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Invesco’s Hooper: Tech Is Attractive Despite Headwinds · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
0:05
Speaker 1: along with my co host Lisa Brahma Waits. Each day
0:07
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. Well, US equity indices are very
0:23
Speaker 1: close to reattaining the all time high levels as global
0:27
Speaker 1: trade tensions received, at least temporarily. To get a sense
0:30
Speaker 1: of where we move to next or we go to
0:31
Speaker 1: next with the markets, we welcome Christina Hooper. Christina is
0:35
Speaker 1: chief Global market strategist for invest Goo. She joins us
0:38
Speaker 1: live from the Phoenix Convention Center at the b n
0:41
Speaker 1: Y Melon Pershing Insight Conference. Christina, thanks so much for
0:45
Speaker 1: being with us. It really does appear that certainly one
0:49
Speaker 1: of the main drivers for investors sentiment is trade. Is
0:53
Speaker 1: that your sense absolutely and what I would say, more
0:57
Speaker 1: specifically economic policy on certainty created by the current tariff
1:03
Speaker 1: situation and the threats of more tariffs. So right now
1:06
Speaker 1: we're looking at markets that are broadly expecting rate cuts
1:11
Speaker 1: that I put that in plural. Before the end of
1:14
Speaker 1: this year, PIMCO came out and so that there could
1:17
Speaker 1: be a fifty basis point rate cut in July if
1:21
Speaker 1: economic conditions deteriorate. Do you agree with that assessment. I
1:24
Speaker 1: think that is extremely unlikely. I think the FED wants
1:28
Speaker 1: to certainly be very careful and thoughtful about any rate
1:31
Speaker 1: cuts it makes, and so what we're more likely to
1:34
Speaker 1: see is communication around standing ready to ease. But I
1:40
Speaker 1: would be very, very surprised to see a fifty basis
1:42
Speaker 1: point rate cut in one fell swoop. So I guess Christina,
1:46
Speaker 1: one of the things that Lisa and I discussed back
1:48
Speaker 1: and forth is you know, what does or what do
1:52
Speaker 1: multiple rate cuts tell us? Does it really suggest that
1:55
Speaker 1: this economy perhaps is weaker than maybe the markets are discounting? Well,
2:00
Speaker 1: it really all depends on how the FED frames this,
2:03
Speaker 1: because keep in mind, we've heard a lot of chatter
2:06
Speaker 1: from FED members over the last several months around inflation
2:10
Speaker 1: targeting and the idea that we could potentially see the
2:13
Speaker 1: FED changing its inflation target raising it so to speak.
2:17
Speaker 1: Um that would mean that essentially the FED could cut
2:20
Speaker 1: rates without any changing economic conditions and it would be
2:23
Speaker 1: a really easy way to ease without causing alarm. So
2:29
Speaker 1: if the Fed does not cut rates, what happens to
2:32
Speaker 1: equity markets? If the Fed does not cut rates, It's
2:36
Speaker 1: all about the language. It's all about what we see
2:39
Speaker 1: in the announcement. If they take out the patient language,
2:43
Speaker 1: I think that will matter a lot to markets and
2:46
Speaker 1: won't cause any kind of sell off because I don't
2:49
Speaker 1: know if we're going to see any rate cut in June.
2:52
Speaker 1: But it's all about the language and perhaps what we
2:54
Speaker 1: see in the dot plot. But I mean, for example,
2:56
Speaker 1: because right now markets, if you look at FED funds
3:00
Speaker 1: futures contracts, they are except pricing in two and a
3:03
Speaker 1: half rate cuts by December. Let's say the Federal Reserve
3:07
Speaker 1: signals or just doesn't cut rates at all, or cuts
3:10
Speaker 1: rates once. I mean, does that does that's for a
3:12
Speaker 1: big sell off. It all depends on how this plays out, right,
3:15
Speaker 1: because we can see FED funds futures change quite rapidly,
3:20
Speaker 1: and so expectations might change by the end of the year.
3:22
Speaker 1: But let's assume in that scenario that Fed funds expectations
3:26
Speaker 1: remain the same um FED funds futures remain the same
3:30
Speaker 1: in that kind of kind of environment, we would likely
3:32
Speaker 1: see disappointment in markets, at least temporarily. So, Christina, one
3:36
Speaker 1: thing that I guess that Lisa and I are hearing
3:39
Speaker 1: more and more from economists and from strategists that that
3:41
Speaker 1: appear on our show is the you know, the expectation
3:45
Speaker 1: that maybe mid quite likely to see a recession. Is
3:49
Speaker 1: that something you think is reasonable? Well, we're certainly following
3:52
Speaker 1: it closely, but from our perspective where we stand today,
3:55
Speaker 1: we don't think, um that a recession is the base
3:59
Speaker 1: case for now. A lot can happen between now and then,
4:03
Speaker 1: and some of it is certainly dependent upon UH trade
4:06
Speaker 1: policy and where that goes. But it seems as though
4:10
Speaker 1: major central banks stand ready to provide accommodation. We've already
4:14
Speaker 1: seen financial conditions ease in just the last few weeks,
4:17
Speaker 1: and I would suggest that this is going to be
4:20
Speaker 1: an environment where once again UH central banks step in
4:24
Speaker 1: and save the day. UH. We could certainly see a
4:26
Speaker 1: deceleration in growth, but at this stage it seems unlikely
4:30
Speaker 1: that we actually see a recession by mid Christina, are
4:33
Speaker 1: you seeing your clients making big allocation shifts at this point?
4:37
Speaker 1: We are not, um clients understand, and what we stress
4:41
Speaker 1: is taking that long term perspective. Now, that doesn't mean
4:44
Speaker 1: there aren't small tactical shifts, and I certainly think that
4:48
Speaker 1: what we're likely to see going forward is continued to
4:52
Speaker 1: focus on a growth tilt within US equities, and I'm
4:56
Speaker 1: hoping that will also see something of a tilt towards
4:59
Speaker 1: more income producing asset classes, given that we're likely to
5:03
Speaker 1: be in a lower for longer environment. We're talking high
5:05
Speaker 1: old bonds, well, not necessarily high yeld bonds specifically, but
5:09
Speaker 1: an array of higher yielding asset classes that would include
5:12
Speaker 1: high yield bonds, um munis, including higher yielding munis, but
5:16
Speaker 1: also convertible bonds as well as dividend paying stocks. Sometimes
5:21
Speaker 1: they get overlooked, and I think many of them have
5:23
Speaker 1: been overlooked in the recent rally. So, Christina, we are
5:26
Speaker 1: more than ten years into this economic cycle. So as
5:29
Speaker 1: you think about where you're allocating money in the equity markets,
5:33
Speaker 1: are there certain sectors that, just given where we are
5:36
Speaker 1: in the cycle, appeal more to you than some others. Well,
5:40
Speaker 1: we see this cycle continuing, although of course decelerating, and
5:45
Speaker 1: so that would suggest uh and overweighting towards the growth
5:49
Speaker 1: style in this kind of environment, and so I would
5:52
Speaker 1: favor technology and to a certain extent, healthcare names as
5:56
Speaker 1: being quite attractive. Now. Of course, that doesn't mean there
5:59
Speaker 1: aren't headwind for those sectors. In particular, tech is likely
6:03
Speaker 1: to face more regulation. But this is more of um uh,
6:06
Speaker 1: you know, two year to three year outlook, um, And
6:10
Speaker 1: right now tech looks attractive despite some of the head
6:13
Speaker 1: winds we could see. So I just I'm curious, given
6:16
Speaker 1: the fact that you're bullish on risk assets over the
6:19
Speaker 1: near to long term or certainly the even the near term,
6:22
Speaker 1: do you think that treasury yields are too low? Tenure
6:25
Speaker 1: yields right now two point one per cent, and if so,
6:28
Speaker 1: how much could they rise? Well, treasury yields UM are
6:31
Speaker 1: definitely low relative to where they have been, but that
6:35
Speaker 1: doesn't mean that that's going to change. And what it
6:38
Speaker 1: does mean, though, is that it makes equities look more attractive.
6:41
Speaker 1: It makes dividend paying stocks look more attractive. So I
6:44
Speaker 1: think we could continue in this situation for a while, UM,
6:47
Speaker 1: because I think the bond market is accurately reflecting the
6:51
Speaker 1: fear in the market that we're not seeing being reflected
6:53
Speaker 1: in stocks. Christina has the global trade tensions. I guess
6:58
Speaker 1: the escalation of some trade tensions is that caused you
7:00
Speaker 1: guys to rethink maybe your allocation to emerging markets. Is
7:03
Speaker 1: it just too risky to to maybe be a little
7:05
Speaker 1: bit too aggressive there. Well, what it's encouraging us to
7:09
Speaker 1: do and what we've what we've been advocating for some
7:12
Speaker 1: times to be very discerning and emerging markets. There's no
7:15
Speaker 1: reason to change your overall waiting to emerging markets, but
7:19
Speaker 1: it's important to be selective within emerging markets, focusing on
7:22
Speaker 1: those areas that are actually benefiting UM from what's going
7:26
Speaker 1: on in in uh the larger macro environment, including trade wars,
7:30
Speaker 1: as well as the FED turning more accommodative. UH. So
7:34
Speaker 1: I would favor in general Asia e M in this environment.
7:37
Speaker 1: Christina Hooper, thank you so much as always for being
7:40
Speaker 1: with us. We love getting your insights. Christina Hooper is
7:43
Speaker 1: chief Global Market Strategistic invest Go, which overseas nearly a
7:46
Speaker 1: trillion dollars. Facebook uncovered emails that may indicate the chief
8:06
Speaker 1: executive officer Mark Zuckeenberg. Zuckenberg knew of quote questionable privacy practices.
8:12
Speaker 1: That comes as scrutiny continues to mount with respect to
8:17
Speaker 1: big tech and their privacy as well as just UH
8:20
Speaker 1: their size issues, their dominance of different markets. This is
8:24
Speaker 1: definitely one of the focuses here at the b n
8:27
Speaker 1: Y Mel and Pershing Insight Conference, especially given the fact
8:31
Speaker 1: that big tech has accounted for a good proportion of
8:35
Speaker 1: the incredible rally that we've seen in US equities over
8:38
Speaker 1: the past few years. Joining me here on site, Phil Orlando,
8:42
Speaker 1: chief equity market strategist and head of Client portfolio Management
8:45
Speaker 1: that Federated Investors overseeing about five billion dollars in assets.
8:51
Speaker 1: You are going to be on a panel delayed gratification?
8:55
Speaker 1: Are we going to see delayed gratification for all of
8:58
Speaker 1: the naysayers of big tech? How much do these rising
9:03
Speaker 1: issues of regulation around big tech cloud your view or
9:07
Speaker 1: affect your view when it comes to how to allocate
9:11
Speaker 1: two tech shares? I think we could have some chopped
9:14
Speaker 1: this summer, and certainly this technology issue that has just
9:17
Speaker 1: popped up on the wires could certainly contribute to that.
9:21
Speaker 1: You look at UH sort of the political environment that's
9:24
Speaker 1: going on in Washington right now. You're hearing a lot
9:27
Speaker 1: of populism in terms of technology is getting too big.
9:30
Speaker 1: It's unregulated. We need to break them up, put some
9:34
Speaker 1: more laws in place. UH. And then you think about
9:37
Speaker 1: the fact that we've got the democratic primaries coming up,
9:40
Speaker 1: I think the right at the end of this month,
9:42
Speaker 1: I'm absolutely positive this will be a topic of discussion
9:47
Speaker 1: in terms of the Q and A with the candidates
9:49
Speaker 1: and the and the moderators. So the the noise, the fewer,
9:54
Speaker 1: the headline risk associated with this issue is likely to
9:57
Speaker 1: get bigger rather than smaller over the next couple of months.
10:01
Speaker 1: Our view is maybe the you know, the market UH
10:04
Speaker 1: could could have some chop over the over the summer months,
10:07
Speaker 1: and and you know, the technology issue could certainly be
10:10
Speaker 1: one of the issues that contributes to that chop. So, Phil,
10:14
Speaker 1: one of the things that's clearly been UH, you know,
10:17
Speaker 1: impacting markets over the last several months is trade concerns,
10:20
Speaker 1: first with China UH and then with Mexico, and of
10:23
Speaker 1: course the Mexico trade issues very tightly tied to immigration
10:28
Speaker 1: UH and how that should evolve. I know you recently
10:30
Speaker 1: put out a note on how you think UH immigration
10:34
Speaker 1: UM rules should be amended. Give us your thoughts on that.
10:38
Speaker 1: So the immigration issue is has been a hot button
10:41
Speaker 1: issue for me for a couple of years now. And
10:43
Speaker 1: and uh, the note that I just put out this week,
10:46
Speaker 1: uh looks at a couple of the big macro issues.
10:49
Speaker 1: On the one hand, you just got the Jolts report
10:51
Speaker 1: on Monday, the JULTU reports pretty good, seven and a
10:54
Speaker 1: half million new jobs. We've got more new jobs that
10:57
Speaker 1: we're creating in this country then we've got them ployed
11:00
Speaker 1: people on the sidelines that could possibly fill them, all right,
11:03
Speaker 1: So that's a good thing and a bad thing. On
11:05
Speaker 1: the other hand, our for our organic fertility in this
11:10
Speaker 1: country is at a cyclical trough. Are are women are
11:14
Speaker 1: only having an average of one point seven children per woman?
11:18
Speaker 1: That that's half of what the rate of fertility was
11:21
Speaker 1: when I was born in the fifties. I love the
11:23
Speaker 1: clinical terms for this, the organic fertility rates people having
11:27
Speaker 1: babies go on. Yeah, And and we understand what's going on.
11:30
Speaker 1: Women are focused more in their careers and their education,
11:33
Speaker 1: and and with a trillion and a half dollars of
11:35
Speaker 1: student loan dead couples, I think are making a conscious
11:37
Speaker 1: decision to have smaller families rather than larger families. It's expensive.
11:43
Speaker 1: I know, my kids, my youngest as a junior at
11:45
Speaker 1: Penn State right now. So I'm well, exactly exactly. So,
11:51
Speaker 1: So the point is that that we're we're producing less kids,
11:56
Speaker 1: and yet the labor market is strong enough that we
11:59
Speaker 1: need more workers. The solution, the way to bridge that
12:01
Speaker 1: gap is have an intelligent immigration policy, and and intelligence
12:05
Speaker 1: is sort of the key word here. That is an
12:07
Speaker 1: oxymoron when when referring to our leaders in Washington right now,
12:11
Speaker 1: they can't get out of their way. There's like the
12:13
Speaker 1: Keystone Cops trying to solve what should be a slam
12:17
Speaker 1: dunk issue in terms of making sure that we've got
12:20
Speaker 1: enough qualified workers coming in from from outside of the
12:23
Speaker 1: country in order to fill these jobs. So I think
12:26
Speaker 1: it's a legitimate question. It's one that that's been bothering me.
12:29
Speaker 1: I I so much so that I probably read about
12:31
Speaker 1: it every six months, you know. So it uh and
12:33
Speaker 1: so I wrote about it this week. So aside from
12:37
Speaker 1: fertility issues, and this is actually a very important one.
12:39
Speaker 1: I don't mean to diminish it. I mean it's one
12:40
Speaker 1: of the major drivers that people point to in Japan
12:42
Speaker 1: and why that abum. But I want to shift to
12:46
Speaker 1: one other area that's stagnant, and that is a US inflation.
12:50
Speaker 1: It does not appear to be going up, and we
12:52
Speaker 1: are seeing up markets price in increasingly. The Federal Reserve
12:56
Speaker 1: will cut rates next week and certainly thereafter. Do you
13:00
Speaker 1: think that's the right call? Inflation is benign? There's no question.
13:04
Speaker 1: The core Personal Consumption Expenditure Index, which is the FEDS
13:08
Speaker 1: preferred measure of inflation, is sitting at one point six
13:11
Speaker 1: percent as of the latest reading. Then we got a
13:13
Speaker 1: CPI number this morning. I think the core PC, the
13:16
Speaker 1: core c p I year a year, came down two
13:19
Speaker 1: percent even, Is that right, Lisa, Yeah, so it was
13:22
Speaker 1: core I'll look it up. I think it was two percent. Now,
13:25
Speaker 1: the spread the relationship between the PC and the CPI
13:28
Speaker 1: tends to be about a half percent. So that's consistent
13:31
Speaker 1: with Okay, that's consistent with the one point six pc
13:35
Speaker 1: numbers we are now. The market, I think, has built
13:39
Speaker 1: up in its mind that that inflation is too low
13:41
Speaker 1: and that the Fed is going to ride to the
13:43
Speaker 1: rescue at next week's f O m C meeting and
13:46
Speaker 1: start a rate cutting cycle. We disagree with that, and
13:49
Speaker 1: I think if, if, if we're right, that the Fed
13:52
Speaker 1: is not going to start cutting rates next week. That
13:55
Speaker 1: could represent some disappointment for the market, because the market
13:58
Speaker 1: has rallied pretty strongly here over the a couple of weeks.
14:00
Speaker 1: And there are a couple of issues. So issue number
14:02
Speaker 1: one is that inflation. I don't think it's a problem.
14:05
Speaker 1: I think it's benign, but I don't think we're risking
14:08
Speaker 1: a deflation or disinflationary sort of the environment. Point number two,
14:12
Speaker 1: We've got the G twenty meeting coming up in Osaka, Japan,
14:15
Speaker 1: at the end of the month. That's a very important
14:17
Speaker 1: meeting because we're expecting that she and Trump are gonna
14:20
Speaker 1: get together, uh and and you know, shake hands and
14:24
Speaker 1: and have a nice conversation, much like they did in
14:26
Speaker 1: Buenos Aires last year. And what that will do is
14:29
Speaker 1: not create a deal, but allow the the the beginning
14:34
Speaker 1: of a series of conversations between our minions and their
14:37
Speaker 1: minions too. I think get a trade deal back on track,
14:41
Speaker 1: let's say by Thanksgiving. Uh. And then the third issue
14:44
Speaker 1: is that that I wrote about this last week. The
14:47
Speaker 1: job's number we saw last Friday was terrible, and everyone's
14:50
Speaker 1: freaking out that we're going into recession. And I don't
14:52
Speaker 1: think that's the case. I think we had a bad number.
14:54
Speaker 1: I think it's an aberrant number, and I think the
14:56
Speaker 1: FED would be prudent to wait for another job's report
14:59
Speaker 1: or who before they they change policy dramatically. So my
15:04
Speaker 1: best guess is a cut from the FED, maybe at
15:07
Speaker 1: the July thirty one meeting at the earliest, and I
15:11
Speaker 1: think the market may be disappointed next week. What FED
15:13
Speaker 1: should do next week is take the dot off the
15:17
Speaker 1: board and then give us some happy talk about needing
15:20
Speaker 1: to come in, wanting to come in if they need
15:22
Speaker 1: to later in the cycle. Very good, Phil Orlando, Thank
15:25
Speaker 1: you so much for joining us. Phil Orlando, chief equity
15:27
Speaker 1: market strategist ahead of client portfolio management from Federated Investors. Well,
15:48
Speaker 1: the prospect of the U s slapping tariffs on Mexican
15:52
Speaker 1: goods is off the table for now, but it does
15:55
Speaker 1: appear that President Trump's patients with Mexico hinges on what
16:00
Speaker 1: may be an undeliverable promise, and that is to reduce
16:03
Speaker 1: some of the stream of immigration UH that the US
16:06
Speaker 1: is seeing at its southern border. Here to explain more
16:10
Speaker 1: about this is Josh wind Grove, a White House reporter
16:12
Speaker 1: joining us from Washington, d C. Josh, can you give
16:15
Speaker 1: us a sense of how much President Trump is sort
16:18
Speaker 1: of watching the flow of migration at the border in
16:21
Speaker 1: order to gauge whether or not to ramp up the
16:23
Speaker 1: rhetoric here with Mexico. I mean, he he has indicated
16:27
Speaker 1: that it is all about that, and that if those
16:30
Speaker 1: numbers don't go down it was a hundred and thirty
16:32
Speaker 1: three thousand apprehensions in May at the US Mexico border,
16:36
Speaker 1: then he's going to reserve the right to essentially do more,
16:39
Speaker 1: including maybe unsuspend those tariff threats. And we seem primed
16:46
Speaker 1: to kind of come to a head on it again,
16:48
Speaker 1: because of course there's a lot of reasons that the
16:49
Speaker 1: number is so high, and even those close to the
16:52
Speaker 1: presidents say that it's not there's no way that Mexico
16:56
Speaker 1: can do it on its own. Is a mix of factors,
16:59
Speaker 1: and Trump supporters would say that does include the need
17:02
Speaker 1: for changes in Congress. Refugee advocates would say it also
17:06
Speaker 1: includes addressing the root causes of the unrest in Central
17:10
Speaker 1: America that's sending these migrants on the road in the
17:13
Speaker 1: first place. So, Josh, is there any expectation that the
17:17
Speaker 1: plans that Mexico has initiated in terms of sending troops
17:20
Speaker 1: to its southern border. Can meaningfully have an effect. Yeah,
17:25
Speaker 1: I think most people think it would meaningful have an effect.
17:27
Speaker 1: I spoke yesterday with Barack Obama's former ambassador to Mexico,
17:31
Speaker 1: who thought it was a good framework. You know, everyone thinks,
17:34
Speaker 1: I think that this might be a good step. It's
17:36
Speaker 1: a question more of is it enough to really cut
17:40
Speaker 1: down that number? A hundred thirty three thousand is more
17:42
Speaker 1: than triple the same month a year ago. And I
17:46
Speaker 1: guess time will tell. One wrinkle on this though, is
17:48
Speaker 1: these numbers normally fall in the summertime. It's hot. People
17:52
Speaker 1: don't want to be, you know, walking a long distance
17:54
Speaker 1: in the United States as much. So if we do
17:57
Speaker 1: see those numbers drop, it could simply be be because
18:00
Speaker 1: as a seasonality. And then the question is, does take
18:03
Speaker 1: credit for that and you know, call his plan to
18:04
Speaker 1: win and move on? Uh? And even if he does
18:07
Speaker 1: do that, when they start rising again traditionally in the fall,
18:10
Speaker 1: as one would expect, does he get angry? Does he
18:13
Speaker 1: call it Mexicogan and say you're not doing enough? So, Josh,
18:16
Speaker 1: the reason why markets are so focused on that, and
18:18
Speaker 1: that's certainly one of the questions here at the b
18:21
Speaker 1: N Y Melon Pershing's inside conference point N team, where
18:24
Speaker 1: we are in Phoenix. The reason why people are focused
18:27
Speaker 1: on this is because US trade with Mexico is so
18:30
Speaker 1: fundamental to certain industries, in particularly the auto industry. I'm
18:34
Speaker 1: just wondering how companies can even make plans right now.
18:37
Speaker 1: I mean, basically, given that this all kind of hinges
18:41
Speaker 1: on a flow of migration here, what are the prospects
18:45
Speaker 1: for the U. S m c A to get past
18:47
Speaker 1: and some sort of longer lasting deal to give people
18:49
Speaker 1: conviction at this point? Yeah, I mean you raise a
18:52
Speaker 1: great point. Let me try to do with one point one.
18:54
Speaker 1: The scale of this is really difficult to overstate. Aside
18:57
Speaker 1: from China, the US buys more goods from Mexico than
18:59
Speaker 1: any the country. A five percent tariff across the board
19:02
Speaker 1: would affect a ton of stuff, and it would also
19:04
Speaker 1: affect a ton of stuff that crosses the border a
19:06
Speaker 1: bunch of times, like an auto production as you mentioned,
19:09
Speaker 1: So that tariff could compound pretty quickly in some of
19:11
Speaker 1: these companies to get into the weeds a bit a bit.
19:14
Speaker 1: Don't even have systems set up like the way they
19:16
Speaker 1: collect tariffs as his own you know, the whole gauntlet
19:20
Speaker 1: to run, you can imagine. And so if you've never
19:22
Speaker 1: been paying any you you you don't even know where
19:24
Speaker 1: to begin. So the potential headache for exporters, importers the
19:28
Speaker 1: economy is difficult to overstate. On the other side of
19:32
Speaker 1: the President simply likes tariffs. He believes that they are
19:35
Speaker 1: both an effective tool in negotiation and he believes that
19:38
Speaker 1: they're an effective thing generally. So I don't think you
19:41
Speaker 1: would ever rule out the chance that he would do it.
19:44
Speaker 1: He does want that U. S m C a trade deal.
19:46
Speaker 1: A lot of analysts think it's very difficult to imagine
19:49
Speaker 1: the Mexican government ratifying that deal. Is they still have
19:52
Speaker 1: to do. Of course, Congress also needs to ratify it
19:54
Speaker 1: if those tariffs are in place, So maybe we'll see
19:57
Speaker 1: if Congress can move on in the summer. So, Josh,
20:00
Speaker 1: you mentioned that hundred thirty thousand number of crossings recently.
20:04
Speaker 1: Is there a number that the Trump administration would find acceptable? Um,
20:08
Speaker 1: is there something we should be looking for? Well, yeah,
20:11
Speaker 1: it's a good question. I mean, they were we were
20:12
Speaker 1: down sort of the fifty thousand range just at the
20:15
Speaker 1: beginning of the year. I think if they got it
20:16
Speaker 1: back there, they'd be happy to claim victory. It's also
20:19
Speaker 1: noteworthy to say that this isn't the highest it's ever been.
20:22
Speaker 1: Diane fine Scene, a Democrat from California's noted this in
20:25
Speaker 1: a hearing yesterday. Was around one point six million coming
20:28
Speaker 1: around across the border annually, uh in and around two
20:32
Speaker 1: thousand Right now, we're on pace or nine hundred thousand,
20:35
Speaker 1: maybe a million, so a high number, higher than in
20:37
Speaker 1: recent years, much higher than in recent years, still fairly
20:40
Speaker 1: well below the highs that the US has scene in
20:44
Speaker 1: the past. So I guess that I'm wondering what are
20:47
Speaker 1: we looking for going forward in terms of some kind
20:51
Speaker 1: of guidance of the progress being made here. I think
20:54
Speaker 1: all I should be in July on that June number.
20:59
Speaker 1: Uh The US releases CDP releases annual or sort of
21:02
Speaker 1: monthly excuse me, monthly numbers of apprehensions at the border.
21:07
Speaker 1: If that June number is, you know, fair a bit
21:10
Speaker 1: lower than one thirties three, that's probably a good sign.
21:13
Speaker 1: If it is higher than, you know, I think all
21:16
Speaker 1: eyes will be on the President to react. And if
21:18
Speaker 1: it is lower and we get through a summer and
21:20
Speaker 1: we don't hear much about this again, investors might want
21:23
Speaker 1: to look again back and if that number starts rising
21:26
Speaker 1: in the fall, Traditionally, as I said, fall the weather
21:28
Speaker 1: gets a little more reasonable people, those numbers tend to
21:32
Speaker 1: rise again. Regardless of these measures, those numbers could rise again,
21:35
Speaker 1: in which case we could be back to square one.
21:37
Speaker 1: Josh Wyn Grove, thank you so much. Josh wyn Grove
21:40
Speaker 1: is a White House reporter for Bloomberg News, reporting from Washington,
21:44
Speaker 1: d C. It is going to reach more than a
22:02
Speaker 1: hundred and five degrees where we are, which is the
22:04
Speaker 1: Phoenix Convention Center at b and Y Melon Pershing Insights
22:08
Speaker 1: Conference for nineteen and one. Area of focus is the
22:12
Speaker 1: ongoing debate man versus machine, at least that's how it's
22:15
Speaker 1: been cast, the rise of E t f S, the
22:18
Speaker 1: cannibalization of the active management industry. Joining us now to
22:22
Speaker 1: sort of give us some real talk on where we
22:24
Speaker 1: are in this evolution is Jeff McCarthy, chief executive officer
22:28
Speaker 1: of E t F S Exchange Traded Funds at BNY Melon,
22:31
Speaker 1: here with us at the Phoenix Convention Center. So, Jeff,
22:36
Speaker 1: let's start with just sort of a state of play.
22:39
Speaker 1: How much has money flowed out of active into passive
22:44
Speaker 1: into e t f s. How far are we in
22:46
Speaker 1: this evolution? Yeah, thanks Lisa. So I think when you
22:49
Speaker 1: look at active funds, we've seen a continuous outflow over
22:52
Speaker 1: the last ten years of these funds. Now, the trick
22:55
Speaker 1: is you've seen the active fund market grow largely because
22:58
Speaker 1: of capital appreciation, but they've had negative inflows. On the inverse,
23:02
Speaker 1: E t s have a positive inflows year after year.
23:05
Speaker 1: This year year today, for the first four months of
23:07
Speaker 1: two thousand nineteen, we've seen eighty six billion flow into
23:10
Speaker 1: these products in the US. Last year two thousand seventeen
23:16
Speaker 1: over four hundred. So it's definitely an asset class or
23:19
Speaker 1: a structure I should say, I don't want to call
23:21
Speaker 1: it an asset class that's gaining momentum and gaining investor flows. So, Jeff,
23:25
Speaker 1: is there any end in sight to this trend? From
23:28
Speaker 1: your perspective, I think it's going to continue. And one
23:31
Speaker 1: of the things to look at is how big is
23:34
Speaker 1: the mutual fund market in the US. It's an over
23:36
Speaker 1: It's over twenty trillion in assets, and the E t
23:39
Speaker 1: F market is just at four trillion, So there's a
23:41
Speaker 1: lot of room to grow. There's a lot of aspects
23:43
Speaker 1: that are uncovered, especially when you look at the defined
23:46
Speaker 1: benefit to find contribution the four oh one k universe
23:50
Speaker 1: that's largely not penetrated by e t f s, And
23:53
Speaker 1: when e t f s make more headways into that area,
23:56
Speaker 1: I think you're going to see an asset growth pop
23:58
Speaker 1: in the e t F industry. So my impression is
24:01
Speaker 1: that in US equities, e t f s have already
24:04
Speaker 1: gotten a substantial share. Is that is that correct? I mean,
24:07
Speaker 1: do ETFs count for a significant proportion of retail investments
24:12
Speaker 1: and say the s yeah, I mean e t F
24:15
Speaker 1: today the market is seventy eight percent held in equity
24:18
Speaker 1: products sixtent and fixed income right, and then the list
24:21
Speaker 1: goes down, so they're largely held as equities strategies. But
24:25
Speaker 1: I don't think you know the end is in sight.
24:28
Speaker 1: I think you know ETFs continue to be, especially on
24:31
Speaker 1: the passive strategy, a product of choice. I mean institutional
24:36
Speaker 1: investors and retail investors use these products, and I think
24:39
Speaker 1: that's key to having a healthy investor access market. And
24:42
Speaker 1: seventy eight percent of investors by Greenwich Associates say that
24:46
Speaker 1: e t f s are their preferred vehicle for index strategies,
24:49
Speaker 1: and and Jeff, is it what to what extent? Is
24:52
Speaker 1: it just the lower fees that are driving e t
24:55
Speaker 1: f s? What's from your perspective some of the key
24:57
Speaker 1: drivers share? Well, I think low fees is the number one, right,
25:01
Speaker 1: all investors, institutional, retail, they're all price sensitive, right. And
25:04
Speaker 1: if you look at the flows into these products, of
25:08
Speaker 1: the flows going to products with expense ratios at twenty
25:11
Speaker 1: basis points or less, but then sixty of those are
25:14
Speaker 1: products at nine basis points and less. So there's really
25:18
Speaker 1: no reason why an investor should pay more than single
25:21
Speaker 1: digit from an expense ratio for product to get broad
25:24
Speaker 1: exposure into the US market. Because e t s are liquid, liquid,
25:28
Speaker 1: they are available, and they're transparent vehicles. Okay, So when
25:31
Speaker 1: you're talking to prospective investors in e t f s,
25:36
Speaker 1: is the low fee kind of the key aspect Because
25:38
Speaker 1: we've seen Fidelity, for example, have a negative a negative
25:42
Speaker 1: fee type of fund right that's been introduced to try
25:45
Speaker 1: to lure people in. We've seen cut fees cut to
25:48
Speaker 1: zero and at a certain point, uh, you have to
25:50
Speaker 1: wonder the viability of some of these of these companies
25:53
Speaker 1: of fund manager companies and where they're actually getting their money.
25:56
Speaker 1: Are people paying in other ways? I mean they are
25:59
Speaker 1: paying other ways. Now, I'm never gonna say, you know,
26:02
Speaker 1: Fidelity isn't gonna be viable, right, It's a it's a
26:04
Speaker 1: powerhouse asset manager. And I think if you look at
26:06
Speaker 1: Fidelity strategy, they have so much to offer investors, and
26:10
Speaker 1: so they'll offer investors products at zero, right. But to
26:14
Speaker 1: customers of Fidelity, why because they bring them into the
26:17
Speaker 1: Fidelity family, They leverage and they cross sell other products
26:20
Speaker 1: that are necessary for those investors. You have seen some
26:23
Speaker 1: ETFs come to market this year at zero or negative right,
26:26
Speaker 1: pain investors to invest. But you have to look at
26:30
Speaker 1: the fine details of those products. Right. They have disclosures,
26:34
Speaker 1: meaning they're waving their fee for the first year or
26:38
Speaker 1: until the fund gets to a hundred million in assets,
26:40
Speaker 1: and then the expense ratio goes up to nine team
26:42
Speaker 1: basis points. So it's not necessarily free. And I think
26:46
Speaker 1: you know the broad lesson of the best things in
26:48
Speaker 1: life are never free. You should apply that to investing.
26:51
Speaker 1: And I think you have to look at the product,
26:53
Speaker 1: the characteristics, What is the investment objective, what is the
26:57
Speaker 1: components of the index versus just the cost. But going
27:01
Speaker 1: back to my previous set statement, investors are price sensitive
27:04
Speaker 1: and cost is a large factor into asset allocation selection.
27:09
Speaker 1: Jeff McCarthy, thank you so much. Jeff as the chief
27:11
Speaker 1: executive officer of exchange traded Funds at b n Y Melon.
27:16
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
27:18
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
27:21
Speaker 1: or whatever podcast platform you prefer. Paul Sweeney, I'm on
27:24
Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on
27:27
Speaker 1: Twitter at Lisa A. Bram wits one. Before the podcast,
27:29
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio.