speaker 1: think it's incredibly important. And here's what I would say.
15:00
Speaker 1: We've had a real repricing of the US China risk,
15:04
Speaker 1: not just the tension around trade, but also the overall
15:06
Speaker 1: relationship between the two countries. You know, in the last
15:09
Speaker 1: three months, certainly that was a downward pressure on the
15:12
Speaker 1: market in the fourth quarter. We don't want the market
15:14
Speaker 1: to become complacent about this though. Uh. If we get
15:17
Speaker 1: an agreement that's not substantial or that doesn't really dig
15:20
Speaker 1: get some of the deep issues between the two countries,
15:24
Speaker 1: then we're going to be constantly revisiting, um the relationship
15:27
Speaker 1: and trade for many quarters to come. So look, as
15:31
Speaker 1: I think about the next couple of weeks, Uh, we
15:33
Speaker 1: need to see something that is you know, more than surface.
15:37
Speaker 1: We need to see something that's more sustainable. It seems
15:39
Speaker 1: that both the US and China are looking to sit
15:41
Speaker 1: at the table together for sustained periods of time, So
15:43
Speaker 1: that's encouraging. But if something doesn't manifest, I'd say the
15:46
Speaker 1: left tail on this trade is pretty big, um, and
15:49
Speaker 1: you could see some of the steam come out of
15:51
Speaker 1: the market, all right, So that potentially could be a
15:54
Speaker 1: wild card. I'm curious about a call that you made
15:57
Speaker 1: recently in a report that you helped call her where
16:01
Speaker 1: you still see a value in having a substantial allocation
16:04
Speaker 1: to government bonds even at yields that are this load.
16:07
Speaker 1: Do you stand by that? Why? Look, this is about
16:09
Speaker 1: overall portfolio construction, like look on an equity strategist, but
16:13
Speaker 1: I come from a macro background, and I understand that
16:15
Speaker 1: at this point in the cycle you need to have
16:16
Speaker 1: a pretty good balance between risk and reward. And uh,
16:21
Speaker 1: we're recommending still an overweight to equities and to US
16:24
Speaker 1: and emerging market equities in particular, but also to sort
16:27
Speaker 1: of balance out your portfolio by saying, you know, it
16:30
Speaker 1: makes sense to own treasuries at this point in both
16:32
Speaker 1: the business and a market cycle. Where like, what ma Charity,
16:36
Speaker 1: So we've had a pretty big move in the last
16:39
Speaker 1: week and have two weeks so no value is a
16:42
Speaker 1: little less exciting than it had been. So she's saying,
16:45
Speaker 1: short en up. That's basically yeah, that is exactly what
16:50
Speaker 1: I'm saying, Um, you know that, and that this move
16:53
Speaker 1: actually says, you know, sending different signals to different risk,
16:56
Speaker 1: ASCID markets, etcetera. But that doesn't mean we shouldn't own
16:59
Speaker 1: treasure rays as a balance the to the equity part.
17:02
Speaker 1: Given the dovish tilt by the FED, we've seen a
17:05
Speaker 1: lot of the risky assets performed well, the high old bonds,
17:08
Speaker 1: emerging markets. What is your view on some of that
17:11
Speaker 1: pushing out on the risk curve a little bit. Given
17:12
Speaker 1: the performance that we've had you know, it's frustrating a
17:15
Speaker 1: little bit because you think about the last decade and
17:16
Speaker 1: we've wanted to get to a period where the market
17:19
Speaker 1: was obsessing less about fed moves, fed language, fed body
17:25
Speaker 1: language and and all sorry yeah, and overall central bank tone.
17:29
Speaker 1: And you know, the frustrating thing here is that we
17:32
Speaker 1: are still incredibly focused on every bit of news we
17:36
Speaker 1: get from policymakers. There was a former boss of mine
17:39
Speaker 1: that used to say, uh, markets stop panicking when policymakers
17:43
Speaker 1: start panicking. And I think that's what we've had a
17:45
Speaker 1: little bit over the last three to four months. The
17:47
Speaker 1: shift to dovishness has made markets feel more confident. But
17:50
Speaker 1: I would sort of note, you know, we don't we
17:53
Speaker 1: don't expect we're going to be in a contraction in
17:56
Speaker 1: the US economy or the global economy. We're still in
17:58
Speaker 1: pretty good shape. And I think the balance of risks
18:01
Speaker 1: around the next rate move UH is not being appreciated
18:05
Speaker 1: by the market. That's a nice way of saying the
18:07
Speaker 1: markets pricing and cuts when we don't think that's likely
18:09
Speaker 1: in the near term. Kate, since we are here at
18:12
Speaker 1: the Quinnipiac Game Forum with all of these students here,
18:15
Speaker 1: what advice would you give someone starting out in finance. Yeah,
18:20
Speaker 1: I think the biggest piece of advice I would give
18:21
Speaker 1: is to stay really open minded. Our industry is changing.
18:24
Speaker 1: The way that we invest today is so different than
18:26
Speaker 1: we did it ten years ago or twenty years ago. Uh,
18:29
Speaker 1: the kinds of information we incorporate into our investment process. Uh,
18:33
Speaker 1: the flexibility you need to have. And so you know,
18:35
Speaker 1: I'm completely blown away by how many students are here
18:38
Speaker 1: and their passion for investing already. UM, but as if
18:41
Speaker 1: they think about their careers, they need to stay really
18:44
Speaker 1: open minded. UM as this industry changes. I've pivoted a
18:48
Speaker 1: couple of times. I'm sure I still will in the
18:50
Speaker 1: balance of my career. UM. And to be really willing
18:53
Speaker 1: to sort of disrupt your own process. Don't get stuck
18:55
Speaker 1: on analyzing a stock or an asset class in a
18:58
Speaker 1: very specific way. Be really will to take into new information.
19:01
Speaker 1: Kate Moore, we always love having you on. Thank you
19:03
Speaker 1: so much for being with us. Kate Moore is chief
19:06
Speaker 1: was equity strategist for Black Rock with nearly six trillion
19:09
Speaker 1: dollars of assets under management. Boy, the SMP is up
19:30
Speaker 1: year to date. It seems like you know everybody's making money,
19:33
Speaker 1: but one sector of the market that is just getting
19:35
Speaker 1: cloberts healthcare just news, you know, I guess most recently
19:39
Speaker 1: news that the Trump administration is renewing is it's pushed
19:42
Speaker 1: to eliminate obombacare. To get a sense of kind of
19:45
Speaker 1: what is going on in healthcare and how to view
19:47
Speaker 1: the sector going forward, to welcome Aaron Gibbs. Aaron is
19:50
Speaker 1: a portfolio manager at SMP Advisory Services. She joins us
19:55
Speaker 1: here in New York at the Quinnipiac Game Conference. Aaron,
19:59
Speaker 1: thanks so much for joy us. So this seems like
20:02
Speaker 1: a secular concern and overhang for this sector. How should
20:06
Speaker 1: investors approach healthcare? So what you really need to do
20:09
Speaker 1: is break it down in between the industries, because a
20:12
Speaker 1: few of the industries are what's really dragging down the
20:15
Speaker 1: entire sector, specifically all the managed care companies. So your
20:18
Speaker 1: company is like your stevs and um uh senting anything
20:22
Speaker 1: that has a lot of exposure to Medicaid that's been
20:26
Speaker 1: really hurt um. Now, there are some areas like biotech
20:30
Speaker 1: that are really don't have so much to do with
20:32
Speaker 1: the big headlines. It's more about, you know, failing drug trials.
20:36
Speaker 1: So it's it's tough to say that. You know, this
20:39
Speaker 1: is all of healthcare at the sector is just getting
20:41
Speaker 1: hurt by the headlines. UM. A couple of weeks ago,
20:45
Speaker 1: they were actually being helped by some of the Medicare
20:47
Speaker 1: for All on the Democratic side. So we've got this
20:49
Speaker 1: whiplash constantly going back and forth. Ultimately, that leads to
20:53
Speaker 1: a lot of uncertainty about any managed care providers. I'd
20:57
Speaker 1: say the one safe spot for most of it is
21:00
Speaker 1: big pharma. Uh. They are just slow and steady. Their
21:05
Speaker 1: profits tend to be so large that they're not going
21:07
Speaker 1: to be massively hit by changes in Medicare or you know,
21:11
Speaker 1: a few million people here they're subscribing. Uh. And so
21:14
Speaker 1: that is one safety area. And another area that we
21:17
Speaker 1: still like are the life sciences, the technology, the analytics. UM. Again,
21:21
Speaker 1: people are still going to be using those products, and
21:23
Speaker 1: that's one area of really high growth that hasn't been
21:27
Speaker 1: hit even half. It's hard. Yeah, I understand the reluctance
21:30
Speaker 1: to bed on policy and politics. It seems like that
21:34
Speaker 1: is a rather fickle type of assessment. But here we
21:38
Speaker 1: are the health insurance industry. Health insurance stocks have lost
21:42
Speaker 1: about forty billion dollars of market value in the past
21:46
Speaker 1: month based on some of the news that we've been hearing.
21:50
Speaker 1: At what point do you say, all right, this is
21:52
Speaker 1: pricing in a lot of bad stuff. It kind of
21:54
Speaker 1: seems like a buy right now. So not right now,
21:57
Speaker 1: and so particularly looking at any of the health insurers
22:01
Speaker 1: managed care that that entire group um right now, we
22:05
Speaker 1: don't see a bottom just yet. Certainly the valuations were
22:08
Speaker 1: looking interactive. They're trading well below their three year averages.
22:12
Speaker 1: In fact, the actually the health insurers have the second
22:15
Speaker 1: highest expected earnings growth out of the healthcare sector. So fundamentally,
22:21
Speaker 1: at least the expectations still to date are looking very good.
22:25
Speaker 1: But obviously that can change dramatically if any of these
22:28
Speaker 1: come into play. So I'd say until some of the uncertainty,
22:31
Speaker 1: until some of these headlines start dying down, we can
22:34
Speaker 1: still see some more downside. I would not say that
22:37
Speaker 1: this is necessarily the point to get in, uh, particularly
22:42
Speaker 1: those companies that have large exposure to Medicaid. It's interesting
22:45
Speaker 1: least a quota that forty billion dollar number. I was
22:47
Speaker 1: actually taken aback about how much some of the sectors
22:50
Speaker 1: within healthcare have actually traded off on this concern that
22:53
Speaker 1: there might be a rollback of Obamacare because with the
22:55
Speaker 1: Democrats now controlling the House, it just didn't seem very likely.
22:58
Speaker 1: But the markets certainly put some some stock into that. Well,
23:03
Speaker 1: I mean a lot of it was just sort of
23:04
Speaker 1: the decline that we had in the beginning of March,
23:06
Speaker 1: so that was just more of the general market. If
23:08
Speaker 1: you just looked at the past week where this has
23:10
Speaker 1: actually become part of the headlines, it's really just the
23:13
Speaker 1: managed care that has been down in the past five days.
23:15
Speaker 1: So if you break it down between like market, what
23:18
Speaker 1: some markets going on in healthcare, it's it's really just
23:22
Speaker 1: been the past. It's been the managed care companies, biotech, pharma,
23:26
Speaker 1: a lot of these companies, life sciences. They've actually been
23:29
Speaker 1: holding up pretty well for the past five days. You know,
23:32
Speaker 1: you talked about biotech and how it can be really
23:34
Speaker 1: hit or miss right depending on a lot of these trials.
23:37
Speaker 1: How do you even assess that unless you've got you know,
23:39
Speaker 1: a doctorate in US in in research and medical research.
23:43
Speaker 1: I mean, and even then, uh so, truthfully, so we
23:47
Speaker 1: we are value investors and I also have a quantitative background.
23:51
Speaker 1: So yes, biotech is actually one area that I tend
23:54
Speaker 1: to avoid because how can I possibly manage or estimate
23:59
Speaker 1: or value rate in the company when they're supposed to
24:02
Speaker 1: lose money for three years and then babe, they hit
24:04
Speaker 1: it big. So yeah, I actually think this is one
24:07
Speaker 1: area that I I highly recommend that it needs to
24:09
Speaker 1: be a fundamental analyst really with a PhD. Actually have
24:13
Speaker 1: a couple of friends that are in that space that
24:15
Speaker 1: all have PhD and D it's crazy exactly, and so
24:18
Speaker 1: they're the ones that I go to advice when it
24:20
Speaker 1: comes to biotech, not a quant like me. So I'm
24:23
Speaker 1: not going to give any DIK stock picks on bios.
24:26
Speaker 1: What's interesting, you know, one of the other themes, And
24:27
Speaker 1: I agree that's it seems like a casino on those
24:30
Speaker 1: biotech stocks, you know, kind of a We saw Biogen
24:32
Speaker 1: just with their Alzheimer's drug a couple of weeks ago
24:35
Speaker 1: with the stock yeah and that and that pulled down
24:37
Speaker 1: the entire industry for that week, right, So it's very difficult.
24:40
Speaker 1: One of the other big themes in healthcare that's just
24:43
Speaker 1: been there as long as I've looked at the sector's
24:45
Speaker 1: m and a um, you know, we see you know,
24:47
Speaker 1: going after big farmer companies buying biotech, buying drugs, buying
24:50
Speaker 1: pipe pipeline. Is that still a theme that you think
24:53
Speaker 1: is prevalent for this healthcare sector going forward. I know
24:57
Speaker 1: a lot of big farmer has stopped, has been pulling back. UM.
25:01
Speaker 1: You know, they they're somewhat saturated than some of the
25:03
Speaker 1: M and A. They're being more particular. UM. Also a
25:07
Speaker 1: lot of biodects of finding that they're able to raise
25:10
Speaker 1: enough money in private equity in order to I p
25:12
Speaker 1: O eventually until they have a viable product line. So
25:15
Speaker 1: I don't see that as being as big of a
25:18
Speaker 1: trend UM with with the big pharmaceuticals UM. What I
25:23
Speaker 1: do see more is the life sciences UH, the analytics,
25:27
Speaker 1: medical equipment UM, basically taking some of the human element
25:31
Speaker 1: out UH and creating those processes. I see that as
25:35
Speaker 1: a big area of growth. We're talking with Aaron Gibbs,
25:38
Speaker 1: portfolio manager focused on equities for SMP Investment Advisory Services
25:42
Speaker 1: here at the ninth annual Quinipiac Game Conference and just
25:46
Speaker 1: give you a sense we're ending the quarter on a
25:49
Speaker 1: high note. The NASDAC up about a half a percentage point,
25:51
Speaker 1: SMP closing out. It's best quarterly returned since two thousand
25:56
Speaker 1: and nine. A lot of people wondering how long this
25:59
Speaker 1: can go on. Aaron, I would love to get your
26:01
Speaker 1: sense on a broader level of whether there is a
26:03
Speaker 1: sense of optimism and whether the technicals seem to indicate
26:07
Speaker 1: that this has staying power. So one of the things
26:09
Speaker 1: we looked at is that when you've had these really
26:11
Speaker 1: great first quarters, what was happening in the year before
26:15
Speaker 1: and the thing and you need to take this into context,
26:18
Speaker 1: and the big thing is that fourth quarter of last
26:20
Speaker 1: year we were down. So when you're this is really
26:24
Speaker 1: a rebound quarter, it's not about oh, this is such
26:28
Speaker 1: a great economy, we're growing us a fast right, it's
26:31
Speaker 1: just undoing the carnage that happened in the prior quarter.
26:35
Speaker 1: And when we look at the forecast for this year,
26:37
Speaker 1: particularly when we're looking at two and a half profit
26:41
Speaker 1: growth for the SMP five, that's below mediocre. So I mean,
26:47
Speaker 1: how much you you mentioned a profit growth? I mean
26:48
Speaker 1: there's a concern here that obviously the first quarter earnings
26:51
Speaker 1: we know across will not be good second quarter also,
26:54
Speaker 1: so you might have that earnings recession that people talk about.
26:58
Speaker 1: Yet people a lot of investors are hanging had on
27:00
Speaker 1: improvement in the second half of the year. Are you
27:02
Speaker 1: in that camp as well? Certainly, I mean we're looking
27:05
Speaker 1: at contraction in the first half, so I mean i'd
27:08
Speaker 1: certainly hope that we'd at least start to see some
27:10
Speaker 1: growth in the second half and at least end up
27:12
Speaker 1: somewhat neutral. But for for the most part, are our
27:15
Speaker 1: expectations are tempered. We're not saying that we're looking for
27:18
Speaker 1: a recession or unnecessarily a down market, um, but given
27:22
Speaker 1: that we're already up twelve and a half percent this year,
27:25
Speaker 1: I don't maybe we'll end today. I honestly, I'd be
27:28
Speaker 1: happy if we could just go home like flat for
27:31
Speaker 1: the rest of the year. Just lastly, I want to
27:35
Speaker 1: wrap up here with the lift I p O. It
27:37
Speaker 1: does seem like it his position to open at eighty
27:39
Speaker 1: six dollars a share from the actual I p O
27:43
Speaker 1: price of seventy two, so a real nice pop there.
27:45
Speaker 1: It hasn't started trading yet, but that seems to be
27:48
Speaker 1: the indications. Do you view the sort of roster of
27:52
Speaker 1: I p O s that are slated to come to
27:53
Speaker 1: market this year is a good sign for just the
27:57
Speaker 1: health of the economy, etcetera. Or do you view it
28:00
Speaker 1: as a sign of the market peak in general? If
28:03
Speaker 1: we're having more more companies come to market, I think
28:06
Speaker 1: that's a good thing. I'm personally I do not recommend
28:09
Speaker 1: investors get into LIFT, but overall for general markets purrective, certainly,
28:14
Speaker 1: I think that's very healthy, much better than what we've
28:16
Speaker 1: been seeing in prior years. Aaron Gibbs, thank you so
28:18
Speaker 1: much for being with us. A pleasure having you. Aaron Gibbs,
28:21
Speaker 1: portfolio manager focused on equities for SAP Investment Advisory Services
28:25
Speaker 1: in New York City. You know what, we have a
28:41
Speaker 1: lot of guests on who talk about the future of
28:43
Speaker 1: finance and what it might look like, the asset management fields,
28:47
Speaker 1: the investment banking business. There's no better way to get
28:50
Speaker 1: a sense of that to look at the people who
28:52
Speaker 1: are going to be running everything UH in the future.
28:55
Speaker 1: And so we are very pleased to be joined by
28:57
Speaker 1: students of Quinnipiac Business School, as well as the Dean
29:01
Speaker 1: and Professor of Finance at Quinnipiac School of Business, Matthew O'Connor, students,
29:06
Speaker 1: John Wentz Alessandra Abbess, thank you all for joining us. Matthew,
29:10
Speaker 1: I want to start with you about this conference, which
29:13
Speaker 1: is organized by students. If I understand this correctly, what
29:16
Speaker 1: do you think is the most important thing that they
29:19
Speaker 1: get out of it? So well, first of all, thanks
29:22
Speaker 1: for having us on this morning. We really appreciate it,
29:24
Speaker 1: and I want to welcome everybody to the quinnipi x
29:27
Speaker 1: ninth Annual Game Forum. So there's a couple of things
29:31
Speaker 1: that we think are great about game and what students
29:33
Speaker 1: really get out of it. The first is we're getting
29:35
Speaker 1: them out of the classroom and in front of the
29:37
Speaker 1: very best minds on Wall Street, and that is an
29:40
Speaker 1: incredible learning opportunity for them. So they can compare what
29:43
Speaker 1: they've learned in the classroom and see that it's not
29:46
Speaker 1: always exactly the same. And they also see that there's
29:49
Speaker 1: a wide range of opinions that are expressed throughout the
29:52
Speaker 1: panels and the sessions. So that's a great learning opportunity
29:55
Speaker 1: for them. But the second thing that's just as important
29:58
Speaker 1: is there's about students here and so they're starting to
30:02
Speaker 1: make their network and build their network to make connections
30:05
Speaker 1: with each other. So we think that's the second most
30:07
Speaker 1: important thing about the Game conference. Networking. You can never
30:10
Speaker 1: start early nothing networking exactly exactly here it starts a
30:13
Speaker 1: kindergartens exactly. So, Alessander, you are a senior, is that right? Yes? Okay,
30:19
Speaker 1: so he's a senior majoring in finance. Uh. What is
30:22
Speaker 1: your area of interest here today? What do you want
30:25
Speaker 1: to hear? What do you want to see? What do
30:26
Speaker 1: you want to understand? I'm really interested in seeing more
30:29
Speaker 1: UM and hearing more about the global portfolio management UM,
30:33
Speaker 1: merging markets and domestic markets UM. I am the portfolio
30:37
Speaker 1: manager of the cunoopiak Endowmond offshoot student run portfolio. And uh,
30:42
Speaker 1: is that real money? Yes, that's a real money. It's
30:44
Speaker 1: two point five million dollars. Oh, that is real money.
30:46
Speaker 1: How you doing doing pretty well? Our growth fund is
30:48
Speaker 1: up on the year. And uh, John's gonna talk about
30:52
Speaker 1: a value portfolio. Oh yeah, we also have a value
30:54
Speaker 1: fund that we run. UM. It's larger, it's larger of
30:57
Speaker 1: the two funds. But UM compared to the sm P
31:00
Speaker 1: it was up versus eleven for the SMP. So you
31:05
Speaker 1: know we're seeing out performance are both funds. So now
31:09
Speaker 1: it's going well and you're enjoying it. Well, one thing done.
31:12
Speaker 1: You're a finance major. Uh, and an accounting minor, And
31:15
Speaker 1: I'm wondering, at a time of such flux in the
31:19
Speaker 1: finance business, whether it's on the asset management side or
31:22
Speaker 1: on the banking side, how does that affect kind of
31:27
Speaker 1: how you want to position yourself going into into the business. Um,
31:31
Speaker 1: you know, I mean obviously the market today for outgoing
31:37
Speaker 1: students going into this field and to finance, it's it's
31:39
Speaker 1: very competitive. You really have to know what you're talking about.
31:42
Speaker 1: You have to know you know what you're looking at,
31:45
Speaker 1: and you have to be able to speak, you know,
31:47
Speaker 1: correctly and fluently. And um, I think it's gonna be
31:50
Speaker 1: I think it's gonna be difficult going and actually on
31:54
Speaker 1: that path and finding what I want to do and
31:56
Speaker 1: getting to the point where I want to be at.
31:58
Speaker 1: But you know, other than that, I think if I
32:00
Speaker 1: it just you know, knows to the grind song like
32:01
Speaker 1: I've been doing, and you know, like the like the
32:05
Speaker 1: work that Alessandra and I've been doing, I think that
32:07
Speaker 1: will ultimately reach my goal of you yep, So so
32:11
Speaker 1: diet O'Connor. You know, it seems like when I you know,
32:14
Speaker 1: back in my day, it was all about Wall Street,
32:16
Speaker 1: all about business school, and now it's tech text, the
32:19
Speaker 1: sexy cool thing that a lot of kids going engineering
32:22
Speaker 1: and all the kind of how are the business schools adapting?
32:25
Speaker 1: So I think they're adapting in a couple of ways.
32:27
Speaker 1: Uh so, absolutely right. Tech is critically important, but now
32:31
Speaker 1: all of our students are getting a much better grounding
32:34
Speaker 1: and in analytics, were introducing things like coding um into
32:37
Speaker 1: the business school curricum. We're not expecting them to be
32:40
Speaker 1: expert coders, but we want them to be able to
32:42
Speaker 1: to understand that and contribute in their firms. So I
32:45
Speaker 1: think if we we take the traditional business education, it's
32:49
Speaker 1: still critically important, but layer on some of the new things,
32:52
Speaker 1: particularly analytics, particularly coding, bring in discussions about fintech. I
32:58
Speaker 1: think the students are gonna still be great contributors down
33:01
Speaker 1: the road. So, Alessandro, what's been the best performing bet
33:06
Speaker 1: that you guys have paid in your portfolio? So, the
33:08
Speaker 1: best performing bets so far has been GW Pharmaceuticals. Okay,
33:12
Speaker 1: I actually pitched that last semester. We had a one
33:16
Speaker 1: twenty entry and we did a trim around. I think
33:20
Speaker 1: it was one s. It's it's I'd loved following that
33:24
Speaker 1: company at a real passion for it. I researched it
33:27
Speaker 1: a lot, and it's paid off straightly. So John's sitting
33:30
Speaker 1: in that seat about fifteen minutes ago, was the greatest
33:32
Speaker 1: value investor arguably of all time. Bill. Yeah, so Bill
33:36
Speaker 1: Miller pick shoes. I guess in fifteen seconds, what was
33:43
Speaker 1: the best name so far in your portfolio this year? UM? Overall, todate.
33:47
Speaker 1: Microsoft has been a big name in our value portfolio
33:49
Speaker 1: year to date. UM. I believe that a lot of
33:52
Speaker 1: the tech stocks that we have in the value section
33:55
Speaker 1: UM are the outperformers. UM. I believe Microsoft. Your attention
34:00
Speaker 1: to Microsoft being a value stock. Matthew O'Connor, Dean and
34:02
Speaker 1: Professor of Finance at Quinnipiac School of Business, John Wentz
34:06
Speaker 1: and Alessandra Abus, both seniors at the Quinnipiac School of Business,
34:10
Speaker 1: thank you all for joining us. Thanks for listening to
34:13
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
34:15
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
34:18
Speaker 1: you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney.
34:22
Speaker 1: I'm Lisa abram Woyit's I'm on Twitter at Lisa abram
34:24
Speaker 1: Woyits one before the podcast. You can always catch us
34:27
Speaker 1: worldwide on Bloomberg Radio