Latest / Bloomberg Intelligence / Markets, Apple, Washington, And ETFs (Podcast)

Transcript

Markets, Apple, Washington, And ETFs (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Let's check in with
• 0:22
  Speaker 1: a professional who does this stock stuff for a living,
• 0:24
  Speaker 1: Phil Orlando, chief equity market strategist and a head of
• 0:27
  Speaker 1: client portfolio management and federator at Herme's Phil, I'm looking
• 0:30
  Speaker 1: at the markets here, you know, bouncing off the bottom here.
• 0:33
  Speaker 1: I guess we're just throwing around the question here in
• 0:35
  Speaker 1: the studio. Did we see the bottom of this market?
• 0:39
  Speaker 1: Is this real? This? Or is this just kind of
• 0:41
  Speaker 1: a little bit of a headcake in the context of
• 0:43
  Speaker 1: a greater bear market head cake? Or head fake? Head fake?
• 0:47
  Speaker 1: Is that was the Monday version of head fake? Yes, Look,
• 0:51
  Speaker 1: we've had a really good six weeks. I mean the
• 0:54
  Speaker 1: month of July the SMP was up about ten. I
• 0:58
  Speaker 1: think that was the best month we've seen in a
• 1:00
  Speaker 1: up the years since the middle of June. Market went
• 1:04
  Speaker 1: from an oversold readings rallied about I think we're a
• 1:08
  Speaker 1: little overbought here. Um, but you know, I was listening
• 1:12
  Speaker 1: to your conversation earlier. This is kind of a bad
• 1:15
  Speaker 1: news is good news kind of a scenario that you know,
• 1:19
  Speaker 1: the inflation is sitting at a forty one year high.
• 1:22
  Speaker 1: The GDP report last week not particularly good. You know,
• 1:26
  Speaker 1: everyone's on recession watch right now. And and the way
• 1:29
  Speaker 1: the market has perceived all of this is that the
• 1:34
  Speaker 1: data is so bad that that must mean that there's
• 1:37
  Speaker 1: going to be an immaculate Fed pivot. You know, by
• 1:41
  Speaker 1: the middle of next year that the Fed will we'll
• 1:44
  Speaker 1: be able to stop hiking interest rates this year, and
• 1:47
  Speaker 1: we're gonna start to see a deceleration of that pace,
• 1:50
  Speaker 1: and then the Fed is going to turn around and
• 1:52
  Speaker 1: start actually cutting interest rates by the middle of next year. Um.
• 1:57
  Speaker 1: We think that that is a little too optimistic. And
• 2:00
  Speaker 1: and UH inflation, in our view, is stubborn. It's it's
• 2:06
  Speaker 1: deep seated. It's UH sitting at a forty one year high.
• 2:10
  Speaker 1: We're not going to be able to wave a magic
• 2:12
  Speaker 1: wand and in a couple of months take a nominal
• 2:16
  Speaker 1: CPI from nine point one percent back to two or
• 2:19
  Speaker 1: three percent. We're going to measure that decline we think
• 2:22
  Speaker 1: over the course of a couple of years, not a
• 2:24
  Speaker 1: couple of months. So for for all those reasons, Uh,
• 2:28
  Speaker 1: this very impressive rally over the next six over the
• 2:33
  Speaker 1: last six weeks could could very well result in some
• 2:36
  Speaker 1: proper taking over you know, the next couple of months,
• 2:40
  Speaker 1: as you know we get some some some more difficult data. Yeah,
• 2:44
  Speaker 1: I think that makes a lot of sense. Feel Um.
• 2:47
  Speaker 1: One thing I noticed or I read from Cameron Christ
• 2:52
  Speaker 1: We've got to get this guy in here, he screamed.
• 2:54
  Speaker 1: For Uh, he probably works from home. He screened for
• 2:58
  Speaker 1: every drop monthly drop of more than seven and a
• 3:01
  Speaker 1: half percent that was followed by a month that you
• 3:05
  Speaker 1: know more than made up for that, which is what
• 3:08
  Speaker 1: we just saw. And the results are pretty shocking. If
• 3:11
  Speaker 1: you look post war, it's only happened um a few
• 3:15
  Speaker 1: times in October of nine, in October of two thousand two,
• 3:22
  Speaker 1: in March of two thousand nine, uh, January of two
• 3:26
  Speaker 1: thousand nineteen, and April of two thousand twenty. So it's
• 3:31
  Speaker 1: only been these big bottoms that we know. I mean,
• 3:34
  Speaker 1: March of two thousand nine is like uh, imprinted on
• 3:37
  Speaker 1: my brain as a massive bottom. Um, it looks good
• 3:41
  Speaker 1: at least, but I take your point that people are
• 3:44
  Speaker 1: going to be wanting to take profits and those who
• 3:47
  Speaker 1: stayed with it and are just to have too much oddit.
• 3:50
  Speaker 1: I want to get out, But maybe we don't have
• 3:53
  Speaker 1: to fall another twenty is what I'm thinking, because that's
• 3:56
  Speaker 1: kind of what was the bad news consensus right before
• 3:59
  Speaker 1: this month, is that we went halfway. We have another
• 4:02
  Speaker 1: halfway to go. Well to some degree that's going to
• 4:05
  Speaker 1: be a function of economic growth and corporate earnings growth. Um.
• 4:09
  Speaker 1: If we were having this conversation a week ago, Uh,
• 4:14
  Speaker 1: the earnings for the S and P five we're probably
• 4:17
  Speaker 1: down about five or six percent into the quarter now,
• 4:21
  Speaker 1: but a lot of the energy companies have started to report,
• 4:23
  Speaker 1: God bless them. So we're about two thirds of the
• 4:27
  Speaker 1: way through the earning season and earnings have gone from
• 4:30
  Speaker 1: being down six or seven percent, they're now up seven percent,
• 4:34
  Speaker 1: largely on the strength of how good the earnings reports
• 4:37
  Speaker 1: have been. Discretionary financials technologies, those numbers are all negative,
• 4:42
  Speaker 1: and to a significant degree, companies are providing cautious guidance.
• 4:48
  Speaker 1: Strategists and analysts may start to cut their numbers uh
• 4:51
  Speaker 1: and and multiples have just moved up a couple of
• 4:53
  Speaker 1: turns based upon this third percent rally we've seen over
• 4:57
  Speaker 1: the last couple of months. So I think that as
• 4:59
  Speaker 1: we get into to the August September, you know, early
• 5:02
  Speaker 1: October period, there may be a little bit of rationalization
• 5:06
  Speaker 1: in terms of valuations. Lower earnings estimates, lower GDP growth estimates,
• 5:11
  Speaker 1: UH more UM comfortable pe multiples i E. Lower and
• 5:16
  Speaker 1: and I just think that that given this big rally
• 5:19
  Speaker 1: we've seen, uh, it would be prudent to expect a
• 5:22
  Speaker 1: little bit of a pullback here. All right, good stuff
• 5:24
  Speaker 1: as always. Phil Orlando, chief equity market strategist and head
• 5:28
  Speaker 1: of client portfolio management at Federator Hermy's that got over
• 5:32
  Speaker 1: six billion and assets under management. That's some sway right there.
• 5:40
  Speaker 1: Let's bring in our next guest, Robert Stimpson, c I
• 5:43
  Speaker 1: O and portfolio manager Oak Associates Funds. Robert, some folks
• 5:48
  Speaker 1: have been telling me here is I look at this
• 5:50
  Speaker 1: bounce off the bottom, that we can buy it here,
• 5:53
  Speaker 1: but you've gotta be selective. What is it? What does
• 5:57
  Speaker 1: this selective mean to you in a market move we're
• 6:00
  Speaker 1: experiencing right now? Is it is this kind of a
• 6:02
  Speaker 1: bear cat bounce or is this something I can really wait?
• 6:05
  Speaker 1: A bear market rally or dead cat dead cat bounce? Yeah,
• 6:08
  Speaker 1: I use a barcat market bearcat bounce. I like that.
• 6:12
  Speaker 1: How do you think about that stock selection? Robert, Well,
• 6:15
  Speaker 1: good morning guys. You no, I agree, you have to
• 6:16
  Speaker 1: be pretty selective in this market, simply because you know
• 6:20
  Speaker 1: the forward new slow UH is still very questionable. Um.
• 6:24
  Speaker 1: We're about to head into some earnings reports and I
• 6:27
  Speaker 1: think they're going to be mixed, and that's going to
• 6:29
  Speaker 1: affect sentiment. And we know the overall trends in the
• 6:32
  Speaker 1: market are are pretty strong. The status raising rates inflation
• 6:37
  Speaker 1: is still persistent, and that affects different areas differently. So, UM,
• 6:42
  Speaker 1: you know a lot of consumer focused businesses are going
• 6:46
  Speaker 1: to struggle because the consumer is pinched pinch by inflation
• 6:50
  Speaker 1: and pinched by higher interest rates. Whereas industries that have
• 6:54
  Speaker 1: more long tail UH spending cycles, whether it's UH bule
• 7:00
  Speaker 1: expenditure with intech UH, you know, those are probably gonna
• 7:04
  Speaker 1: fair better in this sort of environment. Is this you know?
• 7:08
  Speaker 1: For years, um, people have talked about active versus passive
• 7:12
  Speaker 1: and the kind of Jack Bogel passivity of Vanguard one out.
• 7:16
  Speaker 1: But is that over now? I mean, is buying an
• 7:20
  Speaker 1: index tracking fund just not going to do as well
• 7:22
  Speaker 1: as getting an active manager? You know, that's uh, you
• 7:26
  Speaker 1: know the million dollar question. Um. You know, I do
• 7:29
  Speaker 1: think there is value and active management, and I do
• 7:31
  Speaker 1: think a lot of the industry does not realize the
• 7:34
  Speaker 1: risk that come with index funds. I mean, the top
• 7:37
  Speaker 1: five and ten positions and an index fund um tend
• 7:42
  Speaker 1: to be the names that are up a lot. They
• 7:44
  Speaker 1: tend to be um, you know, big movers of the
• 7:47
  Speaker 1: market in the index. UM. So there's a risk profile
• 7:50
  Speaker 1: there that a lot of people, uh may not fully
• 7:53
  Speaker 1: understand or they're betting on Tesla essentially in a sense.
• 7:56
  Speaker 1: I mean, I can't believe it's I think the fourth
• 8:00
  Speaker 1: biggest weight or the fifth biggest weight in the SMP. Yeah.
• 8:04
  Speaker 1: Robert talked us about healthcare down the pass that scen area.
• 8:06
  Speaker 1: You guys have been looking at what's your healthcare sector
• 8:10
  Speaker 1: call right now? So coming out of the pandemic, we
• 8:13
  Speaker 1: feel like a lot of industries out there rebounded strongly
• 8:17
  Speaker 1: as the world returned to normal, but healthcare was one
• 8:20
  Speaker 1: that lagged, and it, you know, kind of makes sense
• 8:22
  Speaker 1: people were reluctant to head back to the doctor to
• 8:25
  Speaker 1: get those knees, replace those hips, or seek the care.
• 8:28
  Speaker 1: They were more apt to go on vacation or on
• 8:30
  Speaker 1: a cruise or back to concerts. So we think the
• 8:34
  Speaker 1: return to normal for a lot of traditional consumer healthcare
• 8:38
  Speaker 1: is still in front of the index, and when you
• 8:40
  Speaker 1: look at its relative valuation compared to other industries, it's
• 8:44
  Speaker 1: still very attractive. So it's more defensive. The valuation is attractive,
• 8:48
  Speaker 1: it has business in front of it, and it's also
• 8:51
  Speaker 1: an industry that is used to operating, uh in a
• 8:54
  Speaker 1: high inflation environment. I mean, healthcare costs been going up,
• 8:57
  Speaker 1: you know, mid single digits for years. UH, so this
• 9:00
  Speaker 1: is business as usual with a tailwind. And of course
• 9:04
  Speaker 1: the long term demographic So um, it's an area we like,
• 9:09
  Speaker 1: uh and there's nothing that can turn that around. I
• 9:12
  Speaker 1: mean you'd think that, especially the Democrats, would like to
• 9:15
  Speaker 1: slow it down, but they can't and maybe um, their
• 9:19
  Speaker 1: lobbyists are the same as Republican lobbyists, so they won't. Um.
• 9:23
  Speaker 1: You're not concerned about anything in the future that stops that,
• 9:26
  Speaker 1: because it does seem like such an easy such as
• 9:28
  Speaker 1: slam dunk. You know, the risk of regulatory oversight and
• 9:33
  Speaker 1: pricing pressures. Uh. You know, I'm not gonna belittle it,
• 9:37
  Speaker 1: but it has been around for twenty plus years. Uh,
• 9:41
  Speaker 1: and at the end of the day, it has very
• 9:43
  Speaker 1: little UM impact beyond sentiment over the group. So UM,
• 9:49
  Speaker 1: it's a risk, absolutely, but it's not a risk you
• 9:53
  Speaker 1: should embrace and avoid the sector entirely because of it,
• 9:57
  Speaker 1: because that would have been a losing proposition over the
• 9:59
  Speaker 1: last twenty years. Certainly though it's popular trade, right. I mean,
• 10:03
  Speaker 1: we all see and feel the rising costs of healthcare
• 10:06
  Speaker 1: and then make that decision for an investment. Where do
• 10:09
  Speaker 1: you see value what's unloved right now that that you think, um,
• 10:14
  Speaker 1: people have overlooked well. I do think the two sectors
• 10:18
  Speaker 1: within healthcare that are somewhat ever loved now, the managed
• 10:20
  Speaker 1: care groups have been performing well, but I think the
• 10:24
  Speaker 1: pricing trends are underappreciated there. With higher healthcare costs and
• 10:29
  Speaker 1: the cost of insurance. I mean, these prices kind of
• 10:31
  Speaker 1: get booked into the managed care groups, UM, and it
• 10:35
  Speaker 1: tends to be very profitable by locking in at higher
• 10:38
  Speaker 1: prices for them. So we think that's a powerful factor
• 10:41
  Speaker 1: for that group and the other issue is the drug
• 10:44
  Speaker 1: distributors UM. They have been probably the main target of
• 10:48
  Speaker 1: of pricing pressure regulatory concerns from Washington. But the again,
• 10:54
  Speaker 1: those concerns are often overblown when it comes down to
• 10:56
  Speaker 1: actually implementing legislation to change things. And the group was
• 11:00
  Speaker 1: also suppressed for a long time due to concerns over
• 11:03
  Speaker 1: the opioid legislation. And now that most of those concerns
• 11:07
  Speaker 1: have either been settled or on route to being settled,
• 11:09
  Speaker 1: that is a huge overhang from the group. UM that
• 11:14
  Speaker 1: you know, relieves a lot of the risks. So as
• 11:16
  Speaker 1: a result, we think those groups are attractive as well.
• 11:19
  Speaker 1: All right, Robert, thank you so much for taking the
• 11:21
  Speaker 1: time to join us and share your thoughts here on
• 11:23
  Speaker 1: these markets. Robert Stimpson, he's the c I O and
• 11:27
  Speaker 1: portfolio manager at Oak Associates Funds. All right, I'm looking
• 11:34
  Speaker 1: at Apple's balance sheet here D eighty billion in cash,
• 11:38
  Speaker 1: total debts, so that's sixty net cash. I'm looking at
• 11:40
  Speaker 1: the f A function on the Bloomberg terminal. I gotta
• 11:42
  Speaker 1: say it's one of my favorite functions. It's so basic,
• 11:44
  Speaker 1: but it's got everything you need, I mean everything. Whoever
• 11:48
  Speaker 1: thought that function up did did did good? Uh so,
• 11:51
  Speaker 1: all right, So sixty billion in net cash on the
• 11:53
  Speaker 1: balance sheet, a hundred ten billion of projected free cash
• 11:55
  Speaker 1: flow in each of the next couple of years. Why
• 11:57
  Speaker 1: are these Why is this company going to the bond market? Well,
• 12:00
  Speaker 1: on a rock runner, he covers all this stuff, Senior
• 12:03
  Speaker 1: Soccer and I T services animals from Bloomberg Intelligence on
• 12:07
  Speaker 1: a rug. Why are they going to the bond market?
• 12:09
  Speaker 1: Why does Apple borrow money? Just I mean that the
• 12:14
  Speaker 1: cost of money is so cheap it does make sense
• 12:17
  Speaker 1: to bottle it and keep it. Because, as you said,
• 12:19
  Speaker 1: the net cash is about sixty billion, and they spend
• 12:22
  Speaker 1: about eighty five to nine billion in buying back stock,
• 12:26
  Speaker 1: so they do have to botrow that money to buy
• 12:28
  Speaker 1: back that that ships that you mentioned just not that's crazy.
• 12:32
  Speaker 1: They borrow money to buy back shares. So and the
• 12:35
  Speaker 1: bond analysts and the bond investors don't care. Usually that
• 12:39
  Speaker 1: is a huge no. No. Can you lend us money
• 12:42
  Speaker 1: so we can pay our stockholders? Yeah? Yeah, But but
• 12:45
  Speaker 1: they're going to generator a hundred billion in free cash,
• 12:48
  Speaker 1: So it's not a big deal. It's just a matter
• 12:50
  Speaker 1: of what's most optimized for that capital structure. So if
• 12:54
  Speaker 1: you know, if they can bottle let's say a few
• 12:56
  Speaker 1: hundred let's say even a hundred bases point on hundred
• 12:59
  Speaker 1: a fifty basis points about tragedies, that's really cheap capital.
• 13:02
  Speaker 1: That's just you know, you're not gonna be able to
• 13:04
  Speaker 1: buy it let's say a few years from now, Um
• 13:07
  Speaker 1: that much cash at that that low prices. Alright, So
• 13:10
  Speaker 1: given that free cash low profile, given that balance sheet profile,
• 13:14
  Speaker 1: I then go to another great Bloomberg function that is
• 13:17
  Speaker 1: the most used function d e s to get a
• 13:20
  Speaker 1: sense of what their dividend yield is. It's less than
• 13:23
  Speaker 1: one percent. Why don't smart equity analysts like you on
• 13:27
  Speaker 1: a rock get in the ear the CFO and say
• 13:30
  Speaker 1: raise that to a respectable to two and a half
• 13:33
  Speaker 1: three percent. That would be really good to attract retail shareholders. So, Paul,
• 13:38
  Speaker 1: I've been writing that I think they should increase their
• 13:41
  Speaker 1: buy backs rather than the dividends, because you know, in
• 13:44
  Speaker 1: FY twenty, which their fiscal twenty, they reduced share counts
• 13:47
  Speaker 1: by about six percent five point seven and they brought
• 13:51
  Speaker 1: back seventy two billion entree cash flow and stop in
• 13:55
  Speaker 1: f one, they reduced the share gun by three point
• 13:58
  Speaker 1: eight percent on and but used about eighty six billion
• 14:02
  Speaker 1: this year twenty two. They're gonna reduce the share account
• 14:05
  Speaker 1: by somewhere around three so that inherent EPs growth is
• 14:12
  Speaker 1: just coming down a little. I would love for them
• 14:14
  Speaker 1: to buy back more shares rather than increase the divident.
• 14:17
  Speaker 1: But just as my personal choice, I mean, isn't one
• 14:20
  Speaker 1: better for dividends is probably better for the shareholder, whereas
• 14:25
  Speaker 1: buy backs is better for the corporation because once you
• 14:29
  Speaker 1: start a dividend, you can't reduce it or cut it
• 14:33
  Speaker 1: off without taking a lot of heat in markets, right,
• 14:36
  Speaker 1: whereas a buy back plan there's a beginning in an
• 14:38
  Speaker 1: end exactly. So no, I mean the buyback you know
• 14:41
  Speaker 1: once also it is it is it's a cultural thing.
• 14:44
  Speaker 1: If you have a company like Apple, where the free task,
• 14:47
  Speaker 1: though is predictable, you can't say that the buyback is
• 14:50
  Speaker 1: going to be predictable as well. The thing is again,
• 14:54
  Speaker 1: you know, there there's a lot of discussions about the
• 14:56
  Speaker 1: value of buybacks versus dimenon in my view, and it
• 14:59
  Speaker 1: has changed a of the years. If the if the
• 15:01
  Speaker 1: intrinsic value of the company is still below the current
• 15:07
  Speaker 1: share price, they should be using that cash to buy
• 15:10
  Speaker 1: back most here is because hendically, as a shareholder, my
• 15:14
  Speaker 1: you know, piece of the pie becomes growth grows every
• 15:18
  Speaker 1: year by that four or five percent without even putting
• 15:22
  Speaker 1: a new dime in. So I think from that point,
• 15:24
  Speaker 1: if it's a value company, and Bilkshire just started doing
• 15:28
  Speaker 1: this after many years of not buying back any shares,
• 15:31
  Speaker 1: if you can't, if you don't know what to do
• 15:32
  Speaker 1: with that cash, you should be buying back heres, assuming
• 15:35
  Speaker 1: they are trading flow the intrinsic value of the company.
• 15:38
  Speaker 1: By the way, um does it keep growing at that
• 15:41
  Speaker 1: level on a rack because you know, I bought an
• 15:44
  Speaker 1: I bought a desktop Apple computer back and I think
• 15:48
  Speaker 1: two thousand twelve, and I still don't need a new
• 15:53
  Speaker 1: one ten years later. It still does way more than
• 15:55
  Speaker 1: I could ever do with it. Um My my iPhone
• 16:00
  Speaker 1: eleven or twelve, even though it's got a little break
• 16:03
  Speaker 1: in the corner of the screen, I can't imagine what
• 16:05
  Speaker 1: an upgrade would really get me. Um And my Apple Watch.
• 16:09
  Speaker 1: Also it does everything I needed to, Like, I don't
• 16:13
  Speaker 1: need a new one? What what what are they gonna
• 16:15
  Speaker 1: come out with it? I have to buy? No, it's
• 16:18
  Speaker 1: just doesn't have to be you know, it's going to
• 16:19
  Speaker 1: be the replacement cycle for your iPhone as the single
• 16:22
  Speaker 1: biggest driver. Because what happens is the average lifetime of
• 16:26
  Speaker 1: they're about eight million units of iPhones out there, the
• 16:30
  Speaker 1: average life let's say, is somewhere between tea and a
• 16:32
  Speaker 1: half and four years. You may not want to upgrade
• 16:35
  Speaker 1: right now, but within the next four years you will.
• 16:37
  Speaker 1: It's just a matter of in slow down. So every
• 16:39
  Speaker 1: year they're selling two million iPhones, even without finding a
• 16:43
  Speaker 1: new buyer. This is just a replacement cycle. And then
• 16:46
  Speaker 1: what happens is and we saw this this time in
• 16:48
  Speaker 1: the quarter. They saw really good growth in emerging market
• 16:52
  Speaker 1: countries like Brazil and India and China and Indonesia where
• 16:56
  Speaker 1: the middle class as it starts to become a little
• 16:58
  Speaker 1: bit richer, Apple the brand they're going to go through.
• 17:01
  Speaker 1: They get rid of the Android phone load and Android
• 17:04
  Speaker 1: phone and they go for an iPhone. That's the growth market.
• 17:07
  Speaker 1: It's not going to come from you, Mark Miller. It
• 17:09
  Speaker 1: is you are just a replacement for every three to
• 17:12
  Speaker 1: four years. But it is going to come from those
• 17:14
  Speaker 1: emerging markets. That is not a growth market. That wasn't
• 17:17
  Speaker 1: very nice to say, fair fair enough, by the way,
• 17:21
  Speaker 1: can you settle something for our listeners? Uh, once and
• 17:25
  Speaker 1: for all? Does Apple have a secret self destruct mechanism
• 17:29
  Speaker 1: built into the phone? Like it at the time when
• 17:32
  Speaker 1: you're ready to renew, does your battery just automatically die? No?
• 17:36
  Speaker 1: I don't think so. About what happens is you really
• 17:39
  Speaker 1: need to take those you know you you want to
• 17:41
  Speaker 1: take those high end videos. You want to be able
• 17:44
  Speaker 1: to run the games at a much faster pace. So
• 17:47
  Speaker 1: over time, when these new applications are built with new
• 17:50
  Speaker 1: videos come out, when and you know Netflix videos at
• 17:53
  Speaker 1: a very high pace, your system may not be able
• 17:55
  Speaker 1: to handle it because the equipment is four or five
• 17:58
  Speaker 1: six years old. Then you will replace should at that time?
• 18:01
  Speaker 1: All right, Anna rock Rana, thanks so much for joining
• 18:03
  Speaker 1: us on a rock ran a senior software and I
• 18:04
  Speaker 1: T Services analyst, phoning it in from Bloomberg Intelligence. I'd
• 18:09
  Speaker 1: like to point it out. All right, let's switch gears,
• 18:14
  Speaker 1: go a little political. Let's go Watchington d C Emily Wilkins,
• 18:16
  Speaker 1: Congressional reporter for Bloomberg Government. So, Emily, the news coming
• 18:19
  Speaker 1: out today that Speaker Nancy Pelosi will in fact visit Taiwan.
• 18:24
  Speaker 1: What's the feeling within the nation's capital about that news.
• 18:29
  Speaker 1: So we've known about this trip for a while. Of course,
• 18:31
  Speaker 1: Speaker Pelosi's office wouldn't confirm it for security and safety reasons,
• 18:35
  Speaker 1: but Bloomberg has been reporting on this for a while
• 18:37
  Speaker 1: and we know that even though the Department of Defense
• 18:40
  Speaker 1: and the Pentagon have raised some concerns about it strictly
• 18:42
  Speaker 1: from a security standpoint, there is really a lot of
• 18:45
  Speaker 1: support for the Speaker to be making this trip at
• 18:48
  Speaker 1: this time. Um, you heard both from Democrats as well
• 18:51
  Speaker 1: as Republicans, and thinking about Senate Minority Leader Mitch McConnell
• 18:55
  Speaker 1: saying that if Pelosi was too back out of this
• 18:57
  Speaker 1: trip now that she'd be handing a gift to China,
• 19:00
  Speaker 1: and that there are supportive of her going. It's certainly
• 19:03
  Speaker 1: a significant trip. This is, you know, the number three
• 19:05
  Speaker 1: top leader in the entire United States making an official
• 19:09
  Speaker 1: visit from Taiwan, the first since how Speaker knew Gingrich
• 19:12
  Speaker 1: traveled to the island back in So another speaker has
• 19:17
  Speaker 1: done this and I feel like, um, Speaker is kind
• 19:19
  Speaker 1: of the highest level we could do this without starting
• 19:22
  Speaker 1: actual war. But are people still gonna possibly die because
• 19:27
  Speaker 1: of this trip? I mean, is she risking real military action.
• 19:32
  Speaker 1: I mean, certainly the military is always cognizant. Right when
• 19:34
  Speaker 1: a congressional leader or so someone you know, the president
• 19:37
  Speaker 1: goes abroad, they are security measures in place. Heck, even
• 19:41
  Speaker 1: when they go domestic, their security measures in place. This
• 19:44
  Speaker 1: is just a little bit more of of a larger situation,
• 19:47
  Speaker 1: a tens or situation, I think, and this is a
• 19:51
  Speaker 1: bit of guesswork here, but I think if the Speaker
• 19:53
  Speaker 1: seriously thought that someone was going to die, she would
• 19:56
  Speaker 1: not be going on this trip. Same with Department of Defense.
• 19:59
  Speaker 1: And to be clear or at this point, we still
• 20:01
  Speaker 1: don't have confirmation from the Speaker's office that she will
• 20:04
  Speaker 1: be going to Taiwan. She's in Singapore today. We know
• 20:07
  Speaker 1: her schedule is going to bring her to Malaysia, to
• 20:09
  Speaker 1: South Korea, to Japan, but her schedule isn't completely finalized.
• 20:12
  Speaker 1: We don't know the exact dates for all of those things,
• 20:15
  Speaker 1: and so there could be a potential that she could
• 20:17
  Speaker 1: go to Taiwan and not be announced ahead of time,
• 20:20
  Speaker 1: potentially for security reasons. Uh, Emily, we've got about thirty
• 20:23
  Speaker 1: seconds left or so, do we have any sense of
• 20:25
  Speaker 1: what her agenda might be with a visit to Taiwan. Well.
• 20:30
  Speaker 1: President Biden did tell Chinese President shi Jin paying on
• 20:33
  Speaker 1: the phone last week that the U S policy on
• 20:35
  Speaker 1: Taiwan has not changed. So I don't think we're expecting
• 20:38
  Speaker 1: any sort of major announcements, but perhaps to sort of
• 20:41
  Speaker 1: reaffirmed Taiwan, especially after we saw everything with Ukraine and
• 20:45
  Speaker 1: Russia in the past year. Just it seems like a
• 20:49
  Speaker 1: very highly highly visible trips. So we see if it's
• 20:52
  Speaker 1: anything more than just a photoop, I guess. I mean,
• 20:56
  Speaker 1: I think it'll be very interesting to see what is
• 20:58
  Speaker 1: done and what is said. It does seemed on a
• 21:00
  Speaker 1: way of reaffirming that the US does have support for Taiwan. Yeah,
• 21:04
  Speaker 1: cross this line. Okay, we're crossing. We're crossing exactly, all right.
• 21:08
  Speaker 1: Emily Wilkins, Congressional reporter joining us from Bloomberg Government in Washington,
• 21:13
  Speaker 1: d C. Stephanie Pierces in our Bloomberg Interactive Broker studio.
• 21:20
  Speaker 1: That's big news for us. She's the CEO at dry
• 21:22
  Speaker 1: Fust Melon does all the exchange traded funds there at
• 21:25
  Speaker 1: BNY Melon. So, Stephanie, crazy year, brutal, brutal first half
• 21:29
  Speaker 1: of the year. You could make money anywhere in that portfolio.
• 21:33
  Speaker 1: Now we've had a little bit of a bounce. What's
• 21:35
  Speaker 1: been like in the E t F world? Is that
• 21:38
  Speaker 1: still the hot thing out there? Well, here's what I
• 21:41
  Speaker 1: would say. E t F s continued to be in
• 21:44
  Speaker 1: any market environment, the vehicle of choice for investors. We've
• 21:46
  Speaker 1: seen over a three hundred billion dollars of flows here
• 21:49
  Speaker 1: today on a net basis in a tf SO which
• 21:51
  Speaker 1: just doesn't stop. But here's what's interesting. There's been a
• 21:54
  Speaker 1: lot of talk about the divergence between taxable fixed income
• 21:58
  Speaker 1: mutual fund flows which have been NETTI, and e t
• 22:01
  Speaker 1: F flows in the same category, which have been positive.
• 22:03
  Speaker 1: And it's a pretty big spread. But if you actually
• 22:05
  Speaker 1: peel away the onion, that's happening in multiple sectors. US equity,
• 22:09
  Speaker 1: same thing, mutual funds and outflows, E t f s
• 22:11
  Speaker 1: and inflows International equity, same thing. About. The only place
• 22:14
  Speaker 1: that's not true is alternatives and commodities, where both are
• 22:17
  Speaker 1: in positive flows. But you know, if you peel it
• 22:20
  Speaker 1: back one level further, was really interesting is it's not
• 22:22
  Speaker 1: really about just musical funds and ETFs. It's active mutual
• 22:25
  Speaker 1: funds in those categories that are out closed and ETFs,
• 22:28
  Speaker 1: both active and passive in the same categories in inflows.
• 22:32
  Speaker 1: So one thesis on that is that the tax loss
• 22:35
  Speaker 1: harvesting opportunity, as we've seen market volatility has given, you know,
• 22:39
  Speaker 1: opportunity here to actually book those losses or make the
• 22:43
  Speaker 1: kind of opportunistic trades in portfolios clean harvesting, take your
• 22:48
  Speaker 1: losses after drop in the SMPI. Right, you had your
• 22:51
  Speaker 1: index funds, and that was the thing to do for years.
• 22:54
  Speaker 1: Now the kids want actively managed UH funds and they
• 23:00
  Speaker 1: don't want to pay the mutual fund fees, right, so
• 23:03
  Speaker 1: they're looking for actively managed ETFs. Even um. Even Vanguard
• 23:08
  Speaker 1: is like starting to do this. I don't know if
• 23:11
  Speaker 1: Vanguard is actually starting to do it, but I think
• 23:12
  Speaker 1: it's right. I mean, look, the reality is it's been
• 23:15
  Speaker 1: years since you could actually move out of a mutual
• 23:17
  Speaker 1: fund without the penalty of a big capital game. And
• 23:20
  Speaker 1: so in the first part of this year you've had
• 23:22
  Speaker 1: that opportunity. So when we talk to our investment advisor clients,
• 23:25
  Speaker 1: this is the way they can show value to their clients.
• 23:27
  Speaker 1: It's also been i mean never that you've been able
• 23:31
  Speaker 1: to buy actively managed I mean, this is a relatively
• 23:34
  Speaker 1: new thing, right, not this year but in the past,
• 23:37
  Speaker 1: mutual funds were um or or any kind of fund
• 23:41
  Speaker 1: that wasn't. An e t F was, and you're only
• 23:44
  Speaker 1: actively managed choice. You know, now you can actually buy
• 23:48
  Speaker 1: an ETF for fifty sixty seventy five basis points and
• 23:51
  Speaker 1: you get an active manager. That's right. And if you
• 23:53
  Speaker 1: actually look at the flows this year, underneath that three
• 23:56
  Speaker 1: hundred billion active managers or active ets are punching above
• 23:59
  Speaker 1: their wait. Right, So active ETFs are only five percent
• 24:03
  Speaker 1: of the entire six trillion, seven trillion dollar ust F marketplace,
• 24:06
  Speaker 1: so call it three billion, but they are over fifteen
• 24:09
  Speaker 1: percent of the flows that I mentioned that. What about definitely?
• 24:12
  Speaker 1: What about people who want to hedge against inflation. We
• 24:14
  Speaker 1: were talking to Phil Orlando earlier and he was saying, um,
• 24:17
  Speaker 1: you know, healthcare actually has been a great hedge against inflation.
• 24:20
  Speaker 1: I thought I should be doing that for my future.
• 24:22
  Speaker 1: Right the day when I get cancer or your heart
• 24:25
  Speaker 1: disease or whatever it happens, I and I go, oh
• 24:29
  Speaker 1: my god, the hospital bills are insane. I will be
• 24:31
  Speaker 1: happy to have invested in healthcare. But our e t
• 24:34
  Speaker 1: F s a big vehicle for hedging against inflation. Are
• 24:37
  Speaker 1: people using them? For that this year. Yeah, and you
• 24:39
  Speaker 1: absolutely are seeing some cyclical trades, right, So, you know,
• 24:42
  Speaker 1: one of the things that I would note, particularly in ETFs,
• 24:45
  Speaker 1: and this is both active and passive, would be, you know,
• 24:47
  Speaker 1: particularly in the month of July, we actually saw a
• 24:50
  Speaker 1: reversal where instead of just the short duration fixed in
• 24:53
  Speaker 1: com ets that we saw or equity tfs earlier in
• 24:56
  Speaker 1: the year draw dominating flows, we actually started to see
• 24:59
  Speaker 1: fixed income take over equity overall, and within that more
• 25:02
  Speaker 1: extending duration, more corporate exposure being taken on. So not
• 25:05
  Speaker 1: just short duration of people really trying to look to say, gee,
• 25:09
  Speaker 1: you know, if the FED is even close to halfway
• 25:11
  Speaker 1: done in the tightening cycle. And we can debate whether
• 25:13
  Speaker 1: that's true or not, but investors are looking at what's
• 25:15
  Speaker 1: priced in the market and saying, Jimmy, I can extend
• 25:17
  Speaker 1: out the curve here, pick up a little bit more yield.
• 25:19
  Speaker 1: So that is definitely a theme that that we are seeing,
• 25:22
  Speaker 1: and yield is a theme. That's what Katie Griffold was
• 25:24
  Speaker 1: just telling us. People want uh dividend paying e t
• 25:28
  Speaker 1: f s, dividend paying ETFs and even areas like you know,
• 25:31
  Speaker 1: corporate investment grade. You know, you're looking at things like
• 25:34
  Speaker 1: high yield, which is seen, you know, for the first
• 25:36
  Speaker 1: time all year, two months of positive flows, a couple
• 25:39
  Speaker 1: of billion dollars. Why is that, Well, you can pick
• 25:41
  Speaker 1: up a seven to eight percent yield in a high
• 25:43
  Speaker 1: yield ETF. That's a nice coupon. Even if you think
• 25:46
  Speaker 1: there's some recession risk and there's some risk of default
• 25:49
  Speaker 1: call it one one and a half percent worst case
• 25:51
  Speaker 1: default risk. You're still picking up a nice coupon. If
• 25:53
  Speaker 1: you're a little shy about jumping back into equity, right,
• 25:56
  Speaker 1: you have equity like exposure with a nice coupon to
• 25:59
  Speaker 1: shield you a little bit. And certainly evaluations are very attractive.
• 26:02
  Speaker 1: You know, corporates still don't have a lot of um
• 26:05
  Speaker 1: leverage they have historically, you know, high cash on the books.
• 26:08
  Speaker 1: It's not a bad trade in this environment. Stephanie Suenior
• 26:10
  Speaker 1: extensive resume that you spend some time at fidelity. It
• 26:13
  Speaker 1: can't be a good time. May be a mutual fund.
• 26:15
  Speaker 1: Every time I stalk e t F, it's just record
• 26:17
  Speaker 1: inflow here, record inflow there. Well, look what's look? Mutual
• 26:21
  Speaker 1: funds and ETFs are going to co exist for a
• 26:23
  Speaker 1: long long time. But I think it's fair to say,
• 26:26
  Speaker 1: you know, I have a twelve year old at home.
• 26:28
  Speaker 1: Many of us have kids, grandkids. I'm not so sure
• 26:31
  Speaker 1: that those kids are or their their kids are necessarily
• 26:34
  Speaker 1: going to buy mutual funds. ETFs are simpler, they're more
• 26:36
  Speaker 1: transparent and more costom tax efficient. There's one price. It's
• 26:40
  Speaker 1: really what we think of as the democratization of finance,
• 26:42
  Speaker 1: and everybody's converting. I mean, we're seeing so many conversions
• 26:45
  Speaker 1: this year, mutual funds converting into e t f s.
• 26:48
  Speaker 1: And the only reason they wouldn't is probably because of
• 26:50
  Speaker 1: this aged you know, four one K infrastructure that still
• 26:54
  Speaker 1: doesn't allow a lot of times you to pick ets.
• 26:57
  Speaker 1: But that's that's right, and it is operationally calm, located
• 27:00
  Speaker 1: with multiple share classes, what kind of account they're sitting in,
• 27:02
  Speaker 1: so it's not simple to do. But I absolutely think,
• 27:05
  Speaker 1: um that is the wave of the future is probably
• 27:08
  Speaker 1: more ETFs than more next generation investors coming into the vehicle.
• 27:11
  Speaker 1: All right, Stephanie Pierce, thank you so much for joining
• 27:13
  Speaker 1: us here in our Bloomberg Interactor Broker studio. Stephanie Pierce,
• 27:15
  Speaker 1: CEO Dreyfus Melon and Exchange Trade of Funds at b
• 27:18
  Speaker 1: and Y Melan. Thanks for listening to the Bloomberg Markets podcast.
• 27:22
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 27:26
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 27:30
  Speaker 1: on Twitter at Matt Miller three. Put on false Sweeney
• 27:34
  Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
• 27:36
  Speaker 1: can always catch us worldwide at Bloomberg Radio