Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Master's in
Speaker 1: Business with Barry red Holds on Bloomberg Radio.
Speaker 2: This week on the podcast, I have an extra spatial guest.
Speaker 2: If you are at all interested in fixed income, how
Speaker 2: you assess bonds, how you evaluate the economy, the market,
Speaker 2: what the Fed's gonna do, what clients want, how to
Speaker 2: assess risk in credit markets, Well, then you're going to
Speaker 2: really enjoy this conversation. Matt Egan has spent his entire
Speaker 2: career in fixed income, from credit analysts to portfolio manager.
Speaker 2: Now he's the head of the discretion team at Loomis Sales,
Speaker 2: which manages well over three hundred and thirty five billion
Speaker 2: dollars in client assets. He's really seen every aspect of
Speaker 2: the fixed income side more than just a bond manager,
Speaker 2: but someone who has really covered it, from credit analyst
Speaker 2: to research analysts, to fixed income member to full unconstrained
Speaker 2: bond manager and now running this discretionary team. His group
Speaker 2: has about seventy five billion that they're responsible for. I
Speaker 2: don't know what else to say other than there are
Speaker 2: a few people in the world that understand running a
Speaker 2: fixed income portfolio on behalf of institutional for retail clients
Speaker 2: as well as Matt Egan does. I thought this conversation
Speaker 2: was fascinating and I think you will also with no
Speaker 2: further ado, Loomis Sales.
Speaker 1: Matt Egan, thanks for having me Berry.
Speaker 2: Well, well, thanks for coming. Let's talk a little bit
Speaker 2: about your background. You get a bachelor's from Northeastern and
Speaker 2: an NBA from Boston University. Was finance always the career plan?
Speaker 1: It was not. I started northeasterners an electrical engineering. Oh
Speaker 1: that's a major. And the good thing about Northeastern University
Speaker 1: that they've tremendously great quad education program. That saved my
Speaker 1: life because it made me understand it did not want
Speaker 1: to be a double or an engineering in my profession.
Speaker 1: And the key was I started after one year. I
Speaker 1: kind of gutted through one year of engineering classes. It
Speaker 1: wasn't really that interested, but I gutted through it, and
Speaker 1: I started interviewing for the first internships and I started,
Speaker 1: you know, I had a number of them. I realized
Speaker 1: I am not like these people and this is not
Speaker 1: what I want to do, and so I transferred to
Speaker 1: the business.
Speaker 2: School after it. It's so funny you say that I
Speaker 2: started out math and physics, And in high school I
Speaker 2: was a rock star in math and physics. And you
Speaker 2: get to college and suddenly it's like, oh, I'm okay
Speaker 2: at this, but those guys are great, and you quickly realize, hey,
Speaker 2: this is way above my pig. I need to figure
Speaker 2: out what I need to do. So Northeastern and Boston.
Speaker 2: Were you a Boston kid?
Speaker 1: Boston kid? Well, I grew up outside in a relatively
Speaker 1: small city, and of course moved to the city to
Speaker 1: go to school and just fell in love with Boston
Speaker 1: and stayed ever since.
Speaker 2: Right, Oh, that's interesting, And is that where you are today?
Speaker 2: You're not New York, You're boss. I'm in Boston, right,
Speaker 2: And there's a giant set of finance farms in Boston.
Speaker 2: That must be fun there.
Speaker 1: Yeah, there was a lot to choose from you as
Speaker 1: a you know, newly minted financed major coming out of school.
Speaker 1: There were a lot of things to do. This profession
Speaker 1: wasn't necessarily my first choice coming out of undergrad, but
Speaker 1: there were plenty of other things to do in the
Speaker 1: field too. It's a broad field, to say the least.
Speaker 2: So you start out credit analyst at Century Back Bank
Speaker 2: and Trust prior to getting an MBA. What was it
Speaker 2: like being a credit analyst in the nineteen eighties.
Speaker 1: Yeah, I gravitated to I had to envision myself as
Speaker 1: a commercial banker. You know. Back when I graduated and
Speaker 1: I had done an internship at Bank of Boston, one
Speaker 1: of the first things I did was spread financial statements.
Speaker 1: This in the old days before really there were spreadsheets there,
Speaker 1: and we would take fortune five hundred annual reports or
Speaker 1: ten queues and put them into a spreadsheet give them
Speaker 1: to the commercial armorms. That was when I first started
Speaker 1: getting involved with looking at company. So when I fancy
Speaker 1: myself as a loan officer, there were great programs in
Speaker 1: that field. There was a super regional banking industry in Boston. However,
Speaker 1: when I graduated, there was a really kind of a
Speaker 1: nasty correction in the market. What year nineteen eighty nine,
Speaker 1: and you remember, there's a pretty nasty recession, believe it
Speaker 1: or not, Massachusetts U employment was over ten percent back then. Wow,
Speaker 1: which is hard to believe because mass always had relatively
Speaker 1: low But there was a real estate crisis back then.
Speaker 2: We were just talking about this over the weekends. You know,
Speaker 2: the problem with the financial crisis, models were Supposedly many
Speaker 2: failed to contemplate real estate prices going down. But I
Speaker 2: remember coming out of grad school in the late eighties
Speaker 2: and friends who had purchased co ops in New York
Speaker 2: City in like eighty seven, eighty eight, eighty nine. You
Speaker 2: didn't get back to break even until like the late nineties.
Speaker 2: There was a major dip. It might have been worse
Speaker 2: in some areas than others, but nationally, real estate foundered in.
Speaker 1: The ninth right, New England was crushed. There was a
Speaker 1: big glut of condos. You know, you'd walk it bride
Speaker 1: by certain you know, you'd be on the highway you
Speaker 1: go by, say a one hundred unit condo building there
Speaker 1: was one light on right. You know. It also hit
Speaker 1: hard in Texas too, which was you know, after the
Speaker 1: oil bus the sea through buildings, right, that was the
Speaker 1: origination to see through buildings. And it was a great
Speaker 1: learning experience for me. But first of all, when I
Speaker 1: was in the you know, looking for jobs, you had
Speaker 1: to go to the placement office back then, And as
Speaker 1: I was looking at jobs, I remember looking at a
Speaker 1: g finance job and as I was looking at as
Speaker 1: somebody pulled it down in front of me. It's not
Speaker 1: available anymore. That's where the economy was at that point.
Speaker 1: And so but I I knew a fella, this guy,
Speaker 1: George Duncan, who was a friend of my dad's. He
Speaker 1: he was a president of a small bank, enterprise bank
Speaker 1: up in Lowell. He didn't have a job for me,
Speaker 1: but he got me in touch with Century Bank and Trust.
Speaker 1: I had an interview there, became credit analyst. I was
Speaker 1: thankful I had an opportunity at that point. So I
Speaker 1: did that first, and that was a good learning experience. Again,
Speaker 1: you know what I witnessed then, as you know that
Speaker 1: real estate bubble kind of burst, is those same loan
Speaker 1: officers with their underwriting loans that was helping them. Do
Speaker 1: they became landlords?
Speaker 2: Oh?
Speaker 1: No, that was the thing, you know, because they were
Speaker 1: you know, they were taking on some losses and they
Speaker 1: would have to go and then show the buildings.
Speaker 2: You know, they would take over the.
Speaker 1: Yeah, I mean that thing did fine. We were fine,
Speaker 1: but you know, that was it was an experience.
Speaker 2: So essentially they go from underwriters to default managers to
Speaker 2: suddenly we're real estate portfolio.
Speaker 1: Right. It's like working with the borrower, right, you know
Speaker 1: that whole that concept. But but I didn't stay there
Speaker 1: a lot that long. I learned how commercial banking worked,
Speaker 1: but I had an opportunity after that to move over
Speaker 1: back to Bank Boston, which is where I was interested
Speaker 1: in at the time.
Speaker 2: So, so, how did you end up as a senior
Speaker 2: fixed income analyst at Liberty Mutual Insurance.
Speaker 1: It was funny that same fellow, George Duncan, when I
Speaker 1: talked to him, he said, go go check out this bank.
Speaker 1: He said, you know, whatever you do, you're gonna need
Speaker 1: to go back for a graduate career. You go get
Speaker 1: your MBA and make sure your company pays for it.
Speaker 1: And the guy ran Centry Bank and Trust was an
Speaker 1: older fella, guy Sloan. He was a family owned bank.
Speaker 1: And I asked him, mister Sloan, will you will you
Speaker 1: pay for my MBA? He said absolutely not. He said
Speaker 1: you're going to get it and you're going to move on.
Speaker 1: And I said, all right, you know, And actually so
Speaker 1: that's why I went to Back of Possum. From there
Speaker 1: I started. I enrolled in Boston University, and that's when
Speaker 1: I started meeting people that were actually in the investment business.
Speaker 1: And I met a really good friend of mine at
Speaker 1: that time. We went through our entire career together, NBA career,
Speaker 1: and he said, why don't you come over to Liberty
Speaker 1: Mutual and applied for a job in the investment apartment,
Speaker 1: and so I did that and I started working there,
Speaker 1: and that was to me, really my first sort of
Speaker 1: entry into you know, investing.
Speaker 2: So I'm assuming a Liberty mutual, what you're investing is
Speaker 2: the firm's own capital from the insurance, right.
Speaker 1: It's the pot of money that it's the insurance money.
Speaker 2: And what was that experience, like, how did that affect
Speaker 2: how you approach fixed income today?
Speaker 1: To me, it was sort of the boot camp for
Speaker 1: fixed income investing. So we were pretty lean group of
Speaker 1: individuals by nature. Most of us were research people and
Speaker 1: we were giving corporate insurance. Companies do a lot of
Speaker 1: corporate investing, so we've had our own sectors. I took
Speaker 1: on the banking sector, which was interesting. I had a
Speaker 1: number of other things as well. But we also traded
Speaker 1: for our sector. So we had an empty trading room
Speaker 1: and the tartphones were in there. If you wanted to trade,
Speaker 1: you say, hey, fellas were you know, I'm going to
Speaker 1: go do some bank trades, you know, come on in
Speaker 1: and we'd call Wall Street and we you know, we'd
Speaker 1: do the trades right there and when we're done, we
Speaker 1: would go back to our research. And also dabbled in
Speaker 1: a little portfolio management. At the time, I ran a
Speaker 1: Mexican peso denominated portfolio believe it or not. So it
Speaker 1: was a really great boot camp, and you know, I
Speaker 1: had a really interesting manager there who was really disciplined people.
Speaker 1: In terms of research, it was deep dive research. We
Speaker 1: did a really good job.
Speaker 2: Huh. Really interesting. So, from Century Bank to Liberty Mutual,
Speaker 2: the rest of your career has been primarily on the
Speaker 2: fixed income side. Was that happenstance? By design? What led
Speaker 2: to that outcome?
Speaker 1: You know, I think it just was a natural fit
Speaker 1: for me, you know, with the training as a as
Speaker 1: a commercial bank analyst, and then it just really kind
Speaker 1: of fascinated me more. And so I think, you know,
Speaker 1: my skill set when I was, you know, approaching employers,
Speaker 1: it just naturally gravitated towards the fixed income area. And
Speaker 1: for me, surprising to say, it's a little bit more
Speaker 1: exciting than stocks, and the stocks are interesting, but there's
Speaker 1: so many different facets to fixed income. It's become highly
Speaker 1: much more specialized. But I'm fortunate. I span a lot
Speaker 1: of different areas, you know, my career, which has been.
Speaker 2: So let's talk about that. So not only a head
Speaker 2: of the full discretionary team, and we'll get to exactly
Speaker 2: what that means in a bit, but you run ten
Speaker 2: different mutual funds and ten institutional strategies. I assume there's
Speaker 2: a lot of overlap, and it covers the spectrum of
Speaker 2: fixed income from treasuries here to high you'el there, and everything.
Speaker 1: In between, everything in between globally, So we're kind of
Speaker 1: an eclectic group, you know, in terms of investment style.
Speaker 1: It sounds like there's a lot of strategies that we do,
Speaker 1: and that's true, but really there's the same common investment
Speaker 1: engine underneath it, and that's really what we're focused on.
Speaker 1: I spend most of my time on that. And what
Speaker 1: does that mean. It means the frameworks and the investment
Speaker 1: processes that we put in place provide through that provide
Speaker 1: the raw materials for investing. That's views on rates, you know,
Speaker 1: where you want your duration to be, et cetera, Views
Speaker 1: on the value in certain sectors, views on individual securities,
Speaker 1: you know. So that's the raw material that we get
Speaker 1: and then we can mix and match that to our
Speaker 1: various portfolios, most of our portfolios. Really it's a spectrum,
Speaker 1: just to kind of think about it. And it's a
Speaker 1: spectrum for I would say lower risk to a higher
Speaker 1: degree of risk. That's usually but not always defined by
Speaker 1: the quality that you can invest in. So as you
Speaker 1: go down more non investment great for example.
Speaker 2: Huh So I like the idea of this engine as
Speaker 2: the underlying driver of all these different strategies. It's not
Speaker 2: that there are ten completely novel approaches and ten different funds.
Speaker 2: It's really the core and you're just playing with how
Speaker 2: much returns you want and how much risk you have
Speaker 2: to take to get that, what sort of duration you're
Speaker 2: looking at, what sort of geographies. But the underlying engine
Speaker 2: is the same across all these different portfolios.
Speaker 1: That's right, that's right. And you know we can expand
Speaker 1: that risk depending on the client. And so when you
Speaker 1: look across our least risky RAN, we run a really
Speaker 1: great core plus product. It's a bit more out there
Speaker 1: than the typical court plus that you'll see, you know,
Speaker 1: other words got cor plus meaning treasury treasure corporates, you know,
Speaker 1: but we don't do for example, we don't do a
Speaker 1: lot of agency. We don't know agency works back securities.
Speaker 1: We definitely tilt into corporates. That's our you know, our
Speaker 1: bread and butter. What Loomis is known for our research.
Speaker 1: Uh and so that'll have you know, the least amount
Speaker 1: of risk, let's say, relative to say a multisector bond
Speaker 1: fund style portfolio or strategic income that's going to tilt down.
Speaker 1: But when you look across those, you'll see commonalities in
Speaker 1: terms of interest rate, positioning, names, exposures from a top
Speaker 1: down and a bottom up perspective.
Speaker 2: So you are now the head of the discretion team.
Speaker 2: Tell us what that means. Certain funds have discretion, others don't.
Speaker 2: I think the average lay person is not familiar with
Speaker 2: discretion in that context.
Speaker 1: You know, the business sometimes does a poor job of
Speaker 1: labeling things, and this is not no different, you know.
Speaker 1: And the way I kind of describe it is that,
Speaker 1: you know, a more constrained approach is typically something wrapped
Speaker 1: around it index, you know, And a lot of our
Speaker 1: competitors in the core plus space are like this. They
Speaker 1: take a benchmark. In that case, the Agrid index is
Speaker 1: bi bar the most common one used, and they'll have
Speaker 1: a very low tracking, or that they'll just ebb and
Speaker 1: flow with pretty much the beta that's you know, assigned
Speaker 1: to that with maybe generating a little bit of excess
Speaker 1: return for the good managers that are there. You know,
Speaker 1: when you start to get into something that has full discretion,
Speaker 1: the client says, Okay, let's sort of go or lean
Speaker 1: into your opportunity set where your skills are. Let's allow
Speaker 1: you to do more and have a wider degree of
Speaker 1: risk and off benchmarkting sector. And that's where that full
Speaker 1: discretion notion. So when you think of core plus, it's
Speaker 1: those plus sectors, non investment grade, you know, emerging markets,
Speaker 1: things like that that somebody was looking to you to
Speaker 1: have discretion. But full discretion doesn't mean you don't have
Speaker 1: any limits, right you still we all have constraints, right,
Speaker 1: there's always constraints.
Speaker 2: So the phrase I always hear is it's an unconstrained fund.
Speaker 2: What's the difference between constraints and discretion or or they
Speaker 2: just really the same terms to me?
Speaker 1: They can be used interchangeably. I think the nomenclature typically,
Speaker 1: you know when I started and multisector for example, has changed.
Speaker 1: We run the bond fund, which is kind of a
Speaker 1: go anywhere strategy or strategy come. Those used to be
Speaker 1: called multisector even before they were medium grade or something
Speaker 1: like that.
Speaker 2: See today when I think of multisector, I think of corporates, treasuries,
Speaker 2: high yield equities, and private including private credit. All that
Speaker 2: seems to be multi sector unconstrained.
Speaker 1: Yeah, it's this is where the nomenclature changes over time.
Speaker 1: I've known and it causes some confusion. And then you
Speaker 1: know what emerged too, and I launched one of these
Speaker 1: over ten years ago. Is that unconstrained or non traditional space.
Speaker 1: That was the you know, what's the difference between unconstrained
Speaker 1: and multisector. Well, there's not really that much difference. The
Speaker 1: young constraint typically does not have a benchmark. That was
Speaker 1: one aspect of it. So so does.
Speaker 2: That mean it's an absolute return fund? Yes, so, and
Speaker 2: then we'll care about relative performance and what's.
Speaker 1: The difference between absolute return and total return? In some ways,
Speaker 1: because like the bond fund we're looking, I don't really
Speaker 1: manage on a tracking your I don't like managing on
Speaker 1: a relative return. Let's say, you know, like it's like, oh,
Speaker 1: mister client, you know, we outperformed your index was down
Speaker 1: ten percent and we were only down nine That's not
Speaker 1: really a great outcome, right, Right. We're looking to make money,
Speaker 1: and that's absolute return or total return, whatever you want
Speaker 1: to call it.
Speaker 2: That's what we see. We talk about jargon and confusing labels.
Speaker 2: To me, total return on the equity side is equity
Speaker 2: plus dividends. As on the bond side, it means something else.
Speaker 1: Income, right, income and principal return.
Speaker 2: That's right. So you've spent more than twenty seven years
Speaker 2: at Loomis Sales and Company. That's rather unusual these days.
Speaker 2: What has kept you around so long? What's it like
Speaker 2: growing with the firm that that's been in business? You're
Speaker 2: coming up on one hundred years.
Speaker 1: Sometimes you're you know, you're you're looking and doing your
Speaker 1: job and you wake up, you know, you look up
Speaker 1: and you go, wow, I've been here this long. It's
Speaker 1: been fun. I've enjoyed it. You know. When I first
Speaker 1: came to Loomis, you know, I encountered this guy named
Speaker 1: Dan Fuss, and I was to me, it was like
Speaker 1: a duck to water. I just took to his style.
Speaker 1: I can't imagine doing investing any of the way. It
Speaker 1: just suited me to.
Speaker 2: Attend and he is a little bit of a legend
Speaker 2: this and he.
Speaker 1: Is a he is a legend.
Speaker 2: Yeah, he's been around a while. And how long have
Speaker 2: you did you work with him?
Speaker 1: Well, the funny story, when I first came to Loomis interviewed,
Speaker 1: there was a sort of an arms race for research
Speaker 1: analysts on the street on the by side. At that
Speaker 1: point in time, Wall Street had tons of research analysts,
Speaker 1: but the by side was really ramping up. And I
Speaker 1: had a lot of opportunities to interview and one of
Speaker 1: them was at Looma Sales and I got the job
Speaker 1: and a fella helped me, This guy, Dan Holland at
Speaker 1: Golden Sacks was instrumental helping me and took at the job.
Speaker 1: And I'm like, well, there's this guy Dan Fuss there
Speaker 1: and I know I don't really know him that well,
Speaker 1: but he's sixty five, let's say. At the time, he said,
Speaker 1: I don't know, you know, it seems like he's really
Speaker 1: a key marque part of that firm. Maybe there's a
Speaker 1: risk there. And Dan told me was great advice, He said,
Speaker 1: Matt five years as an eternity, take the job. So
Speaker 1: many eternities later, because Dan worked is still working. He's
Speaker 1: ninety really yeah, he could still comes out here.
Speaker 2: Bless him.
Speaker 1: He stopped managing money a while ago. But never did
Speaker 1: I expect what was to come, and nor did I
Speaker 1: expect that I would become a successor for him. That
Speaker 1: was the entry point. And I'll tell you a story.
Speaker 1: But when I first came, there was not seven ninety eight, Okay,
Speaker 1: the Asian crisis was just getting going. Remember the tie
Speaker 1: Bot the value it went down like fifty percent, and
Speaker 1: you know LTCM was going to hit Russia default and
Speaker 1: so it was you know, bonds were coming out, and
Speaker 1: back then there was the the Brady bond market was
Speaker 1: still big. Brazilian Sea bond was the most liquid bond
Speaker 1: in the universe. The market was going down, and I
Speaker 1: witnessed Dan with a big smile on his face in
Speaker 1: the trading room in the morning meetings. I'd go there
Speaker 1: and he would be snapping up all these bargains. Our
Speaker 1: portfolios went from you know, close to zero in the
Speaker 1: Asian market to reaching like we were talking about constraints,
Speaker 1: reaching the limits that we could do by specified by
Speaker 1: the guidelines at thirty thirty five percent, right, And so
Speaker 1: that was a huge lesson for me, first of all,
Speaker 1: I said, this is where I want to be. What
Speaker 1: he was doing there was providing liquidity to illoquin markets.
Speaker 1: Now I participated in some of that as a research
Speaker 1: analyst by looking at companies like Total Access Communications, a
Speaker 1: tie wireless comme, PLD, Philippine long Distance Telecom. It's like
Speaker 1: AT and TuS.
Speaker 2: And all these companies have fixed income.
Speaker 1: They had fixed income, and they're trading wavelessens in the
Speaker 1: dollar sense of dollar. In the case of Total Access Communication,
Speaker 1: bought the stock at eleven cents, went to five.
Speaker 2: You know, it's a five cents or five dollars dollars.
Speaker 2: That's a good rate.
Speaker 1: Yeah, I should have specified that. So these were you know,
Speaker 1: like in my formative stages like as a as a
Speaker 1: research channelst and becoming you know, not just a research
Speaker 1: chanalyst in making calls or you know, sort of opining
Speaker 1: on the credit quality or the opportunities and risks of
Speaker 1: a particular credit. It's really becoming an investor. And that's
Speaker 1: that's sort of what they end taught me.
Speaker 2: I love the expression providing liquidity to ill liquid markets,
Speaker 2: which usually means picking up things at fractions of their
Speaker 2: actual value. The same phrase was during the financial crisis
Speaker 2: when people talked about toxic assets, and my answer was always,
Speaker 2: there's no such thing as a toxic asset. It is
Speaker 2: only a toxic price. At the right price, everything has value.
Speaker 1: Without a doubt, and it introduced me to sort of
Speaker 1: that concept of margin and safety. A lot of people
Speaker 1: talk about it, but with bonds it's really interesting, particularly
Speaker 1: the corporate bonds. As the dollar prices come down, your
Speaker 1: risk goes down because there's a recovery. In the worst
Speaker 1: case scenario, you end up you know, owning the company basically, right.
Speaker 1: So the recovery value, and sometimes those recovery values are
Speaker 1: the trading value you could come close to or if
Speaker 1: not below, the actual recovery value in those situations. So
Speaker 1: because like a quant person would come in and say, oh,
Speaker 1: your value at risk is going bonkers right now, you know,
Speaker 1: of all, if your portfolio is nine percent and you're backwards,
Speaker 1: it's like, no, no, this is the time you want
Speaker 1: to go. And in fact, at that point the returns
Speaker 1: are skewed in your favor. Before looking returns, huh.
Speaker 2: Really fascinating. So let's talk a little bit about the
Speaker 2: team you work with. Your head of the full discretion team.
Speaker 2: What does the team do, how are they working with
Speaker 2: various funds and strategies, and how do they work with client?
Speaker 1: Right, So we're managing roughly about seventy four billion dollars
Speaker 1: and fixing come portfolio. We have four main product categories.
Speaker 1: That talked about our Core plus offering, which is our
Speaker 1: largest over twenty eight billion dollars, and then it goes
Speaker 1: into sort of multisector, and then after that you're into
Speaker 1: the high yield. We do all our dedicated high land
Speaker 1: BANKO and investing as well. Like I said, we're pretty eclectic.
Speaker 1: We tend to not look like our benchmarks. We have
Speaker 1: a lot of discretion to go outside, and we're you know,
Speaker 1: really interested in just generating the best total returns we
Speaker 1: can from a very wide opportunity set.
Speaker 2: Really really interesting. You talk a bit about various strategies
Speaker 2: across all the funds. I want to dive into these
Speaker 2: and get a handle on what they mean. So I
Speaker 2: often see the phrase research driven, bottom up approach. I
Speaker 2: assume that means we're not making big macro calls. We're
Speaker 2: looking at quality, we're looking at duration, we're looking at risk.
Speaker 1: Right, I mean it's hard to get away from macro
Speaker 1: calls altogether. Fixing come portfolio for example, duration is a
Speaker 1: big call you got to but you know a lot
Speaker 1: of our alpha are so called total access. Sort of
Speaker 1: return is driven buy our bottom up security selection and
Speaker 1: that comes through really excellent research. When you look at
Speaker 1: our process, we do think about a macro. We are
Speaker 1: credit cycle investors. As I said before, we lean into
Speaker 1: the credit markets. Where we're going to make our money
Speaker 1: is tilting into risk. So for us, you know, most
Speaker 1: of our intermediate quality is going to be triple B
Speaker 1: average quality of our portfolios.
Speaker 2: So that's a little below of investment.
Speaker 1: Yeah, and we think that it really makes sense to
Speaker 1: tilt in through the cycle. Okay, to get that spread premium,
Speaker 1: you get compensated for it as an investor. You know,
Speaker 1: maybe it's only one hundred or two hundred basis points,
Speaker 1: but compound that over five years you got more than
Speaker 1: double the money. It's significant. Yes, The key is to
Speaker 1: not to avoid permanent losses, and that's where you know
Speaker 1: the individual security selection comes out. We tend to be
Speaker 1: concentrated in those so we when we find something we like,
Speaker 1: we'll buy it relatively big size, not as big as
Speaker 1: they say a forty You know, you look at the stocks,
Speaker 1: you might say something like a thirty five star portfolio.
Speaker 1: You can't do that in the fixed income. You got
Speaker 1: to diversify more. But that's what we seek to do.
Speaker 2: Opportunistic we'll get to value driven That is so interesting
Speaker 2: on the fixed income side and so different than what
Speaker 2: people mean when they say value inequity. What are you
Speaker 2: getting paid for the risk you assume and fixed income?
Speaker 2: Like if we look currently, especially with an inverted yield curve,
Speaker 2: you're not getting paid a lot for very long duration,
Speaker 2: but there's some risk with very short duration that hey,
Speaker 2: if the Fed decides to eventually one of these days
Speaker 2: cut rates, well, your short term duration now you have
Speaker 2: reinvestment risk. How do you think of value relative to
Speaker 2: fixed income?
Speaker 1: You bringing up a point. There are a lot of
Speaker 1: different types of risk premium and fixed income more so
Speaker 1: than there are just in the stock market. And that's
Speaker 1: interesting because you can build really interesting portfolios that have
Speaker 1: different risk factors that co vary very well together, not
Speaker 1: perfectly correlated. So that's diversification. So let's just focus on
Speaker 1: the interest rate risk premium that you're talking about. You
Speaker 1: bring up a good point here, So first, and I've
Speaker 1: learned a lot of this from Dan, But you think
Speaker 1: about this. Let's take a big, big step back about
Speaker 1: interest rates. You know, we all know for a long
Speaker 1: time your concept of reinvestment rate risk and principle risk
Speaker 1: are the key big picture risks that you take in
Speaker 1: fixed income for many decades. You know, after the poll
Speaker 1: Vocar slayed inflation, right, your biggest risk. People really didn't
Speaker 1: understand this, but your biggest rist of reinvestment rate risks.
Speaker 2: Right, especially when you're in a thirty year market where
Speaker 2: rates continue to fall. I remember my father in law
Speaker 2: saying to me back in like two thousand, he had
Speaker 2: a bunch of NYC GEO bonds that were fifteen percent
Speaker 2: when New York City was in trouble, and he's like,
Speaker 2: what can I do with this? I'm like, ah, we
Speaker 2: get six and a half seven on a treasury. He's
Speaker 2: like seven percent. That's why would I want seven percent
Speaker 2: going lower? We'll talk in a few years it will
Speaker 2: be five percent, no, can't be yes?
Speaker 1: Yes, yes, So rates start came down more and more
Speaker 1: more than people are expecting over time. You know, it's
Speaker 1: interesting Dan used to run a ten year duration in
Speaker 1: his portfolio. That's for people to know, that's very difficult
Speaker 1: to do. You have to buy basically thirty years zeros
Speaker 1: right to kind of get you out there, and he
Speaker 1: was doing that in the Canadians bond market zero. So
Speaker 1: it was very interesting. People ask them, well, well, you
Speaker 1: don't manage duration just sort of artifact of your PORTFOLI.
Speaker 1: He's like, no, no, no, I want to maximize that because
Speaker 1: I want to capture this yield for as long as possible.
Speaker 1: Don't worry about the cycles. You're going to have lower
Speaker 1: lows and lower highs. And that persisted until about two
Speaker 1: thousand and three. Remember the conundrum, the bond conundrum. Right
Speaker 1: rates started getting really lower. It was kind of back then,
Speaker 1: even approaching the lower bound.
Speaker 2: That whole excess savings nonsense we heard from at least
Speaker 2: I thought it was nonsense. Fixed income people might have a.
Speaker 1: Right and so then now you had to get to
Speaker 1: a point where you start, okay, now you have to
Speaker 1: start considering the principal risk. Now, it took a long
Speaker 1: time before principal risks has become a problem, but even
Speaker 1: I would say even before the pandemic, there were signs
Speaker 1: that you need to start flipping your calculus as a
Speaker 1: fixed incoming vector investor on a secular.
Speaker 2: Basis another word saying, hey, we've been at zero for
Speaker 2: a long time. Eventually rates are going to go up,
Speaker 2: and I would rather be sooner than later, because if
Speaker 2: I wait too long, especially with long duration, rising rates
Speaker 2: in long duration fixed income leads to capital laws.
Speaker 1: In twenty twenty to ten years fifty basis points, we
Speaker 1: ran a very low duration there, and you would say, well,
Speaker 1: it wasn't a big risk because you're at the zero
Speaker 1: lower bound. What are the chances they're going to go lower.
Speaker 2: And you weren't getting paid for it.
Speaker 1: And you weren't getting paid for it. Now that seems
Speaker 1: like any decision now, but it not necessarily at the
Speaker 1: time because people weren't sure. But that was a really
Speaker 1: good call for us. And before you used to be
Speaker 1: able to ride the like Dan did the tenure you
Speaker 1: could just stay long. You can not stay short right
Speaker 1: in this market and expect to do well over the
Speaker 1: long run. You've got to manage through the FED cycle.
Speaker 1: So I like to think about it as a FED cycle.
Speaker 1: I think we're, you know, obviously coming to a cutting
Speaker 1: cycle soon. Your risk now on reinvestment rate risk is
Speaker 1: in the short end, and I think it's time to
Speaker 1: kind of move out into the intermedia of the part of.
Speaker 2: The cur I totally agree. We've sort of taken the
Speaker 2: same approach internally. Let's go over the rest of your
Speaker 2: core principles for the for the key strategies we briefly
Speaker 2: mentioned multi asset. Does that include equities? That does that
Speaker 2: include private credit? How multi is multi asset?
Speaker 1: Multi asset does include for certain portfolios, you know, the
Speaker 1: more risky portfolios, we can start putting in stocks, our
Speaker 1: most risky strategic income. We can do up to thirty
Speaker 1: five percent stocks in that portfolio. Then you go into
Speaker 1: something called global allocation, which I manage the bonds leave
Speaker 1: but with a couple of great equity managers and a
Speaker 1: great global manager. On the fixed income side, that is
Speaker 1: typically like seventy percent stocks. So we do bottom up
Speaker 1: stock selection as well.
Speaker 2: So in your multi asset, where you're looking at the equities,
Speaker 2: is it a particular type of equities? Are you looking
Speaker 2: at diven m payers, are you looking at convertibles? What
Speaker 2: sort of equities complement the fixed income side and the
Speaker 2: multi asid.
Speaker 1: Yeah, you bring a good point. Equity premium can be
Speaker 1: gotten from not just stocks but also from converts. Yeah, right,
Speaker 1: So we do that across all our portfolios. Right, even
Speaker 1: once that don't necessarily allow us to buy outright stocks,
Speaker 1: we can buy convertible bonds, and we've made hay in
Speaker 1: that market because it's I think it's less efficient.
Speaker 2: So it's a challenging space because if done right, you
Speaker 2: get the best of both worlds. Yes, and have done poorly,
Speaker 2: it's the worst of both worlds. Hey, low yield, but
Speaker 2: at least as principal risk that wants that.
Speaker 1: Well, it's the only kind of bond that's a growth
Speaker 1: bond too. So if you're right, you're really right. And
Speaker 1: we've had some really great winters like cornering over the years.
Speaker 2: Well if the underlying if the if the paying company
Speaker 2: has some positive corporate event, well obviously the convertibles do
Speaker 2: really well, and some of them have you know, the
Speaker 2: terms that say, hey, well this is going to convert
Speaker 2: at this low price. When the price is up here,
Speaker 2: it's a win win other than having to pay the taxes.
Speaker 1: Right, So we do that and we're very good at that,
Speaker 1: always have been. And on the stock side, you know
Speaker 1: we are we're fixed income investors our investors expect us
Speaker 1: to generate yield, so that pushes us into the dibbinit
Speaker 1: paying stocks. For the most part, I would say from
Speaker 1: a bottom up perspective, you know, our research group does
Speaker 1: a tremendous job at uncovering value. What I asked my
Speaker 1: nis to do is really understand what the assets of
Speaker 1: a company are worth. Okay, this is our fixed income analysts.
Speaker 2: You know.
Speaker 1: This is typically you know, you think of equity.
Speaker 2: Meaning an event of a default. What do we end
Speaker 2: up with as what is? Yeah?
Speaker 1: But what is the value? Because then I can look
Speaker 1: at the cap structure and I can say how well
Speaker 1: is that debt cover But and then I can look
Speaker 1: at have a view on the stock too. So oftentimes
Speaker 1: where we see the best value is that in the
Speaker 1: equity market. Is it is when a company is going
Speaker 1: from say, you know, a low quality but is all
Speaker 1: of a sudden moving up rapidly from a credit fundamental
Speaker 1: perspective that starts to accrue eventually to the stock. It
Speaker 1: sort of goes from sort of worry about the leverage too, Oh,
Speaker 1: we're not worried about it. The risk premium starts to
Speaker 1: come down stock and it starts.
Speaker 2: To so when you're doing your fixed income corporate analysis
Speaker 2: of bonds, you can also identify mispricing on the equity side. Absolutely, yes,
Speaker 2: we see you know all the time that that explains
Speaker 2: this sort of pet thesis I've had for many, many years.
Speaker 2: A lot of my favorite equity analysts began as bond
Speaker 2: analysts or are bond analysts with opinions on equities, and
Speaker 2: it's very different than the equity side, perhaps because of
Speaker 2: that exact reason. They're really in the minutia of cap table,
Speaker 2: the corporate structure, what the priorities are, and that really
Speaker 2: seems to provide a lot of insight into what does
Speaker 2: this compon been really worth going forward?
Speaker 1: I agree, we see it all the time.
Speaker 2: So let's talk a little bit about your clients. Loomis
Speaker 2: sales manages well over three hundred billion dollars three hundred
Speaker 2: and thirty three hundred and forty billion dollars. Who are
Speaker 2: your clients? I know they're primarily institutional and they're spread
Speaker 2: out over twenty countries, is it US, Europe? Asia? Who
Speaker 2: and where are your clients?
Speaker 1: But most of our asset bases in North America, as
Speaker 1: you would expect being a US manager. But we've expanded
Speaker 1: both in Europe. Asia, I think is the biggest pot
Speaker 1: of money outside of the United States, so we're pretty
Speaker 1: much everywhere. We have offices now in Singapore for Loomis
Speaker 1: offices in Singapore and in London, and that's something that's
Speaker 1: grown as I've grown over there. It's been fun to
Speaker 1: kind of expand internationally. My client base. Half of it
Speaker 1: is retail. You know, we're either doing our own funds
Speaker 1: or subadvising on that half. And you know, so we're
Speaker 1: dealing mainly with the big wirehouses like the Merrill Lynches
Speaker 1: of the world, et cetera. You know, the fas are
Speaker 1: investing in the funds. That's for the most part. Oria's
Speaker 1: two places like that. And then on the institutional side
Speaker 1: we do of course all private pensions, somber wealth funds,
Speaker 1: public pensions, tapped, Hartley plans, insurance, all of that.
Speaker 2: Huh. Really interesting how often you get to London or Singapore.
Speaker 1: I go to Asia. My wife's from Sydney. I was
Speaker 1: just in Sydney a couple of weeks ago. Interesting contrast
Speaker 1: between the US and Sydney right now.
Speaker 2: But why is that?
Speaker 1: Well, this goes back to the FED and the transmission
Speaker 1: of policy here in the United States, we've bet what's
Speaker 1: the the average mortgage now is like a three handle.
Speaker 2: Yeah, So like if you look at the pool of
Speaker 2: mortgages five percent below, it's like sixty five seventy percent
Speaker 2: of yes, well outstanding, whereas most of the rest of
Speaker 2: the world is variable, not fixed mortgages.
Speaker 1: That's just it. So that transmission is muted on the
Speaker 1: upside for when they're raising rates for the FED. On
Speaker 1: the downside, refine it refined. Every penis some mortgage once
Speaker 1: a long time ago before I made one coupon payment.
Speaker 1: But that so there's a sort of asymmetry now. When
Speaker 1: I was over in Sydney visiting family and doing some business,
Speaker 1: you talk to people there, their mortgage bills is hitting
Speaker 1: their pocketbuts right away a little bit of a lab
Speaker 1: but it's killing them right now. And you know, inflation
Speaker 1: is tough there. The same themes here are there, but
Speaker 1: you can start to see it more there is.
Speaker 2: That why we've seen who's cut rates over the past
Speaker 2: few weeks. The Bank of Canada, Canada, Bank of Australia
Speaker 2: right cb RBA has not done that. They have not yet.
Speaker 1: Yeah, and they're even talking about raising because inflation is
Speaker 1: still a problem there. Now. The difference there is I
Speaker 1: got way more immigration, right, and it's a growing population.
Speaker 1: You talk to a developer there, they have the same
Speaker 1: housing problem. Not they just can't and you can't find
Speaker 1: skilled labors to do the job. So that's that's where
Speaker 1: the similarities are.
Speaker 2: It's still a robust economy that's doing pretty well.
Speaker 1: It's a robust economy. Yeah, so in Australia has always
Speaker 1: been like that because that growth.
Speaker 2: Plus they have China. They're a giant supplier to China
Speaker 2: for commodities everything else. I would love to go to Australia.
Speaker 2: I am just so intimidated by that flight. It's on
Speaker 2: a flight, it's like eighteen twenty hours something crazy.
Speaker 1: You bring a good book with you.
Speaker 2: You've got to bring a couple of books, a couple
Speaker 2: of movies, and some sleeping pills and you're halfway there, right.
Speaker 2: It's it's really tough, all right. So across your career
Speaker 2: at Loomis, for twenty seven years, you have gone from
Speaker 2: analysts to portfolio manager to head of the full discretionary team.
Speaker 2: Tell us what that transition was like and how are
Speaker 2: you able to relate with some of the younger analysts
Speaker 2: in the firm. Considering you started out where they.
Speaker 1: Did, I kind of got lucky and that there was
Speaker 1: an opening as a portfolio manager. And you know, I
Speaker 1: had spent only three years in the research group. I
Speaker 1: was sort of snake bitten as an analyst. Anything I
Speaker 1: touched as an industry seemed to blow up. But when
Speaker 1: I came to Loomis, I was covering oil and gas
Speaker 1: when oil went to five dollars a barrel, right, or
Speaker 1: ten dollars something like that, and then I also pa.
Speaker 2: Dollars a barrel, I want to say, late nineties.
Speaker 1: Something like that was yeah, with late nineties and on
Speaker 1: the cover of the Economists that said five dollars with
Speaker 1: a I'm like that.
Speaker 2: And that was low. So it's so funny you say
Speaker 2: that I sat in on a meeting I won't mention
Speaker 2: the firm and listen to the market strategist slash managing
Speaker 2: partner scream about two and three dollars oil, and I
Speaker 2: leaned over the guy next to him, I'm like, you
Speaker 2: will never see in the lower print of oil in
Speaker 2: our lifetime, literally read the same nonsense that this guy
Speaker 2: was spewing in Barns that week, and I'm like, gee,
Speaker 2: this sounds kind of like the opposite of what you
Speaker 2: get at the tops and equity markets. That's it. Oil
Speaker 2: is bottomed, and that was fair enough.
Speaker 1: It was, yeah, and so we made some good money.
Speaker 1: We made tons of money of chutspeak energy back then
Speaker 1: and the Asian crisis. Have made a lot of money
Speaker 1: with Dan in the trading desk. At that time. I
Speaker 1: also covered wireless telecoms, so that entered into a you know.
Speaker 1: So anyways, I had a lot of swings there that
Speaker 1: went really well, and I was asked to manage money
Speaker 1: with Dan and I didn't expect it at that time,
Speaker 1: but it just happened, and so I fell into that.
Speaker 1: Back then, it was a lot different. You ate what
Speaker 1: you killed. What I mean by that is you were
Speaker 1: loosely affiliated as a portfolio manager. You know. I basically
Speaker 1: would hang my name up on a shingles, say Maddie
Speaker 1: and portfolio manager, and a client would hire me right,
Speaker 1: not necessarily Loomis, and we were loosely affiliated around like
Speaker 1: the Dan Fuss style, and I love the Dan Fust style.
Speaker 1: So I was investing like that. But my first opportunity
Speaker 1: as a as a portfolio manager, you know, you had
Speaker 1: to go where other people didn't want to go. The
Speaker 1: other senior managers didn't want to go. So an opportunity
Speaker 1: came up in the middle of January to go to Helsinki,
Speaker 1: Finland for a highyield opportunity, and.
Speaker 2: I raised me in the middle of January.
Speaker 1: In the middle of January, which is quite interesting, is
Speaker 1: very cold and very dark and very dark, and I
Speaker 1: went there and I got it. It was like two
Speaker 1: or three hundred million dollar mandate for high yield, so
Speaker 1: that was great. At the same time, we started institutionalizing
Speaker 1: as a business because Loomis was really created as an
Speaker 1: investment counselor back in the day. The manager did bonds
Speaker 1: and stocks and worked directly with that client one on one,
Speaker 1: and we needed to institutionalize. When I first started Loomis,
Speaker 1: we were eighty billion in AUM and we were growing
Speaker 1: right so now we're almost three under fifty billions, so
Speaker 1: it's been a lot of growth, and that's one of
Speaker 1: the reasons. Growth creates opportunities right for people, So we
Speaker 1: need institutionalize. We hired a new CEO, Cio came in
Speaker 1: to help us do that, and we created teams and
Speaker 1: that's when we started to create the team that you
Speaker 1: know Dan was on. I was on Elaine Stokes. Everybody's
Speaker 1: retired except for me, off that original team, you know.
Speaker 1: From there, I started creating that product team that you
Speaker 1: see over twenty people today. We institutionalized the products, the
Speaker 1: product offerings, which really makes you think about how do
Speaker 1: you explicitly state what the objectives are?
Speaker 2: Right?
Speaker 1: And then we institutionalized the framework. And I think behind
Speaker 1: every great shop, equity bonds, whatever, behind every great manager
Speaker 1: is a great framework, a repeatable framework.
Speaker 2: That's the hardest thing we did developing the process that
Speaker 2: you can do over and over again.
Speaker 1: We had the foundation, we had it up in our brains.
Speaker 1: The idea was to put it on paper and write
Speaker 1: it out, and that took a long time. And then,
Speaker 1: of course succession for Dan was a huge part of
Speaker 1: my microphone.
Speaker 2: So let's let's talk a little bit about what you
Speaker 2: described as the Dan Fuss approach. I love the concept
Speaker 2: of opportunistic investing, So a few questions. Let me just
Speaker 2: start with explain what is the Dan Fuss approach?
Speaker 1: Before I answer that question, let me just describe, you know,
Speaker 1: a situation when I became a portfolio manager. I was
Speaker 1: a credit guy, you know, I was a credit research
Speaker 1: channels and I really liked hy yield investing. And you know,
Speaker 1: Dan was covering all these markets and it looked really daunting.
Speaker 1: I mean when I say everything, everything around the globe.
Speaker 1: He was reading, you know, uh Asian papers, he was
Speaker 1: covering Canadian bond markets and all the Ozzie bond markets,
Speaker 1: et cetera. I said, hmm, maybe I can just do hi,
Speaker 1: I said, Dan, you know, I think I just want
Speaker 1: to focus on our Higeld portfolios. What do you think
Speaker 1: about that? And Dan said, You're not going to get
Speaker 1: away with that too easy. You're not gonna get away
Speaker 1: with that. So you are. You are going to be
Speaker 1: a better investor. Trust me, You're gonna be a better
Speaker 1: vestor if you can cast a wire net. So that's
Speaker 1: one of the first things, cast a wye net. Okay,
Speaker 1: So I said, all right, how does he do that?
Speaker 1: So what I started observing him and what people know
Speaker 1: Dan very well. Most of the times when this to
Speaker 1: this day, he still does this. He stands up in
Speaker 1: his office and there's a sort of a table that
Speaker 1: he's at and he charts things by hand. He charts, commodities,
Speaker 1: bond prices, stock, all of these market information. So I
Speaker 1: asked him to show me this and it was done
Speaker 1: on green Ledger paper, you know, the old Green County paper.
Speaker 1: And he started flipping this thing open and it just
Speaker 1: flipped page after page after page. He used to have
Speaker 1: a he has a slide ruler that he says he
Speaker 1: used to scratch his back and also to do straight lines.
Speaker 1: And I said, wow, right, I said, why do you
Speaker 1: do this? He said, I learned through the end of
Speaker 1: a pencil, okay. And what it does is it allows
Speaker 1: you to connect disparate spots and connect points that seem
Speaker 1: unconnected and then you see that they are connected, right,
Speaker 1: And that's where how you learn as an investor. So
Speaker 1: I started doing that. I did it through spreadsheets. It's
Speaker 1: different than just looking at a chart. You pull up
Speaker 1: a bloom chart, you look at it right, doesn't stay
Speaker 1: with you as well. Another way method is actually either
Speaker 1: writing it out or putting it into a spreadsheet and
Speaker 1: looking at the data over time and tracking it economic data,
Speaker 1: GDP data, employment data, bond prices, auction. I have auction,
Speaker 1: you know, data going back on a spreadsheet, back to
Speaker 1: the two thousand, So that helped me become a multisector investor.
Speaker 2: Huh, really intriguing. I took the technical analyst course in
Speaker 2: the nineties with Ralph Akmpora, and I had not only
Speaker 2: heard something very similar from him to what you're describing
Speaker 2: with Dan, but a number of traders and fund managers
Speaker 2: and technicians all had said, I like the expression learning
Speaker 2: from the end of a pencil. Looking at a chart
Speaker 2: is not the same as drawing a chart. You end
Speaker 2: up feeling something viscerally that you can't get just by
Speaker 2: visually viewing it, especially when you're doing it every day
Speaker 2: with a whole run of different assets. What you begin
Speaker 2: to feel is a real rhythm, a real intuition as
Speaker 2: to what's going on. It may look random, and often is,
Speaker 2: but when you're doing it manually, day by day, you
Speaker 2: kind of get a sense of what's happening.
Speaker 1: Yeah. In fact, as it's your intuition that everybody talks about,
Speaker 1: you start to build this kind of intuition about the
Speaker 1: market and these funny feelings that something's going on, you know,
Speaker 1: on the surface, and then you know, I would like
Speaker 1: to listen to that, and you start sort of on
Speaker 1: peeling that and it leads you to start to focus
Speaker 1: on areas that maybe other people aren't focusing on.
Speaker 2: That that's the art, not the science. When I think
Speaker 2: of opportunistic investing on the equity side, it's very much,
Speaker 2: you know, buying when there's blood in the streets. Taking
Speaker 2: the opposite side of panic. It's a little harder tops
Speaker 2: than bottoms. Bottoms are very visible tops or this long,
Speaker 2: slow process, but it's really visceral and emotional and people
Speaker 2: are panicking and I'll make a little liquidity over here.
Speaker 2: What you described in terms of opportunistic investing on the
Speaker 2: fixed income side seems somewhat qualitatively different. What is opportunistic
Speaker 2: investing on the bond side.
Speaker 1: I think it's it's similar. I mean, like I said,
Speaker 1: we provide liquidity to illocan markets, so we're looking for
Speaker 1: dislocations in the market and that because of greed and fear,
Speaker 1: you know, or different differences in timing of horizons of investments.
Speaker 1: You know, for the street is very short, you know,
Speaker 1: we can be longer. I think you know the temperament
Speaker 1: for my style, I think you have to really enjoy volatility.
Speaker 1: I noticed that, well, I'm smiling when the market is
Speaker 1: down and I think that's an important kind of trait
Speaker 1: to have. I get antsy and kind of more grouchy. Unfortunately,
Speaker 1: a lot of the times you're in these markets where
Speaker 1: they're just kind of going sideways and there's not a
Speaker 1: lot of bad right, that makes me grouchy. I try
Speaker 1: not to bring that home.
Speaker 2: But nauci or is it just boring?
Speaker 1: It's boring, which makes you a little bit irritable, you know,
Speaker 1: And I think, you know, I really enjoy I probably
Speaker 1: would have been a good er doctor.
Speaker 2: I like it.
Speaker 1: You know, in twenty twenty, you know, we're in the
Speaker 1: pandemic right right, and that's going on, and you can
Speaker 1: buy McDonald's at seventy cents of the dollar. I love
Speaker 1: that kind of market.
Speaker 2: That's hilarious. That's I remember in the middle of even
Speaker 2: the early months of eight and after being kind of
Speaker 2: a goat for a year saying warning, hey, it's coming.
Speaker 2: I don't know exactly when it's going to start, but
Speaker 2: you could see this can't last. In eight I used
Speaker 2: to play free Falling by Tom Petty on the computer
Speaker 2: and one of the older senior people said, listen, I
Speaker 2: understand what you went through, and you're finally getting a
Speaker 2: little come up in for everybody who doubted the analysis.
Speaker 2: But people are getting fired blood in the streets. You
Speaker 2: got to take it down, right, so that like smile
Speaker 2: is like okay, you got to kind of exactly got
Speaker 2: to kind of keep it on the inside. But when
Speaker 2: I was younger and dumber, I didn't realize that. Now
Speaker 2: I'm older and dumber, and I kind of figured some
Speaker 2: of that out. So let's talk about the state of
Speaker 2: the bond market. You and I kind of began around
Speaker 2: the same time, around mid nineties. We were the beneficiary
Speaker 2: of Paul Volker's breaking the back of inflation. For anybody
Speaker 2: who has been working in markets for most of the past,
Speaker 2: you know, forty years, rates primarily trended downwards. How does
Speaker 2: that impact how you think about fixed income? Sure, there
Speaker 2: have been occasional spasms upwards, and we'll talk about the
Speaker 2: twenty twenties next, But what does that framework do to
Speaker 2: how you were running a bond portfolio in a multi
Speaker 2: decade long bond bull market.
Speaker 1: Right, Well, you know, of course went into the Q years,
Speaker 1: and you know you had to look at like real
Speaker 1: What QUI does is it pulls real rates into the
Speaker 1: negative market and the Fed basically sells set tells you
Speaker 1: do something else, go by risk. Right, during those periods,
Speaker 1: we just had to follow what the Fed was doing,
Speaker 1: you know, and if they were providing liquidity in the market,
Speaker 1: you could feel pretty comfortable taking risk.
Speaker 2: And that's literally the past twenty years. You got to
Speaker 2: go back to the two thousand and one recession and
Speaker 2: then September eleventh, we were pretty close to zero for decades.
Speaker 1: Yeah, so we know the bond market really changed during
Speaker 1: that and you remember, you know, you used to earn
Speaker 1: you know, you think about the Yeld curve around the
Speaker 1: classical thinking thought processes, what the FED doing, what the
Speaker 1: economy is doing. During those Q years, you just worried
Speaker 1: about what the balance sheet of the FED look like,
Speaker 1: is it expanding or contracting? And that pretty much told
Speaker 1: you what to do. Really, I think que now is
Speaker 1: sort of in the rear view mirror for now. I
Speaker 1: don't think it's going to come back. I think we're
Speaker 1: in a different type of market where people who have
Speaker 1: not witnessed an era where inflation is driving more decisions.
Speaker 1: I think you really should look, you know, at longer history.
Speaker 1: I was telling some of the younger people, like, do
Speaker 1: not try to expect to extrapolate what's going to happen
Speaker 1: based on recent I mean I'm talking like decade or
Speaker 1: two type of bond markets.
Speaker 2: Mean, reversion doesn't mean going back to zero, it means
Speaker 2: it goes to five percent, right.
Speaker 1: So I think that you know, it kind of goes
Speaker 1: back to that concept we were talking about reinvestment rate
Speaker 1: risk and principal risk. Now going forward, your biggest concern
Speaker 1: or your challenge, and it's manageable, is how do you
Speaker 1: preserve principle while getting to a higher level yield. So
Speaker 1: you think of today's market, it used to be we
Speaker 1: were walking down a steep staircase. It was going down, down, down.
Speaker 1: Now you're looking at steps going up before you.
Speaker 2: I believe is that the new trend.
Speaker 1: I believe it is. I think we can talk about
Speaker 1: that there's a structural feature to this market that's going
Speaker 1: to keep it higher for longer, let's call at least
Speaker 1: over the next decade or so. And then there's a
Speaker 1: cyclical component, which we can talk about in a moment.
Speaker 1: But the structural components are there are tailwinds to in
Speaker 1: and the biggest driver is a fiscal deficit.
Speaker 2: I was going to ask about that we've had this
Speaker 2: giant regime change that during those twenty years, the prime
Speaker 2: driver was monetary policy. Now it feels like, not only
Speaker 2: do we have a massive fiscal stimulus first with the
Speaker 2: tax cuts under Trump and then kars Act one and two,
Speaker 2: which were giant fiscal stimulus, but now you have Karz
Speaker 2: Act three plus all of these ten year long the
Speaker 2: Infrastructure Bill, the Semiconductive Bill, the Inflation Reduction Bill, whatever
Speaker 2: the name of the bill was, that added a whole
Speaker 2: bunch of money to the veterans' hospitals. And those are
Speaker 2: all ten year ongoing fiscal stimulus. Is that what you
Speaker 2: mean when you talk about.
Speaker 1: I started this actually really predates the when I started
Speaker 1: thinking about this. Like for example, you know, I was
Speaker 1: always asking me during those Q years what fundamentally needs
Speaker 1: to change for us to start thinking differently about structurally
Speaker 1: where rates are going, because we were starting to see
Speaker 1: labor market conditions tight. Remember around eighteen nineteen, the FED
Speaker 1: was starting to you know, it started going the other way.
Speaker 2: Q four eighteen was a major draw down in the
Speaker 2: equity market almost twenty percent.
Speaker 1: Yeah, so you could see wages were just starting to
Speaker 1: lift up. And now all of that was hidden by
Speaker 1: the pandemic after that. But there's a tightening in the
Speaker 1: labor force underneath all of this, and that's the demographics.
Speaker 1: I was reading The Great Demographic Reversal at that time
Speaker 1: by good Heart at All. It was talking about the
Speaker 1: aging of the population. People used to think aging the
Speaker 1: population is deflationary. Well, he put a different spin on it,
Speaker 1: and it kind of got me thinking. And the big
Speaker 1: thing there is, globally in the industrialized world, this is true.
Speaker 2: Wait, the aging of the population is deflationary or is
Speaker 2: this not so? The traditional discussion is people get older,
Speaker 2: they stop consuming as much as they do when they're younger.
Speaker 2: They already own their house, the mortgage paid off, they
Speaker 2: own their cars, they'll drive them forever, and that's somewhat deflationary.
Speaker 2: What's the counter, Well, he talks about it's really about
Speaker 2: the working population. And if you looked at the big
Speaker 2: event that we had was the ascension of China to
Speaker 2: the World Trade Organization around two thousand and one or
Speaker 2: something like that, they brought eight hundred million people to
Speaker 2: the working age population. So our wages in the developed
Speaker 2: world were crushed on a you know, on a real basis.
Speaker 2: So there was sort of stagnation in there, and their
Speaker 2: wages grew in the emerging markets, they became richer. Now
Speaker 2: we all know the story now that China's you know,
Speaker 2: population is rolling over now globally in the industrialized world,
Speaker 2: the working age population is kind of stagnant, and that's
Speaker 2: the tightness there you're seeing there. The people who spend
Speaker 2: are the young folks and the older folks in the
Speaker 2: middle of the way working age populations where the saving
Speaker 2: takes place. So as you age, you actually spend your wealth.
Speaker 2: And so that's what's going on.
Speaker 1: I think, you know, a lot of people will push
Speaker 1: against that theory, and I understand a lot of that,
Speaker 1: but I look at it anecdotally. What did we see.
Speaker 1: We saw, you know, some unionization efforts happening in this
Speaker 1: country for the first time, small but an Amazon and
Speaker 1: so on. And we can feel it, you know, in
Speaker 1: our spending it wages, you know, having necessarily kept up
Speaker 1: with this boost and inflation, but they're continuing. So that
Speaker 1: was one aspect of it. The other thing was going on,
Speaker 1: and Trump was you know, really started more or less
Speaker 1: a trade war with China. Trade had been sort of
Speaker 1: you had the Chimerica, you know, you all understood that
Speaker 1: it worked well for both parties. Now we're in a
Speaker 1: situation where it's not working well. There's tensions there, securities
Speaker 1: concerns are rising, have risen. So now you have near shoring,
Speaker 1: you have chips war things like that. You have this
Speaker 1: fence spending going up. So all of these things are
Speaker 1: adding to that inflation. And then on top of that
Speaker 1: you have electrification through climate change and other factors evs,
Speaker 1: all of that stuff.
Speaker 2: Well, what's the impact of electrification, which I saw a
Speaker 2: chart this morning that just showed China's electrification has just
Speaker 2: blown everybody else away. They are moving towards full electrification
Speaker 2: faster than anybody else by in order of magnitude.
Speaker 1: Right, they're winning sort of in the battery in the
Speaker 1: V space. We know, we know that they're leapfrogging in
Speaker 1: certain areas where they can just sort of jump technologies,
Speaker 1: if you will. That happens a lot in the emerging market.
Speaker 1: So the electrification, though, you know, in the United States
Speaker 1: and the developed world, it's all about the grid and
Speaker 1: how you know, we've got to get our grid able
Speaker 1: to handle all these evs, all the electrification that's going
Speaker 1: to take place. And that's going to require just a
Speaker 1: massive amount of investment and also stranded assets down the road.
Speaker 1: So all you add all of these factors, I think
Speaker 1: structurally there are tailwinds to inflation. Now what I think
Speaker 1: that means, what the consequences of that are is that
Speaker 1: inflation will be unstable and so you'll have syckicality inflation.
Speaker 1: Think of it as like the saw tooth where the
Speaker 1: teeth become you know, steeper. You probably remember this. You
Speaker 1: have more variability in the economic cycle. Because what inflation
Speaker 1: does is it adds uncertainty to consumers spending. It adds
Speaker 1: uncertainty planning for businesses, and so you get these fits
Speaker 1: and starts. It's a more compacted business cycle. It makes
Speaker 1: it difficult or trickier for the FED to deal with.
Speaker 1: So I think that's what we're going to see.
Speaker 2: This last cycle was.
Speaker 1: Really weird, you know, and I think we're going to
Speaker 1: see more of these types of cycles, and so I
Speaker 1: just think you need to have that in your brain
Speaker 1: about how this market's going to behave and you know,
Speaker 1: we can talk about the cyclical component of that today
Speaker 1: and how you play it in the near term.
Speaker 2: The big counter to higher for longer. That I keep
Speaker 2: hearing is, you know, the things that are bringing rates
Speaker 2: down hasn't been higher interest rates because of the lack
Speaker 2: of pass through in the housing market. Although it is
Speaker 2: impacting the bottom half of the economic stratas credit spending,
Speaker 2: it'squesting them more. But wherever we look, we see these
Speaker 2: structural shortages. So you mentioned how tight the labor market is.
Speaker 2: A lot of that is a reduction in legal immigration,
Speaker 2: not just under Biden and under Trump, but going back
Speaker 2: about fifteen years that kind of post nine to eleven,
Speaker 2: we tightened our rules. Some people have said the entire
Speaker 2: jobs growth over the past few years has been primarily immigration.
Speaker 2: Giant shortage in housing in the United States, mostly because
Speaker 2: since the financial crisis, we pivoted to multifamily homes and
Speaker 2: didn't build enough homes to keep up with population growth,
Speaker 2: and suddenly there's a giant surge even things like cars
Speaker 2: and a shortage of semiconductors, and how long it took
Speaker 2: to get all that back online. We haven't had enough
Speaker 2: automobiles out there. That's what's elevated prices. So that's a
Speaker 2: long winded way to say, how much can the FED
Speaker 2: influence this current cycle of inflation when it's driven in
Speaker 2: part by so many things that are responsive to policies
Speaker 2: outside of the Federal Reserve.
Speaker 1: Yeah, and I think that's been their number one problem here.
Speaker 1: And there's been supply side issues. I know you've talked
Speaker 1: before about the housing market. Raise rates and then people
Speaker 1: stop building new homes, and how does that unpacked the
Speaker 1: supply of housing?
Speaker 2: It's counter you know, right, counteract raising rates makes inflation higher.
Speaker 1: It's a weird situation. I think all of that is true.
Speaker 1: I do not know for sure that we're structurally on
Speaker 1: a higher for longer type of scenario, higher highs and
Speaker 1: higher lows. That that is the way I think you
Speaker 1: should bet right now, based upon what I see other
Speaker 1: factors that I think are gonna you know, particularly on
Speaker 1: the democraphic side. What about AI, right, how does that
Speaker 1: affect you know, productivity, the productivity mirror.
Speaker 2: I mean outside of the AI companies, the rest of
Speaker 2: the marketplace.
Speaker 1: The rest of that, you know, just uh, how does
Speaker 1: it affect wages? How does it affect productivity? Can you
Speaker 1: actually have rising wages and rising productivity and growth without
Speaker 1: you know, wage inflation, Because if you don't have wage inflation,
Speaker 1: it's tough to get kind of like a more of
Speaker 1: a sort of spiral of if not a structural right,
Speaker 1: it's not structural. So if you if you start those
Speaker 1: things start to fall away, you kind of have to say, oh,
Speaker 1: maybe we're back to a two percent. I think it's
Speaker 1: it's not. I'm not talking about a reverse. I saw
Speaker 1: the seventies as a young you know, a young person.
Speaker 1: I know what that's. I'm not suggesting it it's going
Speaker 1: to be like that, but I just think that what's
Speaker 1: important for a bond investment to understand is that inflation,
Speaker 1: which was stuck below structurally blow too, is going to
Speaker 1: be above two to some level. How much I don't know,
Speaker 1: but I think it's going to spend more of his
Speaker 1: time above there. Higher for longer, in my mind means
Speaker 1: higher real rates and higher inflation premiums for the uncertainty
Speaker 1: of that inflation. So what does that mean? I think,
Speaker 1: for example, like on tenure today, like long term, you know,
Speaker 1: maybe fair value in the ten you're somewhere on four
Speaker 1: and a half percent.
Speaker 2: So that would suggest now is the time to start
Speaker 2: lengthening duration if you haven't already.
Speaker 1: Yes, and with a caveat that, I think there's going
Speaker 1: to be a shallow rate cutting cycle. I think they
Speaker 1: start at sometime at the end of this year be
Speaker 1: my expectation. I think the economy cyclically is losing momentum.
Speaker 2: You're seeing it on the consumer spending side starting to
Speaker 2: drift flow.
Speaker 1: And retail sales the while there's a lot of problems
Speaker 1: with the job data that I you know, can't even
Speaker 1: want to go into. It's hard to trust that data.
Speaker 1: But when you look at claims data. But even when
Speaker 1: you start digging into the job data, you know, you
Speaker 1: look at permanent job losers rising, you see you know,
Speaker 1: part time overtaking sort of full time. So on the
Speaker 1: you know it's I'm not this is not a big correction.
Speaker 1: Let's face it. Unployment is really low. But on the margin,
Speaker 1: you know you're going to see that acceleration.
Speaker 2: It's a robust economy. But cracks are starting to show
Speaker 2: in the foundation.
Speaker 1: And you know, like you always see, like people are
Speaker 1: not going to know you're let's say you go into
Speaker 1: a recession. I don't think it's going to be a
Speaker 1: full blown recession. Those numbers are revised. Like I always
Speaker 1: it's funny to me that we spend so much time.
Speaker 1: But you know, job Report Friday comes out and everybody
Speaker 1: trades all over the number, the most important number though,
Speaker 1: and a year later all those numbers are revised in
Speaker 1: a big, big way. Yes, and you'll often see, oh,
Speaker 1: we actually were losing jobs in that period of time.
Speaker 1: You know, I don't know if that's going to happen.
Speaker 1: It can go both way. It can revise to the
Speaker 1: upside too, But I do sense my senses that it,
Speaker 1: you know, looking at the tea leaves out there that
Speaker 1: were decelerated.
Speaker 2: If that's the case, then I have to ask you
Speaker 2: to put on your FED chairman hat and say, what
Speaker 2: are we waiting for?
Speaker 1: I think that the FED has been job owning rates
Speaker 1: as they Yeah, they've been job owning. So remember they
Speaker 1: last November time frame they did the Dubbes pivot. I
Speaker 1: think they did that to get ahead of the election cycle.
Speaker 1: I know people say, well, FED doesn't respond to elections.
Speaker 1: I talked to a prominent FED chairman and says, you know,
Speaker 1: in a week moment said, you know, you kind of
Speaker 1: have to take that into consideration. I do think they're
Speaker 1: political animals at the end of the day to a
Speaker 1: certain degree.
Speaker 2: Although they have raised in previews what they need to do.
Speaker 2: They've done rate changes in prior election years, but this election.
Speaker 1: Is a big one, right, and so I think they
Speaker 1: just wanted to be out of the way and then
Speaker 1: they could be in position to job own the rates
Speaker 1: because they knew they had done a yeoman's work already
Speaker 1: to reduce the spike in inflation to get down to
Speaker 1: that beginning of the last mile, so class mile, that's
Speaker 1: been more difficult than it expected. We were thinking that
Speaker 1: as well. We faded that bond rally in the fourth
Speaker 1: quarter the curve. I think it's a shallow rate cycle.
Speaker 1: Most of the ray cuts are going to come from
Speaker 1: the front end of the market. Remember the FED controls
Speaker 1: the front end of the market out to the two year,
Speaker 1: maybe even a little bit in the five year.
Speaker 2: After that, it's all the Bunne.
Speaker 1: It's all the pond market, particularly thirty year, it's in
Speaker 1: its own it's its own beast. It runs to supply
Speaker 1: and demand. I don't want to get stuck long the
Speaker 1: long end, especially going to this election uncertainty. So I
Speaker 1: think you don't want to get that reinvestment rate risk
Speaker 1: on a T bill and you know, watch that five
Speaker 1: percent go down with four to three percent handle. In
Speaker 1: short order, you want to move out in that five
Speaker 1: seven year part of the curve. That's the best risk reward.
Speaker 2: I think the belly of the curve in the middle
Speaker 2: of the duration. So let me throw one more question
Speaker 2: at you and then we'll get to our favorites. The
Speaker 2: curve ball question is tell us what Boston Scores is.
Speaker 2: What do you do working with kids and team environments
Speaker 2: to help build character.
Speaker 1: It's an interesting organization I've been involved in for a
Speaker 1: while now. And what Boston Scores does. It's the largest
Speaker 1: K through twelve after school program for Boston Public school
Speaker 1: so they partner with Boston Public schools. They're known for
Speaker 1: their soccer program, so they provide free soccer programs after
Speaker 1: school for children to get involved a number of days
Speaker 1: of weeks. And they also in addition that provide other
Speaker 1: Richmond like poetry, and they actually have an entrepreneurial type class,
Speaker 1: which I find interesting. So this is a terrific way
Speaker 1: to get these kids together working as groups. It's about mind, body,
Speaker 1: and spirit really and they learn how they can solve
Speaker 1: problems in their community, get them prepared for potentially going
Speaker 1: into to college. You know, as they come towards their
Speaker 1: twelve year So it's terrific. I've seen the outcome for kids,
Speaker 1: and they have so much confidence. Some of these kids
Speaker 1: that are coming out. I look at him from where,
Speaker 1: you know, when I was graduating at that time. It's
Speaker 1: just amazing what these kids in this program.
Speaker 2: Does for the Boston school sounds really interesting. All right,
Speaker 2: our favorite questions, and we're going to turn this into
Speaker 2: a speed round. Tell us what's keeping you entertained these days?
Speaker 2: What are you watching or listening to?
Speaker 1: I'm watching Three Body Problem on loved It. Yeah, so
Speaker 1: I read the book a while ago. Somebody I was
Speaker 1: reading New York Times, like, what is this book? You know?
Speaker 2: There's such a love to get through?
Speaker 1: It was. I read all three of them. Actually there
Speaker 1: was a fourth one written by a fan. Finish it
Speaker 1: interesting to read if you want to continue that saga.
Speaker 1: But you know that that's on Amazon and Netflix. There's
Speaker 1: there's a Chinese version on Amazon.
Speaker 2: Oh really, yeeah, I get that one. Did you see
Speaker 2: did You? Subtitled did You?
Speaker 1: I started that one and I flipped to the Netflix
Speaker 1: one because it's faster moving. I think that's a hard
Speaker 1: book to translate.
Speaker 2: I picked it up and tried to read it a
Speaker 2: few times and just got It's like, it's like the
Speaker 2: first ninety two pages of nineteen eighty four is a tough, tough,
Speaker 2: tough slug. But I was I was down with COVID
Speaker 2: in March and just binged it and it was I
Speaker 2: thought it was fabulous.
Speaker 1: Yeah, typically don't read a lot of sci fi. But
Speaker 1: I read that and somebody said, if you like that,
Speaker 1: read Isaac as them off and I was a read foundation.
Speaker 1: It's an old you know classic.
Speaker 2: You know, once you go down that rabbit hole, there's
Speaker 2: no coming back. You should be you should be aware
Speaker 2: what else? What are the other ones you're watching?
Speaker 1: So I have more I have a bigger group of
Speaker 1: portfolio managers now, we went from forward to about eight,
Speaker 1: like managing different kinds of portfolios. And what I'm most
Speaker 1: interested in is behavior biases now because you get more
Speaker 1: people in the you know, in this in making decisions,
Speaker 1: it's important for a strategy have consistency and temperament and
Speaker 1: all that. The problem is you get eight people, they
Speaker 1: don't all have the same temperament. So I want people
Speaker 1: to really understand what their bias is. So the greatest
Speaker 1: guy to go do is is a comment on thinking
Speaker 1: fast and slow, right, or all those behavioral biases. I
Speaker 1: read that again, thinking fast and slow, and you know,
Speaker 1: the fast part reminds me is that that's the intuitive
Speaker 1: side of investing right, And we were talking a little
Speaker 1: bit about that. That's really important. I want to you know,
Speaker 1: foster that, but that can lead to a lot of
Speaker 1: behavioral biases. And the slow part, which is more difficult
Speaker 1: to slow down and really think about. That's sort of
Speaker 1: the checks. So you know, you have your investment thesis,
Speaker 1: you're like, go, We're ready to go. You want to
Speaker 1: keep checking it on those.
Speaker 2: Any other books you want to mention as long as.
Speaker 1: We're I think going into the elections, I've been reading
Speaker 1: a lot. I've done a lot of reading on China
Speaker 1: over the years. Cultural Revolution from now to now is
Speaker 1: a great want to understand what's going on in China.
Speaker 1: I think our Eastern civilization history was never that good
Speaker 1: for a lot of people in the United States, so
Speaker 1: revisiting that and what I'm reading now is called economic
Speaker 1: Independence in War by Copeland I think his name is Copeman.
Speaker 1: Interesting talking about even though you have trade that's very interdependent,
Speaker 1: that doesn't mean there won't be conflict. And it's about
Speaker 1: trade expectations. This is really key. It's key going up
Speaker 1: to the election because we're talking about big tariffs on
Speaker 1: both sides of the aisle.
Speaker 2: Right, and that's a tax on consumers.
Speaker 1: That's a tax on consumers. It's I think it's that's inflationary,
Speaker 1: by the way, and we have to be careful how
Speaker 1: we as a nation respond to these challenges. You know,
Speaker 1: it's going to be a rivalry, right, but expectations and
Speaker 1: you know if people think one is au serping the
Speaker 1: other or boxing people out, that's going to lead to
Speaker 1: possibility conflict.
Speaker 2: You know you mentioned China. The other book that's next
Speaker 2: up in my cueue is Chip Wars. People keep telling
Speaker 2: me I have to read that, you read it.
Speaker 1: I have not, but I want to read it yet.
Speaker 2: All right, Next question, who are your mentors who helped
Speaker 2: shape your career?
Speaker 1: Yeah, so there's so many. I mean I remember that
Speaker 1: there was an old guy, old banker Don Lang at
Speaker 1: Central Bank of Trust. He taught me how commercial lending works.
Speaker 1: You know, he's basically, somebody puts a deposit in, we
Speaker 1: lend the back their money and we make this amount
Speaker 1: of money. You went through the math and I'm like, wow,
Speaker 1: that's a great return. You lend people their own money.
Speaker 1: But he also said to me, Matt, because as I
Speaker 1: was leaving, he said, Matt, whatever you do, stay close
Speaker 1: to the revenues. It was a good advice career wise.
Speaker 1: Career wise, yeah, no matter what you do. I think
Speaker 1: that's that's something I always tell, you know, graduating students. Obviously,
Speaker 1: Dan Fuss has been an amazing you know, he's a
Speaker 1: non traditional mentor, but he really, you know, taught me
Speaker 1: how to invest. He also taught me this is a
Speaker 1: people business, our clients. Really understanding your clients. He was
Speaker 1: very close to his clients. But it's also about people
Speaker 1: in your work in the organization. There's a lot of
Speaker 1: stress of investing. We don't try to create that at work.
Speaker 1: And that was an important lesson I learned from him.
Speaker 1: And I would say, you know, I don't think he
Speaker 1: would know he's a mentor, but Howard Marx is just
Speaker 1: fantastic thinker. I read all of his stuff. He's got
Speaker 1: the I would say total force on the most wrote
Speaker 1: on liquidity, which was amazing. I think people should read that.
Speaker 2: What was the name of that it's one of the
Speaker 2: letters he wrote about liquidity. I'll dig that up and
Speaker 2: link to it and the book. The most important thing
Speaker 2: was really super seminal. Dan Fuss has all these affors
Speaker 2: and rules. Did anybody ever put that together? Says there
Speaker 2: ever been something like that?
Speaker 1: Essentially you did. It was our investment framework, right. I'd
Speaker 1: like to think we made it better because Dan was
Speaker 1: one person, and you know we've extended that into other
Speaker 1: markets like securitized bank loans, but it's the same underlying principles.
Speaker 2: I would love to see his quotes in like Top
Speaker 2: ten or Top twenty list. I know, in prepping for this,
Speaker 2: I keep coming across him in various articles and stuff
Speaker 2: being quoted. I thought it was really some fascinating stuff.
Speaker 2: Our last two questions, what advice would you give to
Speaker 2: a recent college grad interested in a career in fixed
Speaker 2: income or investing?
Speaker 1: One thing I would. I'd say, as soon as you
Speaker 1: can figure out what type of investor you are, understand
Speaker 1: what your temperament is. And that sounds easy, but it's
Speaker 1: really you really got to think about this, and you
Speaker 1: know describes you know where you might fit the best
Speaker 1: as you and I think that's important. You really got
Speaker 1: to gel with what you're doing. I also think I
Speaker 1: wish I knew this, you know, coming into the to
Speaker 1: the market is really don't wait, even if you don't
Speaker 1: know what you're doing, just pretend you're in the business
Speaker 1: and you're trying to invest and make money. Start reading
Speaker 1: things and you know, you know all the jargon and
Speaker 1: all the shows that go in, start reading it. If
Speaker 1: you don't understand something, go figure out what it is,
Speaker 1: and that will just you know, keep you going to
Speaker 1: the the next thing and the next. Before you know,
Speaker 1: you'll get it.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of investing today? You wish you knew thirty five
Speaker 2: years or so ago when you were first getting started.
Speaker 1: Well, I think I was sort of this view. I
Speaker 1: was a pure fundamental person. I thought, you know, there
Speaker 1: was this hard fast number that you get and you
Speaker 1: could transact on pretty much all the ideas that you
Speaker 1: would get. And what I realized is that there are
Speaker 1: a lot of other things that move prices in the market,
Speaker 1: including technicals, and you know, things can say cheap for
Speaker 1: a lot longer, and you really have to understand what
Speaker 1: the other side of the argument is and understand what's
Speaker 1: being priced in. So you might have this great idea,
Speaker 1: but if it's already priced into the market, it ain't
Speaker 1: worth anything. So you really have to understand that and
Speaker 1: see where your edge is and understand why that edge
Speaker 1: is pertinent.
Speaker 2: Huh, really fascinating, Matt. Thank you for being so generous
Speaker 2: with your time. We have been speaking with Matt Egan,
Speaker 2: portfolio manager and head of the Full Discretion team at
Speaker 2: Loomis Sales. If you enjoy this conversation, well, be sure
Speaker 2: and check out any of the previous five hundred plus
Speaker 2: interviews we've done over the past ten years. You can
Speaker 2: find those at Bloomberg iTunes, Spotify, YouTube, wherever you find
Speaker 2: your favorite podcasts. Be sure and check out my new podcast,
Speaker 2: At the Money, short ten minute conversations with experts about
Speaker 2: topics related to your money, earning it, spending it, and
Speaker 2: most importantly, investing it. At the Money, in the Master's
Speaker 2: and Business feed, or wherever you find your favorite podcasts.
Speaker 2: I would be remiss if I did not thank the
Speaker 2: Cracked team who helps me put these conversations together each week.
Speaker 2: My audio engineer is Meredith Frank, My producer is Anna
Speaker 2: Luke Attika of Albron is my project manager. Short Russo
Speaker 2: is my head of research. Sage Bauman is the head
Speaker 2: of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening
Speaker 2: to Masters in Business on Bloomberg Radio.