WEBVTT - China Ban, ETFs, Hyatt, and Markets (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.160 at Bloomberg dot com slash podcast. China hits back at 0:00:22.280 --> 0:00:25.200 us with sanctions on Lockheed and Raitheon. What's up with that? 0:00:25.440 --> 0:00:28.640 It's checking with George Ferguson does at Aerospace stuff Airlines. 0:00:28.720 --> 0:00:31.880 He's actually, if my eyes don't see me, actually in 0:00:32.000 --> 0:00:35.400 the Bloomberg Interactive Broger George Ferguson in the office before 0:00:35.520 --> 0:00:37.959 now He's fully embracing this work from the game in here, 0:00:37.960 --> 0:00:39.440 and I was like, who is this? Who is this guy? 0:00:39.560 --> 0:00:41.760 George Ferguson, Thanks for joining us. But I worked from 0:00:41.760 --> 0:00:45.760 the Bucolic farms of Princeton to the office. But I 0:00:45.760 --> 0:00:48.000 go to the Princeton off Yeah, it's like that's like 0:00:48.080 --> 0:00:51.960 Bloomberg life. Yea. Um, George talked to us about this. 0:00:52.040 --> 0:00:54.240 China hitting back sanctions on some of these big Garro 0:00:54.320 --> 0:00:57.160 space companies Lockheed, Raitheon, give us a sense as to 0:00:57.440 --> 0:00:59.840 how important this is or is not much to do 0:01:00.080 --> 0:01:03.320 about nothing. So if the Chinese could buy something from 0:01:03.720 --> 0:01:07.880 Raytheon Missile and Defense, not Broader Raytheon, they would, and 0:01:07.920 --> 0:01:11.480 if they could buy something from Lockheed they would. They'll 0:01:11.480 --> 0:01:13.160 never be able to buy anything for the defense sides 0:01:13.200 --> 0:01:16.000 of those businesses. It was interesting too again they went 0:01:16.600 --> 0:01:18.600 that's been the case for a long time, right, yes, okay, 0:01:18.640 --> 0:01:21.160 I mean they always sanctioned these companies, And it was 0:01:21.240 --> 0:01:25.280 interesting too that they made it Raytheon Missile and Defense, 0:01:25.360 --> 0:01:30.319 right because Raytheon makes the geared turbofan which powers about 0:01:30.400 --> 0:01:33.520 half of the airbus A three narrow bodies in the world. 0:01:35.080 --> 0:01:37.919 China is a GE country. There's a lot of GE 0:01:37.959 --> 0:01:42.440 powered aircraft, but there is some Pratt powered A three 0:01:42.440 --> 0:01:46.080 twenties in the country. So if China sanctioned Broader Raytheon, 0:01:46.600 --> 0:01:48.560 they probably wouldn't be able to get spare parts for 0:01:48.560 --> 0:01:51.200 those airplanes. They wouldn't be able to compete the engine 0:01:51.200 --> 0:01:54.840 contract against Ge. So they're a bit, you know, stuck 0:01:54.880 --> 0:01:56.360 in the middle of that whole thing. And that's why 0:01:56.360 --> 0:01:59.600 they went down for for the big aerospace companies that 0:01:59.600 --> 0:02:02.520 you cover, what percentage of their business is China general. 0:02:02.600 --> 0:02:05.640 I mean, for for well, Boeing right now is out right, 0:02:05.680 --> 0:02:08.600 because the Chinese haven't started to take their deliveries. It 0:02:08.760 --> 0:02:11.920 used to be of their business, right, and so so 0:02:11.960 --> 0:02:15.639 we would sell commercial We the US aerospace companies would 0:02:15.639 --> 0:02:18.600 sell commercial stuff to them. Military yes, okay, I mean 0:02:18.840 --> 0:02:20.960 really no military stuff at all going in there from 0:02:20.960 --> 0:02:24.000 the US. Very very commercial and very important, isn't the 0:02:24.000 --> 0:02:27.360 Michael Creighton book which was from like the eighties, right, 0:02:27.440 --> 0:02:30.920 that's even that is about like wing construction and how 0:02:30.919 --> 0:02:33.000 they didn't want to let the Chinese know how they 0:02:33.000 --> 0:02:36.840 built the wings. What was that airframe? You know? So 0:02:37.120 --> 0:02:39.040 I don't know that I've read that book, but I 0:02:39.040 --> 0:02:40.880 can tell you, you you know, the the update on that 0:02:41.040 --> 0:02:44.000 is one the Chinese and making their own airplane, the 0:02:44.080 --> 0:02:47.079 Comacs C nine one nine, right, So they know how 0:02:47.080 --> 0:02:49.400 to make wings and they know how to make fuselages. 0:02:49.720 --> 0:02:51.680 We've been doing that there for a while. But if 0:02:51.680 --> 0:02:56.200 you look at their airliner, it's supplied almost entirely by 0:02:56.280 --> 0:02:59.960 Western manufacturers, right, So the engines are coming from West 0:03:00.000 --> 0:03:05.240 and manufactures the avionics Western I'm talking European US. I 0:03:05.280 --> 0:03:07.760 think some of those manufacturers very careful about what level 0:03:07.760 --> 0:03:11.079 of technology they build in the country and they put 0:03:11.120 --> 0:03:14.239 on the airplane, but they have down you know that 0:03:14.240 --> 0:03:17.480 that kind of aerostructure stuff. Aero structures is sort of 0:03:17.520 --> 0:03:19.880 the low hanging fruit in the business. The big stuff 0:03:19.960 --> 0:03:23.800 is engines, avionics. So is there is there any pressure 0:03:23.840 --> 0:03:27.880 on these Western aerospace companies too, maybe cut off all 0:03:27.880 --> 0:03:31.320 business with China, including the commercial stuff. Just it just 0:03:31.360 --> 0:03:34.000 feels like things are getting worse by the day. And 0:03:34.000 --> 0:03:36.640 I'm wondering if that's big business. But it's big exports 0:03:36.640 --> 0:03:39.280 for the U. S economy. It is big exports, very 0:03:39.280 --> 0:03:41.920 important to the US economy. I haven't heard anybody talk 0:03:41.960 --> 0:03:45.360 about cutting off. There's a lot of concern about technology. 0:03:45.400 --> 0:03:47.840 I do think too. If you're an engine maker, you 0:03:47.880 --> 0:03:50.000 have to remember these engine makers have been making a 0:03:50.000 --> 0:03:52.200 lot of them have making engines since World War Two. 0:03:52.760 --> 0:03:55.480 There's a lot of intellectual property inside those engines that 0:03:55.520 --> 0:03:58.160 are it's really hard to replicate, and I think they're 0:03:58.160 --> 0:04:01.120 trying to be very very careful about making sure that 0:04:01.160 --> 0:04:03.840 doesn't leak, you know, in sort of an industrial spl 0:04:03.920 --> 0:04:06.680 Look what just happened with the SML right um that 0:04:07.000 --> 0:04:10.960 they make the equipment that makes chips, and we're worried 0:04:11.000 --> 0:04:15.040 that one employee has taken information and given it to 0:04:15.080 --> 0:04:18.760 the Chinese. I imagine they could have a trouble, have 0:04:18.839 --> 0:04:24.320 trouble even hiring employees from Raytheon or from Rolls Royce, 0:04:24.560 --> 0:04:26.680 you know. But I can't I can't understand why they 0:04:26.680 --> 0:04:29.080 wouldn't you know that they're already doing so well and 0:04:29.160 --> 0:04:31.560 making cars, and that effort has only been underway for 0:04:31.600 --> 0:04:33.880 a couple of decades. Why don't they start making some 0:04:33.920 --> 0:04:36.320 of the stuff themselves and hire as many people as 0:04:36.320 --> 0:04:40.240 they can from Boeing and Lockeed Martin Well again, because 0:04:40.240 --> 0:04:43.080 I think sort of the big technology is the engine technology. 0:04:43.160 --> 0:04:46.000 There's a real you know, there's a real art inside that. 0:04:46.080 --> 0:04:49.520 So Pratt and Whitney, Rolls Royce ge right, So that 0:04:49.520 --> 0:04:52.440 that's the real sort of art in this business. Um 0:04:53.040 --> 0:04:56.640 and uh, that's not made in China, right, And so 0:04:57.000 --> 0:04:58.640 I think they just have a harder time fund, you know, 0:04:58.680 --> 0:05:02.720 pulling people out of those companies. He's into China, um, 0:05:02.920 --> 0:05:04.839 you know. And I think it's I don't think any 0:05:04.880 --> 0:05:08.040 one person at Raytheon and g understands all the magic 0:05:08.120 --> 0:05:10.640 behind the engine. So that's another way you kind of 0:05:10.640 --> 0:05:14.360 firewall the intellectual property. But that's it is concerning. Again, 0:05:14.400 --> 0:05:16.960 They've been doing it since World War Two, I think, 0:05:17.000 --> 0:05:20.520 improving these processes and how they make these engines, engines 0:05:20.560 --> 0:05:22.920 getting hotter. You know, some of these engines run at 0:05:22.920 --> 0:05:26.000 temperatures that would that would melt some of the products inside, 0:05:26.040 --> 0:05:29.599 you know, the components inside the engine. Special codings helped them, 0:05:30.160 --> 0:05:33.720 you know, help them last longer and not melt, like 0:05:33.800 --> 0:05:36.600 a lot of science inside there. And I think those 0:05:36.600 --> 0:05:38.680 companies are very very protective about that. I was talking 0:05:38.720 --> 0:05:42.160 to for a today, Um, the CEO of air Bus, 0:05:42.440 --> 0:05:44.800 and one of the questions that I didn't have time 0:05:44.839 --> 0:05:47.880 to ask him is what are you doing about materials 0:05:47.960 --> 0:05:51.160 that you've had trouble getting from Russia? For example, titanium. 0:05:51.200 --> 0:05:54.240 It's my favorite metal by those Okay, I love it, Um, 0:05:54.279 --> 0:05:57.440 And I guess you have to get the stuff. Also. 0:05:57.480 --> 0:05:59.359 The Chinese have a lot of the rare earths, but 0:05:59.440 --> 0:06:00.960 maybe they have trouble getting a lot of the other 0:06:01.040 --> 0:06:03.719 stuff that goes into these engines. No, I don't. I 0:06:03.720 --> 0:06:06.000 don't know that they have any difficulty. Again, I think, 0:06:06.040 --> 0:06:08.120 you know, Russia is a is a good source for 0:06:08.160 --> 0:06:10.400 a bunch of these medals, and I think the China, 0:06:10.640 --> 0:06:14.760 Chinese won't have any you know, good relationship out of Russia. 0:06:15.320 --> 0:06:17.000 Airbus was even getting some of the stuff out of 0:06:17.040 --> 0:06:21.800 Russia until recently they've they've they've trailed that back. And 0:06:22.000 --> 0:06:23.559 you know, you have to remember too, some of these 0:06:23.560 --> 0:06:27.039 medals have been stockpiled because aircraft builds weren't as high 0:06:27.040 --> 0:06:29.240 as they you know, coming out of the pandemic, weren't 0:06:29.279 --> 0:06:31.960 as high as expected. So some of the West has 0:06:32.000 --> 0:06:35.120 been burning through some of these stockpiles, and these medals 0:06:35.120 --> 0:06:36.800 may become more of a problem here in the next 0:06:36.880 --> 0:06:39.000 next few years. We can't talk out of space without 0:06:39.000 --> 0:06:40.960 talking about our good friends I'm going to still refer 0:06:41.000 --> 0:06:43.159 to them from Seattle and that is Bowing. Forget the 0:06:43.240 --> 0:06:45.880 Chicago and now Washington. That gigantic order. You were talking 0:06:45.880 --> 0:06:48.360 about this gigantic orders touch us about Bowing. What's happening 0:06:48.360 --> 0:06:50.680 there again? We saw this big order from Air Indian 0:06:50.680 --> 0:06:53.120 mounts referencing. I mean, I think the you know, the 0:06:53.279 --> 0:06:57.240 bowing continues to uh sort of right the ship, I 0:06:57.240 --> 0:07:00.640 would say, right, they're driving for hyperduct ger rates, which 0:07:00.680 --> 0:07:04.240 is really what they need to boost profitability. I think 0:07:04.240 --> 0:07:07.640 the Air India order another in a string of good 0:07:07.760 --> 0:07:09.960 orders they've had recently. I'd say some of the higher 0:07:10.040 --> 0:07:13.880 qualities were probably you know the Southwest, the United some 0:07:13.960 --> 0:07:17.280 of those core customers, even you know the Ryanairs, Um 0:07:17.360 --> 0:07:19.720 Air India, you know. Bowings challenge in India is they 0:07:19.760 --> 0:07:21.840 don't have a good dog in the fight, right in 0:07:21.840 --> 0:07:24.880 every economy, you want to have a really good airline 0:07:24.920 --> 0:07:27.720 that's taken market share. So as they take market share, 0:07:27.720 --> 0:07:30.640 you could be pumping airplanes into them. And air Bus 0:07:30.640 --> 0:07:34.000 has it with with Indigo Indigoes, you know, very fast growing, 0:07:34.200 --> 0:07:36.880 low cost airline in India. That's why Air India was 0:07:36.920 --> 0:07:39.840 a bit of a prize. We thought that that order 0:07:39.880 --> 0:07:42.720 was going to go entirely to Boeing. It got divided. 0:07:42.720 --> 0:07:44.679 It felt to me a little bit like the American 0:07:44.720 --> 0:07:47.320 Airlines order back, you know, back in the day when 0:07:47.320 --> 0:07:49.720 the Neo was launched and the Max was launched, when 0:07:49.720 --> 0:07:52.240 American Airlines made went into the room to negotiate and 0:07:52.240 --> 0:07:54.560 they said, we got two great offers, we'll take them 0:07:54.600 --> 0:07:57.680 both right, and that sets up a fight down the 0:07:57.760 --> 0:08:01.160 road again to be that you know provider to Air 0:08:01.280 --> 0:08:05.080 India again. Boeing really needs it, but Air India is 0:08:05.080 --> 0:08:07.760 probably gonna squeeze you on price. So the challenge is 0:08:08.160 --> 0:08:09.760 how bad do you want to be in India? How 0:08:09.840 --> 0:08:11.440 much do you want to discount to be in India? 0:08:11.680 --> 0:08:13.480 But I think Boeing really wants to be in India, 0:08:13.520 --> 0:08:15.320 so it was a nice order from that standpoint. It 0:08:15.320 --> 0:08:16.720 would have been better for them if it wasn't. What 0:08:16.760 --> 0:08:18.920 an economy to tap I mean one point four billion 0:08:18.920 --> 0:08:21.320 people and growing plus young people that are gonna keep 0:08:21.360 --> 0:08:23.040 flying for the rest of their lives, and it's not 0:08:23.160 --> 0:08:25.720 and it's not China and coming out of the pandemic. 0:08:25.760 --> 0:08:28.600 I think we watched China shut down and that was 0:08:28.680 --> 0:08:31.680 so painful, and yet Boeing still out of there. So 0:08:31.800 --> 0:08:36.000 China being a much more open economy society, I think 0:08:36.000 --> 0:08:37.640 a better place to be a longer run. All right, 0:08:37.679 --> 0:08:40.400 George first, and he covers the airspace, he covers the airlines, 0:08:40.440 --> 0:08:44.360 anything that flies basically is in George's remit good guy. 0:08:44.720 --> 0:08:46.440 He is a US Army veterans, so we thank him 0:08:46.440 --> 0:08:53.160 for his service as always. How Bacco soon joins us here. 0:08:53.160 --> 0:08:56.120 He's a co portfolio manager for Hennessey Funds E S G, 0:08:56.679 --> 0:08:59.560 Large Cap e t F Kyle. I mean we've seen 0:08:59.640 --> 0:09:01.679 some weak us in the market today, but you know, 0:09:01.920 --> 0:09:04.640 rallying a little bit this year to date versus the 0:09:04.640 --> 0:09:08.640 disaster disaster that was. What are you telling your clients, 0:09:08.640 --> 0:09:10.280 what are you telling your fund managers? What are you 0:09:10.280 --> 0:09:13.760 telling your analysts about how they should think about positioning 0:09:13.880 --> 0:09:19.120 themselves in UM, I'd say is going to be an 0:09:19.160 --> 0:09:23.080 interesting year after what we had was a major correction 0:09:23.160 --> 0:09:26.960 and evaluates in the twenty two where names that I 0:09:27.000 --> 0:09:30.400 think had some very ambitious growth prospects go out of 0:09:30.440 --> 0:09:34.440 the reality checked by the prospect of delivering that growth 0:09:34.440 --> 0:09:37.360 in a higher interest rate environment caused which caused something 0:09:37.360 --> 0:09:40.559 significant declines. I think this year we've seen a lot 0:09:40.559 --> 0:09:44.760 of those same names recover a bit of the losses. UM. 0:09:45.120 --> 0:09:48.719 In terms of like January, I'd say we think it's 0:09:48.760 --> 0:09:51.280 been a bit of a kind of a garbage rally 0:09:51.280 --> 0:09:53.400 where the stuff like I Beeping up the most has 0:09:53.480 --> 0:09:59.280 rallied significantly. UM. We're looking at Orange quite closely. By 0:09:59.280 --> 0:10:02.680 the way, Kyle, was you think that was people who 0:10:02.920 --> 0:10:06.200 sold stocks at a loss last year for tax purposes, 0:10:06.400 --> 0:10:10.160 we're just getting back in them. Or UM, was it 0:10:10.280 --> 0:10:13.679 that people who shorted them down into two or covering 0:10:13.720 --> 0:10:16.760 those shorts or you know what, what why why was 0:10:16.800 --> 0:10:20.160 this garbage rally occurring? I think there's a couple of 0:10:20.200 --> 0:10:23.920 different forces. When we have the what I call retirement, 0:10:23.920 --> 0:10:26.640 which is a very powerful force for investors who are 0:10:26.640 --> 0:10:29.720 effectively forced to buy, and a lot of them have 0:10:29.840 --> 0:10:34.559 been just seeing that influence. We've also seen some repositioning 0:10:34.559 --> 0:10:38.280 where some investors have said, look, these valuations look quite 0:10:38.280 --> 0:10:41.320 attractive now and I'm gonna I'm gonna actually move some 0:10:41.400 --> 0:10:45.640 cash into names like UM that Tesla and other names 0:10:45.640 --> 0:10:48.600 that have been i'd say that have taken a significant 0:10:48.600 --> 0:10:51.840 beat down where their core businesses are Actually, we're actually 0:10:52.040 --> 0:10:55.359 relatively strong when wh when you look at the evaluation 0:10:55.480 --> 0:10:59.679 declines that have occurred UM in terms of tax loss harvesting, 0:11:00.160 --> 0:11:03.200 I do think that's a relatively powerful force, although I 0:11:03.240 --> 0:11:06.400 don't I highly doubt that most of those trades would 0:11:06.400 --> 0:11:10.600 have come in exactly on that timing yet, So I 0:11:10.600 --> 0:11:12.839 think there are a variety of different courses going on. 0:11:13.600 --> 0:11:15.480 The other big one I think that's we're going to 0:11:15.559 --> 0:11:17.280 see it's becoming more and more of a trend is 0:11:17.440 --> 0:11:21.240 UM as earnings and macro data comes out, as which 0:11:21.320 --> 0:11:24.400 names will have will be more attractive. So our name 0:11:24.440 --> 0:11:27.680 has dropped fifty six from last year. UM effectively has 0:11:27.920 --> 0:11:31.040 seen evaluation. Couldn't happen if those names are still are 0:11:31.080 --> 0:11:33.520 still growing up, although at a much slower rate, it 0:11:33.559 --> 0:11:38.280 might be quite attractive to investors. So talk to us 0:11:38.320 --> 0:11:40.280 about health care. I know that's a space you guys, like, 0:11:40.360 --> 0:11:43.840 what's your thesis on healthcare here? As we you know, 0:11:43.920 --> 0:11:46.560 come out of this pandemic, maybe get into more normalized. 0:11:46.720 --> 0:11:50.640 I guess kind of a health scenario, I mean health 0:11:50.640 --> 0:11:53.120 care are I always joke that it's a fake UM 0:11:53.600 --> 0:11:56.800 sector name in that there's a lot of diversification in there. 0:11:56.800 --> 0:12:00.560 As you have in germs names, you have m biotech 0:12:00.640 --> 0:12:04.040 research names, you have more established blake ship like farmer names, 0:12:04.400 --> 0:12:07.440 you have retail like names. So we actually quite like 0:12:07.600 --> 0:12:10.080 health care and that our quantum models find a lot 0:12:10.120 --> 0:12:13.240 of diversification in there. UM we always tend to be 0:12:13.280 --> 0:12:16.960 overweight because of that. UM we actually like some of 0:12:16.960 --> 0:12:20.600 the names as as names normalized in terms of being 0:12:20.600 --> 0:12:24.160 the growth of insurance plans we are, we see, we 0:12:24.240 --> 0:12:27.559 see and forecast some growth on the on the use 0:12:27.600 --> 0:12:31.719 of labs that the effectively the country's getting older and 0:12:32.040 --> 0:12:35.240 health care ugalization is going up if you think about it, 0:12:35.280 --> 0:12:37.560 with everyone's having to kind of I'm not gonna use 0:12:37.600 --> 0:12:39.599 the word high, but have been at home to the 0:12:39.720 --> 0:12:43.200 last Year's not everyone, obviously, there's a lot of people 0:12:43.240 --> 0:12:46.520 who've been out and about, but there's a large segment 0:12:46.520 --> 0:12:49.880 of the population that has not been using healthcare resources 0:12:49.920 --> 0:12:53.400 as they normally would in a non pandemic environment, and 0:12:53.440 --> 0:12:57.560 we do expect that utilization to go back up. That's 0:12:57.559 --> 0:12:59.280 a great that's a great point. You know, a lot 0:12:59.320 --> 0:13:02.840 of people probably during the pandemics, I don't need to 0:13:02.880 --> 0:13:06.440 go to the dermatologist. I don't need to go check 0:13:06.480 --> 0:13:10.080 out my tennis elbow, you know, those little or things, 0:13:10.200 --> 0:13:12.080 right or what we perceive as little or at least 0:13:12.120 --> 0:13:16.800 the beginning. Um, now that everything's open and clear, you 0:13:16.840 --> 0:13:20.360 make as many appointments as you can. Well, it's not 0:13:20.400 --> 0:13:22.800 only that, it's also it's a bit easier to go 0:13:23.320 --> 0:13:25.560 to get right now. I mean, at the height of 0:13:25.559 --> 0:13:28.800 the pandemic, your doctor might be remote only it might 0:13:28.840 --> 0:13:34.280 require um significant masking sensation protocols of fact the nations. 0:13:34.559 --> 0:13:36.880 Now things are kind of normalizing, you don't need all 0:13:36.920 --> 0:13:39.160 of that. Yeah, you still got to wear the mask. 0:13:39.240 --> 0:13:42.840 Unfortunately I go to HSS for my for my physical 0:13:42.880 --> 0:13:46.800 therapy tennis elbow, squash elbow, I got to wear a mask. 0:13:46.960 --> 0:13:48.600 I think that might be something for a very long 0:13:48.640 --> 0:13:51.839 time in those kinds of environments. So, Kyle, you talk 0:13:51.880 --> 0:13:54.840 about the quant background, what's the quant model you guys 0:13:55.640 --> 0:13:59.920 used today and how is it performed? I'd say are 0:14:00.320 --> 0:14:03.320 Our plant process has evolved a lot over the last 0:14:03.360 --> 0:14:08.160 nine years. So we started off in kind of intersecting 0:14:09.120 --> 0:14:13.679 machine learning for investment views and what I call rules 0:14:13.679 --> 0:14:17.160 basest screens for values alignment, and the name that has 0:14:17.240 --> 0:14:21.360 both an expectation about performance from the machine learning and 0:14:21.640 --> 0:14:24.640 a values alignment signal from our e STG process. You 0:14:24.680 --> 0:14:28.000 can think of as a potential long um, we've been 0:14:28.040 --> 0:14:31.920 blending a variety of different types of what i'd call 0:14:31.960 --> 0:14:34.800 them quantamental factors, So things like having our own in 0:14:34.840 --> 0:14:40.280 house sales growth forecast, our own relative valuation model, our 0:14:40.320 --> 0:14:44.760 own um time series framework, and we we we we 0:14:45.000 --> 0:14:47.920 combine all that with very tracditional metrics too, and we 0:14:48.000 --> 0:14:50.600 kind of let the machine figure kind of wait and 0:14:50.680 --> 0:14:52.880 deal with all of this, and it's our job to 0:14:52.920 --> 0:14:56.239 feed better things in there um in terms of performance 0:14:56.360 --> 0:14:59.600 we've had as a firm, we've had quite strong performance. 0:14:59.600 --> 0:15:04.320 Although nine years UM we recently launched an ETS in 0:15:04.360 --> 0:15:08.320 March one. We had quite significant out performance last year. 0:15:08.600 --> 0:15:10.880 What was the t F S t n C S 0:15:10.920 --> 0:15:16.440 t nc UM. Yeah, the Hennessey Stants UM s G 0:15:16.640 --> 0:15:20.560 t f UM. I'd say last year was quite interesting 0:15:20.600 --> 0:15:24.040 in that our quant model, which was saying, i'll say 0:15:24.400 --> 0:15:27.560 Q one, for example, what it was saying to buy 0:15:27.920 --> 0:15:30.920 energy names which are U s G process promptly rejected. 0:15:31.560 --> 0:15:33.280 So if I look at Q one, which was a 0:15:33.280 --> 0:15:36.840 bad quarter for us on a relative to benchmark basis 0:15:36.840 --> 0:15:39.480 of last year, a lot of the under performance was 0:15:39.520 --> 0:15:42.440 simply because we couldn't get access to those energy names, 0:15:42.440 --> 0:15:47.800 which went up in one case over nine probably because 0:15:47.880 --> 0:15:51.840 the SC signal said no, I was just gonna ask 0:15:52.080 --> 0:15:54.440 E s G is E s G something you slap 0:15:54.480 --> 0:15:56.600 on an E t F are a fund the way 0:15:57.040 --> 0:15:59.760 UM companies used to do with blockchain and their names 0:15:59.760 --> 0:16:02.880 so that people would think it was cool or UM. 0:16:02.920 --> 0:16:05.760 I guess your models limit you do they help you 0:16:05.800 --> 0:16:08.480 in anyway? As E s G been a tail wind 0:16:08.560 --> 0:16:11.480 because you were up I mean at least the last 0:16:11.480 --> 0:16:15.840 twelve months, stances up like seven percent, right, so you've 0:16:15.840 --> 0:16:20.000 done well. Yep, we we we have done well. But 0:16:20.040 --> 0:16:21.800 I would say I don't think I B. S G 0:16:21.920 --> 0:16:23.920 is having to help or heard us. I actually think 0:16:23.960 --> 0:16:26.520 it gives us simply a list of names that are 0:16:26.560 --> 0:16:30.680 more values aligned with the data of our clientele in process, 0:16:30.800 --> 0:16:33.840 and we actually think it's a firm. There's no alpha 0:16:33.880 --> 0:16:36.400 in E. S G. But because there's no alpha, it's 0:16:36.400 --> 0:16:40.800 effectively a free lunch. I can generate out performance from 0:16:40.800 --> 0:16:43.200 the use of quant models, I can build a more 0:16:43.320 --> 0:16:47.440 risk efficient portfolio to the use of optimization, and if 0:16:47.480 --> 0:16:49.920 I can actually have a process. In our case, we 0:16:50.040 --> 0:16:53.240 actually have a systematic process that tries to pick the 0:16:53.880 --> 0:16:56.400 best names from each industry group as a function of 0:16:56.960 --> 0:17:03.760 sector specific indicators things like clean avenue, diversity, re resource efficiency, UH, 0:17:04.240 --> 0:17:07.600 how they treat their workers. And also we also look 0:17:07.640 --> 0:17:09.840 at a lot of third party data in terms of 0:17:09.880 --> 0:17:13.520 bad lists where terms have been flagged for illegal behavior, 0:17:14.280 --> 0:17:18.280 non compliance fines, and we find the intersection of those 0:17:19.000 --> 0:17:21.639 of those two processes tends to yield a more what 0:17:21.720 --> 0:17:24.919 I call values aligned portfolio. So I'd say it's not 0:17:25.000 --> 0:17:27.520 something you slap on if you're gonna do it you 0:17:27.560 --> 0:17:31.160 need to have a very explainable process and a way 0:17:31.160 --> 0:17:34.280 to show that why a company isn't our out, which 0:17:34.280 --> 0:17:37.399 I think is very important, versus saying, um, we actually 0:17:37.560 --> 0:17:40.879 critique as a firm the I'm gonna have some vendor 0:17:41.000 --> 0:17:43.159 r E s G score and just to fire this 0:17:43.200 --> 0:17:46.399 through my tracking error optimizer to have the highest on 0:17:46.480 --> 0:17:49.040 the sc score, but give me back the SNP. I 0:17:49.040 --> 0:17:52.160 don't really think that's a good approach from product standpoint, 0:17:52.160 --> 0:17:55.040 as you're just trying to effectively sell the SNP with 0:17:56.240 --> 0:18:00.520 more fees. Just real quickly, thirty seconds. Give us your 0:18:00.520 --> 0:18:05.280 opinion on has E S G enthusiasm peaked? I don't 0:18:05.280 --> 0:18:08.080 think so. I actually think um, I actually think it's 0:18:08.080 --> 0:18:11.119 continuing to peaks. I always joke about this and when 0:18:11.160 --> 0:18:13.000 I say that anti E S T product is E 0:18:13.160 --> 0:18:15.400 S G product in the sense that it's some values aligned. 0:18:15.800 --> 0:18:19.959 The values might be opposite to some scientele, but but 0:18:20.000 --> 0:18:22.520 it's still the exact same thing. They're saying, these are 0:18:22.680 --> 0:18:25.000 values just the opposite of those ones. Then we're going 0:18:25.040 --> 0:18:28.200 to invest accordingly. So I'd actually argue that it's some 0:18:29.000 --> 0:18:32.080 continuing the peak. All right, good stuff. Kyle Backinson, co 0:18:32.240 --> 0:18:35.320 portfolio manager, Hennessey Funds e s G Large Cap e 0:18:35.480 --> 0:18:37.879 t F S t n C S t n C 0:18:38.240 --> 0:18:43.360 is the ticker for that E t F. I saw 0:18:43.400 --> 0:18:47.040 a story overnight by Katie Greifeld and Bildana Hirach about 0:18:47.680 --> 0:18:52.879 surging bond yields that are putting up real competition to 0:18:53.040 --> 0:18:55.320 the SMP five. In fact, they talked about a six 0:18:55.359 --> 0:18:58.840 month yield that is just a hair below five per cent, 0:18:59.800 --> 0:19:05.080 and that's risk free UM. That compares to an SMPS 0:19:05.160 --> 0:19:08.520 yield that clocks in about five point zero eight percent, 0:19:09.200 --> 0:19:12.200 so pretty much the same thing. Let's go to Kara 0:19:12.280 --> 0:19:16.240 Murphy right now. She's ce IO at Castra Holdings UM, 0:19:16.280 --> 0:19:18.680 and she can tell us a thing or two about 0:19:18.680 --> 0:19:21.960 this because she does it for a living. Kara, you 0:19:22.000 --> 0:19:24.160 know when when your clients comes to you and says, 0:19:25.000 --> 0:19:28.159 you know, I'd rather have risk free five return than 0:19:28.240 --> 0:19:32.320 worry about stocks, what do you say, I think cash 0:19:32.440 --> 0:19:35.359 is really compelling here. And this is like the first 0:19:35.400 --> 0:19:37.879 time in over a decade that that has been the case. 0:19:38.400 --> 0:19:40.600 But let's not forget for most of the history of 0:19:40.640 --> 0:19:43.040 the market that is kind of the norm where you 0:19:43.080 --> 0:19:46.120 were able to earn a decent risk free rate and 0:19:46.160 --> 0:19:48.680 whiskey athletes like stocks had to compete with that. So 0:19:48.680 --> 0:19:50.840 so I don't think that this is necessarily a bad thing. 0:19:50.920 --> 0:19:53.919 It's just getting to a more normal environment. And in 0:19:53.920 --> 0:19:56.159 that sense, then stocks have to make their case that 0:19:56.320 --> 0:19:58.840 much stronger than a straight up, you know, five percent 0:19:58.920 --> 0:20:02.600 yield on an almost cash flight position. So care I'd 0:20:02.600 --> 0:20:04.399 love to get a sense kind of where which camp 0:20:04.480 --> 0:20:08.359 you're in here with this UM inflation and the Federal 0:20:08.440 --> 0:20:11.720 Reserve discussion and the ability to engineer a soft landing 0:20:11.760 --> 0:20:15.040 and all of that, because that's clearly what's still driving 0:20:15.040 --> 0:20:18.159 the market. How do you see Yeah, and and I 0:20:18.200 --> 0:20:21.080 think you know, today's data shows that that it's becoming 0:20:21.119 --> 0:20:24.640 even more difficult to be able to thread this needle right. 0:20:24.640 --> 0:20:27.000 So the FET has been working for over a year 0:20:27.080 --> 0:20:30.040 to have this just right landing. And we've kind of 0:20:30.080 --> 0:20:33.080 described the economy as as a big plane that the 0:20:33.080 --> 0:20:36.800 FET is trying to land in turbulence without disturbing the passengers. 0:20:36.840 --> 0:20:39.919 It's a very high level difficulty, and I think today 0:20:40.000 --> 0:20:45.320 is showing us that um the challenges of monetary policy 0:20:45.400 --> 0:20:48.040 having an impact out a lag. So there are certain 0:20:48.119 --> 0:20:51.080 parts of the economy, like let's take housing for instance, 0:20:51.119 --> 0:20:54.480 that reacted very quickly to hire interest rates. You saw 0:20:54.600 --> 0:20:58.480 starts really slow down, traffic really slow down. Prices have 0:20:58.600 --> 0:21:01.520 taken longer to really modern, right, but then things like 0:21:01.840 --> 0:21:05.600 labor and services prices are taking a lot longer to 0:21:05.720 --> 0:21:09.040 respond to this tighter monetary environment. We still think that 0:21:09.080 --> 0:21:12.760 it will happen, it's just taking longer. The good news 0:21:13.000 --> 0:21:16.760 is that we're no longer having this almost existential discussion 0:21:16.800 --> 0:21:19.000 that we were, you know, towards the middle part of 0:21:19.080 --> 0:21:22.560 last year, about whether they said could even get its 0:21:22.640 --> 0:21:24.480 arms around inflation. There were a lot of people who 0:21:24.480 --> 0:21:27.560