1
00:00:05,760 --> 00:00:11,480
Speaker 1: Welcome to Trillions. I'm Joel Webber and I'm Eric Bell Chierness, Eric,

2
00:00:11,480 --> 00:00:15,080
Speaker 1: come on vacation. I can tell you sound far away.

3
00:00:15,240 --> 00:00:17,639
Speaker 1: It sounds like I'm at the beach. Trade. Yeah, my

4
00:00:17,680 --> 00:00:20,160
Speaker 1: toes are in the sand. You're dedicated. How's it going?

5
00:00:20,680 --> 00:00:23,279
Speaker 1: You know? I had to talk to you, and that's

6
00:00:23,280 --> 00:00:25,000
Speaker 1: why I wanted to join, because did you know that

7
00:00:25,040 --> 00:00:27,640
Speaker 1: we're in the midst of a trade war? I did.

8
00:00:27,760 --> 00:00:30,280
Speaker 1: I noticed that. Yeah, you can't look at Twitter or

9
00:00:30,440 --> 00:00:33,479
Speaker 1: read the newspaper. Been making headlines. Yeah, it's making headlines

10
00:00:33,520 --> 00:00:36,279
Speaker 1: to say the least. So trade wars. Don't rest for

11
00:00:36,320 --> 00:00:39,239
Speaker 1: your vacation. I guess no, I have to. I have

12
00:00:39,320 --> 00:00:42,080
Speaker 1: to call to talk to you about how investors are

13
00:00:42,120 --> 00:00:44,600
Speaker 1: dealing with this trade war. It's become the theme of

14
00:00:44,600 --> 00:00:47,559
Speaker 1: the year. Yeah, that rising rates. Although rates have kind

15
00:00:47,560 --> 00:00:50,560
Speaker 1: of flat flatlined a little bit. Um rates are boring

16
00:00:50,760 --> 00:00:54,280
Speaker 1: compared to trade wars. They are, and that's why. But

17
00:00:54,480 --> 00:00:56,440
Speaker 1: they have moved a lot of flows. But I will say,

18
00:00:56,480 --> 00:00:59,880
Speaker 1: if there's one sort of macro event, it's it's trade wars,

19
00:01:00,000 --> 00:01:04,360
Speaker 1: trade tensions. Although let's face it, some of it's probably

20
00:01:04,400 --> 00:01:07,040
Speaker 1: an overreaction in the headlines and from the media, and

21
00:01:07,080 --> 00:01:09,960
Speaker 1: I think this is a great opportunity to not only

22
00:01:10,640 --> 00:01:13,440
Speaker 1: look at something that's happening in real life, talk about

23
00:01:13,480 --> 00:01:16,479
Speaker 1: how investors are reacting to it or how they should

24
00:01:16,520 --> 00:01:18,800
Speaker 1: or should not react, and trying to parse out what

25
00:01:18,959 --> 00:01:23,600
Speaker 1: really matters versus what's sort of like the crazy outrage

26
00:01:23,600 --> 00:01:25,840
Speaker 1: of the week. And there's no better time to do

27
00:01:25,920 --> 00:01:29,399
Speaker 1: this because obviously things have shifted from being rhetoric to

28
00:01:29,959 --> 00:01:33,280
Speaker 1: reality now and we're looking at full on tariffs. So

29
00:01:33,640 --> 00:01:36,120
Speaker 1: to help us understand the trade war, we're joined by

30
00:01:36,120 --> 00:01:39,800
Speaker 1: two guests, Sarah Ponzick, who's on the Cross Asset team

31
00:01:39,840 --> 00:01:43,640
Speaker 1: here at Bloomberg News, and also John Davy, who's a

32
00:01:43,720 --> 00:01:47,640
Speaker 1: portfolio advisor at Astoria. They're both going to give us

33
00:01:48,080 --> 00:01:51,960
Speaker 1: different views on what's happening and also sort of like

34
00:01:52,000 --> 00:01:54,920
Speaker 1: how investors are dealing with it. Yeah, I mean I

35
00:01:54,960 --> 00:01:58,360
Speaker 1: suggest that both of them, because Sarah wrote this article

36
00:01:58,960 --> 00:02:02,200
Speaker 1: basically your eid to playing the trade war, and it

37
00:02:02,200 --> 00:02:04,160
Speaker 1: goes over a couple of different things that she's seeing.

38
00:02:04,440 --> 00:02:08,040
Speaker 1: Sarah talks to people, she looks at the data, and

39
00:02:08,120 --> 00:02:10,120
Speaker 1: she writes about it. She can tell us what she's

40
00:02:10,440 --> 00:02:14,639
Speaker 1: seeing and hearing. John literally is putting people's money to

41
00:02:14,720 --> 00:02:16,960
Speaker 1: work using e t f s, and he has to

42
00:02:17,000 --> 00:02:19,920
Speaker 1: read what Sarah writes and other people and look at

43
00:02:19,919 --> 00:02:22,119
Speaker 1: the news and the twitters and and everything and take

44
00:02:22,120 --> 00:02:24,480
Speaker 1: it all into and decide what to do with real

45
00:02:24,520 --> 00:02:26,760
Speaker 1: money on the line. John has skin in the game,

46
00:02:26,840 --> 00:02:28,120
Speaker 1: so we have the best of both worlds in my

47
00:02:30,240 --> 00:02:37,680
Speaker 1: on this episode of Trilliance, Your Guide to the Trade War, Sarah, John,

48
00:02:37,919 --> 00:02:40,760
Speaker 1: Welcome to Trilliance. Thanks for joining us, Thanks for having me,

49
00:02:40,919 --> 00:02:43,960
Speaker 1: Thanks for having us. Uh Sarah, you wrote this article

50
00:02:44,000 --> 00:02:46,639
Speaker 1: that was really really great and Investor's guide to managing

51
00:02:46,760 --> 00:02:51,519
Speaker 1: escalating global trade tensions, so it's a great Bloomberg News

52
00:02:51,600 --> 00:02:54,160
Speaker 1: headline too. Can you give us a sense of of

53
00:02:54,200 --> 00:02:57,120
Speaker 1: what you've been covering and what you've been watching unfold.

54
00:02:57,440 --> 00:02:59,959
Speaker 1: Of course, it's kind of been an evolution in a way,

55
00:03:00,080 --> 00:03:02,960
Speaker 1: as you were just discussing. At first it seemed it

56
00:03:03,000 --> 00:03:06,280
Speaker 1: was just rhetoric, but now we're actually getting these tariffs,

57
00:03:06,280 --> 00:03:09,359
Speaker 1: so day by day, week by week, it's really starting

58
00:03:09,400 --> 00:03:12,120
Speaker 1: to feel a bit more real. So I have been

59
00:03:12,160 --> 00:03:15,600
Speaker 1: talking with money managers for the past couple of months

60
00:03:15,639 --> 00:03:19,280
Speaker 1: as this really has been developing, to see what they're

61
00:03:19,320 --> 00:03:23,520
Speaker 1: doing if they're concerned if they're actually moving money around.

62
00:03:23,720 --> 00:03:26,800
Speaker 1: And for a while, that answer was always no. The

63
00:03:26,840 --> 00:03:29,480
Speaker 1: answer was always no, we're going to reach a negotiation,

64
00:03:29,680 --> 00:03:32,120
Speaker 1: we're going to get a deal. We're standing pat We're

65
00:03:32,160 --> 00:03:34,720
Speaker 1: really not doing anything differently right now. But as the

66
00:03:34,760 --> 00:03:38,480
Speaker 1: weeks went on, as as we got further down the timeline,

67
00:03:38,520 --> 00:03:42,800
Speaker 1: all of a sudden, concern started to seep into their

68
00:03:42,840 --> 00:03:46,960
Speaker 1: tones of voices, and all of a sudden they started advising, Okay, well,

69
00:03:46,960 --> 00:03:48,760
Speaker 1: if it gets a little further, this is what you

70
00:03:48,760 --> 00:03:50,400
Speaker 1: should do. This is what you should do. And then

71
00:03:50,440 --> 00:03:54,280
Speaker 1: we actually started to see some movement within the flows

72
00:03:54,320 --> 00:03:57,320
Speaker 1: and some people actually telling me that they're moving money around.

73
00:03:57,320 --> 00:03:58,880
Speaker 1: So I would say it started off when I would

74
00:03:58,880 --> 00:04:01,000
Speaker 1: ask them, all right, if this actually develops, if this

75
00:04:01,040 --> 00:04:03,360
Speaker 1: actually gets pretty bad, what are you gonna do? But

76
00:04:03,480 --> 00:04:05,880
Speaker 1: classic answer was always all right, go to small cap

77
00:04:05,880 --> 00:04:09,000
Speaker 1: stocks because they're more domestically oriented. For in a trade war,

78
00:04:09,080 --> 00:04:11,800
Speaker 1: the U s stands to benefit, so you're better off

79
00:04:11,840 --> 00:04:14,280
Speaker 1: if you're in the US. So make America grade again.

80
00:04:14,560 --> 00:04:17,880
Speaker 1: What does that look like from a flow perspective and

81
00:04:17,920 --> 00:04:20,680
Speaker 1: a return perspective? So far this year, so from a

82
00:04:20,920 --> 00:04:24,599
Speaker 1: flow perspective, it's actually interesting because one of the largest

83
00:04:25,000 --> 00:04:27,279
Speaker 1: small kept et s. I know. Bloomberg Intelligence had a

84
00:04:27,279 --> 00:04:30,400
Speaker 1: great deck out recently about this, saying that there were

85
00:04:30,440 --> 00:04:34,960
Speaker 1: actually outflows from small caps e T s UH in

86
00:04:35,040 --> 00:04:38,240
Speaker 1: the past week or so. However, it was still a

87
00:04:38,279 --> 00:04:41,039
Speaker 1: lot less than US equities at large. And if you

88
00:04:41,040 --> 00:04:42,679
Speaker 1: look at the Russell two thousand, I mean, the Russell

89
00:04:42,680 --> 00:04:44,320
Speaker 1: two thousand has just been on a tear this year.

90
00:04:44,560 --> 00:04:47,599
Speaker 1: It's really been outperforming the SMP five hundred and broader

91
00:04:47,640 --> 00:04:51,240
Speaker 1: equity markets at large. So we are seeing that, I mean,

92
00:04:51,240 --> 00:04:54,240
Speaker 1: we're seeing small caps outperformed, and we are seeing a

93
00:04:54,240 --> 00:04:57,560
Speaker 1: little boost there being a little better uh than larger

94
00:04:58,200 --> 00:05:02,040
Speaker 1: US equity flows. The rustles like an eight percent return

95
00:05:02,160 --> 00:05:04,520
Speaker 1: so far this year versus the SMP, which is at

96
00:05:04,560 --> 00:05:08,480
Speaker 1: about two exactly smps like muddling around, moving sideways around

97
00:05:08,520 --> 00:05:11,480
Speaker 1: that number. And then Russell two thousands up eight percent,

98
00:05:11,880 --> 00:05:15,160
Speaker 1: So really seeing some strength there relatively. So that's where

99
00:05:15,160 --> 00:05:17,719
Speaker 1: they're going. Eric. When you look at the small cap stuff,

100
00:05:17,800 --> 00:05:21,040
Speaker 1: how are you saying? What are you saying? Ironically, small

101
00:05:21,080 --> 00:05:24,240
Speaker 1: caps appear somewhat like a safe move normally they're the

102
00:05:24,320 --> 00:05:26,839
Speaker 1: jumpier ones. But what I will say is in the

103
00:05:26,920 --> 00:05:29,920
Speaker 1: second quarter it was unusual that small caps took in

104
00:05:30,000 --> 00:05:32,520
Speaker 1: thirteen billion, that was more than double any other cap size.

105
00:05:33,480 --> 00:05:36,240
Speaker 1: And the note that Sarah's referring to was that for

106
00:05:36,279 --> 00:05:37,640
Speaker 1: the first time in a long time, they saw a

107
00:05:37,640 --> 00:05:41,920
Speaker 1: week of outflows. And so the question remains is if

108
00:05:41,960 --> 00:05:46,200
Speaker 1: small caps are If small caps stopped getting investors interest

109
00:05:46,279 --> 00:05:49,880
Speaker 1: and attention, it's not good. That's an overall bad sign

110
00:05:49,880 --> 00:05:52,960
Speaker 1: because they've been the one sort of equity area to

111
00:05:53,279 --> 00:05:56,120
Speaker 1: a be bullish, but be also play that protect from

112
00:05:56,160 --> 00:05:58,839
Speaker 1: the trade war quote unquote. UM So let's bring in

113
00:05:58,920 --> 00:06:01,800
Speaker 1: John on this talking small caps. Let's say you're out there,

114
00:06:01,839 --> 00:06:03,800
Speaker 1: you own a small cap eat after you're thinking about

115
00:06:03,800 --> 00:06:06,400
Speaker 1: going into it, how would you look at this area

116
00:06:06,440 --> 00:06:09,520
Speaker 1: going forward? Well, I think so if you own small caps,

117
00:06:09,560 --> 00:06:11,600
Speaker 1: I think that's a pretty good place, you know, for

118
00:06:11,640 --> 00:06:13,800
Speaker 1: the time being. Um but I'm going to take the

119
00:06:13,800 --> 00:06:16,520
Speaker 1: other side of that trade about how trade wars is

120
00:06:16,560 --> 00:06:19,480
Speaker 1: the reason why the market's hell him off. Trade wars

121
00:06:19,560 --> 00:06:21,880
Speaker 1: is not what's driving the market that. That's my point,

122
00:06:21,880 --> 00:06:24,000
Speaker 1: and that's what we've been arguing, is that you've got

123
00:06:24,040 --> 00:06:25,920
Speaker 1: things like you know, the ft ist hiking rates, You've

124
00:06:25,960 --> 00:06:28,760
Speaker 1: got you know, no more qui in the US, uh

125
00:06:28,800 --> 00:06:32,719
Speaker 1: and soon to be stopping in Europe. You've got global growth,

126
00:06:32,720 --> 00:06:34,400
Speaker 1: that's the couple in right. US is up, you know,

127
00:06:34,440 --> 00:06:37,320
Speaker 1: as you said Russell two thousands up eight percent. You've

128
00:06:37,320 --> 00:06:40,799
Speaker 1: got China that's down e M that's you know down,

129
00:06:40,880 --> 00:06:43,719
Speaker 1: you know, fourteen percent year to date. So I think,

130
00:06:43,760 --> 00:06:45,839
Speaker 1: you know, like if you watch the news, you're always

131
00:06:45,839 --> 00:06:47,680
Speaker 1: going to be scared, You're never gonna want to invest.

132
00:06:47,800 --> 00:06:49,840
Speaker 1: I think small caps is a good place to kind of,

133
00:06:50,240 --> 00:06:52,760
Speaker 1: you know, park your money just because you know, I

134
00:06:52,760 --> 00:06:56,320
Speaker 1: think a lot of Trump's policies is beneficial for domestic

135
00:06:56,320 --> 00:06:59,720
Speaker 1: orienting companies. But for us at Astoria, we've been the

136
00:07:00,000 --> 00:07:03,360
Speaker 1: pensively positioned in the portfolio for most of this year.

137
00:07:03,480 --> 00:07:05,320
Speaker 1: This was a big call that we made earlier in

138
00:07:05,360 --> 00:07:07,520
Speaker 1: the year, uh well at the start of the year.

139
00:07:08,000 --> 00:07:10,080
Speaker 1: So our premise was that, you know, we expected this

140
00:07:10,160 --> 00:07:12,800
Speaker 1: year to have a lot more volatility. We thought that,

141
00:07:13,160 --> 00:07:14,880
Speaker 1: you know, there was a lot more uncertanty this year

142
00:07:14,920 --> 00:07:16,960
Speaker 1: with what the Fed is going to do, so we've

143
00:07:17,000 --> 00:07:20,200
Speaker 1: been more defensive in general. So if you own small caps,

144
00:07:20,200 --> 00:07:22,160
Speaker 1: I think that's a good trade for you. I think

145
00:07:22,160 --> 00:07:23,840
Speaker 1: it's been a good investment, and I would I would

146
00:07:23,840 --> 00:07:26,080
Speaker 1: probably hold on to them. And let me jump in

147
00:07:26,120 --> 00:07:29,240
Speaker 1: here back to Sarah. In terms of the small cap btfs,

148
00:07:29,480 --> 00:07:32,000
Speaker 1: if you noticed I j r Is in the top ten,

149
00:07:32,080 --> 00:07:34,680
Speaker 1: that's most people know small caps I w M which

150
00:07:34,720 --> 00:07:37,240
Speaker 1: is the I shares the most traded one, or VB

151
00:07:37,520 --> 00:07:39,760
Speaker 1: which is Vanguard, but I j r Is number nine.

152
00:07:39,800 --> 00:07:42,400
Speaker 1: To talk about within the small cap space, what what

153
00:07:42,520 --> 00:07:46,120
Speaker 1: kind of ets are seeing the action? So the e

154
00:07:46,200 --> 00:07:49,080
Speaker 1: t s that are seeing the action are the ones

155
00:07:49,120 --> 00:07:51,880
Speaker 1: that are actually being used as more sort of a

156
00:07:51,920 --> 00:07:56,480
Speaker 1: trading vehicle. So if you want to get into the action,

157
00:07:56,560 --> 00:07:58,960
Speaker 1: I mean, we're seeing heavy trading falling. We're seeing people

158
00:07:59,160 --> 00:08:02,080
Speaker 1: wanting to get in and get out, maybe make some

159
00:08:02,080 --> 00:08:04,600
Speaker 1: some quick moves using these e t s. And that's

160
00:08:04,600 --> 00:08:06,200
Speaker 1: really how we're saying it play out there. So I

161
00:08:06,440 --> 00:08:09,160
Speaker 1: w M clearly takes the monster of the flow volatility,

162
00:08:09,240 --> 00:08:11,600
Speaker 1: that's the one that's been around forever. But it's the

163
00:08:11,600 --> 00:08:14,280
Speaker 1: fee is I believe twenty basis points I'll find out

164
00:08:14,320 --> 00:08:17,239
Speaker 1: in two seconds here. But John, in terms of picking

165
00:08:17,240 --> 00:08:19,280
Speaker 1: a small cap ETF, if you're out there listening like

166
00:08:19,320 --> 00:08:21,800
Speaker 1: how do you actually do this? I w MS twenty

167
00:08:21,840 --> 00:08:23,720
Speaker 1: bits and then you've got ones that are ten and

168
00:08:23,760 --> 00:08:26,840
Speaker 1: even a little less. Do you prefer going to the

169
00:08:26,880 --> 00:08:30,040
Speaker 1: sort of cheap, low cost Vanguard or I shares Core series,

170
00:08:30,720 --> 00:08:33,880
Speaker 1: or do you like the liquidity of an I w M.

171
00:08:34,000 --> 00:08:36,520
Speaker 1: We I would prefer something like in E E S

172
00:08:36,679 --> 00:08:40,080
Speaker 1: or in I j R. So those are more Yes.

173
00:08:40,080 --> 00:08:42,680
Speaker 1: This is why. Look these E t F strategists, they

174
00:08:42,720 --> 00:08:44,720
Speaker 1: sniff through the whole toolback. That's that's why we have

175
00:08:44,800 --> 00:08:47,319
Speaker 1: them on. I don't even know what E S is.

176
00:08:48,040 --> 00:08:52,040
Speaker 1: That's the Wisdentry earnings weighted e t F. So basically,

177
00:08:52,559 --> 00:08:54,960
Speaker 1: first of all, they take like a quality filter, so

178
00:08:55,000 --> 00:08:57,880
Speaker 1: you have to have like four quarters of like positive earnings,

179
00:08:58,559 --> 00:09:01,200
Speaker 1: and then they wait the stock in the index based

180
00:09:01,200 --> 00:09:04,120
Speaker 1: on its earnings. So the more earnings you produce as

181
00:09:04,160 --> 00:09:06,360
Speaker 1: a company, the higher the weight. So it's like a

182
00:09:06,440 --> 00:09:09,520
Speaker 1: super higher quality e t F. If you go back,

183
00:09:09,679 --> 00:09:11,600
Speaker 1: you you probably have a terminal up. But if you

184
00:09:11,679 --> 00:09:15,440
Speaker 1: go back E S has completely killed I w M

185
00:09:15,600 --> 00:09:18,560
Speaker 1: since its inception. And you know my point is like, okay,

186
00:09:18,559 --> 00:09:20,880
Speaker 1: E yes, may coos to your thirty five basis points.

187
00:09:21,160 --> 00:09:24,000
Speaker 1: I w M is maybe you know fifteen, but I'm

188
00:09:24,040 --> 00:09:27,360
Speaker 1: sure if you look, I don't know what this is. Yeah,

189
00:09:27,559 --> 00:09:31,480
Speaker 1: E S is up two to I w M sixty four.

190
00:09:31,520 --> 00:09:34,960
Speaker 1: That's seventy eight percentage points difference. It is a little pricier,

191
00:09:35,440 --> 00:09:37,520
Speaker 1: but it's not bad, especially when you're comparing to an

192
00:09:37,520 --> 00:09:40,439
Speaker 1: active fund. It's thirty eight basis points. But you're right,

193
00:09:40,480 --> 00:09:42,840
Speaker 1: it's small caps, but with a little of the edge

194
00:09:42,880 --> 00:09:45,600
Speaker 1: taken off and a little tilt towards that's like a

195
00:09:45,600 --> 00:09:51,360
Speaker 1: toy at the bottom of the cereal box, cracker jack box.

196
00:09:51,480 --> 00:09:57,040
Speaker 1: Are we that old that we remember that I do it? Okay, okay, okay, good,

197
00:09:57,080 --> 00:10:03,200
Speaker 1: all right. Quality usually works over time as like you know,

198
00:10:03,240 --> 00:10:04,800
Speaker 1: as a factor, and we don't have to go into

199
00:10:04,800 --> 00:10:07,400
Speaker 1: like a factor based discussion. But I think people get

200
00:10:07,480 --> 00:10:09,880
Speaker 1: enamored about low costs, and you know, they want to

201
00:10:09,920 --> 00:10:12,240
Speaker 1: buy the cheapest product out there. And I think you

202
00:10:12,280 --> 00:10:13,839
Speaker 1: got to look underneath the hut a little bit when

203
00:10:13,840 --> 00:10:15,920
Speaker 1: it comes eat just because there's so many products out there.

204
00:10:15,960 --> 00:10:18,240
Speaker 1: So E S is one of those like hidden gems

205
00:10:18,280 --> 00:10:20,320
Speaker 1: if you like small caps, and that's a good point.

206
00:10:20,320 --> 00:10:23,120
Speaker 1: I mean thirty eight to twenty or ten, that's eighteen

207
00:10:23,120 --> 00:10:26,000
Speaker 1: basis points. If you had picked E S, though, that's

208
00:10:26,000 --> 00:10:30,120
Speaker 1: seventy seventy eight hundred basis points, So I agree with you.

209
00:10:30,520 --> 00:10:32,920
Speaker 1: I think though, when you go pure, sort of plain

210
00:10:33,000 --> 00:10:35,680
Speaker 1: vanilla like the smp F have injured, you really should

211
00:10:35,679 --> 00:10:37,960
Speaker 1: look for the lowest cost. But when you go to

212
00:10:38,040 --> 00:10:41,560
Speaker 1: these other areas, you can possibly do your homework a

213
00:10:41,559 --> 00:10:44,840
Speaker 1: little and find a hidden gem. Absolutely, Okay, Sarah, what's

214
00:10:44,880 --> 00:10:49,079
Speaker 1: the what's the number two thing that you um focused

215
00:10:49,120 --> 00:10:51,440
Speaker 1: on in this article? So a lot of people started

216
00:10:51,480 --> 00:10:54,640
Speaker 1: talking about if you're worried, get defensive, and John was

217
00:10:54,679 --> 00:10:56,920
Speaker 1: talking about how maybe not even just because of trade,

218
00:10:56,920 --> 00:10:58,959
Speaker 1: but they were starting to shift to a more defensive

219
00:10:58,960 --> 00:11:01,520
Speaker 1: position at the are to the year for even other reasons.

220
00:11:01,760 --> 00:11:04,240
Speaker 1: But when they talk about defensive equities, a lot of

221
00:11:04,240 --> 00:11:06,240
Speaker 1: them say, all right, well you look for your toothpaste

222
00:11:06,240 --> 00:11:08,760
Speaker 1: and your diaper companies because it's something bad, worred to happen.

223
00:11:08,800 --> 00:11:11,200
Speaker 1: At least you know that people always need those types

224
00:11:11,240 --> 00:11:14,000
Speaker 1: of products, so go to your consumer staples. And for me,

225
00:11:14,200 --> 00:11:17,040
Speaker 1: I did. I. Well, I was curious because it seems

226
00:11:17,080 --> 00:11:19,080
Speaker 1: like there was a shift in tone when we got

227
00:11:19,080 --> 00:11:21,520
Speaker 1: to June, so I was really curious what the flows

228
00:11:21,559 --> 00:11:24,000
Speaker 1: looked like in June versus the rest of the year,

229
00:11:24,040 --> 00:11:26,760
Speaker 1: and we definitely saw a major shift. So if you

230
00:11:26,760 --> 00:11:31,760
Speaker 1: look at XLP, which is State Streets Consumers Staples sector fund,

231
00:11:32,040 --> 00:11:37,600
Speaker 1: so x LP actually had the most outflows from January

232
00:11:37,760 --> 00:11:40,160
Speaker 1: to May this year. X l P, I mean consumer

233
00:11:40,200 --> 00:11:42,400
Speaker 1: staples as a whole have really just been struggling. So

234
00:11:42,440 --> 00:11:46,240
Speaker 1: they saw seven hundred seventy three million dollars in a

235
00:11:46,400 --> 00:11:50,240
Speaker 1: loss from January to May. However, in June that completely flipped,

236
00:11:50,240 --> 00:11:52,240
Speaker 1: and if you look at the entire suite of those

237
00:11:52,480 --> 00:11:56,000
Speaker 1: sector funds, x LP actually took in the most money

238
00:11:56,320 --> 00:11:58,480
Speaker 1: out of any of them. It saw five hundred eighty

239
00:11:58,480 --> 00:12:01,760
Speaker 1: three million in inflows in June. So I was just curious.

240
00:12:01,960 --> 00:12:04,199
Speaker 1: I was looking through the data, and it did take

241
00:12:04,240 --> 00:12:05,880
Speaker 1: a bit of time, and I was worried maybe I

242
00:12:05,880 --> 00:12:08,240
Speaker 1: would not find anything. But I thought it was really

243
00:12:08,280 --> 00:12:11,360
Speaker 1: interesting that I had noticed that shift in tone from

244
00:12:11,360 --> 00:12:13,079
Speaker 1: the rest of the year until June, and people were

245
00:12:13,080 --> 00:12:15,040
Speaker 1: actually starting to say that they were concerned, maybe they

246
00:12:15,080 --> 00:12:17,520
Speaker 1: were going to shift money around, And what do you know,

247
00:12:17,760 --> 00:12:20,839
Speaker 1: XLP went from the worst to the best. Flos XLP,

248
00:12:21,040 --> 00:12:23,360
Speaker 1: by the way, is it really is a boring e

249
00:12:23,440 --> 00:12:26,720
Speaker 1: t F. I mean Coca Cola, Colgate, pal mall of

250
00:12:26,840 --> 00:12:30,600
Speaker 1: walmart Um. In terms of the performance by the way,

251
00:12:30,640 --> 00:12:33,720
Speaker 1: just so people know, in the past ten years since

252
00:12:33,760 --> 00:12:39,000
Speaker 1: the financial crisis, basically x LPs trailing Tech or XLK

253
00:12:39,120 --> 00:12:43,520
Speaker 1: by a hundred percentage points. Tech is over of the

254
00:12:43,600 --> 00:12:47,600
Speaker 1: SMP five hundred Staples is a mere six eight percent. John,

255
00:12:47,679 --> 00:12:50,360
Speaker 1: could we see a whole new regime where XLP becomes

256
00:12:50,360 --> 00:12:53,240
Speaker 1: the stud and xl K lags All the holdens you

257
00:12:53,280 --> 00:12:55,480
Speaker 1: mentioned just kind of remind me of Warren Buffett. Just

258
00:12:55,559 --> 00:12:58,240
Speaker 1: as a total aside um, I think what you're gonna

259
00:12:58,240 --> 00:13:00,560
Speaker 1: start to see is people kind of getting more defensive

260
00:13:00,559 --> 00:13:03,040
Speaker 1: in their portfolio given what's going on with all the

261
00:13:03,120 --> 00:13:06,640
Speaker 1: kind of macro news. So, um, here's the other thing, right,

262
00:13:06,679 --> 00:13:09,000
Speaker 1: if you want to market cap weighted index, right or

263
00:13:09,000 --> 00:13:12,280
Speaker 1: in E t F, you are indirectly you know, long tech, right,

264
00:13:12,320 --> 00:13:16,439
Speaker 1: because tech is like of the SMP, and you may

265
00:13:16,440 --> 00:13:19,559
Speaker 1: not know, but you are a tech kind of investor, right,

266
00:13:20,080 --> 00:13:23,040
Speaker 1: And I think now, given everything that's going on the cycle,

267
00:13:23,120 --> 00:13:24,800
Speaker 1: you know now is a decent time to kind of

268
00:13:24,840 --> 00:13:28,600
Speaker 1: get more defensive in in general. As a total aside,

269
00:13:28,679 --> 00:13:31,040
Speaker 1: you know, one E t F that we moved into

270
00:13:31,120 --> 00:13:34,040
Speaker 1: this year is q e MM. So we owned I

271
00:13:34,200 --> 00:13:36,520
Speaker 1: E m G last year. It's the emergent market ETF.

272
00:13:37,000 --> 00:13:40,199
Speaker 1: Five stocks drove fifty of the returns, and I in

273
00:13:40,320 --> 00:13:44,040
Speaker 1: I MG in And this year, you know, we just

274
00:13:44,160 --> 00:13:46,400
Speaker 1: didn't want to make a big bet on five stocks,

275
00:13:46,640 --> 00:13:48,920
Speaker 1: you know, five Chinese internet stocks. So this year Q

276
00:13:49,160 --> 00:13:51,600
Speaker 1: E M M a little bit more defensive, and it's

277
00:13:51,640 --> 00:13:54,439
Speaker 1: out performed I m G by like one. It doesn't

278
00:13:54,440 --> 00:13:56,079
Speaker 1: sound like huge, but you know, you start to kind

279
00:13:56,080 --> 00:13:58,320
Speaker 1: of get you know, a couple hundred basis points, and

280
00:13:58,320 --> 00:14:02,120
Speaker 1: it's out performed on lower volatil lo of autility and

281
00:14:02,160 --> 00:14:05,640
Speaker 1: what were the holdings that that you wanted to access there?

282
00:14:06,760 --> 00:14:09,800
Speaker 1: The holdings are very similar to I MG just doesn't overwait.

283
00:14:09,880 --> 00:14:12,240
Speaker 1: So Samsung may not be like five pcent like it

284
00:14:12,320 --> 00:14:14,400
Speaker 1: is an I m G. You know, I may only

285
00:14:14,440 --> 00:14:17,120
Speaker 1: have like a two percent weight. So it's a it's

286
00:14:17,120 --> 00:14:20,520
Speaker 1: a little bit lower ball um, more defensive, you know,

287
00:14:20,560 --> 00:14:24,080
Speaker 1: more value and quality stocks. So and John brings up

288
00:14:24,080 --> 00:14:26,760
Speaker 1: a good point. This is sort of the same concept

289
00:14:26,840 --> 00:14:29,280
Speaker 1: as E E S applied to emerging markets, in that

290
00:14:30,000 --> 00:14:32,760
Speaker 1: when you go to emerging markets, most people use what's

291
00:14:32,760 --> 00:14:34,840
Speaker 1: called the market cap weighted e t F. That's E

292
00:14:34,840 --> 00:14:37,640
Speaker 1: E M, I MG, the ones you mentioned and a

293
00:14:37,640 --> 00:14:40,480
Speaker 1: lot of times the top ten holdings can make up

294
00:14:40,520 --> 00:14:43,960
Speaker 1: almost half of the portfolio. At least when I look

295
00:14:44,000 --> 00:14:46,320
Speaker 1: at QWI E m M, the top ten holdings only

296
00:14:46,360 --> 00:14:50,120
Speaker 1: make up six of the portfolio. That's an underrated field,

297
00:14:50,160 --> 00:14:53,160
Speaker 1: isn't it percentage of top ten holdings? Yeah? And that

298
00:14:53,280 --> 00:14:55,800
Speaker 1: also comes down to waiting, and when you look at

299
00:14:55,800 --> 00:14:57,960
Speaker 1: it the alternative waiting. You could not go the other

300
00:14:58,000 --> 00:15:00,040
Speaker 1: way though, and have an equal weighting, which gives a

301
00:15:00,040 --> 00:15:02,040
Speaker 1: little more volve In this case, you have a quality

302
00:15:02,560 --> 00:15:06,520
Speaker 1: screen on this um. Even though it's less concentrated. The

303
00:15:06,600 --> 00:15:09,200
Speaker 1: quality screen takes that edge off, which doesn't make it

304
00:15:09,280 --> 00:15:12,720
Speaker 1: extra have extra volatility. So it's an interesting pick qu

305
00:15:12,840 --> 00:15:14,920
Speaker 1: e m M. It's the spider product. It's a multi

306
00:15:14,960 --> 00:15:24,600
Speaker 1: factor approach to emerging markets. Okay, John, can we just

307
00:15:24,640 --> 00:15:27,040
Speaker 1: go a little bit more meta about how you as

308
00:15:27,080 --> 00:15:30,120
Speaker 1: an investor, how you've been dealing with the trade war

309
00:15:30,160 --> 00:15:34,240
Speaker 1: as a transition from being rhetoric to reality. Sure, Um,

310
00:15:34,280 --> 00:15:37,320
Speaker 1: you know, we're longer term investors, so I think you know, Look,

311
00:15:37,360 --> 00:15:40,760
Speaker 1: Trump's approval ratings keep rallying and keep going up as

312
00:15:40,760 --> 00:15:43,560
Speaker 1: his trade ruter kind of spikes up. So I don't

313
00:15:43,560 --> 00:15:46,520
Speaker 1: think he's going to back down. Per Se, I'll caveat

314
00:15:46,560 --> 00:15:48,800
Speaker 1: by saying, you know, we're not experts in trade wars,

315
00:15:48,800 --> 00:15:50,880
Speaker 1: so you know, we tend to focus on like data

316
00:15:50,880 --> 00:15:52,960
Speaker 1: and what's going on in economy, and I think there's

317
00:15:53,000 --> 00:15:55,800
Speaker 1: some bigger picture issues that are driving the market. So

318
00:15:55,880 --> 00:15:59,320
Speaker 1: one is, as I mentioned earlier, the FED is hiking rates. Two,

319
00:15:59,400 --> 00:16:01,600
Speaker 1: you've had you know, the couple in you know, from

320
00:16:01,760 --> 00:16:03,280
Speaker 1: US and the rest of the world in terms of

321
00:16:03,280 --> 00:16:06,960
Speaker 1: global growth. I think inflation's rise in and you know,

322
00:16:07,000 --> 00:16:09,680
Speaker 1: I think that's really what's driving the market. Like you know, yeah,

323
00:16:09,720 --> 00:16:12,800
Speaker 1: the media is gonna talk about whatever is hot for

324
00:16:12,840 --> 00:16:15,680
Speaker 1: that day, but you know there's other big and bigger

325
00:16:15,840 --> 00:16:19,560
Speaker 1: driving forces that are impact and market. So to answer

326
00:16:19,600 --> 00:16:22,200
Speaker 1: your point, Joel, you know we've been increasing cash. So

327
00:16:22,320 --> 00:16:25,560
Speaker 1: cash I think is a really interesting alternative at this

328
00:16:25,600 --> 00:16:28,240
Speaker 1: point in time. Right, the two years yielding like you know,

329
00:16:28,240 --> 00:16:31,840
Speaker 1: two point five percent, so you take on no credit risk, no,

330
00:16:32,240 --> 00:16:34,960
Speaker 1: you know, very little duration risk. So I would much

331
00:16:35,080 --> 00:16:37,600
Speaker 1: rather own like a s h Y. Then let's say

332
00:16:37,600 --> 00:16:39,800
Speaker 1: like an h y G, like why take on the

333
00:16:39,800 --> 00:16:42,080
Speaker 1: extra credit risk and the extra duration risk for for

334
00:16:42,160 --> 00:16:45,120
Speaker 1: HIO credit s h Y, which is an a propro

335
00:16:45,280 --> 00:16:47,560
Speaker 1: ticker for something that holds one to three ye treasuries.

336
00:16:47,920 --> 00:16:49,640
Speaker 1: It is shy. It's when you're feeling shy, you go

337
00:16:49,720 --> 00:16:52,760
Speaker 1: into this thing and s h V. These are making

338
00:16:52,760 --> 00:16:56,520
Speaker 1: the top ten top twenty flo lists and they're they're boring. Uh.

339
00:16:56,560 --> 00:16:59,120
Speaker 1: These are ultra short term debt, which is used for cash.

340
00:16:59,120 --> 00:17:02,880
Speaker 1: Talk about the amazing inflows into ultra short term debt

341
00:17:03,000 --> 00:17:05,680
Speaker 1: this year. Look, you say they're boring, but the thing

342
00:17:05,800 --> 00:17:09,040
Speaker 1: is they're safe. And if you are worried about anything,

343
00:17:09,080 --> 00:17:11,679
Speaker 1: even if it's a trade war, if you're just worried

344
00:17:11,680 --> 00:17:14,160
Speaker 1: about where we are in the cycle, maybe that's where

345
00:17:14,160 --> 00:17:15,920
Speaker 1: you want to park your money. And that's what we're seeing.

346
00:17:15,960 --> 00:17:19,840
Speaker 1: We are seeing some major flows into short term debt,

347
00:17:19,920 --> 00:17:22,480
Speaker 1: and as well as short term debt, we're also seeing

348
00:17:22,920 --> 00:17:26,800
Speaker 1: some huge inflows into the tenure treasury bond e t

349
00:17:27,040 --> 00:17:29,119
Speaker 1: f s as well so g o VT, which is

350
00:17:29,200 --> 00:17:32,960
Speaker 1: the I shares products. It's the largest US treasury bond

351
00:17:33,480 --> 00:17:37,520
Speaker 1: tracking US treasuries. In June, it took the most cash

352
00:17:37,520 --> 00:17:39,920
Speaker 1: on record, the most that's ever taken in a month.

353
00:17:40,119 --> 00:17:42,800
Speaker 1: It took in about eight hundred seventy million dollars. So

354
00:17:42,920 --> 00:17:45,560
Speaker 1: we're seeing money into short term debt and then of

355
00:17:45,600 --> 00:17:48,360
Speaker 1: course the ten uere as well as getting a lot

356
00:17:48,400 --> 00:17:51,240
Speaker 1: of traction. John As that's g o v T is

357
00:17:51,560 --> 00:17:55,520
Speaker 1: fifteen basis points. As as an investor, when you say cash, right,

358
00:17:55,520 --> 00:17:57,720
Speaker 1: a lot of people think of money market fund. Can

359
00:17:57,760 --> 00:17:59,600
Speaker 1: e t F s like this be used in place

360
00:18:00,119 --> 00:18:02,800
Speaker 1: of a money market fund and like short ultra short

361
00:18:02,880 --> 00:18:05,440
Speaker 1: term treasury et F? Are people starting to do that?

362
00:18:05,760 --> 00:18:07,240
Speaker 1: I think? So? I mean I think if you look

363
00:18:07,280 --> 00:18:11,240
Speaker 1: at g Bill, that's been another kind of big inflow um.

364
00:18:11,280 --> 00:18:13,800
Speaker 1: You know, I think they got like seven million, you know,

365
00:18:13,880 --> 00:18:16,080
Speaker 1: just in the last you know year. If you look

366
00:18:16,119 --> 00:18:20,520
Speaker 1: at JP s T that's a short duration fund from J. P. Morgan,

367
00:18:20,560 --> 00:18:23,439
Speaker 1: they've raised a lot of assets. So, I mean, you know,

368
00:18:23,480 --> 00:18:25,600
Speaker 1: the thing when when you buy a money market fund

369
00:18:25,640 --> 00:18:27,040
Speaker 1: is that you know you buy it at NAV. You

370
00:18:27,040 --> 00:18:30,320
Speaker 1: don't pay bid offer, you don't pay commission cost um.

371
00:18:30,359 --> 00:18:32,520
Speaker 1: You know there's no slippage right when you purchase that,

372
00:18:32,560 --> 00:18:33,960
Speaker 1: Whereas you know when you buy an E t F

373
00:18:34,080 --> 00:18:36,679
Speaker 1: you know there are extra costs, right. That's the thing

374
00:18:36,720 --> 00:18:38,400
Speaker 1: that you know, most people don't realize. So in light

375
00:18:38,440 --> 00:18:41,280
Speaker 1: of you know, the news about Vanguard cutting all e

376
00:18:41,440 --> 00:18:43,800
Speaker 1: t F. You know the seven GTF. Most people don't

377
00:18:43,920 --> 00:18:46,800
Speaker 1: aren't aware that, you know, there are extra costs when

378
00:18:46,800 --> 00:18:49,919
Speaker 1: you purchase an e t F, as I mentioned bid offer,

379
00:18:50,440 --> 00:18:53,359
Speaker 1: you know, there's market impact costs. So I think just

380
00:18:53,640 --> 00:18:56,640
Speaker 1: because people love ets right there like a hot product,

381
00:18:56,680 --> 00:18:59,359
Speaker 1: and you know, now like the end investors starting to

382
00:18:59,359 --> 00:19:02,800
Speaker 1: see on TV that a t s are a good product.

383
00:19:02,880 --> 00:19:06,119
Speaker 1: So I think advisors are increasingly using more things like

384
00:19:06,200 --> 00:19:09,280
Speaker 1: jps T and g BILL or GOV in place of

385
00:19:09,359 --> 00:19:11,880
Speaker 1: let's say a money market fund. And just to follow

386
00:19:11,920 --> 00:19:13,840
Speaker 1: up on the ultra short term deadts, they've taken in

387
00:19:14,040 --> 00:19:19,080
Speaker 1: eighteen billion this year. That's organic growth, and that puts

388
00:19:19,080 --> 00:19:21,919
Speaker 1: them at almost ten percent of all netflows this year.

389
00:19:21,960 --> 00:19:24,080
Speaker 1: They only make up one percent of the assets, So

390
00:19:24,160 --> 00:19:25,800
Speaker 1: a huge year for those et f s. And I

391
00:19:25,840 --> 00:19:29,440
Speaker 1: think going to cash and using a little cash, it's

392
00:19:29,480 --> 00:19:31,600
Speaker 1: hard to argue with that these other ways of trying

393
00:19:31,600 --> 00:19:35,040
Speaker 1: to outthink all this, But you know, cash, nothing wrong

394
00:19:35,080 --> 00:19:36,560
Speaker 1: with that, and that's I think what a lot of

395
00:19:36,560 --> 00:19:40,520
Speaker 1: people are coming to the conclusion of. That's the biggest argument. Well,

396
00:19:40,560 --> 00:19:42,879
Speaker 1: one of the big arguments against equities right is that

397
00:19:42,920 --> 00:19:46,080
Speaker 1: you know, a lot more volatility, extremely late cycle you've

398
00:19:46,080 --> 00:19:49,280
Speaker 1: got trade wars fed hiking rates, and so you know,

399
00:19:49,480 --> 00:19:52,960
Speaker 1: two percent it's not a bad investment anymore. And and John,

400
00:19:53,040 --> 00:19:56,760
Speaker 1: what percentage have you sort of shifted into cash over

401
00:19:56,800 --> 00:20:00,280
Speaker 1: the past few months, somewhere between like the five seven

402
00:20:00,600 --> 00:20:03,560
Speaker 1: percent range? I mean, you know it was hard to

403
00:20:03,560 --> 00:20:06,520
Speaker 1: own cash right the last you know, five six years,

404
00:20:06,600 --> 00:20:09,080
Speaker 1: right because mark kept on going up. Whereas you know

405
00:20:09,200 --> 00:20:12,680
Speaker 1: now you know a lot more choppier uh markets, Right,

406
00:20:12,720 --> 00:20:16,160
Speaker 1: so your opportunity costs is uh, you know, it's very

407
00:20:16,160 --> 00:20:17,800
Speaker 1: different now than it was a couple of years ago

408
00:20:17,840 --> 00:20:20,479
Speaker 1: when every single year the market was going up. And

409
00:20:20,520 --> 00:20:23,000
Speaker 1: what do you what do clients come to you asking

410
00:20:23,040 --> 00:20:27,600
Speaker 1: about regarding the trade war? What are the long term

411
00:20:27,640 --> 00:20:30,960
Speaker 1: implications which I think are very very difficult to figure out.

412
00:20:31,320 --> 00:20:33,119
Speaker 1: Here's the thing, right, everyone thinks they're an expert on

413
00:20:33,160 --> 00:20:35,520
Speaker 1: trade wars all of a sudden, right, we're certainly not.

414
00:20:35,880 --> 00:20:39,520
Speaker 1: We're more experts in terms of building a portfolio, doing

415
00:20:39,560 --> 00:20:43,040
Speaker 1: macwork on research, quantitative research. So we tend to invest

416
00:20:43,080 --> 00:20:45,280
Speaker 1: where there's like a margin of safety. And that's kind

417
00:20:45,280 --> 00:20:47,639
Speaker 1: of what we tell investors is like, Okay, we're investing

418
00:20:47,720 --> 00:20:50,520
Speaker 1: for the long run. It's very hard to pick to

419
00:20:50,760 --> 00:20:53,480
Speaker 1: determine what's going to happen in the short term, and

420
00:20:53,640 --> 00:20:55,960
Speaker 1: you know, trade wars is something that you know is

421
00:20:56,080 --> 00:20:59,200
Speaker 1: very unknown from a long term perspective. Here's the editing,

422
00:20:59,280 --> 00:21:02,400
Speaker 1: Joel Right, China owns over a trillion dollars of US

423
00:21:02,480 --> 00:21:07,360
Speaker 1: government securities. Right, it's about of all outstanding debt. Right.

424
00:21:07,440 --> 00:21:09,760
Speaker 1: So Trump is playing check in with China. And I

425
00:21:09,800 --> 00:21:14,320
Speaker 1: think that's a very very you know, very very difficult

426
00:21:14,320 --> 00:21:17,639
Speaker 1: thing to to figure out, you know, the political posturing

427
00:21:17,920 --> 00:21:20,240
Speaker 1: and what's going to happen. So again, given we're not

428
00:21:20,359 --> 00:21:22,359
Speaker 1: experts in that space, we try and you know, to

429
00:21:22,520 --> 00:21:27,679
Speaker 1: have very diversified portfolios, increased cash, use alternatives, use gold,

430
00:21:28,200 --> 00:21:30,440
Speaker 1: and you know that that will help and it has

431
00:21:30,480 --> 00:21:34,480
Speaker 1: helped smooth out our portfolio volatility. Can you speak a

432
00:21:34,480 --> 00:21:37,439
Speaker 1: little bit about what it's like to do a portfolio

433
00:21:37,560 --> 00:21:39,960
Speaker 1: shock test in the midst of all this? What do

434
00:21:39,960 --> 00:21:41,600
Speaker 1: you what do you look for when you guys do that.

435
00:21:42,800 --> 00:21:45,360
Speaker 1: Typically a lot of the software rule will will use

436
00:21:45,440 --> 00:21:48,840
Speaker 1: will say, Okay, what happened with the current portfolio in

437
00:21:48,880 --> 00:21:52,280
Speaker 1: a you know, oh a crisis. What happened during you know,

438
00:21:52,440 --> 00:21:55,840
Speaker 1: shocking interest rates when you know interest rates spiked when

439
00:21:55,920 --> 00:21:58,920
Speaker 1: let's say Bernanky mentioned that he was going to stop quie.

440
00:21:59,000 --> 00:22:01,560
Speaker 1: This was back years ago. What happened to the portfolio

441
00:22:01,640 --> 00:22:04,679
Speaker 1: when the U S. Treasury debt was downgraded? So you know,

442
00:22:04,720 --> 00:22:07,919
Speaker 1: our soft world just play take the current portfolio and

443
00:22:07,960 --> 00:22:11,480
Speaker 1: just kind of identify major draw downs over the last

444
00:22:11,520 --> 00:22:13,840
Speaker 1: you know, ten fifteen years and say, okay, here's how

445
00:22:13,840 --> 00:22:16,879
Speaker 1: the portfolio would have done in those instances. And how

446
00:22:16,960 --> 00:22:19,080
Speaker 1: much of your time is spent looking through the e

447
00:22:19,160 --> 00:22:21,639
Speaker 1: t s to figure out the e S s and

448
00:22:21,680 --> 00:22:24,440
Speaker 1: the q e M M s of the world which

449
00:22:24,440 --> 00:22:27,320
Speaker 1: are perfect fit for you. You know, That's that's really

450
00:22:27,320 --> 00:22:29,600
Speaker 1: where I think we have the most value, is like, okay,

451
00:22:29,640 --> 00:22:32,280
Speaker 1: looking you know under the hood of these e t s,

452
00:22:32,320 --> 00:22:34,280
Speaker 1: and you do a lot of that is yourself, Eric,

453
00:22:34,359 --> 00:22:37,920
Speaker 1: You have great research, and you know, look, we're saying

454
00:22:37,960 --> 00:22:40,159
Speaker 1: to investors, okay, you know it's great. E t s

455
00:22:40,200 --> 00:22:43,560
Speaker 1: have democratized investments, and they're cheap, and they're basically given

456
00:22:43,600 --> 00:22:45,120
Speaker 1: to you for free, and now you can trade them

457
00:22:45,119 --> 00:22:48,000
Speaker 1: on Vanguard for free. But you know, someone's still got

458
00:22:48,000 --> 00:22:50,960
Speaker 1: to do their research and figure out, Okay, is ees

459
00:22:51,040 --> 00:22:53,960
Speaker 1: better than I W M, is q e M better

460
00:22:54,000 --> 00:22:56,760
Speaker 1: than you know, I m G. And our vantage point

461
00:22:56,760 --> 00:22:59,399
Speaker 1: is that there are huge differences in those E T F,

462
00:22:59,560 --> 00:23:04,240
Speaker 1: So portfolio construction is a big value add from from

463
00:23:04,240 --> 00:23:08,119
Speaker 1: our perspective. When you're looking at potential shocks, does the

464
00:23:08,160 --> 00:23:11,200
Speaker 1: trade war or the rhetoric factor in at all? Does

465
00:23:11,240 --> 00:23:14,640
Speaker 1: that come on your radar as a potential shock? Yeah,

466
00:23:14,640 --> 00:23:17,480
Speaker 1: that's an interesting question to know. The software doesn't model

467
00:23:17,560 --> 00:23:20,680
Speaker 1: back in time, Okay, what happened during previous trade wars,

468
00:23:20,720 --> 00:23:23,240
Speaker 1: because as long as I've been working, I don't really

469
00:23:23,240 --> 00:23:25,760
Speaker 1: think we've had a trade war of this magnitude. So

470
00:23:26,560 --> 00:23:28,600
Speaker 1: that's that's a great question. And I think that's why

471
00:23:28,640 --> 00:23:30,760
Speaker 1: markets are a lot more volatile Joe, is that you know,

472
00:23:31,040 --> 00:23:35,040
Speaker 1: this is new right. Markets don't like concernty. So everyone

473
00:23:35,119 --> 00:23:37,399
Speaker 1: keeps trying to model for okay, what happens in a

474
00:23:38,160 --> 00:23:41,760
Speaker 1: draw down in two and eight draw down and you

475
00:23:41,760 --> 00:23:46,000
Speaker 1: know two thousand and obviously, you know, no one kind

476
00:23:46,000 --> 00:23:48,000
Speaker 1: of thinks about, you know, kind of trade wars and

477
00:23:48,000 --> 00:23:51,720
Speaker 1: what's happened in history in that respect, especially because I

478
00:23:51,720 --> 00:23:55,239
Speaker 1: mean the dynamics at play here between emerging markets and

479
00:23:55,359 --> 00:23:58,720
Speaker 1: China all that stuff is sort of different than all

480
00:23:58,720 --> 00:24:01,560
Speaker 1: the other dynamics that we've ever had it is. Yeah,

481
00:24:01,800 --> 00:24:04,119
Speaker 1: although I do think that you know, the bigger picture

482
00:24:04,320 --> 00:24:06,240
Speaker 1: that you know, kind of we keep on talking about

483
00:24:06,280 --> 00:24:10,240
Speaker 1: from from a story's perspective, is that you know, the decline, liquidity,

484
00:24:10,359 --> 00:24:13,879
Speaker 1: inflation rise in the FED, behind the curve, global growth,

485
00:24:13,880 --> 00:24:15,720
Speaker 1: the couple, and I mean those are things that have

486
00:24:16,359 --> 00:24:19,760
Speaker 1: that has happened over time, and that's sort of you know,

487
00:24:19,880 --> 00:24:21,480
Speaker 1: kind of what we do in terms of like the

488
00:24:21,520 --> 00:24:24,720
Speaker 1: portfolio stress testing and seeing, okay, what has happened during

489
00:24:24,760 --> 00:24:32,960
Speaker 1: other similar periods from that perspective. Okay, So the last

490
00:24:33,000 --> 00:24:35,679
Speaker 1: thing we want to hit on commodities. Sarah, what what

491
00:24:35,760 --> 00:24:37,440
Speaker 1: did you learn as you were working on this story?

492
00:24:37,840 --> 00:24:40,239
Speaker 1: So there's an overarching view and there is sort of

493
00:24:40,280 --> 00:24:44,160
Speaker 1: an argument here, but there's an overarching view that if

494
00:24:44,280 --> 00:24:47,400
Speaker 1: a trade war were to really escalate, that could be inflationary.

495
00:24:47,480 --> 00:24:50,720
Speaker 1: So if we do get inflation, where might you want

496
00:24:50,760 --> 00:24:54,280
Speaker 1: to go? And some people say commodities because of prices rise,

497
00:24:54,359 --> 00:24:56,399
Speaker 1: maybe that's the place you want to be. So a

498
00:24:56,400 --> 00:24:59,399
Speaker 1: lot of people are saying maybe commodity related equities or

499
00:24:59,440 --> 00:25:03,600
Speaker 1: commodity related e t s. Sticking with that spider select

500
00:25:03,640 --> 00:25:07,199
Speaker 1: sector suite of funds XL E very similar in the

501
00:25:07,240 --> 00:25:09,600
Speaker 1: beginning of the year. Well, for the first couple of

502
00:25:09,640 --> 00:25:12,960
Speaker 1: months of the year, from January to May, excellently lost

503
00:25:12,960 --> 00:25:16,720
Speaker 1: about forty four million dollars. However, in June alone it

504
00:25:16,800 --> 00:25:19,159
Speaker 1: took in four nine million dollars. And of course there

505
00:25:19,160 --> 00:25:21,280
Speaker 1: are a lot of other moving parts going on with

506
00:25:21,400 --> 00:25:23,879
Speaker 1: oil and in the energy space right now. But some

507
00:25:23,920 --> 00:25:26,119
Speaker 1: people have said that it's maybe somewhere you want to be,

508
00:25:26,240 --> 00:25:29,120
Speaker 1: but you do also have to be pretty careful because

509
00:25:29,280 --> 00:25:31,280
Speaker 1: a lot of the back and forth that's going on

510
00:25:31,440 --> 00:25:35,960
Speaker 1: is hitting soybeans and hitting other areas of the commodity spectrum.

511
00:25:36,000 --> 00:25:39,199
Speaker 1: And we've seen tons of trading within d b A,

512
00:25:39,400 --> 00:25:42,600
Speaker 1: which is the investco dB Agriculture fund, people getting in

513
00:25:42,640 --> 00:25:44,000
Speaker 1: and out of there trying to figure out where you

514
00:25:44,080 --> 00:25:46,680
Speaker 1: might want to be related to tariffs. Um so yeah,

515
00:25:46,720 --> 00:25:50,240
Speaker 1: I mean, in a general sense commodities if if there's inflation,

516
00:25:50,280 --> 00:25:52,320
Speaker 1: you might want to be there for a bit of

517
00:25:52,320 --> 00:25:54,960
Speaker 1: protection or to position yourself. But there's a chance that

518
00:25:55,080 --> 00:25:59,320
Speaker 1: it might be deflationary as well, or right, there's a

519
00:25:59,320 --> 00:26:02,360
Speaker 1: bit of an arguing ment there. I think, Uh, overall,

520
00:26:02,480 --> 00:26:05,800
Speaker 1: most people I speak with talk about it actually being inflationary,

521
00:26:05,840 --> 00:26:07,720
Speaker 1: but you do hear the other end of it as well,

522
00:26:07,960 --> 00:26:09,880
Speaker 1: And there's a bit of an argument people saying, well,

523
00:26:09,920 --> 00:26:12,120
Speaker 1: it could actually be deflationaries. You have to be careful there,

524
00:26:12,280 --> 00:26:14,560
Speaker 1: which which kind of goes to what John was saying

525
00:26:14,600 --> 00:26:17,200
Speaker 1: earlier of like, we've never really had a trade war

526
00:26:17,280 --> 00:26:19,560
Speaker 1: like this before. You can't model it. Let me just

527
00:26:19,560 --> 00:26:22,200
Speaker 1: break down a couple of things here, because d B A,

528
00:26:22,359 --> 00:26:24,639
Speaker 1: So there's three kind of ways to play commodities with

529
00:26:24,680 --> 00:26:27,639
Speaker 1: E T S. This seems to be clarified. XCEL E,

530
00:26:27,720 --> 00:26:31,040
Speaker 1: which is mentioned earlier, is equities that are in the

531
00:26:31,040 --> 00:26:33,960
Speaker 1: commodities business, so that's going to perform a lot like

532
00:26:34,000 --> 00:26:38,080
Speaker 1: the stock market, but also like oil in that case mixture.

533
00:26:38,520 --> 00:26:42,760
Speaker 1: Then there's ones that hold futures like DBA holds agricultural

534
00:26:42,840 --> 00:26:45,920
Speaker 1: futures that will give you pure exposure to those futures,

535
00:26:45,920 --> 00:26:48,960
Speaker 1: but there's some roll costs that retail investors may not

536
00:26:49,040 --> 00:26:52,320
Speaker 1: understand and that can be like a corrosion on the returns.

537
00:26:52,760 --> 00:26:56,040
Speaker 1: Then there's physically back commodities, which is essentially precious metals

538
00:26:56,040 --> 00:26:58,359
Speaker 1: like gold and silver, which store it in a vault.

539
00:26:59,200 --> 00:27:03,000
Speaker 1: Um John on given what Sarah said, what are you

540
00:27:03,040 --> 00:27:06,440
Speaker 1: doing with commodities and what which version of those types

541
00:27:06,480 --> 00:27:09,360
Speaker 1: of ETFs are you moving into. So we like commodities.

542
00:27:09,400 --> 00:27:11,840
Speaker 1: We've said in the beginning of the year that you know,

543
00:27:11,920 --> 00:27:14,680
Speaker 1: we thought on the we thought the inflation would rise,

544
00:27:14,760 --> 00:27:17,120
Speaker 1: and we thought that commodities were really cheap on their

545
00:27:17,119 --> 00:27:21,440
Speaker 1: own um and they're an attractive diversifying the portfolio. Right,

546
00:27:21,480 --> 00:27:23,440
Speaker 1: So it's kind of like it's been marched into its

547
00:27:23,440 --> 00:27:25,960
Speaker 1: own beat. So US equities are a point p cent

548
00:27:26,000 --> 00:27:29,520
Speaker 1: since two thousand nine. Commodities are basically flat, right since

549
00:27:29,600 --> 00:27:34,000
Speaker 1: two thousand nine. So you know, we own the futures

550
00:27:34,040 --> 00:27:36,679
Speaker 1: based e t F, so we own a c O

551
00:27:36,960 --> 00:27:41,680
Speaker 1: M b UM. That's the broad based Bloomberg Commodity Index.

552
00:27:42,160 --> 00:27:45,359
Speaker 1: So it's a third allocated towards energy and oil, a

553
00:27:45,480 --> 00:27:49,600
Speaker 1: third allocated towards agriculture, and a third allocated towards metal.

554
00:27:50,240 --> 00:27:54,000
Speaker 1: Now they've been negatively impacted with the trade wars um Sarah,

555
00:27:54,359 --> 00:27:57,080
Speaker 1: to your point on your article. So you know, year

556
00:27:57,119 --> 00:27:59,679
Speaker 1: to date it's down like I think ninety BIPs. But

557
00:27:59,720 --> 00:28:03,000
Speaker 1: here's the thing, right, the range of volatility for equities

558
00:28:03,040 --> 00:28:05,520
Speaker 1: has been massive this year, right, think about like you know,

559
00:28:05,520 --> 00:28:08,600
Speaker 1: we SMP was up six percent in January, then it

560
00:28:08,720 --> 00:28:12,280
Speaker 1: was down six percent, and we've had these massive swings commodities.

561
00:28:12,440 --> 00:28:14,800
Speaker 1: Although it's down for the year and not up like

562
00:28:15,000 --> 00:28:17,439
Speaker 1: SMP two three percent, as you mentioned, it's had a

563
00:28:17,440 --> 00:28:19,840
Speaker 1: lot less volatility and so that's kind of like it

564
00:28:19,920 --> 00:28:22,960
Speaker 1: works really well in the portfolio to have some commodity allocation.

565
00:28:23,359 --> 00:28:26,600
Speaker 1: So this one's actually holding actual commodity futures. So in

566
00:28:26,640 --> 00:28:28,400
Speaker 1: our traffic light system we do give it a red

567
00:28:28,480 --> 00:28:32,200
Speaker 1: light because to understand holding futures and as they get

568
00:28:32,200 --> 00:28:34,000
Speaker 1: too near expiration you have to buy a new one.

569
00:28:34,320 --> 00:28:37,040
Speaker 1: There can be um extra cost in doing that over

570
00:28:37,119 --> 00:28:39,800
Speaker 1: and over and over. How do you account for that?

571
00:28:40,080 --> 00:28:43,240
Speaker 1: Do you accept what that cost might be? I know,

572
00:28:43,280 --> 00:28:45,200
Speaker 1: and that's not always a cost. Sometimes you gain money

573
00:28:45,240 --> 00:28:47,840
Speaker 1: from the role, but usually it is. How do you

574
00:28:47,840 --> 00:28:50,720
Speaker 1: factor that into your purchase of the e T F.

575
00:28:51,400 --> 00:28:53,600
Speaker 1: It's a great question. So the ironic thing is that

576
00:28:53,640 --> 00:28:55,880
Speaker 1: you know, in the last you know, four or five years,

577
00:28:55,880 --> 00:28:58,960
Speaker 1: you've had a pretty big cost, right, so that erosion

578
00:28:58,960 --> 00:29:01,320
Speaker 1: that you talked about this year, you actually get a

579
00:29:01,320 --> 00:29:03,840
Speaker 1: benefit from role in those futures. So it's kind of

580
00:29:03,880 --> 00:29:06,960
Speaker 1: like a tailwind per se um. But you know, look

581
00:29:06,960 --> 00:29:09,479
Speaker 1: that can change, right and as an investor, like you

582
00:29:09,520 --> 00:29:11,760
Speaker 1: may not know what's going on in the you know,

583
00:29:11,800 --> 00:29:14,840
Speaker 1: the energy oil market and if if the futures are

584
00:29:14,840 --> 00:29:17,800
Speaker 1: working for you are against you. So you know, I

585
00:29:17,800 --> 00:29:21,080
Speaker 1: don't I kind of agree with your traffic light system,

586
00:29:21,120 --> 00:29:24,520
Speaker 1: although you know, temporarily right now it's it's um you know, tailwind.

587
00:29:25,160 --> 00:29:28,360
Speaker 1: So one thing this all brings up, in my opinion,

588
00:29:28,560 --> 00:29:31,360
Speaker 1: is the White House, no matter who's in office, whether

589
00:29:31,360 --> 00:29:34,520
Speaker 1: it's Obama, Trump, Bush, makes a lot of news. And

590
00:29:34,640 --> 00:29:37,600
Speaker 1: it's something that's very easy to rotate all the articles

591
00:29:37,640 --> 00:29:40,440
Speaker 1: around because everybody's watching it and it's got a it

592
00:29:40,480 --> 00:29:43,680
Speaker 1: is a macro influence. But let's face it, like under Obama,

593
00:29:44,360 --> 00:29:47,760
Speaker 1: clean energy did not did awful and that was supposed

594
00:29:47,760 --> 00:29:50,520
Speaker 1: to be the way to play Obama. And then defense

595
00:29:50,520 --> 00:29:52,600
Speaker 1: and banks did really well under Obama. Who would have

596
00:29:52,640 --> 00:29:57,440
Speaker 1: thought that? So is it is it bad investment to actually,

597
00:29:58,080 --> 00:30:01,040
Speaker 1: you know, try to trade or invest a owned who's

598
00:30:01,040 --> 00:30:03,160
Speaker 1: in office and what they're saying and doing. How much

599
00:30:03,200 --> 00:30:09,920
Speaker 1: do you actually take into account? Uh? Earnings most important,

600
00:30:10,080 --> 00:30:12,080
Speaker 1: right because earnings is what drives you know, kind of

601
00:30:12,080 --> 00:30:14,400
Speaker 1: stock prices. I think you have to look at the

602
00:30:14,400 --> 00:30:17,000
Speaker 1: economy of which you know, presidents are impact in that.

603
00:30:17,080 --> 00:30:18,880
Speaker 1: But we tend to look at like what's going on

604
00:30:18,920 --> 00:30:22,200
Speaker 1: with earnings and stocks and that usually drives you know,

605
00:30:22,280 --> 00:30:25,040
Speaker 1: kind of what happened. So, you know, Obama doesn't get

606
00:30:25,160 --> 00:30:27,880
Speaker 1: enough credit, right, But the market did rally over while

607
00:30:27,920 --> 00:30:30,080
Speaker 1: he was in office. Right, People make it see him like, oh,

608
00:30:30,120 --> 00:30:32,800
Speaker 1: you know, Trump's now kind of this bull market, but

609
00:30:32,840 --> 00:30:34,440
Speaker 1: you know, we had a bull market. We had actually

610
00:30:34,440 --> 00:30:36,719
Speaker 1: one of the best bull markets when Obama was in office.

611
00:30:37,320 --> 00:30:41,440
Speaker 1: So and how do you, uh, Sarah juggle this this

612
00:30:41,640 --> 00:30:45,400
Speaker 1: idea of earnings which I'll face it aren't that interesting

613
00:30:45,480 --> 00:30:50,360
Speaker 1: sometimes versus you know, Trump's tweets and and what to

614
00:30:50,640 --> 00:30:53,320
Speaker 1: like kind of put that into the mixture of like articles.

615
00:30:53,400 --> 00:30:55,400
Speaker 1: I mean, earnings are the number one most important and

616
00:30:55,440 --> 00:30:58,280
Speaker 1: that's what have been the bedrock of this bull market

617
00:30:58,280 --> 00:31:00,600
Speaker 1: and the bedrock of what's been holding box up so

618
00:31:00,640 --> 00:31:03,200
Speaker 1: far this year. Every time I talked to an investor

619
00:31:03,240 --> 00:31:05,840
Speaker 1: and I asked them, all, right, well, now maybe are

620
00:31:05,840 --> 00:31:07,400
Speaker 1: you're a little bit worried? What are you thinking? Will

621
00:31:07,440 --> 00:31:10,520
Speaker 1: They keep saying fundamentals are good, Earnings looks good, so

622
00:31:10,920 --> 00:31:13,800
Speaker 1: we should be fine. However, what I will say is

623
00:31:13,840 --> 00:31:16,240
Speaker 1: that we're going to be getting in too earning season,

624
00:31:16,640 --> 00:31:19,000
Speaker 1: and now what it's really going to be about is

625
00:31:19,040 --> 00:31:22,040
Speaker 1: that forward guidance and listening to those calls, listening to

626
00:31:22,080 --> 00:31:24,800
Speaker 1: the executives, because if we hear executives get on those

627
00:31:24,800 --> 00:31:28,040
Speaker 1: calls and start saying that their business might be affected

628
00:31:28,040 --> 00:31:32,280
Speaker 1: by these tariffs, that could actually maybe send us lower.

629
00:31:32,560 --> 00:31:36,320
Speaker 1: But on the other hand, we've been really struggling to

630
00:31:36,560 --> 00:31:39,680
Speaker 1: punch higher. And if we get through earning season and

631
00:31:39,760 --> 00:31:43,400
Speaker 1: no one expresses concern about these tariffs, that could be

632
00:31:43,440 --> 00:31:45,960
Speaker 1: what also ends up getting us higher. So they matter,

633
00:31:46,080 --> 00:31:48,200
Speaker 1: but it's also about that anecdotal evidence and what these

634
00:31:48,240 --> 00:31:51,760
Speaker 1: executives are saying. If ever in doubt, just follow kind

635
00:31:51,800 --> 00:31:53,960
Speaker 1: of what Warren Buffett, you know, last time I check

636
00:31:54,040 --> 00:31:56,600
Speaker 1: to you know, worth eight billion. I mean, he looks

637
00:31:56,600 --> 00:31:59,120
Speaker 1: at earnings, he looks at what's going on with the company,

638
00:31:59,600 --> 00:32:01,560
Speaker 1: you know, really kind of goes deep into like the

639
00:32:01,600 --> 00:32:04,000
Speaker 1: analysis of the stocks that he owns, and he owns

640
00:32:04,440 --> 00:32:07,880
Speaker 1: you know, super high quality stocks, you know, super value

641
00:32:08,000 --> 00:32:10,440
Speaker 1: kind of oriented the company. So that is a great

642
00:32:10,440 --> 00:32:12,160
Speaker 1: way to end it. I think, you know, everything that

643
00:32:12,200 --> 00:32:14,760
Speaker 1: was said here was very really interesting. People do want

644
00:32:14,760 --> 00:32:16,560
Speaker 1: to trade, but ultimately, and we seet the flows a

645
00:32:16,560 --> 00:32:19,400
Speaker 1: lot of flows just go to just plain vanilla allocating,

646
00:32:19,440 --> 00:32:21,920
Speaker 1: but you definitely see a slight shift to defense and

647
00:32:22,080 --> 00:32:25,480
Speaker 1: cash type BTF this year. Guys, thank you so much

648
00:32:25,520 --> 00:32:27,840
Speaker 1: for coming on today, Joel, thank you so much for

649
00:32:27,920 --> 00:32:31,640
Speaker 1: calling in on your family fund vacation. By the way,

650
00:32:31,880 --> 00:32:33,640
Speaker 1: you can only have two of those three things. That's

651
00:32:33,640 --> 00:32:36,400
Speaker 1: what they say, family fund vacation. Pick two, Joel, which

652
00:32:36,400 --> 00:32:40,080
Speaker 1: two are you having? I'm getting the family and the fun.

653
00:32:40,120 --> 00:32:46,360
Speaker 1: I guess because I got you. Well played, sir, all right, John, Sarah,

654
00:32:46,400 --> 00:32:48,560
Speaker 1: thanks so much for joining us Centralia. There's a lot

655
00:32:48,600 --> 00:32:54,600
Speaker 1: of fun. Thank you, Thank you. Thanks for listening to Trillions.

656
00:32:55,080 --> 00:32:57,640
Speaker 1: Until next time. You can find us on the Bloomberg Terminal,

657
00:32:58,000 --> 00:33:01,960
Speaker 1: Bloomberg dot com, Apple Podcast, and wherever else you want

658
00:33:01,960 --> 00:33:05,040
Speaker 1: to listen. We'd love to hear from you. We're on Twitter,

659
00:33:05,640 --> 00:33:10,160
Speaker 1: I'm at Joel Webber Show, He's at Eric Faltunas, and

660
00:33:10,240 --> 00:33:13,440
Speaker 1: you can find our guests at Sarah Kanzick. That's p

661
00:33:13,680 --> 00:33:17,120
Speaker 1: O in c z e K and you can find

662
00:33:17,200 --> 00:33:23,200
Speaker 1: John at Astoria Advisors. Trillions is produced by Magnus Hendrickson.

663
00:33:23,840 --> 00:33:28,000
Speaker 1: Francesco Leavy is the head of Bloomberg Podcast. Bye