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ETFs, Disney, and CRE · Bloomberg Intelligence

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  Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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  Speaker 2: my co host Matt Miller.
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  Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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  Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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  Speaker 3: All right, let's talk stocks.
• 0:56
  Speaker 2: Let's talk stocks that pay dividends, and we do that
• 0:59
  Speaker 2: with David Bonson. He's a founder and chief investment officer
• 1:03
  Speaker 2: at the Bonson Group.
• 1:05
  Speaker 3: David, We've got.
• 1:06
  Speaker 2: Probably since the last time we talked had a nice
• 1:08
  Speaker 2: move up and rates kind of you know, and I
• 1:12
  Speaker 2: guess the question is, you know, dividend paying stocks. How
• 1:15
  Speaker 2: do you think about dividen paying stocks in the context of, Hey,
• 1:18
  Speaker 2: I can sit in a two year treasury and get
• 1:19
  Speaker 2: four point ninety six percent here.
• 1:21
  Speaker 4: Yeah, it's a very good question. And I think that
• 1:23
  Speaker 4: when the two year is at zero percent for fifteen years,
• 1:25
  Speaker 4: people got a feel for what my answer is going
• 1:28
  Speaker 4: to be. The two year is not going to stay
• 1:30
  Speaker 4: at four point nine cents, right, And if let's say
• 1:33
  Speaker 4: you buy it and then in two years it's still
• 1:35
  Speaker 4: at four point nine to six, it won't be and
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  Speaker 4: it isn't growing. That's the issue of dividend growth is
• 1:41
  Speaker 4: the growth. Not only do you get something that is
• 1:44
  Speaker 4: consistently going to be at the level which you enter,
• 1:46
  Speaker 4: it's going to grow year over year. With fixed income.
• 1:49
  Speaker 3: They hopefully right.
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  Speaker 1: I mean, there have been companies like BP or Disney
• 1:54
  Speaker 1: that have cut dividends.
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  Speaker 4: It would be very very important for a dividen growth
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  Speaker 4: manager to not allow dividen cuts to have and so
• 2:00
  Speaker 4: in twenty five years, we've never had one, and I
• 2:02
  Speaker 4: intend to go to the rest of my career without one.
• 2:04
  Speaker 4: But there are certainly companies that cut dividends, and we
• 2:07
  Speaker 4: really don't recommend people.
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  Speaker 5: You don't get blindsided by something like BP.
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  Speaker 4: I mean, yeah, BP gave plenty of forecast that what
• 2:14
  Speaker 4: was happening. You had both President Obama and the former
• 2:17
  Speaker 4: candidate John McCain recommending the same thing that they ring
• 2:20
  Speaker 4: fenced twenty billion of liability damage around it. There was
• 2:23
  Speaker 4: no way they were going to do that and keep
• 2:25
  Speaker 4: the dividend, So it gave people months of time to
• 2:28
  Speaker 4: sell before the dividend was cut.
• 2:30
  Speaker 5: That's why I needed something like him, because I didn't know.
• 2:32
  Speaker 3: I didn't know that a career maker for me was
• 2:35
  Speaker 3: City Group.
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  Speaker 4: In two thousand and seven, they came out announced that
• 2:38
  Speaker 4: they were continuing to pay the dividend. At that point,
• 2:40
  Speaker 4: it was up to about seven percent yield.
• 2:41
  Speaker 3: The stock was down, and.
• 2:42
  Speaker 4: Then they borrowed eleven billion dollars from the Kuwaitis and
• 2:45
  Speaker 4: Saudi Arabian Sovereign Wealth Fund. And I said, I don't
• 2:48
  Speaker 4: think people taking advance on their credit card to pay
• 2:50
  Speaker 4: a dividend counts. It has to come from free cash flow.
• 2:53
  Speaker 4: They have to have lower leverage, you have to have
• 2:55
  Speaker 4: a good balance sheet, you have to have a business
• 2:57
  Speaker 4: model that leads to sustainable free cash flow. That's why
• 3:00
  Speaker 4: we have to be actively managing.
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  Speaker 3: So how many names are in your portfolio right now?
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  Speaker 4: Thirty three names?
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  Speaker 5: Thirty three?
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  Speaker 4: I never had more than thirty five in my home.
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  Speaker 2: And again and you're focusing exclusively on dividend growth, right
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  Speaker 2: and what's how do you define what's a good policy
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  Speaker 2: if I'm a CFO to plan my dividends?
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  Speaker 6: Ash?
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  Speaker 2: Is it a percentage of earnings? Is a percentage free
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  Speaker 2: cash flow?
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  Speaker 3: Is it?
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  Speaker 7: How?
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  Speaker 5: Is It's interesting?
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  Speaker 4: Did payout ratios refer to a percentage of earnings that
• 3:26
  Speaker 4: are paid out? But we like to look at the
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  Speaker 4: free cash flow and what percentage of that's being paid out.
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  Speaker 4: And I think most CFOs in America are used to
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  Speaker 4: annualizing a dividend, even if earnings or free cash flow
• 3:38
  Speaker 4: may be somewhat lumpy throughout the year. I think it's
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  Speaker 4: a much better way to do it and affect their
• 3:43
  Speaker 4: growth one time a year as opposed to kind of
• 3:45
  Speaker 4: going up and down. We have I think three companies
• 3:48
  Speaker 4: in the portfolio and then it's Blackstone, Apollo, and Blue Out.
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  Speaker 4: They're asset managers that get carry and carry is intrinsically lumpy,
• 3:56
  Speaker 4: so they tend to pay it a little lumpier, but
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  Speaker 4: most just pay it in a systematic quarterly way.
• 4:01
  Speaker 1: So you're so the ETF is TBG, the Bonson Group
• 4:05
  Speaker 1: pretty easy to remember, and so I click TBG Equity
• 4:10
  Speaker 1: DS into the Bloomberg and then I can click the
• 4:13
  Speaker 1: holdings tab and I see Simon Properties as your top holding.
• 4:17
  Speaker 5: Now, Paul and I, I don't.
• 4:19
  Speaker 1: Know exactly what's in Simon Property's portfolio, but Paul and
• 4:21
  Speaker 1: I talk about commercial real estate with angst and fear
• 4:24
  Speaker 1: every day.
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  Speaker 4: Well, that's you're making a really bullish argument, by the way,
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  Speaker 4: for a contrarian investor, which is to say, a good investor.
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  Speaker 4: But let me explain what's going on with Simon Property.
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  Speaker 4: It's two hundred and seventy two of the best malls
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  Speaker 4: in America. They have given the keys back for four
• 4:38
  Speaker 4: of them. They were non recourse, so they lost a
• 4:41
  Speaker 4: little bit of equity and the lenders had to go fight. Okay,
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  Speaker 4: right now, they have the highest occupancy in the history
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  Speaker 4: of Simon Property, at the highest per foot in the
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  Speaker 4: history of Simon Property. The ninety six point nine percent.
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  Speaker 4: They've taken positions and some of the retailers that have failed,
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  Speaker 4: there are going to be more that fail. Now they've
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  Speaker 4: learned to monetize that. They took jp Jcpenny for five
• 5:01
  Speaker 4: hundred thousand dollars a box. It was trading at twenty
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  Speaker 4: million a box. They're selling some to Amazon, They're reconverting
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  Speaker 4: some into condos and mixed use. It's this massive collection
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  Speaker 4: of real estate that can be repurposed, monetized into something
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  Speaker 4: more valuable. While they do that, we get over seven
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  Speaker 4: percent yield entirely covered by net operating income, and the
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  Speaker 4: leverage is at about forty seven percent. It was sixty
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  Speaker 4: five percent before the financial crisis.
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  Speaker 5: All right. Number two is Verizon.
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  Speaker 1: That makes total sense to me, obviously as a dividend play.
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  Speaker 1: Number three International business machine Big Blue.
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  Speaker 4: One of the great names people could buy.
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  Speaker 5: And this is an idea of a model.
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  Speaker 4: We like a lot. You have old businesses that don't
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  Speaker 4: grow a lot paying you a ton of free cash
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  Speaker 4: flow with new businesses that are sort of not priced
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  Speaker 4: in the represent a free call option. Will they become
• 5:52
  Speaker 4: a real leader in artificial intelligence? I don't know. I
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  Speaker 4: think they will, but I do know this, it's not
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  Speaker 4: priced in the stock at all. The stock is entirely
• 6:00
  Speaker 4: priced off a multiple of its book value of a
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  Speaker 4: kind of more old, stodgier businesses. But they have basically
• 6:06
  Speaker 4: turned most of the business into software and consulting recurring revenue.
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  Speaker 4: So we love IBM. You get five percent dividend yield.
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  Speaker 4: The Red Hat acquisition was expensive, but they're monetizing it,
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  Speaker 4: so IBM's a great dividend grower for years to come.
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  Speaker 2: All Right, I'm heading down to Duke University this afternoon,
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  Speaker 2: and I may or may not bump into Tim Cook,
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  Speaker 2: CEO of Apple.
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  Speaker 3: If I were to get you two guys.
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  Speaker 2: In a room talking dividends, what would you tell him?
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  Speaker 4: Well, I would not tell him anything that others much
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  Speaker 4: smarter and more prestigious than me have not also told him,
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  Speaker 4: And they have failed, and so I'm sure I would fail.
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  Speaker 4: But what Apple's doing is shameful, and the inability to
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  Speaker 4: monetize that level of enterprise value I think is unacceptable.
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  Speaker 4: They will not do something with that two hundred billion
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  Speaker 4: as profitable as returning it to shareholders. They bought Doctor
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  Speaker 4: J's headphone company for three billion dollars. It wasn't worth
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  Speaker 4: nine hundred millions, soaking wet, But who cares.
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  Speaker 3: It's Apple.
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  Speaker 4: They make it in five minutes. My point is, in aggregate,
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  Speaker 4: you can set money on fire when you don't have
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  Speaker 4: an adequate shareholder return policy. They are a victim of
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  Speaker 4: their own success. This cannot be set as a criticism.
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  Speaker 4: They generate too much free cash flow to reinvest all
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  Speaker 4: of it. It has to be returned to shareholders. There
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  Speaker 4: ought to be a very large, juicy dividend coming back
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  Speaker 4: to shareholders. Now here's the thing. They're gonna do it.
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  Speaker 4: Steve Jobs wouldn't do it. Tim Cook did end up
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  Speaker 4: doing a small one. Yep, they grew so much the
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  Speaker 4: yield is now half of a percentage point. I don't
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  Speaker 4: know if it's in a year or ten years, but
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  Speaker 4: every one of these arrogant cool tech companies finds out
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  Speaker 4: that at some point you have a higher return on
• 7:44
  Speaker 4: equity returning this to shareholders.
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  Speaker 5: So all of the.
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  Speaker 4: Companies from the nineties that didn't do it, Cisco, Microsoft, Qualcom,
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  Speaker 4: they all became great dividend growers later Apple will as well.
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  Speaker 5: They're just not there yet. You're gonna you said you're
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  Speaker 5: gonna talk to them. I'm going to talk to them,
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  Speaker 5: and you're going to tell them.
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  Speaker 2: I'm want to say, I talked to this guy, David Bonson.
• 8:01
  Speaker 2: He has a firm, it's his firm, Yeah, in Newport Beach, California.
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  Speaker 8: That's the beach.
• 8:06
  Speaker 7: Yeah.
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  Speaker 2: Yet he spends three weeks a month here in New York.
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  Speaker 2: What are you doing, my man, it's your company. It's
• 8:12
  Speaker 2: three weeks there, maybe a week here to talk to
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  Speaker 2: the eggheads.
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  Speaker 3: In New York.
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  Speaker 4: I really love to work and I think you'll find
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  Speaker 4: the work ethic is a little more impressive in Manhattan
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  Speaker 4: the Newport Beach.
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  Speaker 2: Are there other people that do like this intensive dividend
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  Speaker 2: strategy that you do?
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  Speaker 4: There are other divnent growth managers? There are not You
• 8:28
  Speaker 4: mentioned this ETF that is active. Most ETFs that people
• 8:32
  Speaker 4: own in the divid and growth space are passive, and
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  Speaker 4: I vehemently disagree with that approach. I think it's better
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  Speaker 4: than nothing. But we have built quite a business around
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  Speaker 4: active dividend growth and it's what I built my career around.
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  Speaker 4: I believe in it very much.
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  Speaker 5: Sold us the boxing.
• 8:47
  Speaker 1: I'm trying to get him on the ETF OQ program.
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  Speaker 7: Do it.
• 8:52
  Speaker 3: I think, do a little remote out there in l.
• 8:55
  Speaker 5: We should definitely do it from Newport Beach.
• 8:57
  Speaker 3: No, but instead we're going downtown to lower Manhat.
• 9:00
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• 9:07
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• 9:10
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• 9:14
  Speaker 2: Disney reported numbers last night. I thought pretty good. They're
• 9:17
  Speaker 2: cutting costs, so the stocks up. But quite frankly, folks,
• 9:20
  Speaker 2: I've been doing this media stuff for almost thirty years.
• 9:22
  Speaker 2: I have no idea how these companies are going to
• 9:23
  Speaker 2: transition to this new streaming model.
• 9:25
  Speaker 3: But that who cares because we have somebody.
• 9:27
  Speaker 2: Who's really, really smart on this stuff, Michael Nathanson. He's
• 9:30
  Speaker 2: a founding partner and senior research channelist Moffatt Nathanson. Michael,
• 9:34
  Speaker 2: thanks so much for joining us here. Again, I'm like
• 9:36
  Speaker 2: most investors like I don't know where to go with
• 9:38
  Speaker 2: these media stocks. What did you hear from Disney last night?
• 9:43
  Speaker 8: Well, I think what we heard from Disney that made
• 9:45
  Speaker 8: a difference was they gave you cash flow guidance that
• 9:51
  Speaker 8: many people feel more comfortable with the valuation, and you
• 9:55
  Speaker 8: also heard that they're going to spend less on content
• 9:57
  Speaker 8: going forward, and again, like it feels, and you said
• 10:00
  Speaker 8: this before bout streaming, there is just over spending on streaming.
• 10:04
  Speaker 8: People are throwing money at it left and right, and
• 10:06
  Speaker 8: it feels to me that there's some rationality coming back
• 10:09
  Speaker 8: and that Disney is going to spend less on cash
• 10:13
  Speaker 8: content spend and that's going to basically drive free casheling.
• 10:16
  Speaker 8: And to me, if you look at the Disney's earnings,
• 10:18
  Speaker 8: it's essentially a parks company, So I don't want them
• 10:22
  Speaker 8: blowing money on streaming if there's no return on capital.
• 10:25
  Speaker 8: So I'm pretty happy with this outcome because we've been
• 10:27
  Speaker 8: saying forever like this is a parks company and media
• 10:30
  Speaker 8: is becoming less and less important because it's going down
• 10:33
  Speaker 8: every day and in terms of profitability, as you know
• 10:36
  Speaker 8: very well.
• 10:36
  Speaker 1: So is it important to you to know whether they're
• 10:39
  Speaker 1: in or out of streaming. A lot of people have
• 10:41
  Speaker 1: said I want to know their strategy in regards to streaming.
• 10:46
  Speaker 1: Netflix obviously also spends like a drunken salor on content creating,
• 10:51
  Speaker 1: but Netflix rules the roost, right, So I mean, what's
• 10:55
  Speaker 1: the point of spending less?
• 10:57
  Speaker 5: Why not just be out of it.
• 10:59
  Speaker 8: We can't at this point, they can't be out of it.
• 11:02
  Speaker 8: They you know, their view is that Disney Plus, that
• 11:05
  Speaker 8: Disney should have a direct relationship with consumers as they
• 11:08
  Speaker 8: do in the theme parks, right, and the long history
• 11:11
  Speaker 8: of media, Disney never knew it's true consumer right. It
• 11:15
  Speaker 8: was always a third party was doing distribution. So I
• 11:18
  Speaker 8: think Disney can't be out of it. The question is
• 11:21
  Speaker 8: how much should Disney be in it? Right, should they
• 11:23
  Speaker 8: be competing with Netflix or should they be a smaller,
• 11:27
  Speaker 8: more targeted service for Disney super fans. And that's been
• 11:30
  Speaker 8: our contention all along. You don't have to be Netflix.
• 11:33
  Speaker 8: You have to make a Disney Plus product for your
• 11:35
  Speaker 8: core fans. There's less of them, you can charge more money.
• 11:39
  Speaker 8: That's probably a better business. And we've been saying that
• 11:41
  Speaker 8: they do not be Netflix. It's not a business you
• 11:43
  Speaker 8: want to be in it, And they're listening. I think
• 11:45
  Speaker 8: I think they're realizing that they have a great, great
• 11:48
  Speaker 8: business model as is, and they need to basically just
• 11:50
  Speaker 8: make sure their fans are being nourished, you know, and
• 11:53
  Speaker 8: not overspend when things that are not core.
• 11:55
  Speaker 2: All right, So if they're going to be focusing on
• 11:57
  Speaker 2: their core fans, primarily through their parks business.
• 12:00
  Speaker 3: What do you do with all the other stuff.
• 12:02
  Speaker 2: They've kind of got a big studio operation that kind
• 12:05
  Speaker 2: of got a bunch of linear cable and broadcast networks.
• 12:09
  Speaker 3: What do you do with all that stuff?
• 12:11
  Speaker 8: Okay, well, studio is key because you think about I mean,
• 12:14
  Speaker 8: you've known this for your studio is a way to
• 12:17
  Speaker 8: refresh the characters in the park, like the flywheel starts YEP,
• 12:21
  Speaker 8: with studio and IP.
• 12:22
  Speaker 5: It has to happen.
• 12:23
  Speaker 1: I watched Cinderella last night, by the way, with my
• 12:25
  Speaker 1: three year old daughter, and at one point one mouse says,
• 12:28
  Speaker 1: let's lead the sewing to the women, and I thought, oh,
• 12:31
  Speaker 1: I should not be showing her the nineteen fifty version.
• 12:35
  Speaker 8: Well, there's a long list of movies from that area
• 12:37
  Speaker 8: should be showing her for that same reason. But the
• 12:40
  Speaker 8: view is, look, we've been debating with the company openly
• 12:43
  Speaker 8: that we don't know why ABC and ESPN need to
• 12:46
  Speaker 8: be part of that new company, right, and the company
• 12:48
  Speaker 8: has not really said what they want to sell. But
• 12:51
  Speaker 8: like our theory is at the heart of Disney is
• 12:53
  Speaker 8: the IP. Then you have consumer products and theme parks
• 12:56
  Speaker 8: and films, but that business is worth a lot, and
• 12:59
  Speaker 8: then the other businesses that you see from valuations of
• 13:02
  Speaker 8: all the peers doesn't worth that much. Right, They like sports,
• 13:05
  Speaker 8: they like ESPN. That sounds like it's staying, but like
• 13:08
  Speaker 8: they're still open debate about what do they do with
• 13:11
  Speaker 8: ABC or the Fox assets they bought, and that's not
• 13:13
  Speaker 8: going to end anytime soon. But our point is being
• 13:16
  Speaker 8: it doesn't really much matter because the core is you know,
• 13:19
  Speaker 8: Studio Film, Disney Plus and those other assets are so
• 13:23
  Speaker 8: lowly valued and it's not going to matter. You really
• 13:26
  Speaker 8: need to stop the wasteful spending and streaming and focus
• 13:29
  Speaker 8: on the core, which is what we heard last night.
• 13:32
  Speaker 3: So another issue Michael is Bob Biger. We love him.
• 13:37
  Speaker 3: He's been great for shareholders.
• 13:39
  Speaker 2: He's kind of put himself in a box once again
• 13:41
  Speaker 2: in terms of timing and succession.
• 13:43
  Speaker 3: Anything new there?
• 13:45
  Speaker 2: Do we read anything into this new external CFO being heard?
• 13:48
  Speaker 3: How do you think about that?
• 13:49
  Speaker 7: Now?
• 13:50
  Speaker 8: Yeah, that's a good question. The CFO externally is interesting
• 13:53
  Speaker 8: because they I don't think there's being an external CFO
• 13:57
  Speaker 8: in twenty five thirty in a long long time. So
• 13:59
  Speaker 8: I think that person is going to come in. You
• 14:01
  Speaker 8: Johnson from a PEPSI don't coming to look at the
• 14:04
  Speaker 8: cost structure. I don't see him, I don't know him,
• 14:06
  Speaker 8: but I don't see that as an air replacement for Bob.
• 14:10
  Speaker 8: I think the question is going to be for the
• 14:12
  Speaker 8: new CFO where they're wasteful spending, what can he do
• 14:15
  Speaker 8: to bring kind of a Pepsi discipline to Disney. But
• 14:19
  Speaker 8: I still think you still have an open, an open
• 14:21
  Speaker 8: question about who replaces Bob. It's not easy because of
• 14:24
  Speaker 8: the diversity of operations. You know, We've been saying, look,
• 14:27
  Speaker 8: maybe break the thing into two again, and I think
• 14:30
  Speaker 8: if that's the case, the Parkside will rise in value
• 14:34
  Speaker 8: in terms of the management team. But I think as
• 14:37
  Speaker 8: the company stays as Disney that it would change the structure.
• 14:40
  Speaker 8: It's a hard job to fill. Yeah, I don't think
• 14:42
  Speaker 8: the new CFO is on that short list yet because
• 14:45
  Speaker 8: he's never worked in this industry before.
• 14:46
  Speaker 2: Sure, all right, it looks like everybody's back to work
• 14:48
  Speaker 2: in Hollywood, first the writers and now the actors. How
• 14:51
  Speaker 2: is this going to play out over the next several
• 14:53
  Speaker 2: quarters in terms of production and releases and all that stuff.
• 14:57
  Speaker 8: That's a good question. Amazed that it's been personally so
• 15:01
  Speaker 8: long that the strike has taken so long to us
• 15:03
  Speaker 8: all because it's been really damaging to the ecosystem. I
• 15:07
  Speaker 8: think people get back to work in the next well
• 15:09
  Speaker 8: Thanksgiving coming up, right, so probably December January. You probably
• 15:12
  Speaker 8: get yourself a content slate and output that starts looking
• 15:16
  Speaker 8: more normal by the February timeframe. But you basically just
• 15:21
  Speaker 8: had six months of training people not to watch broadcast
• 15:24
  Speaker 8: TV for content, you know, not to go to the
• 15:28
  Speaker 8: theaters anything besides Barbie and Oppenheimer. I think it's just
• 15:32
  Speaker 8: really bad. I think people do change behavior and it's
• 15:35
  Speaker 8: hard to get them back, and so, yeah, people will
• 15:39
  Speaker 8: be back working, but I worry about what happened on
• 15:42
  Speaker 8: the other side of this. I really do, all.
• 15:43
  Speaker 2: Right, Michael, I always appreciate getting a few minutes of
• 15:46
  Speaker 2: your time some of the really, really most thoughtful research
• 15:49
  Speaker 2: out there in my opinion on the media entertainment space.
• 15:52
  Speaker 2: Michael Nathanson, he's a founding partner and senior research analyst
• 15:55
  Speaker 2: with Moffatt Nathanson.
• 15:57
  Speaker 3: Good news from Disney last night.
• 15:59
  Speaker 2: The stock is up seven percent here today, although it's
• 16:02
  Speaker 2: only a four percent year today, kind of reflecting a
• 16:04
  Speaker 2: lot of investors still remain really unsure as to the
• 16:08
  Speaker 2: trajectory for this industry as it tries to pivot from
• 16:10
  Speaker 2: the traditional.
• 16:12
  Speaker 3: Media model that they had all enjoyed over the.
• 16:13
  Speaker 2: Last thirty forty years, which is you and me paying
• 16:16
  Speaker 2: eighty hundred bucks a month to our cable company and
• 16:18
  Speaker 2: that a lot of that flowing right to the media company.
• 16:20
  Speaker 2: So that model is no longer in the forefront here.
• 16:24
  Speaker 2: It's all about streaming, and there are different economics there
• 16:26
  Speaker 2: in these companies and these investors trying to figure out
• 16:29
  Speaker 2: how that really plays out over time. Michael Methans and
• 16:33
  Speaker 2: really one of the top folks on the street.
• 16:34
  Speaker 7: You're listening to The tape cats are live program Bloomberg
• 16:38
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 16:41
  Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 16:45
  Speaker 7: You can also listen live on Amazon Alexa from our
• 16:47
  Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
• 16:53
  Speaker 2: The market loves AI.
• 16:55
  Speaker 3: The market loves ETFs.
• 16:58
  Speaker 2: So let's create an ETF because it is on AI.
• 17:00
  Speaker 2: And that's what our next guests are doing. Have done,
• 17:03
  Speaker 2: will do? Uh, Francis oh apac CEO and head of
• 17:07
  Speaker 2: AI E TFS for Craft Technologies A pac A lot
• 17:10
  Speaker 2: to go there, Young Child, Director of AI Business Development
• 17:14
  Speaker 2: and Strategic Partnerships at l g AI Research. A lot
• 17:18
  Speaker 2: of stuff going on here, gentlemen. Thank you for joining
• 17:20
  Speaker 2: us here in our Bloomberg Interactive broker studio. What are
• 17:23
  Speaker 2: you guys building here? What are you guys launching off
• 17:25
  Speaker 2: to let you guys figure it out right right?
• 17:27
  Speaker 6: Thank you?
• 17:27
  Speaker 9: First of all, thank you for let us sharing our stories.
• 17:31
  Speaker 9: Then yeah, yeah, so the Craft techlounches and A and
• 17:35
  Speaker 9: LGA Research, we just launched our latest AI powered et AF,
• 17:40
  Speaker 9: the Taker l Q a I l Q Tuesday on
• 17:43
  Speaker 9: the New York Sticky Change. So this one is special
• 17:46
  Speaker 9: because so far we have in the craft we had
• 17:49
  Speaker 9: the full et apps in n C, but this one
• 17:51
  Speaker 9: is first ETAP that co branded one together with lg
• 17:54
  Speaker 9: so retake and leveraging on the LGAI is their own
• 17:58
  Speaker 9: AI model combined you so delivering to the a new
• 18:02
  Speaker 9: altnative to entering into the Yuslaska markets.
• 18:06
  Speaker 2: All right, so young what did you guys at LGAI Research,
• 18:10
  Speaker 2: What do you guys do?
• 18:10
  Speaker 3: What do you bring to the table here your model exactly?
• 18:14
  Speaker 10: Yeah, So we basically power this product LGAI Research. Just
• 18:20
  Speaker 10: to give you a little bit of background, we are
• 18:22
  Speaker 10: institutional fundamental research for LG Group, which is the holdings
• 18:27
  Speaker 10: company for LG Electronics, and we do various different researches
• 18:31
  Speaker 10: in areas such as you know, text, image, vision, all
• 18:35
  Speaker 10: the good stuff. And on the applied AI side, we
• 18:38
  Speaker 10: have what's called a time series forecasting model powered by AI.
• 18:41
  Speaker 10: So we are using this model to basically forecast the future,
• 18:46
  Speaker 10: and that's essentially the engine that powers this ETF.
• 18:49
  Speaker 5: So what do you put into the model?
• 18:51
  Speaker 1: I mean, first of all, the ETF invests I'm just
• 18:54
  Speaker 1: looking at the description page here minimum of eighty percent
• 18:57
  Speaker 1: of its assets in US list large.
• 19:00
  Speaker 5: Cap companies, So what like S and P companies.
• 19:06
  Speaker 9: Yeah, you can consider these large community verses around five
• 19:09
  Speaker 9: hundred to seven hundred names, the largest market cap in
• 19:11
  Speaker 9: the stock exchange. And this model is all having the
• 19:15
  Speaker 9: different models to screening out one hundred names on a
• 19:19
  Speaker 9: four week spasis. So by the process of the screening
• 19:22
  Speaker 9: out and the weighting we are leveraging lgised technologies.
• 19:26
  Speaker 1: And then so young, what do you put into your
• 19:28
  Speaker 1: model in order to forecast how these companies are going
• 19:31
  Speaker 1: to do.
• 19:32
  Speaker 10: Yeah. So the data inputs are macro level data, fundamental
• 19:36
  Speaker 10: ten k's and also the most recent price data and
• 19:40
  Speaker 10: UH there are we we take what's called a multivariate
• 19:43
  Speaker 10: approach when it comes to the model modeling. So it's
• 19:46
  Speaker 10: not just the single model. There are multiple multiple models
• 19:49
  Speaker 10: that are specific to a task. So there's a forecasting process,
• 19:53
  Speaker 10: there's a ranking process, there's a selecting process, and a
• 19:57
  Speaker 10: waiting process and put all those things together where our
• 20:00
  Speaker 10: goal is to find hidden alphas using deep learning models.
• 20:05
  Speaker 3: Has this been tested yes? So and how how has
• 20:08
  Speaker 3: the performance been so?
• 20:10
  Speaker 10: Within within the group, we we move a lot of
• 20:13
  Speaker 10: goods across the sea, and we have used this technology
• 20:18
  Speaker 10: on the supply and demand forecasting side and and have
• 20:21
  Speaker 10: seen a lot of good results on the supply chain
• 20:24
  Speaker 10: management efficiency efforts and also on the purchasing of raw materials.
• 20:29
  Speaker 10: So LG has a pretty big chemical business and they
• 20:33
  Speaker 10: also purchased a lot of different raw materials such as
• 20:36
  Speaker 10: lithium and and nafta and we UH saved a lot
• 20:40
  Speaker 10: of money doing this UH using this AI part AH
• 20:45
  Speaker 10: forecasting model. And now we're sort of moving into the
• 20:48
  Speaker 10: financial markets where there's very robust and an abundant amount
• 20:51
  Speaker 10: of data that will better sort of optimize our our
• 20:54
  Speaker 10: forecasting abilities.
• 20:55
  Speaker 1: I see, so you developed a model to help l
• 20:58
  Speaker 1: G say money in its business, and then you realize
• 21:02
  Speaker 1: that this model was also applicable to the investment space,
• 21:05
  Speaker 1: and that's where you team up with Craft and now
• 21:07
  Speaker 1: you have essentially one hundred names, right, but it's an
• 21:11
  Speaker 1: active ETF, so you can move in and things in
• 21:14
  Speaker 1: and out exactly of the right now. I see Netflix
• 21:18
  Speaker 1: as your biggest holding. You've got Senkora, McKesson, United Health, Intel, Lily, Microsoft,
• 21:25
  Speaker 1: these are all your top holdings and they're big, big companies,
• 21:28
  Speaker 1: so they're going to be relatively stable.
• 21:29
  Speaker 9: I imagine, yes, it is a letther stable, but at
• 21:32
  Speaker 9: the same time enough active because out of the US
• 21:35
  Speaker 9: lost k unifos, we only choosing the one hundred names
• 21:38
  Speaker 9: in every four week spaces, so it is all our
• 21:41
  Speaker 9: CAFT hold three hundred and fifty names. This almost will
• 21:44
  Speaker 9: be more concentrated on hundred names too, so we are
• 21:46
  Speaker 9: expecting the top names are we'll be in and out
• 21:49
  Speaker 9: of the every four weeks of time.
• 21:51
  Speaker 2: So is the LQAI is the AI ETF, which is
• 21:55
  Speaker 2: different from your large cap etf qr FT. Yes, So
• 21:59
  Speaker 2: is it focusing on companies that are going to benefit
• 22:01
  Speaker 2: from AI?
• 22:02
  Speaker 3: No, it's not. It's using AI to pick stocks exactly.
• 22:05
  Speaker 2: Boom see all right, I'm it's all coming to me now, yeah, okay,
• 22:08
  Speaker 2: So what does the model kind of solve for? Like,
• 22:12
  Speaker 2: what is it it solves for? What are some of
• 22:14
  Speaker 2: the big variables? Is a sales growth, earnings growth, revenue exactly?
• 22:19
  Speaker 1: I mean, are you trying to look at companies like
• 22:21
  Speaker 1: who's going to make the most money? Are you trying
• 22:23
  Speaker 1: to look at companies you know, which consumers are gonna
• 22:26
  Speaker 1: gonna pick this company versus that company?
• 22:29
  Speaker 5: Or are you trying to look at you know, the
• 22:30
  Speaker 5: stock market is going to.
• 22:32
  Speaker 1: Rank this company highest because obviously just because a company
• 22:35
  Speaker 1: does well doesn't mean that the stock market is going
• 22:37
  Speaker 1: to agree that it's worth more.
• 22:39
  Speaker 5: Right, It's it's it's really all weather.
• 22:41
  Speaker 9: Right.
• 22:42
  Speaker 10: So this AI agent uses neural network, which works like
• 22:46
  Speaker 10: a human brain.
• 22:47
  Speaker 7: Right.
• 22:47
  Speaker 10: So if you if you think about the traditional quant
• 22:51
  Speaker 10: approach of investing, it's a bit static, right, But on
• 22:55
  Speaker 10: the neural network and deep learning side, the AI model
• 22:59
  Speaker 10: chaininges in between cycles, right, so we rebalance every four weeks.
• 23:04
  Speaker 10: Depending on the input data and the training that it
• 23:07
  Speaker 10: goes through, it has the ability to adjust whether whether
• 23:11
  Speaker 10: that's taking more on more risk or less risk. We
• 23:15
  Speaker 10: have different scoring systems that does that and depending on
• 23:18
  Speaker 10: the cycle it'll it will actively and flexibly adjust the markets.
• 23:23
  Speaker 9: So the model is actually the first step for model
• 23:26
  Speaker 9: is doing is predicting for a target price for the
• 23:28
  Speaker 9: next four weeks of time. In the rebalance, I see
• 23:31
  Speaker 9: the same time estimating for volatility of the injurer stocks.
• 23:34
  Speaker 9: The model will generating the millions of different path is
• 23:38
  Speaker 9: pass for the next four weeks of time. And then
• 23:40
  Speaker 9: there's another agent, AI models all trying to find out
• 23:44
  Speaker 9: out of millions of a possibility, what will be the
• 23:46
  Speaker 9: most likely change at the given the time of the
• 23:50
  Speaker 9: now casting. Then we choose the most likely one and
• 23:53
  Speaker 9: that will be the basis of the full construction of
• 23:56
  Speaker 9: the dismiss.
• 23:57
  Speaker 3: Every four weeks it rebalances is our material change every four.
• 24:01
  Speaker 9: Weeks, you're expecting on base on our the Baptist state,
• 24:04
  Speaker 9: you are expecting around the twenty percent plus in and
• 24:06
  Speaker 9: out of the names on every four weeks.
• 24:09
  Speaker 3: Wow, fascinating stuff.
• 24:10
  Speaker 5: It's only been only been active for two days.
• 24:12
  Speaker 2: I know, yes, so l QA all right, so we
• 24:14
  Speaker 2: want to once you to come in and maybe three
• 24:16
  Speaker 2: to six months and tell us how performance has been.
• 24:18
  Speaker 7: You're listening to the tape Catcher Live program Bloomberg Markets
• 24:22
  Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 24:26
  Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.
• 24:29
  Speaker 7: You can also listen live on Amazon Alexa from our
• 24:31
  Speaker 7: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
• 24:37
  Speaker 1: Eagle Namdar he is the founder of Naandar Realty Group,
• 24:41
  Speaker 1: and if you know of him, it's probably because of
• 24:43
  Speaker 1: his shopping mall purchases. Heos owns literally hundreds of shopping
• 24:47
  Speaker 1: malls across the country. But more and more I've seen
• 24:50
  Speaker 1: his name in among a very small list of office buyers,
• 24:54
  Speaker 1: especially here in New York City. There's a big concern
• 24:57
  Speaker 1: about the excess office inventory that we have and the
• 25:02
  Speaker 1: difficulty of repurposing it for anything else. Abigail Doolittle joins
• 25:06
  Speaker 1: us as well, because Abigail, you've been talking to EGO
• 25:08
  Speaker 1: about this market. Ego, what well, first of all, thanks
• 25:13
  Speaker 1: for coming in. What do you think about this this
• 25:15
  Speaker 1: office market? What would lead you to buy here when
• 25:18
  Speaker 1: it seems like, to use a very cliched phrase, it
• 25:23
  Speaker 1: would be an attempt at catching falling knives.
• 25:25
  Speaker 8: Yeah.
• 25:26
  Speaker 6: Well, for for the first thing, I'll tell you that
• 25:29
  Speaker 6: as my philosophy into investments, were like a contrarian investor,
• 25:34
  Speaker 6: and we kind of like always buy when everyone's selling,
• 25:37
  Speaker 6: and we sell when everyone's buying. So that's our model.
• 25:41
  Speaker 6: I agree that this is a right now. There's a
• 25:44
  Speaker 6: lot going on in the office market, and I think
• 25:47
  Speaker 6: that there will be a recovery. I'm not sure exactly
• 25:52
  Speaker 6: if we'll ever go back to pre COVID occupancies, but
• 25:57
  Speaker 6: my thoughts are, if you can buy office buildings, avenue buildings,
• 26:02
  Speaker 6: corner great light and air, prime sub markets, locations, high
• 26:09
  Speaker 6: quality stuff, maybe A or a minus, there's going to
• 26:12
  Speaker 6: be a flight to quality where a lot of the B,
• 26:14
  Speaker 6: C and D office buildings will probably have to be repurposed.
• 26:19
  Speaker 6: And so between the contraction of all that office space
• 26:23
  Speaker 6: and being able to people have to move to different buildings.
• 26:26
  Speaker 6: As events come down, you start seeing a lot of
• 26:29
  Speaker 6: people shifting from different buildings. Between that and hopefully more
• 26:34
  Speaker 6: people coming back to the office. It's more big corporations
• 26:38
  Speaker 6: will have their employees come back. We think it will
• 26:40
  Speaker 6: come back, but I think that.
• 26:42
  Speaker 5: But let me just to get it straight.
• 26:43
  Speaker 1: Are you buying the AA minus buildings or are you
• 26:47
  Speaker 1: looking lower down the ladder in terms of office, And
• 26:51
  Speaker 1: then what are you paying compared to what the prices
• 26:54
  Speaker 1: were pre pandemic.
• 26:55
  Speaker 6: So I would say our first entry into office was
• 26:59
  Speaker 6: intoenty twenty and at that point we were buying asset
• 27:04
  Speaker 6: and asset that was priced at eight hundred and we
• 27:06
  Speaker 6: bought it for four hundred. It was not an a
• 27:09
  Speaker 6: it was a great location. But as time goes by,
• 27:12
  Speaker 6: we think things have gotten worse since twenty twenty and
• 27:15
  Speaker 6: twenty one, and now our focus is more into the
• 27:19
  Speaker 6: better quality assets. And of course we want to buy
• 27:21
  Speaker 6: it at a steep discount, but you also don't want
• 27:24
  Speaker 6: to buy something that's never going to turn around because
• 27:26
  Speaker 6: you can get a big discount, and if it's never
• 27:28
  Speaker 6: going to turn around as an office, then no matter
• 27:31
  Speaker 6: what you paid between your carry and what will the
• 27:34
  Speaker 6: time you have to put in it won't be worthwhile.
• 27:36
  Speaker 6: So our focus now is the better quality assets. Like
• 27:41
  Speaker 6: I said, Avenue Corners and hopefully that's going.
• 27:44
  Speaker 11: To rebound so you got you know, your philosophy sound
• 27:47
  Speaker 11: a little bit like Warren Buffett when you're saying basically
• 27:49
  Speaker 11: that you like to buy when everybody else is running.
• 27:51
  Speaker 11: He has a pretty famous statement that the time to
• 27:53
  Speaker 11: be greedy is when everybody else is fearful, and be
• 27:55
  Speaker 11: fearful when everybody else is greedy. And we talked, you said,
• 27:59
  Speaker 11: we said that what you basically just said that you
• 28:01
  Speaker 11: make your money where you buy it. So how many
• 28:04
  Speaker 11: properties have you bought so far? And in terms of
• 28:06
  Speaker 11: the opportunity ahead, one point five trillion of CMBs is
• 28:10
  Speaker 11: coming due by the end of twenty twenty five. You know,
• 28:12
  Speaker 11: when you put that together with the fact that here
• 28:15
  Speaker 11: in New York, working from home, you know the vacancy rates.
• 28:18
  Speaker 11: And then we had a conversation with another office investor
• 28:22
  Speaker 11: a number of weeks ago. We're talking about the value
• 28:25
  Speaker 11: of Third Avenue. He wasn't willing to put a price
• 28:27
  Speaker 11: on it because I didn't think he wanted to sell
• 28:29
  Speaker 11: out his friends so much. But you basically just said
• 28:31
  Speaker 11: that there was a fifty percent haircut on that building.
• 28:33
  Speaker 11: From a broad perspective, if you had to give not
• 28:40
  Speaker 11: Class A and trophy, what's the opportunity ahead and for
• 28:44
  Speaker 11: how long. I guess here in New York.
• 28:46
  Speaker 6: I think if you take out the A assets and
• 28:49
  Speaker 6: focus on the bn de cs, there will be a tremendous.
• 28:53
  Speaker 11: There has been a bit more than fifty percent down.
• 28:55
  Speaker 6: Yes, some assets are down seventy percent.
• 28:58
  Speaker 11: That's what I've been hearing. On Third Avenue, somebody was
• 29:00
  Speaker 11: saying that it's like twenty five cents on the dollar.
• 29:02
  Speaker 6: Yeah, Third Avenue, carridor that area in the midtown that's
• 29:06
  Speaker 6: been hit the most.
• 29:07
  Speaker 11: They have a lot of space, and so are there
• 29:10
  Speaker 11: a lot of other investors like you? I mean, I
• 29:12
  Speaker 11: guess it's probably for the people who have the money
• 29:13
  Speaker 11: and who have the ability to model it out. It's
• 29:15
  Speaker 11: a great opportunity. Really, yeah, we just for other.
• 29:18
  Speaker 6: People, but absolutely so. I'm not an institution. It's all
• 29:22
  Speaker 6: my own family money, so it's all sweat equity. So
• 29:25
  Speaker 6: I really pay attention and I analyze deals and I
• 29:28
  Speaker 6: look at the downside, and I think, like you said,
• 29:31
  Speaker 6: the money is made in real estate on your purchase
• 29:34
  Speaker 6: and if you can buy good assets at a good
• 29:37
  Speaker 6: discount and you just have patient capital to wait for
• 29:40
  Speaker 6: market to turn around, and hopefully I think the rates
• 29:43
  Speaker 6: have a lot to do with it, because once the
• 29:45
  Speaker 6: rates hopefully will go down, then you're going to see
• 29:48
  Speaker 6: the asset values hopefully increasing.
• 29:52
  Speaker 3: Well, do rates have to go down?
• 29:53
  Speaker 1: Like if we're in a new normal and rates are
• 29:55
  Speaker 1: going to stay where they are and Japowell is going
• 29:57
  Speaker 1: to actually stick by higher for longer, at what point
• 29:59
  Speaker 1: does that cause any break?
• 30:00
  Speaker 6: Well, I mean the rates. My own humble opinion is
• 30:05
  Speaker 6: they would have to go down in the future. It's
• 30:09
  Speaker 6: just I don't know if they will be back to
• 30:11
  Speaker 6: zero rates. I think it would be somewhere in between
• 30:14
  Speaker 6: the five and a quarter that was raised and what
• 30:16
  Speaker 6: it was before that. But I can't see the rates
• 30:19
  Speaker 6: never going down. I mean home mortgages where people are
• 30:22
  Speaker 6: paying to some percent another at seven percent. How could
• 30:26
  Speaker 6: the average person survive with a five percent increase in
• 30:29
  Speaker 6: the rates?
• 30:30
  Speaker 11: I mean is called the nineteen eighties, Yeah, and eighties.
• 30:35
  Speaker 11: You know something that we talked about also is so you,
• 30:37
  Speaker 11: of course are known as a big distressed mall investor
• 30:42
  Speaker 11: based on some of my work. You're known as one
• 30:43
  Speaker 11: of the two big mall distressed investors. And you told
• 30:46
  Speaker 11: me that people know when they have to sell something
• 30:48
  Speaker 11: quickly without due diligence and turn around. That you are
• 30:51
  Speaker 11: known as somebody who can do a cash deal pretty quickly.
• 30:53
  Speaker 11: But you were saying that for some of these properties
• 30:55
  Speaker 11: that don't work out that you sometimes will then build,
• 30:58
  Speaker 11: you know, tear the building down and read development. But
• 31:00
  Speaker 11: that right now, because rates are so high, it's really
• 31:02
  Speaker 11: hard to do construction. So what does that piece of
• 31:04
  Speaker 11: your business look like.
• 31:05
  Speaker 6: So regarding our mall business, I wouldn't say we're focused
• 31:09
  Speaker 6: in distressed malls. I think we're focused on distressed loans,
• 31:12
  Speaker 6: which are over leveraged. Our best purchases are maturity default
• 31:18
  Speaker 6: loans that the assets are on their own doing well,
• 31:22
  Speaker 6: but there's just too much data on it and the
• 31:23
  Speaker 6: owner can't refinance unless they put a ton of equity. Therefore,
• 31:27
  Speaker 6: the lenders are taking them back and they just want
• 31:29
  Speaker 6: it off their books. And again the opportunity to buy
• 31:32
  Speaker 6: at the right basis we go in there. So we're
• 31:35
  Speaker 6: focused on having that, and our main focus on our
• 31:37
  Speaker 6: malls is to keep them as malls because we believe
• 31:40
  Speaker 6: there's a future for brick and mortar. And in some
• 31:43
  Speaker 6: events where obviously do some malls do go down, then
• 31:47
  Speaker 6: we look at that as a redevelopment into something else.
• 31:50
  Speaker 6: And in our case, since we have patient capital, if
• 31:54
  Speaker 6: we have to wait a little longer for the rates
• 31:57
  Speaker 6: to go down, or find the right av partner to
• 32:00
  Speaker 6: come and join us, or potentially sell it to another group,
• 32:04
  Speaker 6: and then we do that.
• 32:06
  Speaker 1: But you in malls, at least as far as I broad,
• 32:09
  Speaker 1: you haven't been focused on the higher end properties.
• 32:12
  Speaker 5: Right.
• 32:12
  Speaker 1: It seems like you have a slightly different strategy in
• 32:15
  Speaker 1: New York office than you do in your big mall business.
• 32:18
  Speaker 8: So in.
• 32:20
  Speaker 6: The mall business, again, when we started back in twenty twelve,
• 32:25
  Speaker 6: we didn't know much about it. We were buying the
• 32:27
  Speaker 6: c's ent ds as it categorized it. But I would
• 32:32
  Speaker 6: say in the last four or five years, our strength
• 32:35
  Speaker 6: is really B market.
• 32:37
  Speaker 3: A malls are just overpriced.
• 32:39
  Speaker 9: And it's just it's just not what we do.
• 32:42
  Speaker 6: But our focus is more towards that B. Maybe maybe
• 32:45
  Speaker 6: it's the best mall in in a smaller market. Maybe
• 32:48
  Speaker 6: it's just you know, second mall in town. But we
• 32:53
  Speaker 6: look at their sales and the health ratios of tenants,
• 32:56
  Speaker 6: and we look at occupancy and kind of project out.
• 32:59
  Speaker 6: You know, we want to buy assets that we feel
• 33:02
  Speaker 6: have a longer, long term, you know, potential for to
• 33:05
  Speaker 6: stay at some wall.
• 33:06
  Speaker 1: All right, well, we're gonna talk to you on Bloomberg
• 33:08
  Speaker 1: TV in just about an hour's time, so I'm really
• 33:10
  Speaker 1: looking forward to that.
• 33:11
  Speaker 5: Appreciate you coming in. And Abigail do a little as well.
• 33:14
  Speaker 1: Abigail do little there, and Eagle Namdar, he's the founder
• 33:17
  Speaker 1: of the Namdar Realty Group, talking to us about New
• 33:20
  Speaker 1: York office. Thanks for listening to the Bloomberg Markets podcast.
• 33:27
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 33:31
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 33:35
  Speaker 1: on Twitter at Matt Miller nineteen seventy three. And I'm
• 33:38
  Speaker 1: Fall Sweeney. I'm on Twitter at pt Sweeney.
• 33:40
  Speaker 2: Before the podcast, you can always catch us worldwide at
• 33:43
  Speaker 2: Bloomberg Radio