Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's check in with
Speaker 1: a professional who does this stock stuff for a living,
Speaker 1: Phil Orlando, chief equity market strategist and a head of
Speaker 1: client portfolio management and federator at Herme's Phil, I'm looking
Speaker 1: at the markets here, you know, bouncing off the bottom here.
Speaker 1: I guess we're just throwing around the question here in
Speaker 1: the studio. Did we see the bottom of this market?
Speaker 1: Is this real? This? Or is this just kind of
Speaker 1: a little bit of a headcake in the context of
Speaker 1: a greater bear market head cake? Or head fake? Head fake?
Speaker 1: Is that was the Monday version of head fake? Yes, Look,
Speaker 1: we've had a really good six weeks. I mean the
Speaker 1: month of July the SMP was up about ten. I
Speaker 1: think that was the best month we've seen in a
Speaker 1: up the years since the middle of June. Market went
Speaker 1: from an oversold readings rallied about I think we're a
Speaker 1: little overbought here. Um, but you know, I was listening
Speaker 1: to your conversation earlier. This is kind of a bad
Speaker 1: news is good news kind of a scenario that you know,
Speaker 1: the inflation is sitting at a forty one year high.
Speaker 1: The GDP report last week not particularly good. You know,
Speaker 1: everyone's on recession watch right now. And and the way
Speaker 1: the market has perceived all of this is that the
Speaker 1: data is so bad that that must mean that there's
Speaker 1: going to be an immaculate Fed pivot. You know, by
Speaker 1: the middle of next year that the Fed will we'll
Speaker 1: be able to stop hiking interest rates this year, and
Speaker 1: we're gonna start to see a deceleration of that pace,
Speaker 1: and then the Fed is going to turn around and
Speaker 1: start actually cutting interest rates by the middle of next year. Um.
Speaker 1: We think that that is a little too optimistic. And
Speaker 1: and UH inflation, in our view, is stubborn. It's it's
Speaker 1: deep seated. It's UH sitting at a forty one year high.
Speaker 1: We're not going to be able to wave a magic
Speaker 1: wand and in a couple of months take a nominal
Speaker 1: CPI from nine point one percent back to two or
Speaker 1: three percent. We're going to measure that decline we think
Speaker 1: over the course of a couple of years, not a
Speaker 1: couple of months. So for for all those reasons, Uh,
Speaker 1: this very impressive rally over the next six over the
Speaker 1: last six weeks could could very well result in some
Speaker 1: proper taking over you know, the next couple of months,
Speaker 1: as you know we get some some some more difficult data. Yeah,
Speaker 1: I think that makes a lot of sense. Feel Um.
Speaker 1: One thing I noticed or I read from Cameron Christ
Speaker 1: We've got to get this guy in here, he screamed.
Speaker 1: For Uh, he probably works from home. He screened for
Speaker 1: every drop monthly drop of more than seven and a
Speaker 1: half percent that was followed by a month that you
Speaker 1: know more than made up for that, which is what
Speaker 1: we just saw. And the results are pretty shocking. If
Speaker 1: you look post war, it's only happened um a few
Speaker 1: times in October of nine, in October of two thousand two,
Speaker 1: in March of two thousand nine, uh, January of two
Speaker 1: thousand nineteen, and April of two thousand twenty. So it's
Speaker 1: only been these big bottoms that we know. I mean,
Speaker 1: March of two thousand nine is like uh, imprinted on
Speaker 1: my brain as a massive bottom. Um, it looks good
Speaker 1: at least, but I take your point that people are
Speaker 1: going to be wanting to take profits and those who
Speaker 1: stayed with it and are just to have too much oddit.
Speaker 1: I want to get out, But maybe we don't have
Speaker 1: to fall another twenty is what I'm thinking, because that's
Speaker 1: kind of what was the bad news consensus right before
Speaker 1: this month, is that we went halfway. We have another
Speaker 1: halfway to go. Well to some degree that's going to
Speaker 1: be a function of economic growth and corporate earnings growth. Um.
Speaker 1: If we were having this conversation a week ago, Uh,
Speaker 1: the earnings for the S and P five we're probably
Speaker 1: down about five or six percent into the quarter now,
Speaker 1: but a lot of the energy companies have started to report,
Speaker 1: God bless them. So we're about two thirds of the
Speaker 1: way through the earning season and earnings have gone from
Speaker 1: being down six or seven percent, they're now up seven percent,
Speaker 1: largely on the strength of how good the earnings reports
Speaker 1: have been. Discretionary financials technologies, those numbers are all negative,
Speaker 1: and to a significant degree, companies are providing cautious guidance.
Speaker 1: Strategists and analysts may start to cut their numbers uh
Speaker 1: and and multiples have just moved up a couple of
Speaker 1: turns based upon this third percent rally we've seen over
Speaker 1: the last couple of months. So I think that as
Speaker 1: we get into to the August September, you know, early
Speaker 1: October period, there may be a little bit of rationalization
Speaker 1: in terms of valuations. Lower earnings estimates, lower GDP growth estimates,
Speaker 1: UH more UM comfortable pe multiples i E. Lower and
Speaker 1: and I just think that that given this big rally
Speaker 1: we've seen, uh, it would be prudent to expect a
Speaker 1: little bit of a pullback here. All right, good stuff
Speaker 1: as always. Phil Orlando, chief equity market strategist and head
Speaker 1: of client portfolio management at Federator Hermy's that got over
Speaker 1: six billion and assets under management. That's some sway right there.
Speaker 1: Let's bring in our next guest, Robert Stimpson, c I
Speaker 1: O and portfolio manager Oak Associates Funds. Robert, some folks
Speaker 1: have been telling me here is I look at this
Speaker 1: bounce off the bottom, that we can buy it here,
Speaker 1: but you've gotta be selective. What is it? What does
Speaker 1: this selective mean to you in a market move we're
Speaker 1: experiencing right now? Is it is this kind of a
Speaker 1: bear cat bounce or is this something I can really wait?
Speaker 1: A bear market rally or dead cat dead cat bounce? Yeah,
Speaker 1: I use a barcat market bearcat bounce. I like that.
Speaker 1: How do you think about that stock selection? Robert, Well,
Speaker 1: good morning guys. You no, I agree, you have to
Speaker 1: be pretty selective in this market, simply because you know
Speaker 1: the forward new slow UH is still very questionable. Um.
Speaker 1: We're about to head into some earnings reports and I
Speaker 1: think they're going to be mixed, and that's going to
Speaker 1: affect sentiment. And we know the overall trends in the
Speaker 1: market are are pretty strong. The status raising rates inflation
Speaker 1: is still persistent, and that affects different areas differently. So, UM,
Speaker 1: you know a lot of consumer focused businesses are going
Speaker 1: to struggle because the consumer is pinched pinch by inflation
Speaker 1: and pinched by higher interest rates. Whereas industries that have
Speaker 1: more long tail UH spending cycles, whether it's UH bule
Speaker 1: expenditure with intech UH, you know, those are probably gonna
Speaker 1: fair better in this sort of environment. Is this you know?
Speaker 1: For years, um, people have talked about active versus passive
Speaker 1: and the kind of Jack Bogel passivity of Vanguard one out.
Speaker 1: But is that over now? I mean, is buying an
Speaker 1: index tracking fund just not going to do as well
Speaker 1: as getting an active manager? You know, that's uh, you
Speaker 1: know the million dollar question. Um. You know, I do
Speaker 1: think there is value and active management, and I do
Speaker 1: think a lot of the industry does not realize the
Speaker 1: risk that come with index funds. I mean, the top
Speaker 1: five and ten positions and an index fund um tend
Speaker 1: to be the names that are up a lot. They
Speaker 1: tend to be um, you know, big movers of the
Speaker 1: market in the index. UM. So there's a risk profile
Speaker 1: there that a lot of people, uh may not fully
Speaker 1: understand or they're betting on Tesla essentially in a sense.
Speaker 1: I mean, I can't believe it's I think the fourth
Speaker 1: biggest weight or the fifth biggest weight in the SMP. Yeah.
Speaker 1: Robert talked us about healthcare down the pass that scen area.
Speaker 1: You guys have been looking at what's your healthcare sector
Speaker 1: call right now? So coming out of the pandemic, we
Speaker 1: feel like a lot of industries out there rebounded strongly
Speaker 1: as the world returned to normal, but healthcare was one
Speaker 1: that lagged, and it, you know, kind of makes sense
Speaker 1: people were reluctant to head back to the doctor to
Speaker 1: get those knees, replace those hips, or seek the care.
Speaker 1: They were more apt to go on vacation or on
Speaker 1: a cruise or back to concerts. So we think the
Speaker 1: return to normal for a lot of traditional consumer healthcare
Speaker 1: is still in front of the index, and when you
Speaker 1: look at its relative valuation compared to other industries, it's
Speaker 1: still very attractive. So it's more defensive. The valuation is attractive,
Speaker 1: it has business in front of it, and it's also
Speaker 1: an industry that is used to operating, uh in a
Speaker 1: high inflation environment. I mean, healthcare costs been going up,
Speaker 1: you know, mid single digits for years. UH, so this
Speaker 1: is business as usual with a tailwind. And of course
Speaker 1: the long term demographic So um, it's an area we like,
Speaker 1: uh and there's nothing that can turn that around. I
Speaker 1: mean you'd think that, especially the Democrats, would like to
Speaker 1: slow it down, but they can't and maybe um, their
Speaker 1: lobbyists are the same as Republican lobbyists, so they won't. Um.
Speaker 1: You're not concerned about anything in the future that stops that,
Speaker 1: because it does seem like such an easy such as
Speaker 1: slam dunk. You know, the risk of regulatory oversight and
Speaker 1: pricing pressures. Uh. You know, I'm not gonna belittle it,
Speaker 1: but it has been around for twenty plus years. Uh,
Speaker 1: and at the end of the day, it has very
Speaker 1: little UM impact beyond sentiment over the group. So UM,
Speaker 1: it's a risk, absolutely, but it's not a risk you
Speaker 1: should embrace and avoid the sector entirely because of it,
Speaker 1: because that would have been a losing proposition over the
Speaker 1: last twenty years. Certainly though it's popular trade, right. I mean,
Speaker 1: we all see and feel the rising costs of healthcare
Speaker 1: and then make that decision for an investment. Where do
Speaker 1: you see value what's unloved right now that that you think, um,
Speaker 1: people have overlooked well. I do think the two sectors
Speaker 1: within healthcare that are somewhat ever loved now, the managed
Speaker 1: care groups have been performing well, but I think the
Speaker 1: pricing trends are underappreciated there. With higher healthcare costs and
Speaker 1: the cost of insurance. I mean, these prices kind of
Speaker 1: get booked into the managed care groups, UM, and it
Speaker 1: tends to be very profitable by locking in at higher
Speaker 1: prices for them. So we think that's a powerful factor
Speaker 1: for that group and the other issue is the drug
Speaker 1: distributors UM. They have been probably the main target of
Speaker 1: of pricing pressure regulatory concerns from Washington. But the again,
Speaker 1: those concerns are often overblown when it comes down to
Speaker 1: actually implementing legislation to change things. And the group was
Speaker 1: also suppressed for a long time due to concerns over
Speaker 1: the opioid legislation. And now that most of those concerns
Speaker 1: have either been settled or on route to being settled,
Speaker 1: that is a huge overhang from the group. UM that
Speaker 1: you know, relieves a lot of the risks. So as
Speaker 1: a result, we think those groups are attractive as well.
Speaker 1: All right, Robert, thank you so much for taking the
Speaker 1: time to join us and share your thoughts here on
Speaker 1: these markets. Robert Stimpson, he's the c I O and
Speaker 1: portfolio manager at Oak Associates Funds. All right, I'm looking
Speaker 1: at Apple's balance sheet here D eighty billion in cash,
Speaker 1: total debts, so that's sixty net cash. I'm looking at
Speaker 1: the f A function on the Bloomberg terminal. I gotta
Speaker 1: say it's one of my favorite functions. It's so basic,
Speaker 1: but it's got everything you need, I mean everything. Whoever
Speaker 1: thought that function up did did did good? Uh so,
Speaker 1: all right, So sixty billion in net cash on the
Speaker 1: balance sheet, a hundred ten billion of projected free cash
Speaker 1: flow in each of the next couple of years. Why
Speaker 1: are these Why is this company going to the bond market? Well,
Speaker 1: on a rock runner, he covers all this stuff, Senior
Speaker 1: Soccer and I T services animals from Bloomberg Intelligence on
Speaker 1: a rug. Why are they going to the bond market?
Speaker 1: Why does Apple borrow money? Just I mean that the
Speaker 1: cost of money is so cheap it does make sense
Speaker 1: to bottle it and keep it. Because, as you said,
Speaker 1: the net cash is about sixty billion, and they spend
Speaker 1: about eighty five to nine billion in buying back stock,
Speaker 1: so they do have to botrow that money to buy
Speaker 1: back that that ships that you mentioned just not that's crazy.
Speaker 1: They borrow money to buy back shares. So and the
Speaker 1: bond analysts and the bond investors don't care. Usually that
Speaker 1: is a huge no. No. Can you lend us money
Speaker 1: so we can pay our stockholders? Yeah? Yeah, But but
Speaker 1: they're going to generator a hundred billion in free cash,
Speaker 1: So it's not a big deal. It's just a matter
Speaker 1: of what's most optimized for that capital structure. So if
Speaker 1: you know, if they can bottle let's say a few
Speaker 1: hundred let's say even a hundred bases point on hundred
Speaker 1: a fifty basis points about tragedies, that's really cheap capital.
Speaker 1: That's just you know, you're not gonna be able to
Speaker 1: buy it let's say a few years from now, Um
Speaker 1: that much cash at that that low prices. Alright, So
Speaker 1: given that free cash low profile, given that balance sheet profile,
Speaker 1: I then go to another great Bloomberg function that is
Speaker 1: the most used function d e s to get a
Speaker 1: sense of what their dividend yield is. It's less than
Speaker 1: one percent. Why don't smart equity analysts like you on
Speaker 1: a rock get in the ear the CFO and say
Speaker 1: raise that to a respectable to two and a half
Speaker 1: three percent. That would be really good to attract retail shareholders. So, Paul,
Speaker 1: I've been writing that I think they should increase their
Speaker 1: buy backs rather than the dividends, because you know, in
Speaker 1: FY twenty, which their fiscal twenty, they reduced share counts
Speaker 1: by about six percent five point seven and they brought
Speaker 1: back seventy two billion entree cash flow and stop in
Speaker 1: f one, they reduced the share gun by three point
Speaker 1: eight percent on and but used about eighty six billion
Speaker 1: this year twenty two. They're gonna reduce the share account
Speaker 1: by somewhere around three so that inherent EPs growth is
Speaker 1: just coming down a little. I would love for them
Speaker 1: to buy back more shares rather than increase the divident.
Speaker 1: But just as my personal choice, I mean, isn't one
Speaker 1: better for dividends is probably better for the shareholder, whereas
Speaker 1: buy backs is better for the corporation because once you
Speaker 1: start a dividend, you can't reduce it or cut it
Speaker 1: off without taking a lot of heat in markets, right,
Speaker 1: whereas a buy back plan there's a beginning in an
Speaker 1: end exactly. So no, I mean the buyback you know
Speaker 1: once also it is it is it's a cultural thing.
Speaker 1: If you have a company like Apple, where the free task,
Speaker 1: though is predictable, you can't say that the buyback is
Speaker 1: going to be predictable as well. The thing is again,
Speaker 1: you know, there there's a lot of discussions about the
Speaker 1: value of buybacks versus dimenon in my view, and it
Speaker 1: has changed a of the years. If the if the
Speaker 1: intrinsic value of the company is still below the current
Speaker 1: share price, they should be using that cash to buy
Speaker 1: back most here is because hendically, as a shareholder, my
Speaker 1: you know, piece of the pie becomes growth grows every
Speaker 1: year by that four or five percent without even putting
Speaker 1: a new dime in. So I think from that point,
Speaker 1: if it's a value company, and Bilkshire just started doing
Speaker 1: this after many years of not buying back any shares,
Speaker 1: if you can't, if you don't know what to do
Speaker 1: with that cash, you should be buying back heres, assuming
Speaker 1: they are trading flow the intrinsic value of the company.
Speaker 1: By the way, um does it keep growing at that
Speaker 1: level on a rack because you know, I bought an
Speaker 1: I bought a desktop Apple computer back and I think
Speaker 1: two thousand twelve, and I still don't need a new
Speaker 1: one ten years later. It still does way more than
Speaker 1: I could ever do with it. Um My my iPhone
Speaker 1: eleven or twelve, even though it's got a little break
Speaker 1: in the corner of the screen, I can't imagine what
Speaker 1: an upgrade would really get me. Um And my Apple Watch.
Speaker 1: Also it does everything I needed to, Like, I don't
Speaker 1: need a new one? What what what are they gonna
Speaker 1: come out with it? I have to buy? No, it's
Speaker 1: just doesn't have to be you know, it's going to
Speaker 1: be the replacement cycle for your iPhone as the single
Speaker 1: biggest driver. Because what happens is the average lifetime of
Speaker 1: they're about eight million units of iPhones out there, the
Speaker 1: average life let's say, is somewhere between tea and a
Speaker 1: half and four years. You may not want to upgrade
Speaker 1: right now, but within the next four years you will.
Speaker 1: It's just a matter of in slow down. So every
Speaker 1: year they're selling two million iPhones, even without finding a
Speaker 1: new buyer. This is just a replacement cycle. And then
Speaker 1: what happens is and we saw this this time in
Speaker 1: the quarter. They saw really good growth in emerging market
Speaker 1: countries like Brazil and India and China and Indonesia where
Speaker 1: the middle class as it starts to become a little
Speaker 1: bit richer, Apple the brand they're going to go through.
Speaker 1: They get rid of the Android phone load and Android
Speaker 1: phone and they go for an iPhone. That's the growth market.
Speaker 1: It's not going to come from you, Mark Miller. It
Speaker 1: is you are just a replacement for every three to
Speaker 1: four years. But it is going to come from those
Speaker 1: emerging markets. That is not a growth market. That wasn't
Speaker 1: very nice to say, fair fair enough, by the way,
Speaker 1: can you settle something for our listeners? Uh, once and
Speaker 1: for all? Does Apple have a secret self destruct mechanism
Speaker 1: built into the phone? Like it at the time when
Speaker 1: you're ready to renew, does your battery just automatically die? No?
Speaker 1: I don't think so. About what happens is you really
Speaker 1: need to take those you know you you want to
Speaker 1: take those high end videos. You want to be able
Speaker 1: to run the games at a much faster pace. So
Speaker 1: over time, when these new applications are built with new
Speaker 1: videos come out, when and you know Netflix videos at
Speaker 1: a very high pace, your system may not be able
Speaker 1: to handle it because the equipment is four or five
Speaker 1: six years old. Then you will replace should at that time?
Speaker 1: All right, Anna rock Rana, thanks so much for joining
Speaker 1: us on a rock ran a senior software and I
Speaker 1: T Services analyst, phoning it in from Bloomberg Intelligence. I'd
Speaker 1: like to point it out. All right, let's switch gears,
Speaker 1: go a little political. Let's go Watchington d C Emily Wilkins,
Speaker 1: Congressional reporter for Bloomberg Government. So, Emily, the news coming
Speaker 1: out today that Speaker Nancy Pelosi will in fact visit Taiwan.
Speaker 1: What's the feeling within the nation's capital about that news.
Speaker 1: So we've known about this trip for a while. Of course,
Speaker 1: Speaker Pelosi's office wouldn't confirm it for security and safety reasons,
Speaker 1: but Bloomberg has been reporting on this for a while
Speaker 1: and we know that even though the Department of Defense
Speaker 1: and the Pentagon have raised some concerns about it strictly
Speaker 1: from a security standpoint, there is really a lot of
Speaker 1: support for the Speaker to be making this trip at
Speaker 1: this time. Um, you heard both from Democrats as well
Speaker 1: as Republicans, and thinking about Senate Minority Leader Mitch McConnell
Speaker 1: saying that if Pelosi was too back out of this
Speaker 1: trip now that she'd be handing a gift to China,
Speaker 1: and that there are supportive of her going. It's certainly
Speaker 1: a significant trip. This is, you know, the number three
Speaker 1: top leader in the entire United States making an official
Speaker 1: visit from Taiwan, the first since how Speaker knew Gingrich
Speaker 1: traveled to the island back in So another speaker has
Speaker 1: done this and I feel like, um, Speaker is kind
Speaker 1: of the highest level we could do this without starting
Speaker 1: actual war. But are people still gonna possibly die because
Speaker 1: of this trip? I mean, is she risking real military action.
Speaker 1: I mean, certainly the military is always cognizant. Right when
Speaker 1: a congressional leader or so someone you know, the president
Speaker 1: goes abroad, they are security measures in place. Heck, even
Speaker 1: when they go domestic, their security measures in place. This
Speaker 1: is just a little bit more of of a larger situation,
Speaker 1: a tens or situation, I think, and this is a
Speaker 1: bit of guesswork here, but I think if the Speaker
Speaker 1: seriously thought that someone was going to die, she would
Speaker 1: not be going on this trip. Same with Department of Defense.
Speaker 1: And to be clear or at this point, we still
Speaker 1: don't have confirmation from the Speaker's office that she will
Speaker 1: be going to Taiwan. She's in Singapore today. We know
Speaker 1: her schedule is going to bring her to Malaysia, to
Speaker 1: South Korea, to Japan, but her schedule isn't completely finalized.
Speaker 1: We don't know the exact dates for all of those things,
Speaker 1: and so there could be a potential that she could
Speaker 1: go to Taiwan and not be announced ahead of time,
Speaker 1: potentially for security reasons. Uh, Emily, we've got about thirty
Speaker 1: seconds left or so, do we have any sense of
Speaker 1: what her agenda might be with a visit to Taiwan. Well.
Speaker 1: President Biden did tell Chinese President shi Jin paying on
Speaker 1: the phone last week that the U S policy on
Speaker 1: Taiwan has not changed. So I don't think we're expecting
Speaker 1: any sort of major announcements, but perhaps to sort of
Speaker 1: reaffirmed Taiwan, especially after we saw everything with Ukraine and
Speaker 1: Russia in the past year. Just it seems like a
Speaker 1: very highly highly visible trips. So we see if it's
Speaker 1: anything more than just a photoop, I guess. I mean,
Speaker 1: I think it'll be very interesting to see what is
Speaker 1: done and what is said. It does seemed on a
Speaker 1: way of reaffirming that the US does have support for Taiwan. Yeah,
Speaker 1: cross this line. Okay, we're crossing. We're crossing exactly, all right.
Speaker 1: Emily Wilkins, Congressional reporter joining us from Bloomberg Government in Washington,
Speaker 1: d C. Stephanie Pierces in our Bloomberg Interactive Broker studio.
Speaker 1: That's big news for us. She's the CEO at dry
Speaker 1: Fust Melon does all the exchange traded funds there at
Speaker 1: BNY Melon. So, Stephanie, crazy year, brutal, brutal first half
Speaker 1: of the year. You could make money anywhere in that portfolio.
Speaker 1: Now we've had a little bit of a bounce. What's
Speaker 1: been like in the E t F world? Is that
Speaker 1: still the hot thing out there? Well, here's what I
Speaker 1: would say. E t F s continued to be in
Speaker 1: any market environment, the vehicle of choice for investors. We've
Speaker 1: seen over a three hundred billion dollars of flows here
Speaker 1: today on a net basis in a tf SO which
Speaker 1: just doesn't stop. But here's what's interesting. There's been a
Speaker 1: lot of talk about the divergence between taxable fixed income
Speaker 1: mutual fund flows which have been NETTI, and e t
Speaker 1: F flows in the same category, which have been positive.
Speaker 1: And it's a pretty big spread. But if you actually
Speaker 1: peel away the onion, that's happening in multiple sectors. US equity,
Speaker 1: same thing, mutual funds and outflows, E t f s
Speaker 1: and inflows International equity, same thing. About. The only place
Speaker 1: that's not true is alternatives and commodities, where both are
Speaker 1: in positive flows. But you know, if you peel it
Speaker 1: back one level further, was really interesting is it's not
Speaker 1: really about just musical funds and ETFs. It's active mutual
Speaker 1: funds in those categories that are out closed and ETFs,
Speaker 1: both active and passive in the same categories in inflows.
Speaker 1: So one thesis on that is that the tax loss
Speaker 1: harvesting opportunity, as we've seen market volatility has given, you know,
Speaker 1: opportunity here to actually book those losses or make the
Speaker 1: kind of opportunistic trades in portfolios clean harvesting, take your
Speaker 1: losses after drop in the SMPI. Right, you had your
Speaker 1: index funds, and that was the thing to do for years.
Speaker 1: Now the kids want actively managed UH funds and they
Speaker 1: don't want to pay the mutual fund fees, right, so
Speaker 1: they're looking for actively managed ETFs. Even um. Even Vanguard
Speaker 1: is like starting to do this. I don't know if
Speaker 1: Vanguard is actually starting to do it, but I think
Speaker 1: it's right. I mean, look, the reality is it's been
Speaker 1: years since you could actually move out of a mutual
Speaker 1: fund without the penalty of a big capital game. And
Speaker 1: so in the first part of this year you've had
Speaker 1: that opportunity. So when we talk to our investment advisor clients,
Speaker 1: this is the way they can show value to their clients.
Speaker 1: It's also been i mean never that you've been able
Speaker 1: to buy actively managed I mean, this is a relatively
Speaker 1: new thing, right, not this year but in the past,
Speaker 1: mutual funds were um or or any kind of fund
Speaker 1: that wasn't. An e t F was, and you're only
Speaker 1: actively managed choice. You know, now you can actually buy
Speaker 1: an ETF for fifty sixty seventy five basis points and
Speaker 1: you get an active manager. That's right. And if you
Speaker 1: actually look at the flows this year, underneath that three
Speaker 1: hundred billion active managers or active ets are punching above
Speaker 1: their wait. Right, So active ETFs are only five percent
Speaker 1: of the entire six trillion, seven trillion dollar ust F marketplace,
Speaker 1: so call it three billion, but they are over fifteen
Speaker 1: percent of the flows that I mentioned that. What about definitely?
Speaker 1: What about people who want to hedge against inflation. We
Speaker 1: were talking to Phil Orlando earlier and he was saying, um,
Speaker 1: you know, healthcare actually has been a great hedge against inflation.
Speaker 1: I thought I should be doing that for my future.
Speaker 1: Right the day when I get cancer or your heart
Speaker 1: disease or whatever it happens, I and I go, oh
Speaker 1: my god, the hospital bills are insane. I will be
Speaker 1: happy to have invested in healthcare. But our e t
Speaker 1: F s a big vehicle for hedging against inflation. Are
Speaker 1: people using them? For that this year. Yeah, and you
Speaker 1: absolutely are seeing some cyclical trades, right, So, you know,
Speaker 1: one of the things that I would note, particularly in ETFs,
Speaker 1: and this is both active and passive, would be, you know,
Speaker 1: particularly in the month of July, we actually saw a
Speaker 1: reversal where instead of just the short duration fixed in
Speaker 1: com ets that we saw or equity tfs earlier in
Speaker 1: the year draw dominating flows, we actually started to see
Speaker 1: fixed income take over equity overall, and within that more
Speaker 1: extending duration, more corporate exposure being taken on. So not
Speaker 1: just short duration of people really trying to look to say, gee,
Speaker 1: you know, if the FED is even close to halfway
Speaker 1: done in the tightening cycle. And we can debate whether
Speaker 1: that's true or not, but investors are looking at what's
Speaker 1: priced in the market and saying, Jimmy, I can extend
Speaker 1: out the curve here, pick up a little bit more yield.
Speaker 1: So that is definitely a theme that that we are seeing,
Speaker 1: and yield is a theme. That's what Katie Griffold was
Speaker 1: just telling us. People want uh dividend paying e t
Speaker 1: f s, dividend paying ETFs and even areas like you know,
Speaker 1: corporate investment grade. You know, you're looking at things like
Speaker 1: high yield, which is seen, you know, for the first
Speaker 1: time all year, two months of positive flows, a couple
Speaker 1: of billion dollars. Why is that, Well, you can pick
Speaker 1: up a seven to eight percent yield in a high
Speaker 1: yield ETF. That's a nice coupon. Even if you think
Speaker 1: there's some recession risk and there's some risk of default
Speaker 1: call it one one and a half percent worst case
Speaker 1: default risk. You're still picking up a nice coupon. If
Speaker 1: you're a little shy about jumping back into equity, right,
Speaker 1: you have equity like exposure with a nice coupon to
Speaker 1: shield you a little bit. And certainly evaluations are very attractive.
Speaker 1: You know, corporates still don't have a lot of um
Speaker 1: leverage they have historically, you know, high cash on the books.
Speaker 1: It's not a bad trade in this environment. Stephanie Suenior
Speaker 1: extensive resume that you spend some time at fidelity. It
Speaker 1: can't be a good time. May be a mutual fund.
Speaker 1: Every time I stalk e t F, it's just record
Speaker 1: inflow here, record inflow there. Well, look what's look? Mutual
Speaker 1: funds and ETFs are going to co exist for a
Speaker 1: long long time. But I think it's fair to say,
Speaker 1: you know, I have a twelve year old at home.
Speaker 1: Many of us have kids, grandkids. I'm not so sure
Speaker 1: that those kids are or their their kids are necessarily
Speaker 1: going to buy mutual funds. ETFs are simpler, they're more
Speaker 1: transparent and more costom tax efficient. There's one price. It's
Speaker 1: really what we think of as the democratization of finance,
Speaker 1: and everybody's converting. I mean, we're seeing so many conversions
Speaker 1: this year, mutual funds converting into e t f s.
Speaker 1: And the only reason they wouldn't is probably because of
Speaker 1: this aged you know, four one K infrastructure that still
Speaker 1: doesn't allow a lot of times you to pick ets.
Speaker 1: But that's that's right, and it is operationally calm, located
Speaker 1: with multiple share classes, what kind of account they're sitting in,
Speaker 1: so it's not simple to do. But I absolutely think,
Speaker 1: um that is the wave of the future is probably
Speaker 1: more ETFs than more next generation investors coming into the vehicle.
Speaker 1: All right, Stephanie Pierce, thank you so much for joining
Speaker 1: us here in our Bloomberg Interactor Broker studio. Stephanie Pierce,
Speaker 1: CEO Dreyfus Melon and Exchange Trade of Funds at b
Speaker 1: and Y Melan. Thanks for listening to the Bloomberg Markets podcast.
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