WEBVTT - American Airlines CEO on Fast Flights With Private Air Traffic 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.240 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Doug 0:00:32.280 --> 0:00:35.320 Parker joins us now. He's American Airlines chairman and chief 0:00:35.400 --> 0:00:38.960 executive officer, and he joins us through our Bloomberg eleven 0:00:39.000 --> 0:00:40.680 three studios in New York. Thank you so much for 0:00:40.760 --> 0:00:43.800 joining us, Doug. We started out talking about privatizing air 0:00:43.800 --> 0:00:46.040 traffic control, and I would love your take. First of all, 0:00:46.200 --> 0:00:49.960 do you support the privatization of this aspect of air 0:00:50.000 --> 0:00:53.840 traffic uh? And also how much would it change your 0:00:53.840 --> 0:00:56.680 business if this were to happen. Yeah, we do support it. 0:00:56.880 --> 0:00:59.160 Um You know, priortization is a bit of a missing 0:00:59.240 --> 0:01:01.080 umer here. We're not I can to put it into 0:01:01.160 --> 0:01:03.880 a for profit corporation. We don't think that'd be a 0:01:03.920 --> 0:01:07.119 good idea, but not for profit corporation that would allow 0:01:07.760 --> 0:01:11.360 us to invest the way that UM A TC needs 0:01:11.360 --> 0:01:13.920 to be invested in um to put in place the 0:01:14.200 --> 0:01:16.759 kind of technology that exists around the world that we're 0:01:16.800 --> 0:01:19.080 not using in the United States. And it's we believe 0:01:19.120 --> 0:01:21.520 it's primarily due to the governance structure that we have 0:01:21.560 --> 0:01:24.400 in place that requires the FA to go back every 0:01:24.480 --> 0:01:27.319 year and look for you look for new authorization has 0:01:27.360 --> 0:01:30.560 themselves to the whims of sequesters and things that just 0:01:30.600 --> 0:01:33.560 doesn't that doesn't provide itself the right structure for long 0:01:33.680 --> 0:01:36.480 term investment for a long period time. But Doug, do 0:01:36.520 --> 0:01:39.840 you think that there would be fewer delays, that just 0:01:39.920 --> 0:01:43.399 in general, that air travel would be easier and more 0:01:43.520 --> 0:01:47.080 streamlined if there was a privatization of air traffic control 0:01:47.080 --> 0:01:49.040 with things work better. Absolutely, That's why we're doing it 0:01:49.120 --> 0:01:51.320 again that I describe the governance that allows you to invest, 0:01:51.360 --> 0:01:53.280 we need to invest to but the technology in place 0:01:53.520 --> 0:01:56.000 that indeed allows us to provide the level of service 0:01:56.040 --> 0:01:58.520 we know we could would be much more efficient. You know, 0:01:58.560 --> 0:02:01.200 it takes today to get from Dallas Fort Worth in 0:02:01.200 --> 0:02:03.280 Philadelphia about forty when it's longer than it did just 0:02:03.320 --> 0:02:06.960 fifteen years ago, and the airplanes are getten faster. What's 0:02:06.960 --> 0:02:09.480 happened is the air traffic control space has gotten backed 0:02:09.560 --> 0:02:14.359 up and Uh. There again, that shouldn't happen. It's not. 0:02:14.520 --> 0:02:18.079 It's not because we've done anything as a country other 0:02:18.120 --> 0:02:20.560 than that, we haven't invested in technology that keeps up 0:02:20.600 --> 0:02:23.400 with the growth in the airlinesustry. Can you tell us 0:02:23.880 --> 0:02:27.640 an example of an air traffic control system in the 0:02:27.680 --> 0:02:31.200 world currently that you believe is the leader or a model. Um, 0:02:31.320 --> 0:02:34.839 Canada is very good. Um. Indeed, indeed that's where that's 0:02:34.880 --> 0:02:37.600 the model we're looking to replicate here. But but look, 0:02:37.639 --> 0:02:39.560 it's not just Canada, it's all over the all over 0:02:39.600 --> 0:02:42.119 the world. Um. There are countries doing a much better 0:02:42.200 --> 0:02:44.600 job with technology in the United States. But Canada did 0:02:44.600 --> 0:02:46.960 it almost exactly what we're looking to do here. They 0:02:46.960 --> 0:02:48.800 had it as part of the government, they took it 0:02:49.040 --> 0:02:51.760 in a not for profit corporation. UH, and the results 0:02:51.760 --> 0:02:54.959 have been stunningly positive. Doug, how much would you in 0:02:55.240 --> 0:02:59.800 your business be willing to pay to improve the uh, 0:03:00.120 --> 0:03:04.040 the airports in metropolitan areas like New York and Chicago. 0:03:04.080 --> 0:03:06.680 How much would it would it benefit your business to 0:03:06.720 --> 0:03:10.400 have a nicer infrastructure in those cities? A lot? And 0:03:10.440 --> 0:03:13.760 we're doing it actually, Um, you're personally investing money, Well, 0:03:13.840 --> 0:03:16.680 we are, Yeah, our our airline, and are some other airlines. 0:03:16.680 --> 0:03:19.679 I mean, part of the problem here is um that airlines, 0:03:19.760 --> 0:03:22.720 when we weren't profitable, couldn't invest very well. And that's that. 0:03:22.960 --> 0:03:27.919 And indeed how air how airports are financed is through 0:03:28.440 --> 0:03:32.040 rents and landing fees from airlines. So UM, we've certainly 0:03:32.040 --> 0:03:33.960 seen a lack of investment over time that needs to 0:03:33.960 --> 0:03:37.720 be corrected. We we like other airlines, are investing billions 0:03:37.720 --> 0:03:40.680 of dollars throughout the United States and airport infrastructure, which 0:03:40.720 --> 0:03:43.240 we will then pay over time with higher rents and 0:03:43.360 --> 0:03:45.960 landing fees. And we're happy to be doing that. I 0:03:46.000 --> 0:03:48.040 just gotta think you've got a lot of things. It's 0:03:48.040 --> 0:03:49.640 like you're the guy that's got to keep the plates 0:03:49.680 --> 0:03:52.560 all spinning at the same time, right, whether it's security, 0:03:52.640 --> 0:03:57.440 government agencies, landing slots, capacity, the issues, uh, fuel issues. 0:03:57.480 --> 0:04:00.680 What's the most pressing issue for you that you'd like 0:04:00.720 --> 0:04:04.520 to get across to individual travelers, because we I just 0:04:04.560 --> 0:04:07.160 cited the JD Power survey that says that people buy 0:04:07.160 --> 0:04:11.080 and large when they're asked really service, they like airlines. 0:04:11.160 --> 0:04:13.800 It's getting better. Yeah, that that'd be That would be 0:04:13.840 --> 0:04:16.279 the message I'd like to get across the two travelers 0:04:16.360 --> 0:04:20.560 is look, we all know, um, you know, some high profile, hope, 0:04:20.680 --> 0:04:23.200 high profile events in the last couple of months, UM, 0:04:23.320 --> 0:04:25.600 have to say the least, yeah, exactly have highlighted some 0:04:25.920 --> 0:04:28.559 customer service issues that need to be addressed. But please 0:04:28.600 --> 0:04:31.240 don't think that's due to the to the team members 0:04:31.240 --> 0:04:33.839 that American Airlines or the other airlines we have. We 0:04:33.880 --> 0:04:37.800 have phenomenal people out there who who do amazing things 0:04:37.880 --> 0:04:41.000 for our customers, who provide safe travel around the globe 0:04:41.000 --> 0:04:43.240 that makes our country run. Uh. And they're doing it 0:04:43.320 --> 0:04:46.799 every day, UM, in sometimes difficult circumstances. They're doing phenomenal 0:04:46.880 --> 0:04:48.240 jobs and all they want to do is have the 0:04:48.240 --> 0:04:51.080 tools they need to take care of customers to extend 0:04:51.120 --> 0:04:53.320 their customer service issues. That's because we the airlines that 0:04:53.440 --> 0:04:56.440 put those people in difficult circumstances and that's for us 0:04:56.480 --> 0:04:59.080 to fix. UM. But you know, in this world where 0:04:59.080 --> 0:05:00.680 people are trying to you know, figure out how to 0:05:00.680 --> 0:05:03.240 be the next viral video by filming someone doing something 0:05:03.240 --> 0:05:05.960 on an airpoint, UM, that that doesn't disservice to our 0:05:05.960 --> 0:05:08.160 team who is really out there doing great stuff all 0:05:08.160 --> 0:05:10.360 the time. We're extremely proud of them, and that what 0:05:10.520 --> 0:05:13.120 they're doing. We as airlines, uh, need to make sure 0:05:13.200 --> 0:05:15.080 we put in place policies and procedures that don't put 0:05:15.120 --> 0:05:16.920 them in difficult positions, but indeed rather to give them 0:05:16.920 --> 0:05:18.719 the tools they need to do the jobs they know 0:05:18.760 --> 0:05:20.920 how to do so well. So JUG, I'm looking right 0:05:20.920 --> 0:05:23.760 now at crude oil at a little bit more than 0:05:23.800 --> 0:05:26.440 forty four dollars barrel, and I'm wondering how much does 0:05:26.480 --> 0:05:30.880 it increase the profitability of American airlines if oil prices 0:05:30.880 --> 0:05:33.960 were to stay at this level for say another year 0:05:34.000 --> 0:05:36.160 or two. Yeah, look, of course it helps. It's our 0:05:36.160 --> 0:05:41.360 second largest expense behind behind employee costs. So um, a 0:05:41.440 --> 0:05:44.839 drop in oil prices tends to you know, obviously falls 0:05:44.880 --> 0:05:47.080 to the bottom line in terms of expenses in today's 0:05:47.120 --> 0:05:49.919 In today's world, though we we we seem much of 0:05:49.960 --> 0:05:52.400 that go to the consumer, uh, much of not all, 0:05:52.520 --> 0:05:55.760 certainly in the longer term, because what happens as as 0:05:55.800 --> 0:05:58.520 we've seen recently. You know, someone pointed out to me 0:05:58.560 --> 0:06:01.240 the other day that inflation is one of the primary 0:06:01.240 --> 0:06:02.840 reasons inflation is as low as it is in the 0:06:02.920 --> 0:06:06.080 United States because air fares have fallen so much. Well, 0:06:06.120 --> 0:06:08.080 air fairs have fallen so much because fuel prices have fallen, 0:06:08.480 --> 0:06:11.960 and when fuel prices fall, capacity comes in in nexcess 0:06:12.080 --> 0:06:15.760 demand and ferris fall. So, um, we get a benefit, 0:06:15.760 --> 0:06:17.680 there's no doubt about it, but much of that benefit 0:06:17.720 --> 0:06:20.120 of cruised to consumers. All Right, I'm gonna give you 0:06:20.160 --> 0:06:22.360 it's almost like a game a game show here, duck 0:06:22.400 --> 0:06:24.200 be because I'm gonna give you the names of some 0:06:24.240 --> 0:06:25.640 of your hubs and I just want you to give 0:06:25.680 --> 0:06:27.880 me like two words each of three words each to 0:06:28.000 --> 0:06:30.200 describe what's going on and what's the most pressing issue. 0:06:30.240 --> 0:06:35.039 Let's start with Looguardia the Guardians. Guardians an infrastructure issue. Um, 0:06:35.120 --> 0:06:36.599 we need we need to improve the airport. We also 0:06:36.600 --> 0:06:40.680 need to improve the airspace ATC performance help then all right, 0:06:40.720 --> 0:06:43.479 so that's look, Guardia, tell me what's going on in Miami. 0:06:44.720 --> 0:06:48.799 Miami great international hub for American airlines, struggling somewhat because 0:06:48.800 --> 0:06:51.799 of the economies, um in Latin America and South America, 0:06:51.839 --> 0:06:54.680 but they're rebounding nights. They were very encouraged. Can I 0:06:54.320 --> 0:06:58.720 can I interrupt the quiz? I'd love to get this. 0:06:59.720 --> 0:07:03.080 I'm are I was going to get the but a second, 0:07:03.080 --> 0:07:04.480 but I want to get to it. To sort of 0:07:04.520 --> 0:07:08.480 the immigration and the whole concept of uh, the travel 0:07:08.560 --> 0:07:11.120 ban or the travel restrictions that are still being fought 0:07:11.440 --> 0:07:13.880 uh in courts. I'm just wondering, you know, all of 0:07:13.920 --> 0:07:18.040 this talk about limiting immigration has that affected international travel? 0:07:18.040 --> 0:07:20.600 It are you seeing declines as a result of that 0:07:20.640 --> 0:07:22.840 to the US? You know, we haven't, not that we 0:07:22.840 --> 0:07:23.920 can see. You know. The fact of the matter is 0:07:23.920 --> 0:07:25.720 we don't. We don't. American doesn't fly to any of 0:07:25.760 --> 0:07:29.760 the countries that would be affected by the proposed ban. Um, 0:07:29.840 --> 0:07:32.520 so we haven't. We haven't seen anything that we can 0:07:32.520 --> 0:07:36.000 tell anyway, h that is that is affecting demand for 0:07:36.040 --> 0:07:39.840 air travel. But we certainly um, you know, but what 0:07:39.920 --> 0:07:42.400 we know is, um, you know, our business is all 0:07:42.440 --> 0:07:45.600 about being global and being inclusive and connecting the world, 0:07:46.040 --> 0:07:49.560 not not shutting down the world. So UM, we're we're 0:07:49.600 --> 0:07:53.400 always uh. We would prefer to see a world where 0:07:53.400 --> 0:07:56.680 it's easier to fly, not harder. I was gonna just 0:07:57.280 --> 0:07:59.920 ask you you don't want to do the quiz to 0:08:02.320 --> 0:08:05.120 I was worried about some where you're up No, no, no, 0:08:05.920 --> 0:08:08.440 Well you want to about our nation's capital. I mean, 0:08:08.520 --> 0:08:12.400 would they benefit from a new air traffic control system. Absolutely. Yeah, 0:08:12.480 --> 0:08:15.400 there's there's a huge adclis in and out of DC. Yeah. 0:08:15.640 --> 0:08:17.160 All right. I want to thank you very much for 0:08:17.160 --> 0:08:19.920 spending time with us. I guess you could just send 0:08:19.960 --> 0:08:21.880 Doug an email when you know next time you're on 0:08:21.920 --> 0:08:26.280 the tar Max. Also also person, listen, don't worry Doug time. 0:08:26.600 --> 0:08:29.840 Let's see all right, Doug Parker, thank you, American Airlines 0:08:29.960 --> 0:08:47.480 Chairman and chief executive. We are here broadcasting live from 0:08:47.480 --> 0:08:52.360 Pershing's Insight Conference at the Manchester Grand Hide in San Diego, 0:08:52.520 --> 0:08:56.079 and David Masa walked by David Mazes, head of Beta Solutions, 0:08:56.120 --> 0:08:59.760 Investment marketing and E t F specialists at Oppenheimer Funds 0:09:00.040 --> 0:09:03.560 US joined from State Street. Uh, David, it's so good 0:09:03.600 --> 0:09:06.320 to have you. And you know, I'm struck by the 0:09:06.440 --> 0:09:08.599 shift that's going on in the e t F and 0:09:08.600 --> 0:09:11.840 the exchange traded fund industry right now. Moving from broad 0:09:12.000 --> 0:09:15.560 indexed funds, an easy cheap way to get access to 0:09:15.760 --> 0:09:20.800 stocks and bonds, moving now to I guess index that 0:09:20.880 --> 0:09:24.040 have perhaps a little bit of higher fees and somewhat 0:09:24.040 --> 0:09:26.600 a little bit more complicated strategies. What's the risk here 0:09:27.040 --> 0:09:29.720 that you know in some ways there's a sort of 0:09:30.120 --> 0:09:33.200 uh vasterization of the sort of beauty of what the 0:09:33.200 --> 0:09:36.480 e t F industry was. You're touching on one of 0:09:36.480 --> 0:09:38.280 the most important trends that we're seeing in the et 0:09:38.400 --> 0:09:42.040 F industry, where there's now seven eighty five billion of 0:09:42.200 --> 0:09:45.640 assets and management in what are called smart beta strategies. 0:09:45.640 --> 0:09:48.480 And that's a term that nobody likes, but effectively, what 0:09:48.520 --> 0:09:52.880 it tells you is that it takes index like characteristics, 0:09:52.880 --> 0:09:56.600 so that's transparency, rules based and generally low cost, but 0:09:56.720 --> 0:09:59.320 combines it with some of the elements that active managers 0:09:59.320 --> 0:10:01.640 have used for years. So and that's of course potentially 0:10:01.679 --> 0:10:06.319 looking at outperforming index maybe have lower volatility or increased diversification. 0:10:07.400 --> 0:10:10.440 So I just wanted to ask, can you just explain 0:10:10.520 --> 0:10:13.200 how they end up being categorized, in other words, in 0:10:13.440 --> 0:10:17.840 these portfolios if you have, as you describe both the 0:10:17.920 --> 0:10:20.839 best of both worlds to a certain extent, what the 0:10:21.280 --> 0:10:24.000 give us an example of the roles of each Yeah, exactly, 0:10:24.040 --> 0:10:27.760 so effectively, managers of course have been value managers for 0:10:27.760 --> 0:10:30.240 a long time, right or growth managers. So these are 0:10:30.360 --> 0:10:32.880 individuals who have used a team of analysts or their 0:10:32.920 --> 0:10:35.280 own expertise to say I'm gonna look for the cheapest 0:10:35.280 --> 0:10:37.720 stocks in the universe, or I'm gonna look for stocks 0:10:37.720 --> 0:10:41.079 without best growth potential. But guess what, you can actually 0:10:41.120 --> 0:10:44.280 create rules around these strategies. So let me screen a 0:10:44.400 --> 0:10:48.480 universe for the least expensive stocks, or screen a universe 0:10:48.520 --> 0:10:51.160 for stocks with the best momentum or the best quality. 0:10:51.320 --> 0:10:54.000 And that's really the beauty of it. You take um 0:10:54.200 --> 0:10:57.840 this evidence that have existed, these premiums that are out there. 0:10:57.880 --> 0:11:00.400 So those are things like stocks that are inexp sensibly 0:11:00.480 --> 0:11:03.680 valued tend to perform well. Those are stocks with strong momentum, 0:11:03.760 --> 0:11:06.480 tend to continue to have strong momentum, and you just 0:11:06.720 --> 0:11:09.559 you create rules around them, and you can then package 0:11:09.559 --> 0:11:12.800 those as strategies for investors to use in their portfolio 0:11:13.160 --> 0:11:16.080 alongside maybe a traditional index fund. But data, they are 0:11:16.160 --> 0:11:19.520 usually higher costs, right, yes, so you tend to have 0:11:19.559 --> 0:11:21.600 to pay a little bit of a premium. But for example, 0:11:22.000 --> 0:11:23.800 uh you know, e t s of course have actually 0:11:23.840 --> 0:11:27.960 pushed down the price effectively for all um strategies that 0:11:27.960 --> 0:11:31.040 we're seeing actually active management go lower. And generally when 0:11:31.040 --> 0:11:33.040 we're thinking about smart data, these are an average about 0:11:33.040 --> 0:11:36.839 twenty five basis points to fifty so net net that's 0:11:36.840 --> 0:11:40.600 actually still pretty attractive. You know. I'm wondering is this product, 0:11:40.720 --> 0:11:43.920 the smart beta. Is it being driven by the asset 0:11:43.960 --> 0:11:47.920 managers looking to pitch something to the investors, or is 0:11:47.920 --> 0:11:51.840 this coming from investors demanding a little bit more NUANCEDTF 0:11:52.280 --> 0:11:54.280 So I actually think it's coming from both areas. So 0:11:54.320 --> 0:11:57.559 certainly asset managers are looking to take their strategies that 0:11:57.600 --> 0:12:01.240 they've used, packaged them differently, and and for them as products. 0:12:01.280 --> 0:12:02.920 But if we look at the demand for this, it's 0:12:02.920 --> 0:12:06.199 really coming from clients. We're seeing people who are skeptical, 0:12:06.240 --> 0:12:09.400 of course, of active management and saying, hey, we've had 0:12:09.400 --> 0:12:12.000 ten years. Every year comes out, this is your active 0:12:12.040 --> 0:12:14.440 especially in the US market's gonna return and guess what, 0:12:14.520 --> 0:12:17.559 we haven't really seen that. But some folks, some investors 0:12:17.760 --> 0:12:20.240 want the potential to outperform and if I can do 0:12:20.320 --> 0:12:22.800 so not paying a hundred basis points so a percent, 0:12:22.880 --> 0:12:25.520 but I can potentially do so at five that's where 0:12:25.520 --> 0:12:27.679 they see the beauty of it. So a recent survey 0:12:27.760 --> 0:12:30.240 came out where cost used to not be a main 0:12:30.320 --> 0:12:33.080 driver of actual why you'd invest in smart beta. So 0:12:33.240 --> 0:12:35.240 this is looking at four years of data and now 0:12:35.240 --> 0:12:37.400 this year. Actually it's one of the top concerns that 0:12:37.440 --> 0:12:40.959 investors had. So in an environment where returns are hard 0:12:41.000 --> 0:12:44.560 to come by when economic growth is low, when other 0:12:44.600 --> 0:12:46.959 than the stock market potentially continuing to go up all 0:12:46.960 --> 0:12:49.160 the time, but seemingly the risk is that it that 0:12:49.160 --> 0:12:51.680 will stop at some point. Investors are very of course, 0:12:51.720 --> 0:12:55.080 cognizant of what they're paying to get those returns. You know, 0:12:55.160 --> 0:13:00.160 in the presenting this, I'm wondering if being using the 0:13:00.280 --> 0:13:04.200 idea of smart beta is at this point in the 0:13:04.240 --> 0:13:08.200 life cycle of these kinds of products, almost a misnomer 0:13:08.280 --> 0:13:12.440 because it's not about smart beta, it's about having these 0:13:12.440 --> 0:13:15.679 specific strategies that you can execute. Yeah, I think you're right. 0:13:15.679 --> 0:13:18.319 That's why I mentioned earlier that nobody likes his term, 0:13:18.360 --> 0:13:21.400 but that's what the market's coalesced around. Really, what you're right, 0:13:21.440 --> 0:13:23.680 it's about I think about the outcome, right, there's no 0:13:23.840 --> 0:13:26.600 one strategy that's going to be best for anyone, uh, 0:13:26.640 --> 0:13:28.679 whether or not that's cap weighted passive that you can 0:13:28.679 --> 0:13:31.560 get it very low cost or active management, and of 0:13:31.600 --> 0:13:33.960 course smart betafits of the intersection. It's what are we 0:13:34.000 --> 0:13:36.560 looking to get out of my particular outcome? Am I 0:13:36.600 --> 0:13:40.280 looking to get a strategy that seeks inexpensively priced stocks, 0:13:40.280 --> 0:13:42.800 but maybe they also have quite high quality learnings. If 0:13:42.800 --> 0:13:46.120 I can do that systematically package at and generally low cost, 0:13:46.200 --> 0:13:48.520 that's a great benefit for invest because typically you would 0:13:48.559 --> 0:13:52.760 have to engage a very sophisticated organization that would charge 0:13:52.760 --> 0:13:55.960 you a very sophisticated fee, and that's the only way 0:13:56.000 --> 0:13:58.840 you'd be able to access that strategy. Exactly. Can you 0:13:58.880 --> 0:14:02.120 give us a sense of how strong the adoption of 0:14:02.320 --> 0:14:05.760 smart beta, however much people dislike the and what they're 0:14:05.800 --> 0:14:08.240 and what they're adopting. I wonder what strategy they're all 0:14:08.280 --> 0:14:10.360 going for? How how how how big have the flow 0:14:10.400 --> 0:14:12.800 has been? How much is it run? Yeah? So total 0:14:12.840 --> 0:14:16.160 assets anw or close to seven five billion dollars if 0:14:16.360 --> 0:14:20.120 which so that that's significant from what from effectively nothing 0:14:20.160 --> 0:14:23.080 a few years ago. Uh, and so it's grown rapidly 0:14:23.200 --> 0:14:25.560 and and and the categories that have grown the most, 0:14:25.600 --> 0:14:28.880 of course, which would be consistent to the market environment, 0:14:28.880 --> 0:14:32.360 are strategies focused on low volatility stocks. And of course 0:14:32.360 --> 0:14:35.920 there's been a lot of attention paid to this. There's 0:14:36.120 --> 0:14:38.960 work well, I mean, do they deliver on the promise 0:14:39.000 --> 0:14:41.800 if you're going to buy a lots been nowhere, so 0:14:41.840 --> 0:14:44.720 it doesn't really matter what you buy. Ltility hasn't anywhere. 0:14:44.720 --> 0:14:48.920 Everything's love altility, well, it does exactly, So you have 0:14:49.000 --> 0:14:51.840 to be when investing in these strategies. You have to 0:14:51.880 --> 0:14:53.920 know what you own and think about how long you 0:14:53.920 --> 0:14:56.840 want to own it. So low Altility is a good example. 0:14:57.240 --> 0:15:01.640 It had done significantly well uh in the last last 0:15:01.720 --> 0:15:04.520 year up until the summer, and the money float into 0:15:04.520 --> 0:15:08.560 the strategies, but those stocks got increasingly more expensive, and 0:15:08.600 --> 0:15:10.880 then if you look at the performance post July to 0:15:10.920 --> 0:15:14.120 the end of the year, they underperformed. So I recommend 0:15:14.400 --> 0:15:16.600 you look at these strategies, use them, but don't chase 0:15:16.680 --> 0:15:19.760 performance with them. If you want low volatility, you should 0:15:19.800 --> 0:15:21.520 probably own that for ten years because I want to 0:15:21.520 --> 0:15:24.240 smoother ride. That's a good thing. Smart data just with 0:15:24.280 --> 0:15:27.120 equities or is it another asset classes? So so smart 0:15:27.200 --> 0:15:30.360 beta is primarily with equities right now, but all of 0:15:30.400 --> 0:15:32.920 these things can actually be done for other asset classes. 0:15:33.040 --> 0:15:36.520 So fixed incomes a great example, and we're just seeing 0:15:36.560 --> 0:15:39.400 products being launched here. Is that there are some anomalies 0:15:39.440 --> 0:15:41.960 that exist in the fixed income market that managers have 0:15:42.080 --> 0:15:44.880 used for years. Carry right. Of course, you get paid 0:15:44.920 --> 0:15:48.880 to own higher yielding parts of the bottom market term premium. 0:15:48.960 --> 0:15:51.520 You can create rules around all of this, the challenges 0:15:51.600 --> 0:15:54.160 the data is a lot harder to come by in 0:15:54.320 --> 0:15:56.480 the bottom market than it is in equities. Wow, so 0:15:56.560 --> 0:16:00.160 there's gonna be a carry trade smart beta ETF some 0:16:00.200 --> 0:16:02.280 time in the future. I can't I can't tell you 0:16:02.320 --> 0:16:03.840 if that's going to happen or not. But I can 0:16:03.880 --> 0:16:05.560 tell you is that there's a lot of work being 0:16:05.600 --> 0:16:08.200 done to identify if it can. I do have to 0:16:08.280 --> 0:16:10.680 wonder whether e t F providers are a little bit 0:16:10.760 --> 0:16:12.960 nervous that they're gonna throw the baby out with the bathwater, 0:16:12.960 --> 0:16:16.560 because as ETFs get more complicated, there's more risk involved 0:16:16.640 --> 0:16:19.560 as well, and there's more potential for a potential sinkhole 0:16:20.120 --> 0:16:23.200 that investors will will be sort of shaken out of 0:16:23.240 --> 0:16:27.000 their their love for e t S that's in that sinkhole. 0:16:27.520 --> 0:16:29.640 That's a great point. That's that's so that's what we 0:16:29.680 --> 0:16:31.560 have to be cognizittive. Is that you know, I'm a 0:16:31.920 --> 0:16:33.960 I'm a huge believer of e t F s. I've 0:16:33.960 --> 0:16:35.960 committed my career to it, if you will. But when 0:16:36.000 --> 0:16:37.880 we're looking to launch these new products and to the 0:16:37.920 --> 0:16:41.000 research around them. You have to be cognizant that you 0:16:41.040 --> 0:16:43.120 can create a rule around something, but it has to 0:16:43.160 --> 0:16:46.360 be a rule that's formidable and that actually works in 0:16:46.400 --> 0:16:48.320 a multitude of markets. So when we're just testing it, 0:16:48.360 --> 0:16:51.440 we're not just throwing the proverbial spaghetti against the wall. 0:16:51.720 --> 0:16:53.840 We're saying, hey, does this work if I look at 0:16:53.880 --> 0:16:55.880 this ten year period or this twenty year period, thirty 0:16:55.920 --> 0:16:57.800 year period. Doesn't work in the US, does it work 0:16:57.800 --> 0:16:59.840 in emerging markets? Does it work in the United Kingdom? 0:17:00.080 --> 0:17:01.640 And if all of that comes to first and you 0:17:01.640 --> 0:17:05.080 can say, all right, there's actually something here, there's actually 0:17:05.119 --> 0:17:07.560 something that works, and then we can make an investment product. 0:17:07.600 --> 0:17:09.800 All right, I'm gonna give you fifteen seconds. Is there 0:17:09.840 --> 0:17:12.000 a filter that you can apply to all these e 0:17:12.200 --> 0:17:15.280 t f s about what happens to them if interest 0:17:15.359 --> 0:17:18.920 rates increase? Well, that's that's the great question, right I'll 0:17:19.000 --> 0:17:21.119 I'll tell you if if we see interest rates increase, 0:17:21.320 --> 0:17:23.440 you're gonna want to be looking at if you've bought 0:17:23.480 --> 0:17:27.119 these low volatility e t s or divided ets for example, 0:17:27.560 --> 0:17:29.440 some of them have a lot of concentration in these 0:17:29.480 --> 0:17:33.320 bond like stocks, utilities, consumer staples, So be cognizant of that. 0:17:33.600 --> 0:17:35.320 I'm not saying that that means you should sell them, 0:17:35.320 --> 0:17:37.919 because who knows. If interest rates are going to go up, 0:17:38.040 --> 0:17:40.280 these predictions are now going to go down again, and 0:17:40.320 --> 0:17:42.800 you know what, maybe more money will flow into those products. 0:17:43.080 --> 0:17:45.199 The area that's of course been out of favor is 0:17:45.320 --> 0:17:47.960 value UH and what we've seen in the last couple 0:17:47.960 --> 0:17:50.640 of days may change that, but who knows. We saw 0:17:50.680 --> 0:17:52.560 that of course after the election in the US. I 0:17:52.560 --> 0:17:54.440 want to thank you very much for joining us. David 0:17:54.480 --> 0:17:57.920 Masa is head of Beta Solutions, investment marketing and E 0:17:58.040 --> 0:18:01.240 t F Specialists for Oppenheimer Funds. Joins us here at 0:18:01.280 --> 0:18:06.840 Pershing's Inside at the Manchester Grand Hyatt in San Diego. 0:18:17.840 --> 0:18:22.240 We are broadcasting live from Pershing's Inside conference at the 0:18:22.240 --> 0:18:25.880 Manchester Grant Hyatt in San Diego. And there is a 0:18:25.920 --> 0:18:29.399 big debate raging in the bond world right now. It 0:18:29.520 --> 0:18:32.760 is the perhaps fifth year of this debate, which is 0:18:32.880 --> 0:18:36.680 our interest rates headed upwards or are they headed downwards? 0:18:36.680 --> 0:18:39.040 And I'm when I say interest rates, I mean benchmark rates, 0:18:39.080 --> 0:18:41.520 I mean the ten year treasury yield, the thirty year 0:18:41.560 --> 0:18:44.600 treasury yielding. With us UH. To solve this all for 0:18:44.720 --> 0:18:47.479 us and make it all clear. Marvin Low, senior global 0:18:47.480 --> 0:18:51.880 market strategist at BNY Melon joins us here in Santiago 0:18:51.960 --> 0:18:54.080 and Marvin, where do you stand on this? Because we 0:18:54.119 --> 0:18:56.840 have some people saying, look, you know, yields will creep 0:18:56.960 --> 0:18:59.879 upward heading into the year, and people like Jeff Gunlock 0:19:00.119 --> 0:19:02.680 of Double Line, and then you have other people saying, no, 0:19:02.920 --> 0:19:06.080 nothing is different. People have overestimated growth. We see this 0:19:06.119 --> 0:19:08.479 by the shrinking yield curve and yield are going to 0:19:08.560 --> 0:19:10.760 go down. Yeah, you know it certainly is a big 0:19:10.800 --> 0:19:13.760 de bait right now. Um. You know, I think the 0:19:13.840 --> 0:19:18.120 Fed has expressed its resolved that they want to increase rates. Um. 0:19:18.200 --> 0:19:22.919 There certainly are economic concerns around inflation, around those growth numbers. 0:19:22.920 --> 0:19:25.280 But you know, we have to remember that we're looking 0:19:25.320 --> 0:19:28.120 at trying to get healed into this new normal type 0:19:28.119 --> 0:19:30.480 of world. And when we have this new normal type 0:19:30.520 --> 0:19:34.200 of world, I think that we're going to creep up slightly, um, slowly, 0:19:34.320 --> 0:19:36.879 but you know, certainly not um the big jumps that 0:19:36.920 --> 0:19:39.000 I think a lot of people expected after the election. 0:19:39.040 --> 0:19:40.399 If you will, so where is where are we going 0:19:40.440 --> 0:19:42.760 to end a year? But the tenure, you know, I'll 0:19:42.920 --> 0:19:45.080 put my dart board and say about to fifty or 0:19:45.119 --> 0:19:51.000 so to Marvin, A pleasure to see you. Uh. We uh, 0:19:51.119 --> 0:19:53.080 we run into each other at these kinds, at these 0:19:53.119 --> 0:19:56.239 events on a regular basis, regular basis. I'm wondering if 0:19:56.280 --> 0:20:00.639 you could maybe characterize what you have, let's say, over 0:20:00.640 --> 0:20:05.640 the past twelve months, and uh, what that may portend 0:20:05.760 --> 0:20:09.679 for actual you know, investors who have to make a 0:20:09.720 --> 0:20:12.360 decision about what to do with some money, let's say 0:20:12.359 --> 0:20:14.800 over the next quarter. Yeah, you know, the last twelve 0:20:14.880 --> 0:20:18.119 ones certainly have been UM interesting from the perspective of 0:20:18.680 --> 0:20:23.080 investors needing to deal with UM things that don't necessarily 0:20:23.119 --> 0:20:27.040 get modeled very easily into you know, all of our spreadsheets. UM. 0:20:27.080 --> 0:20:29.800 By that, you know, I primarily think about political risk 0:20:29.960 --> 0:20:33.399 and the confusion that it causes in when I see 0:20:33.800 --> 0:20:36.720 UM the reflation trade effectively, you know, move these asset 0:20:36.760 --> 0:20:39.960 classes by large amounts and then slowly creep back. It 0:20:40.040 --> 0:20:44.040 just really shows how difficult it is to UM put 0:20:44.080 --> 0:20:48.920