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At the Money: Hot & Cold Investments · Masters in Business

• 0:00
  Speaker 1: Because you're hot.
• 0:07
  Speaker 2: What's the hot sector of the moment, is it ai?
• 0:11
  Speaker 2: The metaverse? Gold oil? Why do some stocks and styles
• 0:16
  Speaker 2: fall in and out of favor on such a regular basis?
• 0:20
  Speaker 2: The challenge for investors is whether or not to jump
• 0:23
  Speaker 2: into or out of these changing sectors, and when it's
• 0:29
  Speaker 2: actually much harder than it looks. I'm Barry red Halts
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  Speaker 2: and on today's edition of At the Money, we're going
• 0:36
  Speaker 2: to discuss what to do with assets that have fallen
• 0:40
  Speaker 2: out of favor with the markets. To help us unpack
• 0:43
  Speaker 2: all of this and what it means for your portfolio,
• 0:46
  Speaker 2: Let's bring in Yon van Ck, CEO of van X Funds.
• 0:51
  Speaker 2: The company manages about seventy five billion dollars across a
• 0:55
  Speaker 2: variety of ETFs and mutual funds. Let's just start with
• 1:00
  Speaker 2: the basic concept. Why do broad things tend to fall
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  Speaker 2: in and out of favor?
• 1:05
  Speaker 3: Well, Barry, you know the firm was found in nineteen
• 1:08
  Speaker 3: fifty five. In our perspective on the markets is that markets,
• 1:12
  Speaker 3: financial markets live within a broader world of political trends,
• 1:16
  Speaker 3: economic trends, and technology. Also, the game of investing is
• 1:22
  Speaker 3: really a art more than a science. If you go
• 1:24
  Speaker 3: back one hundred years Barry, people had one hundred percent
• 1:27
  Speaker 3: bonds in their portfolio. That was the prudent thing to do.
• 1:30
  Speaker 2: Didn't Some people also have widow and orphan funds, some railroads,
• 1:34
  Speaker 2: some banks, some telephones.
• 1:36
  Speaker 3: Oh yeah, Well, obviously people have been chasing disruptive technology
• 1:39
  Speaker 3: forever and a lot of lessons to be learned if
• 1:42
  Speaker 3: we want to go there. But I'm just saying, listen,
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  Speaker 3: if you look at institutional portfolios today, now half of
• 1:48
  Speaker 3: them are in private equity and ventor capital. So just
• 1:52
  Speaker 3: the basic what you put in your portfolio has changed
• 1:55
  Speaker 3: a lot over the decades.
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  Speaker 1: So I take a very skeptical.
• 1:58
  Speaker 3: View and rerecize that we're appoint in time and history,
• 2:02
  Speaker 3: and you want to be conscious.
• 2:03
  Speaker 1: About how you put your portfolio together.
• 2:05
  Speaker 2: So let's talk about some of those asset classes that
• 2:08
  Speaker 2: have either become popular or too popular, or have fallen
• 2:13
  Speaker 2: out of favor and become so unpopular that they're becoming attractive. Again,
• 2:18
  Speaker 2: let's start with the basics. How do you identify when
• 2:21
  Speaker 2: an asset class has fallen out of favor?
• 2:25
  Speaker 1: These are great questions.
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  Speaker 3: I mean, I think the question is what do you
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  Speaker 3: even feel comfortable putting in your portfolio. I'm going to
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  Speaker 3: be the radical skeptic. Let's start with US equities. We've
• 2:36
  Speaker 3: been a very great economy, great place to be. That's
• 2:39
  Speaker 3: the core of your portfolio. But people will say, oh,
• 2:42
  Speaker 3: value investing is the way to go, and they'll show
• 2:44
  Speaker 3: you a study of forty years of databaary and value
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  Speaker 3: beats growth all the time until it stops.
• 2:50
  Speaker 2: Right, which you've done over the past fifteen years.
• 2:52
  Speaker 3: So what we've learned, I think right in the industry
• 2:54
  Speaker 3: now is you better be very benchmark aware, Like nowhere
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  Speaker 3: the market is saying that there is value and take
• 3:03
  Speaker 3: it at face value. That should be your starting off point.
• 3:05
  Speaker 3: And US equities are certainly the core. Right then the
• 3:09
  Speaker 3: question is, well, are there other things happening in the
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  Speaker 3: world that might favor something like commodities or is fixed
• 3:16
  Speaker 3: income going to be in favor or not in favor?
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  Speaker 3: And that depends on some of the cycles that we're
• 3:20
  Speaker 3: talking about.
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  Speaker 2: Let's use money market funds as an example. For the
• 3:25
  Speaker 2: longest time, money market funds were barely yielding anything. Rates
• 3:29
  Speaker 2: were zero. You're getting twenty BIPs thirty BIPs in a
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  Speaker 2: money market fund. Suddenly you're getting five to five and
• 3:35
  Speaker 2: a quarter and literally six trillion dollars in cash flows
• 3:39
  Speaker 2: into money market funds. What should an investor make of
• 3:43
  Speaker 2: that asset class suddenly coming back into favor.
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  Speaker 3: Yeah, I mean, listen, My point is be skeptical about everything.
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  Speaker 3: So people say, oh, bonds are a normal allocation, Well,
• 3:54
  Speaker 3: we know and have ever been reminded in twenty twenty
• 3:57
  Speaker 3: two that bonds are very subject.
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  Speaker 1: To intro straight movements.
• 4:01
  Speaker 3: And so we're sitting here at let's say four and
• 4:03
  Speaker 3: a half on the ten year, I'm very worried about
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  Speaker 3: our fiscal.
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  Speaker 1: Situation in the United States. We don't need to go
• 4:08
  Speaker 1: into that.
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  Speaker 3: But that leads me to say, you know what, I'm
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  Speaker 3: very very happy sitting in t bills right now. I
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  Speaker 3: don't feel as the skeptic that I need to be
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  Speaker 3: that core position. I'm happy to get the same yield
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  Speaker 3: for a lot less interest rate risk.
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  Speaker 2: So meaning you're looking at shorter duration.
• 4:26
  Speaker 3: Shorter duration, any kind of shorter duration fixed income. So
• 4:29
  Speaker 3: I bother with you know, interest rate risk.
• 4:32
  Speaker 2: Let's talk about sectors that have rotated into favor. How
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  Speaker 2: do you identify these three to five year trends that
• 4:40
  Speaker 2: are a good place to park some capital for you? Know,
• 4:43
  Speaker 2: a couple of years.
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  Speaker 3: So let's say commodities, you had the industrialization of China,
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  Speaker 3: which was a super trend of commodities. COMI, I would
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  Speaker 3: say more of a tactical asset class.
• 4:56
  Speaker 1: But we look at global growth.
• 4:57
  Speaker 3: As measured by PMI, and if PMI is over fifty,
• 5:01
  Speaker 3: which it only became now in Q one, that's what
• 5:05
  Speaker 3: I think is driving commodity prices. And once you have
• 5:08
  Speaker 3: I think sort of the China property implosion is behind us.
• 5:13
  Speaker 1: It can't prove it, but because the global.
• 5:16
  Speaker 3: Economy is now growing, that's an asset class where now
• 5:19
  Speaker 3: the sun is shining on you.
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  Speaker 2: So when you mentioned the supercycle with growth from China
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  Speaker 2: and commodities, you know, during the twenty and twenty tens,
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  Speaker 2: China was consuming all manner of raw material cement and
• 5:34
  Speaker 2: lumber and copper, and prices went up, but not crazy
• 5:40
  Speaker 2: until the pandemic lockdown. Then we really saw prices spike.
• 5:44
  Speaker 2: So what are you looking at on the commodity side?
• 5:47
  Speaker 2: Right now? We have gold not too far from all
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  Speaker 2: time highs, you know, twenty three hundred. How do you
• 5:53
  Speaker 2: look at an assea class like precious metals to decide
• 5:57
  Speaker 2: whether or not this is not one of the many
• 6:01
  Speaker 2: false starts we've seen over the past couple of years.
• 6:03
  Speaker 3: Yeah, I look at gold as a financial asset more
• 6:06
  Speaker 3: than commodities, which is driven by the real economy. Gold
• 6:10
  Speaker 3: would fall into that category. If you we're worried about
• 6:13
  Speaker 3: interest rates and our fiscal problems in the United.
• 6:15
  Speaker 1: States, and hence the rise of gold, hence owned.
• 6:18
  Speaker 3: Some gold and God forbid bitcoin. Absolutely, if you're ever
• 6:22
  Speaker 3: going to own it, as I've been saying over last year,
• 6:25
  Speaker 3: this is the time to own it.
• 6:26
  Speaker 1: We're in a bull market for those two assets.
• 6:29
  Speaker 3: You will have big corrections, twenty percent corrections, but I
• 6:32
  Speaker 3: think you're in a bull market for those two assets
• 6:34
  Speaker 3: until our fiscal problems are solved.
• 6:37
  Speaker 2: Well, there's a follow up discussion. Are we ever going
• 6:40
  Speaker 2: to solve our fiscal problems? You and I are not
• 6:42
  Speaker 2: that far apart age wise, our entire adult lives. We've
• 6:46
  Speaker 2: been warned about the dangers of fiscal access. None of
• 6:50
  Speaker 2: the warnings have come to pass.
• 6:51
  Speaker 1: There.
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  Speaker 2: There hasn't been a crowding out of capital. The dollar
• 6:55
  Speaker 2: is still the strongest currency of the majors out there.
• 6:59
  Speaker 2: There's been no crowding out of private investment. Why should
• 7:03
  Speaker 2: we even care about the fiscal deficit.
• 7:05
  Speaker 3: We're ticking to levels where we've reacted before. So under
• 7:08
  Speaker 3: the Clinton administration, the costs of interest on our debt
• 7:12
  Speaker 3: approach that of defense spending.
• 7:13
  Speaker 1: It's now past that defense spending. So you're right.
• 7:16
  Speaker 3: The big question is will the FED do what the
• 7:19
  Speaker 3: Japanese Central Bank did and treasury, which is buy up
• 7:22
  Speaker 3: all the debt?
• 7:23
  Speaker 1: Right? Who cares if there's too much debt?
• 7:26
  Speaker 3: If there's a buyer of last result, We've never had
• 7:29
  Speaker 3: that in United States, but you can't rule it out.
• 7:31
  Speaker 3: That's why I'm like, you know what, there's all these scenarios.
• 7:34
  Speaker 3: Just make sure you know what they are and that
• 7:35
  Speaker 3: you're kind of comfortable with your portfolio given though.
• 7:38
  Speaker 1: So you're absolutely right.
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  Speaker 3: The way to kick the can is for the government
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  Speaker 3: to do what they did in Japan.
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  Speaker 1: I don't know. I don't see that happening in the US,
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  Speaker 1: But you never know.
• 7:47
  Speaker 2: What other asset classes have you noticed, either coming into
• 7:51
  Speaker 2: or out of favor that are worth talking about?
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  Speaker 3: Whatuld I like from a three to five year perspective,
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  Speaker 3: I think countries tend to trend because you have changes
• 8:00
  Speaker 3: in governments that are either positive for the markets or negative.
• 8:03
  Speaker 2: So let's talk about two countries that have seen quite
• 8:06
  Speaker 2: a bid over the past year. You mentioned Japan obviously
• 8:11
  Speaker 2: their stock market has been doing very well lately, and
• 8:14
  Speaker 2: India is perennially in the running to either catch up
• 8:18
  Speaker 2: or replace China. What do you think about those two
• 8:20
  Speaker 2: countries as asset classes coming in or out of favor?
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  Speaker 3: One hundred percent? Like I mean, India is by far
• 8:27
  Speaker 3: the best macro story. In fact, no one really debates that.
• 8:31
  Speaker 3: It's just what's the pe ratio? How expensive are the stocks?
• 8:35
  Speaker 3: How much are you willing to pay? But I've got
• 8:38
  Speaker 3: a trade within that, which is the two technologies of
• 8:42
  Speaker 3: our lifetimes have been the Internet and AI right, basically
• 8:45
  Speaker 3: the mac seven it's just one trade.
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  Speaker 1: It's the Internet.
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  Speaker 3: It's the companies that stand between us and the internet
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  Speaker 3: right giving us new capabilities. In India, there's now two companies,
• 8:55
  Speaker 3: so they cheapen the cost of cell phones to below
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  Speaker 3: ten bucks a month. They competition beat them brains out
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  Speaker 3: and there's only two survivors, so it's a duopoly. Those
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  Speaker 3: two companies in India are serving eight hundred million customers
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  Speaker 3: and they are now the internet play in India. So
• 9:12
  Speaker 3: I think that is like very high confidence that that's
• 9:16
  Speaker 3: going to be a good investable trend over the next
• 9:20
  Speaker 3: couple of years. You know, I think it's easy to
• 9:23
  Speaker 3: pick a couple of countries where you may be wondering
• 9:26
  Speaker 3: about your allocation there.
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  Speaker 2: What other countries are of interest, What has fallen out
• 9:32
  Speaker 2: of favor?
• 9:35
  Speaker 1: Well, I think I think China's obviously fallen out.
• 9:38
  Speaker 2: I mean, if you're a US investor in China since
• 9:41
  Speaker 2: the early nineties, you're lucky if you break.
• 9:43
  Speaker 3: Even right, Whereas over the last ten years, Indian equities
• 9:47
  Speaker 3: this will shock most people have matched that of US
• 9:51
  Speaker 3: equities over the last real years. Yes, and it's interesting
• 9:55
  Speaker 3: that equity owners in India have been treated much better
• 9:58
  Speaker 3: than in China. There's a devaluation of the Pe ratio
• 10:02
  Speaker 3: right valuation.
• 10:03
  Speaker 2: So Europe as an investing region has been another underperformer
• 10:08
  Speaker 2: for a while. What will it take to get Europe
• 10:12
  Speaker 2: to be attractive to you as an area coming into favor?
• 10:17
  Speaker 3: If the default is the benchmark, I don't see any
• 10:22
  Speaker 3: tremendous internet or AI or technology plays that are large
• 10:27
  Speaker 3: weights in those countries in Europe that would get me
• 10:31
  Speaker 3: super excited.
• 10:32
  Speaker 2: So to wrap up, if you're a long term investor
• 10:35
  Speaker 2: and looking to add to your core portfolio, you might
• 10:39
  Speaker 2: want to consider some of these areas that have come
• 10:42
  Speaker 2: into favor and are likely to persist in favor. We
• 10:46
  Speaker 2: were talking geographically Japan and particular India, but you can
• 10:51
  Speaker 2: also look at things like semiconductors and AI as asset
• 10:56
  Speaker 2: classes that have suddenly become much more investable than they
• 11:00
  Speaker 2: once were. I'm Barry Ritolts. This is Bloomberg's at the Money,
• 11:06
  Speaker 2: because you can't