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Regional Banks, CLOs, and ETFs · 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: called Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Let's bring in right
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  Speaker 1: now Frank Sorrentino. He is Shairming, CEO at Connect one Bank.
• 0:25
  Speaker 1: It's Nasdaq traded the ticker CNOB And Frank, Wow, what
• 0:31
  Speaker 1: an insane week or you know two or three? Or
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  Speaker 1: how do you deal as a banker with the rates
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  Speaker 1: volatility like this?
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  Speaker 2: Yeah? How about a year? How about an insane year?
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  Speaker 3: Yes, that's fair.
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  Speaker 2: It's been an interesting environment.
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  Speaker 4: You know, certainly there are lots of things that Connect
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  Speaker 4: One that we try to control, but what the FED
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  Speaker 4: policy is and where rates are going and how the
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  Speaker 4: market reacts to those rates is something that's somewhat out
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  Speaker 4: of our control. And so yeah, it's been very challenging,
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  Speaker 4: not just for Connect one but for banks in general.
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  Speaker 5: Frank, what sectors of the economy are you seeing actually
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  Speaker 5: absorb the effects of the fed tightening and what areas
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  Speaker 5: are maybe still waiting for the monetary policy lags to
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  Speaker 5: kick in.
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  Speaker 4: Yeah, I think when you look at it, I think
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  Speaker 4: that question would be answered differently from different bankers from
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  Speaker 4: different parts of the country, But certainly here in the
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  Speaker 4: New York metro market at Connect one, we certainly see
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  Speaker 4: that the vast majority of our clients are absorbing those
• 1:34
  Speaker 4: rate increases and it's showing up in lots of places
• 1:37
  Speaker 4: right Rents are up. If you've been to a restaurant lately,
• 1:41
  Speaker 4: you see that the price of a meal is up.
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  Speaker 2: And I know, you know.
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  Speaker 4: There's inflation component to all this, but that's part of
• 1:49
  Speaker 4: the rate increase, and so it's building into the economy,
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  Speaker 4: and I think we're seeing it in higher prices, higher costs,
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  Speaker 4: and being incorporated in every aspect of our economy. I
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  Speaker 4: think our builders, for one, are for the first time
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  Speaker 4: in a very long time having to figure out what
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  Speaker 4: are the interest rates and what's the interest component of
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  Speaker 4: a construction project.
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  Speaker 2: But they really didn't have to think about that too
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  Speaker 2: much in the past. So all these things are.
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  Speaker 4: Leading to higher prices and definitely a more normalized environment
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  Speaker 4: where interest.
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  Speaker 1: Has a cost but nothing normal about the current housing market, right,
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  Speaker 1: I mean in terms of residential, especially previously owned homes,
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  Speaker 1: that market seems to have grind to a halt.
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  Speaker 2: So connect one. We do a lot of new home building.
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  Speaker 4: We don't see a lot of the mortgage refinance although
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  Speaker 4: we do see some. And yes, for the existing home market,
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  Speaker 4: it's a difficult place today because folks have low interest
• 2:57
  Speaker 4: rate loans. They really don't want to move and give
• 3:01
  Speaker 4: up that rate where they can't. But on the new
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  Speaker 4: housing front, we do see a level of optimism. Where
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  Speaker 4: As you know in the New York metro market and
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  Speaker 4: by the way, as the nation, we are under housed,
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  Speaker 4: right There's just not enough apartments, not enough housing units,
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  Speaker 4: and so new product that's coming to the market is
• 3:20
  Speaker 4: able to absorb the higher costs due to inflation, the
• 3:23
  Speaker 4: higher cost due to interest rates, and there is a
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  Speaker 4: ready market buying that product.
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  Speaker 1: We hear all the time that builders offer incentives. You know,
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  Speaker 1: they're buying down points or they're giving lower rates. And
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  Speaker 1: I heard I was talking to a land developer the
• 3:38
  Speaker 1: other day who said they are giving builders incentives, and
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  Speaker 1: I thought, you know, where does the buck stop, because
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  Speaker 1: obviously at some point somebody's got to pay the price.
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  Speaker 2: The end consumer pays the price, right, So with.
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  Speaker 4: Certainly seeing prices have somewhat leveled off relative to new
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  Speaker 4: home product.
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  Speaker 2: We're also seeing it in the rental market.
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  Speaker 4: Rents continue to go up over the last couple of
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  Speaker 4: years at a pretty drastic clip. We are, however, starting
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  Speaker 4: to see that level off and there are some places
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  Speaker 4: where we are seeing some level of concessions.
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  Speaker 2: So I do think we're getting to a more normalized place.
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  Speaker 6: And I think that's part of the message that came
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  Speaker 6: out of the FED is that the economy is beginning,
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  Speaker 6: as you first question you asked, beginning to absorb a
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  Speaker 6: more normalized rate environment.
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  Speaker 5: Your notes it says that you think the economy is
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  Speaker 5: on a soft landing trajectory. I'm wondering what you see,
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  Speaker 5: as the CEO of a bank that deals with small
• 4:39
  Speaker 5: businesses and deals with lenders, what are you seeing that
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  Speaker 5: maybe some of the other Wall Street prognosticators that are
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  Speaker 5: still calling for recession are missing.
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  Speaker 2: Well.
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  Speaker 4: Look, I start with employment, and in all the markets
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  Speaker 4: that connect one serves, we're seeing a shortage of people
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  Speaker 4: to fill jobs. We're seeing very very low unemployment. We're
• 5:03
  Speaker 4: seeing a strong labor market overall rising wages, and that
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  Speaker 4: to me underpins everything. People that are that have a
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  Speaker 4: job feel good about their job and see their wages rising,
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  Speaker 4: can absorb those, you know, changes in the economy, higher interest.
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  Speaker 2: Rates and everything else.
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  Speaker 4: They can absorb rising rents, They can absorb higher costs
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  Speaker 4: of food and housing and everything else. And so to me,
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  Speaker 4: that's the that that that's the foundation on which the
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  Speaker 4: economy is built. And no one's been able to convince
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  Speaker 4: me that that's going to change anytime soon.
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  Speaker 1: I just want to ask about deposits. How sticky are they?
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  Speaker 1: How do you fight deposit flight? Is it just a
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  Speaker 1: question of the rate you offer, or do you think
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  Speaker 1: that depositors also really look into services and the culture.
• 5:57
  Speaker 1: I mean, what do you what's your view on on
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  Speaker 1: that look?
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  Speaker 4: I think there was definitely back in March, a reorganization
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  Speaker 4: of the deposit market versus large banks, small banks, medium
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  Speaker 4: sized banks where people had funds, The entire notion that
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  Speaker 4: interest wasn't being paid on certain types of accounts, FDIC,
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  Speaker 4: insurance coverage, lots of questions, lots of things came to
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  Speaker 4: the four in those few weeks of March. In early April,
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  Speaker 4: I think the market overall, though, has pretty much settled
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  Speaker 4: out and people are pretty much staying where they are.
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  Speaker 4: There is the ease of being able to move money
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  Speaker 4: from bank to bank, but folks, Connect One is mostly
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  Speaker 4: a business oriented bank. People come to us not necessarily
• 6:45
  Speaker 4: for the highest rate. They come to us for services.
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  Speaker 4: There's generally we have clients who have multiple types of
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  Speaker 4: businesses with us, and so rate is not the number
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  Speaker 4: one thing. That doesn't mean we're not going to pay
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  Speaker 4: a market rate, but it does mean that folks are
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  Speaker 4: making decisions in banks like hours relative to things like
• 7:07
  Speaker 4: service and availability and the ability to talk to decision makers,
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  Speaker 4: and you know what the other side of the transaction
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  Speaker 4: looks like, if there's a loan there, or a business
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  Speaker 4: loan or something else. So I think things in general
• 7:20
  Speaker 4: have stabilized. Keep in mind, however, beside the FED raising rates,
• 7:24
  Speaker 4: they've also been shrinking the money supply and shrinking the
• 7:28
  Speaker 4: FED balance sheet. Right earlier this year we saw for
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  Speaker 4: the first time since nineteen forty nine that M two
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  Speaker 4: actually shrunk, and the FED is on a track to
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  Speaker 4: continue to reduce the size of its balance sheet. That's
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  Speaker 4: putting a lot of pressure on banks and other financial institutions.
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  Speaker 1: Frank, great to get your views, really helpful context there.
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  Speaker 1: Frank Sorrentino is the chairman and CEO of Connect One Bank.
• 7:51
  Speaker 7: You're listening to the team. Ken's a live program Bloomberg
• 7:54
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• 7:58
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• 8:01
  Speaker 7: on demand wherever you get your podcast.
• 8:05
  Speaker 1: Katie Greifeld in the studio with me Paul Sweeney on
• 8:10
  Speaker 1: an extended lunch break right now. I'll be back at
• 8:12
  Speaker 1: three pm. Let's talk right now about There was a
• 8:15
  Speaker 1: Bloomberg story the other day that said the shrinking one
• 8:19
  Speaker 1: point three trillion dollar col market is bad news for bankers,
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  Speaker 1: and people have been talking about this market as if
• 8:29
  Speaker 1: it's hit a speed bump or maybe even frozen. Got
• 8:32
  Speaker 1: a guest here in the studio says, not the case,
• 8:34
  Speaker 1: not so fast. Thomas Majuski is a CEO of Eagle
• 8:37
  Speaker 1: Point Credit Management. He's got experience across the street from
• 8:42
  Speaker 1: JP Morgan to bear Stearns and Mother Merrill and then
• 8:46
  Speaker 1: obviously some smaller shops as well. Tom, Thanks so much
• 8:50
  Speaker 1: for your time. What's your view of the CLO market
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  Speaker 1: right now.
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  Speaker 8: Great, thanks for having me mat The market's far more vibrant,
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  Speaker 8: I think than the headlines suggest. There's always waysy can
• 9:00
  Speaker 8: cut the data a lot of different ways. The actual
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  Speaker 8: new issue volume for colos remains quite robust. However, the
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  Speaker 8: activity of resetting or refinancing, which is where you go
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  Speaker 8: and reopen an old deal and re extend it, that
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  Speaker 8: slowed down significantly. So total volume is down, but the
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  Speaker 8: actual new volume created is not too far off from
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  Speaker 8: where it was last year.
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  Speaker 9: Well, let's talk about one of the ways in which
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  Speaker 9: they cut the data. About forty percent of issuers in
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  Speaker 9: this area of corporate finance are yet to price a
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  Speaker 9: new deal this year. When you hear a stat like that,
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  Speaker 9: what's your reaction?
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  Speaker 8: It's an indication perhaps of the state of their performance
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  Speaker 8: and a state of the market.
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  Speaker 7: Broadly.
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  Speaker 8: Markets investors in colos, including US, have certainly gotten far
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  Speaker 8: more selective in a raging bull market. There was an
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  Speaker 8: old saying two guys in a Bloomberg could print a COLO.
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  Speaker 8: The market needs a little more robust than that. And
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  Speaker 8: now that we have over twenty years of data for
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  Speaker 8: people's performance, it's easier to separate the top from the
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  Speaker 8: worst that forty is out of about one hundred and twenty.
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  Speaker 8: So the other way to cut that is two thirds
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  Speaker 8: of the market is operating kind of business as usual.
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  Speaker 1: What's your view on financial conditions right now? It seems
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  Speaker 1: like they were getting tighter. The Fed was letting the
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  Speaker 1: market do its job until the Fed told the market
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  Speaker 1: that's what it was doing. And now the market isn't
• 10:20
  Speaker 1: doing its job anymore. So how do they look to you?
• 10:23
  Speaker 8: Well, the underlying assets and clos are syndicated loans, small
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  Speaker 8: pieces of big loans to big American companies. Their floating
• 10:31
  Speaker 8: rate and senior and secured, which means a problem, there's
• 10:35
  Speaker 8: less risk of loss. The loan index is up about
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  Speaker 8: ten percent this year versus the Bloomberg ag is roughly
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  Speaker 8: flat for the year, down a tiny bit. That's investment
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  Speaker 8: grade versus loans are below investment grade. And there was
• 10:47
  Speaker 8: a lot of talk early in the year with increasing
• 10:49
  Speaker 8: interest rates and loans are floating rate, that companies wouldn't
• 10:53
  Speaker 8: be able to service their debt. There was going to
• 10:55
  Speaker 8: be a recession coming and rates are going higher. As
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  Speaker 8: an investor, great, we get a floating rate for the companies.
• 11:02
  Speaker 8: On the other hand, they have to pay that floating rate.
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  Speaker 8: The reality though, is profits and revenue at most below
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  Speaker 8: investment grade companies continue to go up in this economy.
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  Speaker 8: Citybank just put out research that said more companies are
• 11:14
  Speaker 8: getting upgraded than downgraded, and while there are some defaults,
• 11:17
  Speaker 8: the default rate over this year has been roughly half
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  Speaker 8: the long term average. So it's the economy is at
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  Speaker 8: least the corporate borrower in leverage finances doing far better
• 11:27
  Speaker 8: than the headlines would suggest.
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  Speaker 9: Okay, so overall, not too much consternation over increased in
• 11:34
  Speaker 9: interest expenses and servicing that debt. But for the pain
• 11:37
  Speaker 9: that you are seeing, there certainly are companies out there
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  Speaker 9: that are struggling with that. Do they tend to be
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  Speaker 9: concentrated to any industry or what is the common denominator there?
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  Speaker 8: Thankfully it's not one industry. Sometimes we've seen that, maybe
• 11:51
  Speaker 8: in twenty fifteen we saw energy pose a problem. The
• 11:55
  Speaker 8: problems where they do exist, and they're quite few, are
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  Speaker 8: generally broad based. In many case is it's due to
• 12:01
  Speaker 8: either a company that just put on a little too
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  Speaker 8: much leverage or a company maybe with a less skilled
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  Speaker 8: management team would be some of the biggest things or
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  Speaker 8: change in regulation. One company recently, in Vision Healthcare, which defaulted,
• 12:15
  Speaker 8: had a number of businesses. Every business line was coincidentally
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  Speaker 8: infected by adverse changes in regulation for them, So just
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  Speaker 8: a perfect storm against that company, you think.
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  Speaker 1: So, you think that regulatory capital reasons are the problem
• 12:30
  Speaker 1: that some banks have, I guess bought other things than
• 12:35
  Speaker 1: triple A clos. But you point out Japanese banks are
• 12:38
  Speaker 1: still big buyers. Why is that? Why are Japanese banks
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  Speaker 1: notable here?
• 12:43
  Speaker 8: Absolutely, Japanese banks remained some of the largest buyers of
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  Speaker 8: COLO triple as and holders in the world. US banks
• 12:50
  Speaker 8: also own meaningful amounts. Some of the largest money center
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  Speaker 8: banks own more than one percent of their gross assets
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  Speaker 8: and COLO paper. Frankly, we joke that had some of
• 13:00
  Speaker 8: the regional banks that are no longer with US bought
• 13:03
  Speaker 8: floating rate clos instead of mortgages, they might still be
• 13:05
  Speaker 8: with US in fact, but the banks in the US
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  Speaker 8: there's sometimes some stigma with the name. It's still a
• 13:13
  Speaker 8: COLO that sounds like a cdo Many of those Japanese
• 13:17
  Speaker 8: investors have been in the market for over twenty years,
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  Speaker 8: and across their triple A portfolios, what they've seen is
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  Speaker 8: everyone has paid off at par there's never been a
• 13:26
  Speaker 8: default on any bond they bought in the COLO market.
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  Speaker 9: And let's talk a little bit about what happened in March.
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  Speaker 9: Like you said, maybe if those banks had maybe shifted
• 13:35
  Speaker 9: out of treasuries into colos, we'd still be with them.
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  Speaker 9: But when we talk about what happened in March, we
• 13:41
  Speaker 9: talk about it as a boon to private credit. Certainly,
• 13:43
  Speaker 9: private debt has been on fire this year. Where does
• 13:47
  Speaker 9: the COLO market sit in relation to what we're seeing
• 13:50
  Speaker 9: in private credit?
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  Speaker 8: Sure so we're a net beneficiary of that in a
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  Speaker 8: number of ways. Frankly, banks in general are putting less
• 13:57
  Speaker 8: capital out as Basel three comes to fruition and higher
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  Speaker 8: capital charges on banks are unambiguously trends in the market.
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  Speaker 8: The steady hand of private credit, which is typically in
• 14:07
  Speaker 8: the form of private equity style funds, not short term
• 14:11
  Speaker 8: funds with redemptions, but long ten year funds that can
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  Speaker 8: see a credit through from start to end. A lot
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  Speaker 8: of capital going in there. They've frankly bailed out a
• 14:20
  Speaker 8: number of triple C rated syndicated loans and taken that
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  Speaker 8: out of the syndicated loan market, brought it to private
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  Speaker 8: credit as one thing and another thing. We've seen a
• 14:29
  Speaker 8: real increase in it. It's an opportunity we're very interested in,
• 14:32
  Speaker 8: and I've been deploying a lot of capital in are
• 14:34
  Speaker 8: something called regulatory capital relief transactions for banks. This is
• 14:39
  Speaker 8: where a large bank will take a portion of their
• 14:42
  Speaker 8: corporate loans, or their auto loans, or their fund subscription
• 14:46
  Speaker 8: line loans even and put them in a synthetic securitization.
• 14:51
  Speaker 8: Some very loaded words there, but a good way to
• 14:55
  Speaker 8: raise capital and they can basically transfer the risk of
• 14:58
  Speaker 8: owning those two investors. Basically a way to raise capital
• 15:02
  Speaker 8: without having to go to the stock market and do
• 15:04
  Speaker 8: a secondary offering. The reality is, over many years those
• 15:07
  Speaker 8: investments have done very very well. And what we're seeing
• 15:10
  Speaker 8: is banks are seeking more and more capital knowing they're
• 15:13
  Speaker 8: going to be facing higher capital charges. They're coming to
• 15:15
  Speaker 8: that market with greater frequency.
• 15:17
  Speaker 1: But the private credit market is one that banks are
• 15:20
  Speaker 1: It seems like they're losing that business to almost a
• 15:24
  Speaker 1: shadow banking group of lenders. Is that market even though
• 15:31
  Speaker 1: I mean you point out their long term lenders, you
• 15:33
  Speaker 1: know they aren't facing like immediate redemptions in a lot
• 15:36
  Speaker 1: of cases, but there's not a lot of regulation there
• 15:40
  Speaker 1: for how much business they're doing. So does that look
• 15:45
  Speaker 1: like a place where regulation is going to grow into
• 15:47
  Speaker 1: the good.
• 15:48
  Speaker 8: Part about it is it's a steady hand, and what
• 15:51
  Speaker 8: goes wrong with banks as people take their money out.
• 15:53
  Speaker 8: You and I can take our money out of our
• 15:55
  Speaker 8: banks today with no consequence except for the person in
• 15:58
  Speaker 8: line after us perhaps having these credits, even if there
• 16:01
  Speaker 8: are riskier credits some cases in private credit or maybe
• 16:04
  Speaker 8: a little more leverage, having a small number of owners
• 16:07
  Speaker 8: in that loan, each with a long term mindset and
• 16:10
  Speaker 8: a steady hand, I think is net beneficial. The investors
• 16:14
  Speaker 8: in those vehicles typically are large sophisticated pensions and insurance companies,
• 16:19
  Speaker 8: so the investor is getting involved in these underlying funds
• 16:22
  Speaker 8: that are making these private credit loans are quite sophisticated themselves.
• 16:26
  Speaker 9: Okay, so we don't have much time love with you,
• 16:28
  Speaker 9: but I could see regulation being a potential risk here.
• 16:32
  Speaker 9: Talking to you, everything sounds pretty rosy. But if you
• 16:34
  Speaker 9: take a look at the CLO market overall, where else
• 16:37
  Speaker 9: are you seeing risks lurk?
• 16:40
  Speaker 8: Some of the risks continue to be frankly that the
• 16:42
  Speaker 8: biggest thing is the change in regulation and the impact
• 16:45
  Speaker 8: on companies. I cited that one company before something that
• 16:48
  Speaker 8: makes medicare reimbursement slower or things like that, a regulation,
• 16:52
  Speaker 8: which might be a very valid regulation, then has an
• 16:55
  Speaker 8: impact and changes a company's behavior overall. Things that people
• 16:59
  Speaker 8: often talk about, the wall of maturities and loans has
• 17:02
  Speaker 8: been pushed way out, frankly, and the ability of companies
• 17:06
  Speaker 8: to service their higher debts remains quite strong. Idiosyncratic risk
• 17:11
  Speaker 8: is probably the biggest area that we look at, and
• 17:13
  Speaker 8: then probably when we think about in our risk management meetings, frankly,
• 17:17
  Speaker 8: continuing to look at our counterparties one of the things
• 17:19
  Speaker 8: we look at, or what's the credit default spread pricing
• 17:22
  Speaker 8: on banks that we do business with. While right now
• 17:24
  Speaker 8: it seems most banks are on steady footing, again, that
• 17:27
  Speaker 8: can change very quickly, so we keep our eye out
• 17:30
  Speaker 8: at the margins. We don't see a large systemic risk
• 17:33
  Speaker 8: facing us, but no one was talking about a banking
• 17:36
  Speaker 8: crisis in January of this year.
• 17:38
  Speaker 1: Absolutely, Thomas, thanks so much for your time, Really appreciated.
• 17:40
  Speaker 1: Thomas Majuski is the CEO of Eagle Point Credit Management.
• 17:44
  Speaker 1: If you want more from him, he's going to go
• 17:46
  Speaker 1: on Bloomberg Television in a moment and talk a little
• 17:48
  Speaker 1: bit Lisa Bromwitz about this as well.
• 17:51
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• 18:01
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• 18:10
  Speaker 1: Katie Greifeld here with me in the Interactive Brokers studio.
• 18:13
  Speaker 1: Paul Sweeney is out today. Well he'll be back, yeah,
• 18:16
  Speaker 1: but not until three pm. He's taking an extended break
• 18:20
  Speaker 1: right now. Gina ting in the house as well. She
• 18:23
  Speaker 1: is the head of Global Index Portfolio Management team over
• 18:27
  Speaker 1: at Franklin Templeton ETFs, and she will be a guest
• 18:31
  Speaker 1: on our next week's ETFIQ program that's on Bloomberg Television
• 18:36
  Speaker 1: every Monday at one pm.
• 18:38
  Speaker 9: So this is the warm up.
• 18:39
  Speaker 1: This is a deep tease, basically, Dina, just before we
• 18:45
  Speaker 1: get into the important stuff, I wanted to address a
• 18:48
  Speaker 1: story that Katie and Eric Belchunas they don't think it's
• 18:52
  Speaker 1: that important, but I think it's very interesting and kind
• 18:56
  Speaker 1: of a big deal, and that is a big push
• 18:59
  Speaker 1: by regularly to shift to T plus one to faster
• 19:03
  Speaker 1: settlement is going to drive up costs and create a
• 19:06
  Speaker 1: lot of operational challenges for ETFs. What do you think
• 19:09
  Speaker 1: about this drive to move to at some point will
• 19:14
  Speaker 1: be on tea. We'll just settle as soon as you
• 19:16
  Speaker 1: make the transaction.
• 19:18
  Speaker 10: Yeah. I think all changes always have repercussion, right, So
• 19:23
  Speaker 10: in the case of T plus one, I think at
• 19:25
  Speaker 10: the end of the day, when everybody is prepared for it,
• 19:29
  Speaker 10: it should not be causing an issue. I've seen an
• 19:31
  Speaker 10: example in India where they move from T plus two
• 19:34
  Speaker 10: to T plus one earlier this year and everybody was worried,
• 19:38
  Speaker 10: especially because India the currency is restricted. Currency is a
• 19:42
  Speaker 10: little bit more difficult. So I would imagine with more
• 19:45
  Speaker 10: preparation in the US dollar in the US especially, that
• 19:49
  Speaker 10: it's less of an issue. And I don't know if
• 19:52
  Speaker 10: you're aware, but in China it's actually T plus zero. WOWK, Yeah,
• 19:57
  Speaker 10: good for them.
• 19:58
  Speaker 1: The concern is actually international settlements. So there are many
• 20:03
  Speaker 1: US listed ETFs that are going to have to be
• 20:06
  Speaker 1: settling plus one, but they hold you know ETFs that
• 20:10
  Speaker 1: hold European assets for example, or international assets that settle
• 20:16
  Speaker 1: plus two or plus five, how do they square that circle?
• 20:22
  Speaker 10: Yeah, so those are the balancing act that a portfolio
• 20:25
  Speaker 10: manager has to do.
• 20:26
  Speaker 5: Right.
• 20:26
  Speaker 10: So when you're investing in the global markets, they all
• 20:30
  Speaker 10: have different settlement cycles. So and if you're in the
• 20:34
  Speaker 10: midst of rebalancing, how would you balance something that settles
• 20:38
  Speaker 10: in three plus three if your funding is coming in
• 20:41
  Speaker 10: at even longer settlement than that. But it's nothing unusual.
• 20:45
  Speaker 10: So it's just about like, how would you handle the
• 20:48
  Speaker 10: mismatch between where you're getting your funding versus where are
• 20:52
  Speaker 10: you going to deploy that particular cash. Right, So if
• 20:56
  Speaker 10: you think about your example, so if let's say you're
• 20:59
  Speaker 10: investing in European countries and you're buying a US equity, right,
• 21:05
  Speaker 10: so the US equity will settle T plus one. But
• 21:08
  Speaker 10: let's say to buy the US equity you require funding
• 21:13
  Speaker 10: from selling the European equity. Then you have to short
• 21:16
  Speaker 10: stand the cycle of that one in order to be
• 21:19
  Speaker 10: able to fund or you can have a line of
• 21:21
  Speaker 10: credit to kind of handle that. So it's one of
• 21:24
  Speaker 10: those things that at the end of the day, it
• 21:25
  Speaker 10: is complicated.
• 21:26
  Speaker 9: Yeah, gosh, good thing that I the end investor probably
• 21:30
  Speaker 9: don't have to worry about.
• 21:31
  Speaker 10: This, right, It's true, Like that's why you trust your
• 21:36
  Speaker 10: money managers.
• 21:37
  Speaker 1: Well, unless you take to hit on the margins, she's
• 21:39
  Speaker 1: going to have to pay a higher fee.
• 21:41
  Speaker 9: Frankly, perhaps, Yeah, all right.
• 21:44
  Speaker 1: Franklin Templeton ETFs. What are you guys pumped about?
• 21:48
  Speaker 10: So we are looking at dividendal strategy. So we're pumped
• 21:52
  Speaker 10: about that strategy because very rarely a strategy that focus
• 21:57
  Speaker 10: on dividend focus beyond just dividend. So a lot of
• 22:00
  Speaker 10: the strategies out there all they care about is a
• 22:03
  Speaker 10: higher dividend yield, right, But in reality, when you only
• 22:08
  Speaker 10: singularly focus on higher dividend yield, you forget that you
• 22:11
  Speaker 10: may be underperforming in some periods by a significant amount. Likewise,
• 22:18
  Speaker 10: so the tracking era between your investment universe and your
• 22:21
  Speaker 10: strategy could deview it quite a bit. So at Franklin
• 22:25
  Speaker 10: Templeton we have a suite of dividendial strategies where you're
• 22:29
  Speaker 10: balancing the tracking error versus the investment universe and the
• 22:34
  Speaker 10: dividend yield. So you're still getting a higher dividend yield,
• 22:37
  Speaker 10: but you're not limiting yourself only two companies that pay
• 22:42
  Speaker 10: higher yield, you actually run an optimization to be able
• 22:46
  Speaker 10: to balance out the tracking air versus the investment universe
• 22:50
  Speaker 10: while still delivering on the higher yield.
• 22:53
  Speaker 9: And so it feels like income has been one of
• 22:55
  Speaker 9: the primary things that investors have been looking for, whether
• 22:58
  Speaker 9: it's through t bills funds, whether it's through these options
• 23:01
  Speaker 9: overlay ETFs. How does demand for dividends actually looked like?
• 23:07
  Speaker 10: Yeah, so we're seeing over like three hundred billion allocated
• 23:11
  Speaker 10: to like income slash dividend yield strategies. Within our lineup,
• 23:17
  Speaker 10: our dv product dv I, which is international developed dividend
• 23:22
  Speaker 10: tilt strategies, we were seeing like close to like half
• 23:25
  Speaker 10: a billion in netflows coming through. So income is an
• 23:30
  Speaker 10: area that, regardless of the environment, people are looking for,
• 23:35
  Speaker 10: and especially in the higher volatility environment that we're seeing
• 23:38
  Speaker 10: right now, it gives you a little bit of downside
• 23:41
  Speaker 10: protection as well as providing you the income that you're
• 23:46
  Speaker 10: looking for.
• 23:48
  Speaker 1: You know, it was a lot of talk about the
• 23:50
  Speaker 1: S and P today. Amligriffe Oros story about the fact
• 23:52
  Speaker 1: that a lot of the companies in the S and
• 23:53
  Speaker 1: P are smaller than companies in the S and P
• 23:56
  Speaker 1: four hundred MidCap index, all of the games are really
• 24:01
  Speaker 1: about the big seven getting bigger. Right, does diversification matter
• 24:08
  Speaker 1: right now? Or do you just have to make the right.
• 24:09
  Speaker 9: Bet the ication?
• 24:12
  Speaker 10: Diversification always matter?
• 24:14
  Speaker 9: Right?
• 24:14
  Speaker 10: The fact that the S and P five hundred is
• 24:18
  Speaker 10: driven by these seven companies actually is a challenge. Right,
• 24:21
  Speaker 10: It's not like that for ten years ago. It's not
• 24:25
  Speaker 10: like that twenty years ago. A company or an indices
• 24:29
  Speaker 10: needs to be diversified because that's how you kind of
• 24:32
  Speaker 10: believe in like the returns potential, Because if you're just
• 24:36
  Speaker 10: relying on seven to drive the contribution of return, which
• 24:39
  Speaker 10: I heard the number is like eighty five percent this year, right,
• 24:43
  Speaker 10: it's not a balance because imagine when it's doing well,
• 24:46
  Speaker 10: of course is good, but when it's not doing so well,
• 24:48
  Speaker 10: then it's less so. So that's why we're always a
• 24:51
  Speaker 10: big believer on like the MidCap segment and liver in
• 24:56
  Speaker 10: a balance approach, whether that's through a smart bab or
• 25:00
  Speaker 10: through a combination of strategies around.
• 25:05
  Speaker 9: But even still, it just feels like all of the
• 25:07
  Speaker 9: attention has been on the big seven, and I mean,
• 25:11
  Speaker 9: how are you seeing a filter cross.
• 25:12
  Speaker 1: These different and we don't have time for ohm questions.
• 25:15
  Speaker 9: Oh no, I was just gonna started.
• 25:16
  Speaker 1: There's only twenty seconds left.
• 25:18
  Speaker 9: Okay, never mind, we'll ask it next month.
• 25:20
  Speaker 1: We'll talk to you next week. Right next week at
• 25:23
  Speaker 1: one pm, you can hear more from Dina Ting, head
• 25:26
  Speaker 1: of Global Index Portfolio Management at Franklin Templeton etf She's
• 25:30
  Speaker 1: going to join me and Katie and Eric Belchunis on
• 25:32
  Speaker 1: Bloomberg TV Crypto Sorry etf IQ.
• 25:36
  Speaker 7: You're listening to the tape can's our live program Bloomberg
• 25:40
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 25:43
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• 25:46
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• 25:49
  Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
• 25:56
  Speaker 3: Let's say at Heidaword nexkus Mark Douglas CEO of Mountain.
• 25:59
  Speaker 3: They call themselves the hardest working software in television. They
• 26:03
  Speaker 3: build advertising software. I really do. I can remember back Mark.
• 26:08
  Speaker 3: It had to be like fifty years ago when we
• 26:10
  Speaker 3: were first getting cable in the area and my brother
• 26:13
  Speaker 3: made the pitch to the old man saying it's great,
• 26:16
  Speaker 3: lots of sports and they don't have advertising on cable now.
• 26:20
  Speaker 3: It's just like, I feel the same thing as happening
• 26:24
  Speaker 3: to me with streaming. What's the story.
• 26:27
  Speaker 11: Well, I mean that works for the first three providers,
• 26:30
  Speaker 11: which are willing to pay for maybe four, and then
• 26:34
  Speaker 11: all the other cable channels they're not getting any of
• 26:37
  Speaker 11: that subscription money so they have to have ads. And
• 26:40
  Speaker 11: then it comes full circle and the ones you weren't
• 26:43
  Speaker 11: getting ads from were like, well, we could double our
• 26:45
  Speaker 11: revenue if we add ads too, So we're just kind
• 26:48
  Speaker 11: of as back to the future. We're reliving that moment
• 26:51
  Speaker 11: in cable, but we're doing it on streaming that.
• 26:52
  Speaker 3: Yeah, but I don't watch those ads, and Scarlett, I
• 26:55
  Speaker 3: know your kids aren't watching the ads.
• 26:57
  Speaker 12: Gen Z is just angry about having to watch advertising
• 27:00
  Speaker 12: because they've grown up where they haven't had to do it,
• 27:02
  Speaker 12: and so when they're forced to sit through it, it's just,
• 27:05
  Speaker 12: you know, something that really gets at them is the
• 27:07
  Speaker 12: advertising that they're going to see on streaming services going
• 27:10
  Speaker 12: to be markedly different than what we got on network
• 27:13
  Speaker 12: television in the eighties and nineties.
• 27:16
  Speaker 11: Yeah, I mean that's it's I mean, it's literally exactly
• 27:18
  Speaker 11: what my company Mount does, so we democratize TV ads,
• 27:21
  Speaker 11: So what you're going to see is a lot more
• 27:23
  Speaker 11: advertisers and they're all competing to get your attention so
• 27:27
  Speaker 11: that they're going to be more entertaining instead of it
• 27:30
  Speaker 11: just being kind of the same old bear brands and
• 27:33
  Speaker 11: car brands. You're going to see a much you know,
• 27:35
  Speaker 11: a lot of merging brands that are actually using television
• 27:39
  Speaker 11: now on streaming to kind of basically just show you
• 27:42
  Speaker 11: the products they have, but do it in a very
• 27:44
  Speaker 11: entertaining way, so it is a bit different. You're also
• 27:47
  Speaker 11: starting to see the ads get shorter, and Netflix just
• 27:50
  Speaker 11: announced like ten second ad formats for you know, their
• 27:54
  Speaker 11: their property. So I mean just expect more entertainment from
• 27:59
  Speaker 11: the ads, more university of advertisers, and hopefully over time
• 28:03
  Speaker 11: they get a lot shorter just to connect with that consumer.
• 28:06
  Speaker 12: Will it look more like Super Bowl ads or our
• 28:09
  Speaker 12: Super Bobowl ads a thing unto themselves that that won't
• 28:12
  Speaker 12: be replicated anywhere else because of the budgets, because of
• 28:14
  Speaker 12: the big audience.
• 28:18
  Speaker 11: Well, I mean some of the best advertisings coming out
• 28:21
  Speaker 11: of my company have been for the you know, not
• 28:24
  Speaker 11: huge amounts of money we have maximum mevro Ryan Reynolds
• 28:28
  Speaker 11: ad agency is literally a part a mount then, so
• 28:30
  Speaker 11: they do ads for as little as tens of thousands
• 28:33
  Speaker 11: of dollars and they I think they might be doing
• 28:36
  Speaker 11: a Super Bowl ad, so they do them for millions. Also,
• 28:38
  Speaker 11: it just depends on how much special effects and the
• 28:43
  Speaker 11: actors and all that kind of stuff that controls the cost.
• 28:46
  Speaker 11: The bottom line is if you have something a product
• 28:48
  Speaker 11: people interested in and you present it to them an
• 28:51
  Speaker 11: interesting way, people do actually respond to the advertising and
• 28:56
  Speaker 11: you know, go check out your product and potentially become
• 28:58
  Speaker 11: a customer. And that's at the end of the day.
• 29:00
  Speaker 11: You're just trying to correct connect like match consumers with
• 29:04
  Speaker 11: brands are potentially gonna love. It's not like jingles anymore
• 29:07
  Speaker 11: and just pushing brands on you. It's more about making
• 29:10
  Speaker 11: that connection.
• 29:11
  Speaker 3: Is it right to say Netflix has sort of taken
• 29:13
  Speaker 3: the lead on this? And if so, based on that,
• 29:16
  Speaker 3: what can we what is Disney hoping to achieve?
• 29:20
  Speaker 2: Well?
• 29:20
  Speaker 11: I wouldn't say Netflix has taken the lead. I would
• 29:22
  Speaker 11: say they have the most green field because they have
• 29:26
  Speaker 11: no legacy business. Disney is kind of trapped in the
• 29:29
  Speaker 11: upfront and thirty seconds and fifteen second formats. When Netflix
• 29:34
  Speaker 11: is starting from scratch and they can just kind of
• 29:36
  Speaker 11: reinvent what television advertising looks like. But that being said,
• 29:41
  Speaker 11: it's not easy to do, and so they're they're, you know,
• 29:44
  Speaker 11: out the gate struggling a little bit. But I think
• 29:48
  Speaker 11: they will wind up becoming as innovative on the ad
• 29:51
  Speaker 11: side of their business as they've been on the consumer side.
• 29:54
  Speaker 11: The thing to remember when Netflix is they kind of
• 29:56
  Speaker 11: reinvented the relationship between the consumer and the content.
• 30:01
  Speaker 2: Making it on.
• 30:02
  Speaker 11: You know, you no longer had to wait for the show,
• 30:04
  Speaker 11: you could just binge it all all those kinds of things,
• 30:07
  Speaker 11: And now they have an opportunity to do the same
• 30:09
  Speaker 11: on advertising. It's kind of reinvent the relationship between the
• 30:12
  Speaker 11: advertiser which funds all this programming for the ad supported
• 30:16
  Speaker 11: options on Netflix, and reinvent that relationship between the advertiser
• 30:20
  Speaker 11: and the content. And I think they will if They've
• 30:22
  Speaker 11: been a very innovative company for a very long time.
• 30:25
  Speaker 3: But what counts as sorry, what counts for innovation in cystalizing?
• 30:30
  Speaker 3: I mean an example, Yeah.
• 30:34
  Speaker 11: So a lot has to do with the formats I
• 30:36
  Speaker 11: think is like, again, you know, you don't have to
• 30:39
  Speaker 11: sit there for thirty seconds. The if you look at
• 30:43
  Speaker 11: social Like if you look at ads on TikTok and
• 30:45
  Speaker 11: you look at them on Instagram, even though they're both
• 30:49
  Speaker 11: somewhat feeds, the ad content is very different. I think
• 30:52
  Speaker 11: on TikTok it feels much more like the content that
• 30:56
  Speaker 11: you're scrolling through on Instagram, it feels a little more tradition.
• 31:00
  Speaker 8: There's a mix of.
• 31:01
  Speaker 11: Video, so it's it's subtle changes that just make the
• 31:06
  Speaker 11: ad format again feel like a form of the entertainment.
• 31:10
  Speaker 11: So you're not like dreading the interruption, You're like kind
• 31:13
  Speaker 11: of like hopefully entertained by it. Yeah, and you know,
• 31:17
  Speaker 11: one thing that makes the advertising like something that we
• 31:20
  Speaker 11: do is what we call fasphatizing where the ads are
• 31:24
  Speaker 11: and this is like the maximum effort where the ad
• 31:28
  Speaker 11: the ad content is like just extremely culturally relevant. It's
• 31:32
  Speaker 11: like like today's cultural news becomes literally tomorrow's ad. There's
• 31:38
  Speaker 11: no delay. And so having that kind of support where
• 31:42
  Speaker 11: you don't have to planet a half year in advance,
• 31:44
  Speaker 11: you can just come up with something right now and
• 31:46
  Speaker 11: get it on the TV. I think that's pretty important.
• 31:50
  Speaker 11: I think that's something Netflix and pretty much all networks
• 31:52
  Speaker 11: are going.
• 31:52
  Speaker 2: To start to support.
• 31:53
  Speaker 12: So as we look ahead to Disney earnings on Wednesday, Mark,
• 31:56
  Speaker 12: I wonder if Disney has room to innovate advertising on
• 32:00
  Speaker 12: Disney Plus or ESPN Plus that really takes advantage of
• 32:03
  Speaker 12: its different businesses, including theme parks. What can it do
• 32:07
  Speaker 12: innovation wise that other media companies, other streamers can't do well.
• 32:12
  Speaker 11: I think that they, I mean, they can do whatever
• 32:16
  Speaker 11: they want. I think bob Byger for quite a while
• 32:19
  Speaker 11: now has been saying that he wants to kind of
• 32:22
  Speaker 11: do away with the concept of an upfront, and he
• 32:25
  Speaker 11: wants the advertising, the advertisers to have a lot more
• 32:28
  Speaker 11: freedom and just kind of Disney be where they want
• 32:31
  Speaker 11: to be, not where they're trapped into enough front contract.
• 32:35
  Speaker 11: That being said, I mean, I think the first order
• 32:38
  Speaker 11: of business that Disney is really to get all the
• 32:40
  Speaker 11: business units operating like at their best, and you know,
• 32:44
  Speaker 11: almost all of them have been struggling on some level
• 32:48
  Speaker 11: for growth, for profitability. So I mean, he'll probably Disney,
• 32:53
  Speaker 11: bob Byger that team there, they'll probably somewhat follow the
• 32:56
  Speaker 11: same path on as Netflix in terms of like, Okay,
• 33:00
  Speaker 11: we can innovate these app formats. We don't have to
• 33:03
  Speaker 11: stay stuck in the thirty second upfront format. But that
• 33:07
  Speaker 11: being said, they have to get the viewers. People have
• 33:09
  Speaker 11: to want to go and actually see the content before
• 33:12
  Speaker 11: they want to see the apps.
• 33:13
  Speaker 3: Mark always a pleasure, appreciate it, good to see it.
• 33:16
  Speaker 3: Mark Douglas, CEO Mountain. They call themselves the harness working
• 33:19
  Speaker 3: software in TV. You know c the new CFO Disney.
• 33:24
  Speaker 12: Hugh Johnson. He's a pepsiley, I don't want to say lifer,
• 33:27
  Speaker 12: but he's been there for decades, for.
• 33:28
  Speaker 3: Decades, and I inducted him into the Hall of Fame
• 33:31
  Speaker 3: of our high school. Did he really my classmate at CBA?
• 33:36
  Speaker 2: Wow?
• 33:36
  Speaker 12: Look at you guys.
• 33:37
  Speaker 3: Yeah, he's there and I'm Aaron.
• 33:42
  Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
• 33:45
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• 33:49
  Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 33:53
  Speaker 1: at Matt Miller nineteen seventy three and on Fall Sweeney
• 33:56
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• 33:59
  Speaker 1: can always cut just worldwide at Bloomberg Radio.