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Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim

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Speaker 1: Fox on Bluebird Radio and we're live today Danta Point, California,

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Speaker 1: b m Y Melon's E t F Exchange twenty sixteen.

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Speaker 1: So here we are investors are dealing with rising interest rates,

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Speaker 1: an aging bullmarket in stocks, fluctuating global currencies, and more.

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Speaker 1: Where do e t f s come into the equation?

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Speaker 1: If you're Joshua Emmanuel, chief investment officer and managing director

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Speaker 1: at will Share Funds Management, That's what we're going to

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Speaker 1: find out now, Joshua, welcome to the show. Thank you, Kathleen.

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Speaker 1: It's nice to be here. So where do you start?

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Speaker 1: Chief investment officer? We just spoke to another chief investment officer.

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Speaker 1: It seems like it's a very tough time to navigate.

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Speaker 1: You want to make money for your clients. You certainly

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Speaker 1: don't want to lose their money. Where do you start?

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Speaker 1: As someone who is says such as a big user

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Speaker 1: of ETFs, good question. You know what we do is

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Speaker 1: we kind of uh form a macro framework for so

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Speaker 1: we have uh you know, a committee that sits down

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Speaker 1: and we spent a lot of time looking at a

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Speaker 1: lot of different types of information to understand where risks

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Speaker 1: and opportunity are in the marketplace today. And frankly, we're

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Speaker 1: in a world today where, um, you know, evaluations across

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Speaker 1: the board across asset classes are you know, rich, they're

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Speaker 1: healthy across the board, and we're in an environment where

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Speaker 1: we're seeing you know, a lot of stimulus driving asset prices,

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Speaker 1: and we're seeing signals of slower economic growth. So when

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Speaker 1: we see these types of indicators, we tend to pull

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Speaker 1: back risk across the board. So if you look at

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Speaker 1: our portfolios, whether you know et F related portfolios or

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Speaker 1: other portfolios, we've been peeling back risk, peeling back risk

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Speaker 1: and doing what putting it into cash, putting it into

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Speaker 1: alternative strategies. So we we like to stay invested. H

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Speaker 1: you know, timing the market can very very challenging thing

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Speaker 1: for investors, but if you if you look at expected

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Speaker 1: returns across asset classes, we think expected returns are certainly

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Speaker 1: going to be nothing like they've been in the past.

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Speaker 1: So what we've been highlighting and investing in more so

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Speaker 1: as opposed to cash, we've been looking for opportunities where

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Speaker 1: we can earn some carry or some credit or income

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Speaker 1: in the portfolio. So as opposed to equities, we've been

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Speaker 1: taking risk out of equities in this environment and putting

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Speaker 1: those assets into income oriented investments. So either UH investment

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Speaker 1: grade credit, high yield credit UH income oriented equities as

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Speaker 1: an example, but taking uh, you know, less equity risk

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Speaker 1: and looking for opportunities where we can get some certainty

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Speaker 1: of return through income. Okay, and and there's income and

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Speaker 1: there's income. And then when you talk to try to

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Speaker 1: take risk out, I guess you have to be very

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Speaker 1: careful with anything that's a high yield junk bond type investment. UH.

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Speaker 1: So you high quality bonds UM, and I guess you

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Speaker 1: probably aren't doing too much in sovereign bonds right now

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Speaker 1: unless you're looking overseas well. Let's talk about the risk

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Speaker 1: that you're trading, right, So you know, if we look

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Speaker 1: at high yield relative to a government bond or U S,

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Speaker 1: strategy is certainly more more risky, right. But if you're

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Speaker 1: taking risk out of equities and you're putting that risk

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Speaker 1: into high yield, you're actually accepting a lower degree of volatility.

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Speaker 1: You're you're investing in an asset that is arguably very

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Speaker 1: correlated to the equity market. But that ASCID is delivering

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Speaker 1: to you some additional income relative to which you might

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Speaker 1: get an equity. So actually trading out of equities into

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Speaker 1: high yield is a risk reduction trade in a portfolio.

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Speaker 1: Now naturally, um, if you were to take a different

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Speaker 1: position of trading that, for for investment grade corporates, that

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Speaker 1: would be a risk go on trade. So it really

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Speaker 1: depends on the levers that we're pulling. But in this environment,

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Speaker 1: we're taking risk out of equities and putting that into credit.

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Speaker 1: Putting that into credit, you don't think that that's uh,

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Speaker 1: that that's gonna end up badly when when and if

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Speaker 1: they actually raise interest rates. So our view, and we've

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Speaker 1: had to you for some time, is that rates are

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Speaker 1: going to stay little longer. And I know there's a

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Speaker 1: lot of what longer year, two years, five, We don't

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Speaker 1: see any real material rate, you know, hike in interest

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Speaker 1: rates until um, you know, when I say hike in

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Speaker 1: interest rates, certainly the Fed could move in December. There's

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Speaker 1: still a fift implied probability if you look at FED

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Speaker 1: funds futures of a hike in December. But even a

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Speaker 1: hike in December, we don't expect to translate into a

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Speaker 1: drum mattic rise in interest rates. Right. I mean this

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Speaker 1: is this is going to be more of a measured move,

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Speaker 1: And I would argue any decision to hike rates you

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Speaker 1: know tomorrow, even would would likely result in the market

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Speaker 1: moving towards bonds and actually pushing rates lower. So we're

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Speaker 1: not as concerned about dramatic rising interest rates hurting bond

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Speaker 1: investments in our Portfolis, I'm reading your mind. I'm guessing

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Speaker 1: the reason you're not too concerned about it is in

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Speaker 1: this environment, you're saying, if the Fedboard just raised rates

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Speaker 1: and even raise them now, people would move into bonds

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Speaker 1: because they'd say, com is not that strong man, that's

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Speaker 1: just gonna slow things down. So bonds are gonna do fun. Yeah.

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Speaker 1: I mean, I'll tell you if you look at you

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Speaker 1: look at the economic data retail sales UM, you look

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Speaker 1: at industrial production last week, you look at the services

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Speaker 1: datat of I s M. Arguably third quarter economic growth

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Speaker 1: numbers are likely to be worse than expected. Even if

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Speaker 1: you look at inflation related data, you know, UM, even

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Speaker 1: core inflation, although it's been rising, most of that rise

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Speaker 1: took place in you haven't seen much of a rise

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Speaker 1: in core and the only rise that we saw in

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Speaker 1: the most recent report was primarily due to medical medicare costs,

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Speaker 1: So our medical costs, excuse me. So ultimately the economy

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Speaker 1: is and on top of that, equity valuations are rich,

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Speaker 1: so you know, but that's that. But it doesn't that

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Speaker 1: offer a contradiction. I mean, if you're telling me that

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Speaker 1: all these things added together paint the kind of mediocre picture,

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Speaker 1: but the SMPS trading, so the market must know something

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Speaker 1: or at least think something. I will say that the

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Speaker 1: market's ability to shrug off, you know, disappointing economic data.

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Speaker 1: We're coming on six quarters of negative earnings growth, uncertainty

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Speaker 1: regarding elections and other global related issues. I think it

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Speaker 1: technically it's encouraging, but I also think it's concerning to

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Speaker 1: the degree that, you know, the market is being a

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Speaker 1: little bit naive in terms of some of the risks

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Speaker 1: out there. Well done, Thanks very much, Josh Manuel. He

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Speaker 1: is the Chief Investment Officer and Managing Director of Wilshire

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Speaker 1: Funds Management, helping to manage nearly one hundred and fifty

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Speaker 1: billion dollars of client assets. Were broadcasting live from et

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Speaker 1: F Exchange B and Y Melons et F Symposium in

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Speaker 1: Dana Pointe, California. This is Bloomberg