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Speaker 1: Katerina Simonetti. She's at Morgan Stanley Private Wealth Management. She's

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Speaker 1: a private wealth advisor over there. Katerina, again, I'd love

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Speaker 1: to hear kind of the conversations you're having with your

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Speaker 1: clients as you can close out a pretty successful twenty

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Speaker 1: twenty four and think about next year. What do you guys,

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Speaker 1: how are you talking to your clients these days?

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Speaker 2: Well, Paulin and Caroline, thank you for having me on

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Speaker 2: the show. This is a really important conversation because it's

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Speaker 2: not lost on clients that we've had double digit returns

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Speaker 2: for two years in a row, and it is only

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Speaker 2: reasonable to expect that the returns in twenty five are

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Speaker 2: going to be somewhat subdued. So clients are concerned the

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Speaker 2: questions that we're having about how to capture returns in

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Speaker 2: the portfolios, how to maximize the income in the portfolios,

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Speaker 2: and most importantly, risk management in the upcoming volatility. And

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Speaker 2: to be fair, our expectations for the year are not dim.

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Speaker 2: We think a lot of emphasis are on FED and

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Speaker 2: inflation and how all the other factors are going to

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Speaker 2: play out. But when it comes to the practical things

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Speaker 2: that we do before the year end, rebalancing the portfolio

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Speaker 2: and achieving maximum portfolio diaresification in stocks, bonds, real assets,

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Speaker 2: and private investments is the absolute key.

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Speaker 1: So, Katerina, I mean again, a lot of folks are stayingpoint.

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Speaker 1: Can you have a third year of performance in the

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Speaker 1: equity markets and to the extent you're going to be

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Speaker 1: a little bit more cautious. Well, you can look at

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Speaker 1: the fixed income market. How do you think about the

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Speaker 1: fixed income trade? Do I sit there in a two

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Speaker 1: year treasury and get you know, four point three percent

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Speaker 1: from the US government, or it take some credit risk.

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Speaker 2: Well, Paul, if we are expecting that fat is not

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Speaker 2: going to have quite as many rate cuts as originally expected,

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Speaker 2: it's not necessarily the absolutely worst thing in the world

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Speaker 2: for fixed income investors. Number one, we're going to get

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Speaker 2: higher yields of cash for a little bit longer than expected.

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Speaker 2: And two, if we don't think about fixed income as

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Speaker 2: per se a trade, but as a whold and as

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Speaker 2: an asset that delivers that consistent income in risk management,

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Speaker 2: because on the risk adjusted basis going into twenty five,

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Speaker 2: we prefer bonds over stocks. We think it's going to

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Speaker 2: generate yield, but quality very much so. Within bonds as

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Speaker 2: well as stocks is going to be the name of

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Speaker 2: the game for twenty.

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Speaker 3: Five volatility because there's so much well lack of clarity

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Speaker 3: as it currently stands. Katerina, just take us through the

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Speaker 3: thought process over at Morgan Stanley Private Wealth more broadly

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Speaker 3: as to whether or not the FED will cut more

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Speaker 3: than two times. What sort of realistic infrationary pressure will

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Speaker 3: we get from the talked about tariffs that I get

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Speaker 3: to be imposed.

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Speaker 2: Caroline, where do I start? Uncertainty about the Fed, uncertainty

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Speaker 2: about inflation, uncertainty about the terrorifts and immigration. As all

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Speaker 2: these headlines are going to start coming out in early

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Speaker 2: twenty five, all of this is going to play a role,

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Speaker 2: and so our expectations for the early half of the

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Speaker 2: year come with the expectation of the higher volatility in

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Speaker 2: last couple of weeks gave us a bit of a

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Speaker 2: taste of words to come. Now tel investors not to

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Speaker 2: chase rallies. And this is the other side of this

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Speaker 2: coin where we have to PreCure and stay calm and

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Speaker 2: make sure that we have high quality portfolios. Focus on

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Speaker 2: sectors that generate yield, Focus on the areas like financials, industrials,

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Speaker 2: materials and make sure that we take some profits of

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Speaker 2: the table and avoid higher concentrations in the portfolios. We've

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Speaker 2: had some fantastic performance, this is the time to take

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Speaker 2: some games.

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Speaker 3: But the problem is, you had fantastic performance in twenty

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Speaker 3: twenty three, and if you'd had that mindset around and

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Speaker 3: in video or the mag seven, then boy did you

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Speaker 3: miss that rally of twenty twenty four videos up one

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Speaker 3: hundred and eighty percent, let's call it for the year.

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Speaker 3: So how do you talk some of your clients out

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Speaker 3: of that foamo feeling that a lot are going to

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Speaker 3: be feeling all over again when it comes to quantum and.

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Speaker 2: Ai Carolin, it's only natural to feel this way, and

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Speaker 2: I think that that would be have to ask, is

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Speaker 2: the are the valuations and profit expectations that are on

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Speaker 2: the table, as well as the fact that fat has

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Speaker 2: a lot of pressure on them when it comes to

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Speaker 2: inflation in terms of cuts. Are we going to get

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Speaker 2: as many costs as expected? That is a big question

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Speaker 2: for us and for them. So when investors are looking

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Speaker 2: at their holdings, of course it is natural not to

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Speaker 2: be missing out on the continued growth. So we don't

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Speaker 2: advise selling out of the entire position, but healthy profit

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Speaker 2: taking and diversification into the other areas where the growth

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Speaker 2: of that level didn't occur yet and where the possibility

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Speaker 2: of future growth are significantly more substantial than they are

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Speaker 2: in technology in some of these areas that achieved remarkable

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Speaker 2: growth in both twenty four and twenty three.

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Speaker 1: Katerina, how do you talk to your clients about alternative

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Speaker 1: investments something in private equity, private credit, hedge funds, because

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Speaker 1: when I speak to rias, I'm really surprised that the

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Speaker 1: high percentage they allocate to alternatives. How do you, guys

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Speaker 1: Morey extently think about it?

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Speaker 2: Well, in the time where investors are so concerned about

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Speaker 2: the risk and politility and protecting the values of their portfolio,

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Speaker 2: having the asset plus that could hetch risk in the

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Speaker 2: equity side of the equation, it's extremely valuable. Now it

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Speaker 2: comes with the cost, and that cost is liquidity. So

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Speaker 2: investors that are comfortable with giving up some of the

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Speaker 2: liquidity in their portfolios are perfectly fine using the alternative

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Speaker 2: investments because it has huge value with making sure that

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Speaker 2: we achieve consistent risk adjusted return. But with that, it's

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Speaker 2: just the piece of the puzzle where fixed income delivers income,

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Speaker 2: equities deliver growth, cash delivers liquidity, and alternative investments are

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Speaker 2: extremely effective in risk management.

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Speaker 1: We're going to have some changes to the tax policy.

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Speaker 1: It seems like we'll see how that plays out. Then

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Speaker 1: that kind of goes to the asset class of municipal bonds.

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Speaker 1: I'm a big fan of municipal bonds. A triple tax

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Speaker 1: free treatment is I think the good and wonderful thing.

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Speaker 1: How do you guys position municipals in a typical portfolio.

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Speaker 2: Well, taxes are a major concern, and inflation is a

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Speaker 2: concern as well, But when investors are looking at their

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Speaker 2: portfolios and analyzing the after tax income and after tax

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Speaker 2: performance that they're receiving, tax efficiency is something that is

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Speaker 2: a part of every single conversation that we're having with clients,

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Speaker 2: and this is where municipal bonds come into play. Now,

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Speaker 2: with municipal bonds, you have to make sure that the

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Speaker 2: tax equivalent rate of return that we're getting on unibonds

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Speaker 2: is actually as good or better that return that we

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Speaker 2: can achieve in corporate fixed income, because there are some

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Speaker 2: amazing buying opportunitiesies on that side, but investors certainly like

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Speaker 2: having that tax free cash flow in their portfolios, especially

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Speaker 2: in retirement.

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Speaker 3: Taxation clarity is something that perhaps the crypto world is

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Speaker 3: potential yearning for Girning four for twenty twenty five. How

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Speaker 3: have you thought about crypto and that particular area of

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Speaker 3: potential investment alternative investment for the twenty twenty four into

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Speaker 3: twenty twenty five, Katrina.

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Speaker 2: Well, Caroline, when you think about the development of crypto world,

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Speaker 2: it turned from something that we don't mention or talk

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Speaker 2: about into something that was, you know, the most exciting

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Speaker 2: part of the portfolios than the most volatile part of

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Speaker 2: the portfolios. And now we're seeing more over a legitimization

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Speaker 2: or the use of crypto in the normal portfolios, you know,

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Speaker 2: with the availability of ETFs, with people feeling more comfortable

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Speaker 2: investing in this type of investments, but they can't lose

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Speaker 2: track of the fact that the volatility still remains extremely high.

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Speaker 2: So the positioning in the portfolio has to be extremely careful,

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Speaker 2: and investors that are relying on the crypto for liquidity

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Speaker 2: certainly have to have that in mind. Because the volatility

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Speaker 2: and equity markets at high is high, but our expectations

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Speaker 2: for volatility in the crypto world is significantly higher. Than that.

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Speaker 3: Meanwhile, though, going back to the equity markets, whether there

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Speaker 3: still gobs of volatility. I'm interested in your overweights industrials, utilities,

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Speaker 3: and software, and actually that software shift from hardware to software,

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Speaker 3: from chips into a paneteer or to a software application

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Speaker 3: and generative AI has been a theme we've been hearing.

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Speaker 3: But talk a little bit more about the industrials and utilities.

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Speaker 3: What drives that for twenty twenty five KILN.

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Speaker 2: We're looking for a defensive place. We're looking for companies

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Speaker 2: that are not just delivering attractive earnings outlook, which is

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Speaker 2: something that we see across the board, and of course

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Speaker 2: we'll be looking across the board for twenty five, but

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Speaker 2: also that bring to the table attractive valuations. They didn't

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Speaker 2: have that explosive growth that some of the sectors we're seeing.

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Speaker 2: So that's where the industrials, that's where the materials, that's

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Speaker 2: where consumer staples come in. We're looking for qualities and

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Speaker 2: also for companies that are in physition to make money

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Speaker 2: to be profitable in twenty five.

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Speaker 1: All right, Katerina, thank you so much for joining us.

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Speaker 1: Always appreciate getting some of your time and your thoughts

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Speaker 1: on these markets. Categorie disseminetti