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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio plus Mobile Act and on your radio.

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Speaker 1: This is a Bloomberg Business flag for on Bloomberg World headquarters.

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Speaker 1: I'm Charlie Pullett. Stocks are holding close to a record

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Speaker 1: a down day though. We have got the SMP five

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Speaker 1: hundred index down three now at one seventy nine, a

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Speaker 1: drop there of two tens of one percent. SMP five

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Speaker 1: hundred index lower along with the Dow and NZDAK nesdak

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Speaker 1: is down eleven to fifty two ten, a drop of

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Speaker 1: two tens of one percent. Down in dust reels down

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Speaker 1: twenty five points now to eighteen thousand, five hundred eighteen,

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Speaker 1: a drop of one tenth of one percent. The tenure

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Speaker 1: up on thirty second that yield one point five eight percent.

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Speaker 1: Gold down to sixty the ounce the thirteen thirty six

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Speaker 1: and dropped there of two tens of one percent. Crude

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Speaker 1: oil up two and a half percent of one oh

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Speaker 1: three aparrel to forty two dollars and eighty three cents.

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Speaker 1: I'm Charlie Pellett. As a bloom Bird Business flash. This

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Speaker 1: is taking stock with Kathleen Hayes and Pim Fox on

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Speaker 1: Bloomberg Radio. A tortoise economy. That's the description from our

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Speaker 1: next guest, Ron Sanchez. He is the chief investment officer

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Speaker 1: for a fiduciary trust company, international Wealth Management unit of

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Speaker 1: Franklin Templeton, helping to manage more than seventy four billion

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Speaker 1: dollars of customer assets. And Ron joins me here in

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Speaker 1: the studio. Ron, thanks for being with me. Thank you.

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Speaker 1: Why do you call it a tortoise economy? This has

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Speaker 1: been an unusual recovery since the credit crisis. We've seen

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Speaker 1: overall the U S economic data has generated about a

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Speaker 1: two GDP since the Great Recession, and so my historical standards, UM,

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Speaker 1: it's been slow, UM, and it's been somewhat uneven, and

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Speaker 1: we think it's actually quite sustainable and actually will be

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Speaker 1: one of the longest UM economic recoveries on record. Quite frankly,

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Speaker 1: if it is an anomaly, this tortoise economy, does that

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Speaker 1: mean that we're going to have investment returns that are

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Speaker 1: also tortoise like? I think that's correct if we look

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Speaker 1: back over the last UM a couple of years. Not note,

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Speaker 1: but the end returns have been very very strong. UH

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Speaker 1: and and financial assets has prospered in this recovery, even

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Speaker 1: though it's been a tortoise recovery UM, and I would

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Speaker 1: say that's all kinds of financial assets, both bonds, stocks,

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Speaker 1: real estate, art. But I think as we move forward here,

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Speaker 1: with valuations as full as they are and interest rates

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Speaker 1: as low as they are, and monetary policy that has

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Speaker 1: um coming to an end um in terms of its

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Speaker 1: extreme measures, I think as we move forward, returns are

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Speaker 1: gonna be quite muted UM and most likely accompanied by

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Speaker 1: elevated volatility. And that's certainly been been the case of

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Speaker 1: the last twelve months. If you look at the return

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Speaker 1: and the volatility, both have been low return, high volatility.

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Speaker 1: Is it possible to be selective and intelligent about money

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Speaker 1: management so that you don't end up with a tortoise

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Speaker 1: like portfolio? It's true you have to be quite discipline here.

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Speaker 1: I would describe the landscape from a financial standpoint as challenging. UM.

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Speaker 1: Certainly almost by definition low returns and high volatilities of

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Speaker 1: challenging landscape. Having said that, though, I think there are

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Speaker 1: opportunities in a in a tortoise economy, and we endeavor

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Speaker 1: to look for those companies UM that can generate a

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Speaker 1: solid return both when you include a dividend of of

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Speaker 1: two and a half to three percent and a reasonable

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Speaker 1: price valuation. We think there are opportunities in those sectors

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Speaker 1: to generate a reasonable return in this environment. Tell us

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Speaker 1: some of those sectors. I think some of those sectors

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Speaker 1: include healthcare, consumer discretionary, and technology. Other sectors that have

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Speaker 1: performed particularly well in the last six months that are

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Speaker 1: really predicated on low interest rates. Extreme interest rates, actually

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Speaker 1: interest rates that are below zero UM. Those types of

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Speaker 1: securities or sectors have done exceptionally well. UM. Those are utilities, UM,

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Speaker 1: consumer staple companies that don't grow overly fast. Is that

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Speaker 1: a relative trade meaning that it's got an investment group

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Speaker 1: that says, I can't live on those negative interest rates.

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Speaker 1: I've got to go find something else, that's right. Investors

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Speaker 1: have been concerned about two things about the high degree

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Speaker 1: of uncertainty, which has led to a safe haven trade

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Speaker 1: or perceived safety around bonds and utilities UM and also

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Speaker 1: a carry trade, meaning that given how low interest rates are,

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Speaker 1: and I think if he went back two weeks ago,

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Speaker 1: sixteen trillion dollars of sovereign debt traded below the zero bound,

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Speaker 1: and so there is an insatiable appetite for yield, and

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Speaker 1: it has led investors to pursue yield or those sectors

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Speaker 1: that generate or distribute above average yield. Having said that, though,

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Speaker 1: I think we're moving to a situation where I'm not

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Speaker 1: so sure there's safety in safe haven assets. Well, I'm

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Speaker 1: glad you brought this up, because there's a certain irony

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Speaker 1: in the fact that you have, as you described, historically

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Speaker 1: low interest rates and lots of liquidity, both courtesy of

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Speaker 1: central banks around the world. But what you've described is

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Speaker 1: that people have gotten more risk averse rather than what

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Speaker 1: the central banks wanted in the first place, which is

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Speaker 1: to promote the investment into riskier assets. That's right, um

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Speaker 1: and so, and also into credit creation and job creation.

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Speaker 1: And we've seen a little bit of that, but a

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Speaker 1: lot of the liquidity has found itself into into a

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Speaker 1: into company's share value, as opposed to infrastructure and capital

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Speaker 1: expenditures and and other financing that generated additional economic activity

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Speaker 1: instead of financial engineering. All right, So those domestic utilities,

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Speaker 1: as well as as you describe consumer staples, tell me

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Speaker 1: a little bit more about healthcare, because as there's healthcare,

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Speaker 1: there's insurance, there is biotechnology there's big pharma. Do you

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Speaker 1: want to mix of all those or how do you

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Speaker 1: go about determining you do want to mix of those?

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Speaker 1: We think the overall sector as well as certain industries

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Speaker 1: of subsectors that you've just described, are quite attractive as

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Speaker 1: we look out over the next couple of years. Certainly

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Speaker 1: from a demographic standpoint, it's very compelling. Also, technology will

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Speaker 1: play a huge UM integral inpart input, I should say,

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Speaker 1: into some of these healthcare companies that will be able

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Speaker 1: to lower their cost and deliver better services based on

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Speaker 1: innovation and technology, and we think there'll be cost savings

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Speaker 1: in those companies. UM will profit both from increasing revenue

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Speaker 1: and widening profit margin and cheaper technology and cheaper technolog

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Speaker 1: cheaper computing power, cheaper storage. That is agreeable as far

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Speaker 1: as your understanding of the mindset of investors right now,

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Speaker 1: are they doing smart things or are they just getting

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Speaker 1: ready to dump large amounts of money into the stock

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Speaker 1: market when it hits record Actually, what's interesting when you

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Speaker 1: look at the return profile, not only recently, but all

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Speaker 1: the way back to to to the early days of

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Speaker 1: the credit crisis. UM investors have have been particularly cautious here,

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Speaker 1: and so have c e O S and UM. You

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Speaker 1: have not seen a lot of flows into the into

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Speaker 1: the equity market UM. If anything, UM, you continue to

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Speaker 1: see flows into safe haven assets such as such as bonds,

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Speaker 1: and so a lot of investors actually are missing out

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Speaker 1: on it towards economy because it just hasn't been evident

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Speaker 1: that we were ever in a robust economic backdrop. You

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Speaker 1: look abroad and it continues to be a rolling debt

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Speaker 1: crisis from Greece on. We had our fiscal cliff here, UM,

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Speaker 1: the economy had a good quarter, bad quarter, and so

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Speaker 1: there really wasn't an environment where investors truly got comfortable

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Speaker 1: UM that the return profile UM and the reward UM

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Speaker 1: was worth it. But when you look back, it certainly

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Speaker 1: has UM, and so unfortunately, I think there are some

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Speaker 1: UM that have missed out on pretty good returns for

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Speaker 1: the last couple of years. Based on your experience, does

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Speaker 1: this have as much to do with the age profile

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Speaker 1: of the group that has the money to invest rather

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Speaker 1: than the actual investments themselves. That's a good question. Certainly,

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Speaker 1: demographics would argue for a transition from risk assets equities

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Speaker 1: into into bonds, both for the income as well as safety.

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Speaker 1: As one gets older and one moves into retirement. So

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Speaker 1: demographics certainly have played a role, but I think the

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Speaker 1: high degree of uncertainty and the economic backdrop has led also,

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Speaker 1: UM for investors to move into fixed income perhaps prematurely.

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Speaker 1: Do you think it's going to end badly for people

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Speaker 1: that have moved into fixed income with yields right now?

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Speaker 1: The tenure at one point five eight, the thirty year

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Speaker 1: at two point three. So I do think that we're

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Speaker 1: most likely have bottomed in instrates. And I say that globally,

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Speaker 1: not just here in the U S where you side

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Speaker 1: of those two rates. UM. I think for those investors

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Speaker 1: that have not each for you and have both a

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Speaker 1: five year and accepted low nominal returns, I think they'll

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Speaker 1: they'll be okay and they'll be able to ride through that.

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Speaker 1: I think for those that have reached out and have

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Speaker 1: invested in thirty years securities and in some instances actually

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Speaker 1: fifty year maturities, I do think it ends mainly as

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Speaker 1: far as commodities go, that can be both positive and negative.

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Speaker 1: We've been looking at oil prices. You say, well, oil

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Speaker 1: prices go up, the dollar goes down, oil prices go up,

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Speaker 1: stocks go up. Uh, Those correlations work until they don't.

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Speaker 1: Are there any specific market indicators that you watch to

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Speaker 1: tell you a little bit more about the direction or

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Speaker 1: the composition of the market. Well, I think one of

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Speaker 1: the things that we're focused on is is commodities in

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Speaker 1: relation to to fettle reserve um and whether they'll when

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Speaker 1: they'll start to move on a path of normalization, and

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Speaker 1: so commodities are part of that equation. Also, financial condition

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Speaker 1: is more broadly speaking, the dollar, which as you mentioned

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Speaker 1: is highly correlated to commaity prices as well as credit spreads,

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Speaker 1: and so far all three of those are are well behaved, um,

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Speaker 1: and so they should be supportive of economic activity and

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Speaker 1: I think supportive of the Fed being patient here for

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Speaker 1: for the better part of the year. You said better

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Speaker 1: part of the year. Do you expect one interest rate

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Speaker 1: increases by yurin mostly in December and just quickly if

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Speaker 1: that happens, Will that change your strategy in any radical way? No,

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Speaker 1: not at all, UM. I think we have a couple

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Speaker 1: of more years of decent economic growth and a modest

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Speaker 1: twenty five basis point boo by year end would not

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Speaker 1: alter our view. Thank you very much, Ron Sanchez. He

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Speaker 1: is the chief investment officer for for Fiduciary Trust Company International.

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Speaker 1: There the wealth management unit of Franklin Templeton, helping to

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Speaker 1: manage more than seventy four billion dollars of customer assets.

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Speaker 1: You're listening to taking stock, I'm pim Fox will take

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Speaker 1: you through to the close on Wall Street. That's all

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Speaker 1: coming up right here on Bloomberg