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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio plus Mobile Act and on your radio.

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Speaker 1: This is a Bloomberg Business flag from Bloomberg World Handquarters.

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Speaker 1: I'm Charlie Pellot. We've got thirteen minutes to go ahead

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Speaker 1: of the clothes on a Tuesday. Stalks rising the most

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Speaker 1: in more than two months, a surgeon home sales, fueling

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Speaker 1: speculation the economy can withstand higher interest rates amid rising

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Speaker 1: bets that that are reserve will tighten policy this summer.

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Speaker 1: Right now, the S and P five hundred index up

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Speaker 1: twenty nine points to two thousand seventy six, a gain

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Speaker 1: of one point four percent. Nas stack up ninety five

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Speaker 1: and advance there of two percent down. Industrials up two

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Speaker 1: d twenty four points, a gain of one point three percent.

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Speaker 1: Gold down twenty three twenty bence to twelve thirty, a

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Speaker 1: drop of one point nine percent. Crewed up one and

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Speaker 1: a half percent. Hired by seventy three cents a barrel

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Speaker 1: to forty eight dollars eighty one cents. I'm Charlie pellet

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Speaker 1: us a bloom Bred business flash. Charlie Pellett, thanks so

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Speaker 1: much time off for the E t F report brought

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Speaker 1: to you by van Eck Vector's e t F s.

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Speaker 1: Expect more from your muni's target tax exempt income by

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Speaker 1: maturity and credit quality, all with low cost e t

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Speaker 1: F s. Visit van k dot com slash Muni vanek

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Speaker 1: access the opportunities for e t F report our own

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Speaker 1: Katherine Katherine Cowdery. Another boutique et F firm is being

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Speaker 1: purchased by a large active fund manager. This time it's

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Speaker 1: Lattice Strategies, as San Francisco based firm known for its

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Speaker 1: factor focused and smart data e t s. It's being

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Speaker 1: acquired by Hartford Funds. The m a activity e t

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Speaker 1: F S is basically reading reaching fever pitch um. We've

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Speaker 1: seen three acquisitions this year and eight in the past

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Speaker 1: two years. Bloomberg Intelligence analyst Eric val Tunis explains what

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Speaker 1: Hartford Funds hopes to gain with the acquisition. They're not

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Speaker 1: buying them for the products. Okay, they don't really care about.

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Speaker 1: Lattice is two and fifty million dollars in in e

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Speaker 1: t F assets. There's no big deal compared to Hartford

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Speaker 1: seventy six billion. Okay. What they're buying is talent, brains,

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Speaker 1: and experience because Lottice has a couple of guys who

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Speaker 1: wear black Rock and Barclays. I'm talking like twenty year veterans.

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Speaker 1: Terms of the deal were not released. It's expected to

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Speaker 1: close in the third quarter of this year. That's your

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Speaker 1: Bloomberg at fy Fort. I'm Catherine Cowdery. You're listening to

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Speaker 1: Taking Stock with Bim Box and Kathleen Hayes on Bloomberg Radio.

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Speaker 1: An investment in the SMP five hundred so far this

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Speaker 1: year has offered a gain of one and a half percent. Currently,

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Speaker 1: the SMP five hundred offers a yield of a little

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Speaker 1: bit more than two percent. Can we expect similar returns

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Speaker 1: for the remainder of Well, that's why we have Mike Ryan.

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Speaker 1: He is the chief investment strategist for UBS Wealth Management

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Speaker 1: America's Mike, thank you very much for being with us.

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Speaker 1: So do we just have to adjust our expectations. I

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Speaker 1: think we do. I don't. I'm not sure it's going

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Speaker 1: to play out exactly it has in the in the

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Speaker 1: first and a half months of this year. I remember

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Speaker 1: this was an extraordinary period where you had an extraordinary

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Speaker 1: draw down in markets, suffered you know, pretty big losses.

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Speaker 1: Through mid February only to see this pretty impressive bounce back.

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Speaker 1: So it's been a period of extraordinary volatility within equity markets.

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Speaker 1: I think going forward what we're likely to see as

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Speaker 1: the following I do think the markets are in the

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Speaker 1: process right now of becoming more comfortable with the pathway

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Speaker 1: the FED has set pre monetary policy. In other words,

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Speaker 1: I do think we're going to see rate increases over

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Speaker 1: the course of this year, but remember from they're gonna

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Speaker 1: be a very gradual, very deliberate, very measured type of

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Speaker 1: rate hike. So against the backup, we're starting to see

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Speaker 1: more and more evidence that the economy is improving. I

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Speaker 1: think that's going to create a favorable backdrop for risk assets,

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Speaker 1: and therefore it's going to favor certainly equity markets. But again,

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Speaker 1: I do think that the point you raised about the

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Speaker 1: gains being more measured in terms of the equity markets,

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Speaker 1: I think we're gonna be focused on trying to generate

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Speaker 1: gains in the mid to high single digits rather than

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Speaker 1: any gains in the double digits. It defend is moving

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Speaker 1: slowly and gradually. Mike, Is this also not so bad

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Speaker 1: for bonds, at least not when you get out to

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Speaker 1: the longer end of the curve because they're not going

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Speaker 1: to do that many boosts at the short end. Number

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Speaker 1: one and number two, the Feds getting tighter to hold

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Speaker 1: down inflation or with that, I mean they actually want

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Speaker 1: inflation to rise, but doesn't openly hold down inflation. Doesn't

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Speaker 1: it mean that the long end isn't such a bad

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Speaker 1: place to be. I think you're right, Kathleen. I think

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Speaker 1: what the what the bond market wants to see is

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Speaker 1: that the FED is going to be in the process

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Speaker 1: of slowly normalizing rates, but that they're not going to

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Speaker 1: do it in in a pre ordained man In other words,

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Speaker 1: they're not simply go out and rotally raise rates by

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Speaker 1: you know, a quarter of a percentage point every quarter

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Speaker 1: or the Hunter basis points, which is sort of the

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Speaker 1: signaling they gave us earlier. There. Instead, I think the

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Speaker 1: bond market appreciates the fact that the Fed is reflecting

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Speaker 1: upon what we see in terms of the macroac now

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Speaker 1: in developments. They're certainly sensitive to the financial market reactions

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Speaker 1: to policy decisions, and therefore they're going to plot what

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Speaker 1: I consider to be again a pragmatic course. So like

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Speaker 1: it's that backdrop, it tells me then that the bondom

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Speaker 1: market repricing is not going to be as extreme as

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Speaker 1: we saw before the temper the Taper tantrum, when the

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Speaker 1: markets overreacted to expectations about set rate hikes. So I

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Speaker 1: do think it's an environment where rate increases will be

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Speaker 1: more muted. And I also think you're right that the

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Speaker 1: extent this is viewed as being a necessary step in

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Speaker 1: making sure that we don't have any problems down the

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Speaker 1: road with inflation. I think that does provide a more

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Speaker 1: favorable backdrop for the back end of the curve as well.

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Speaker 1: All right, Mike, So let's say that you get a

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Speaker 1: telephone call or an email from one of the investment

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Speaker 1: strategists or analysts who are dealing directly with clients, and

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Speaker 1: they say, you know, the clients keep calling and they

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Speaker 1: cannot live on two percent. What is your recommendation if

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Speaker 1: the time horizon is three to five years. I think

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Speaker 1: it's gonna be a tough conversation because I think we

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Speaker 1: have to understand that if we're going to try and

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Speaker 1: generate returns or levels of income materially higher than that,

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Speaker 1: we're gonna be willing to take on incremental risk. So

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Speaker 1: that means either I'm going to take investment choices that

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Speaker 1: have lower credit quality, move much much further out in

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Speaker 1: mature respectrum that I have been accustomed to, or perhaps

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Speaker 1: look at look for income in non traditional sources. Now

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Speaker 1: we've certainly seen some folks have gravitated to reads and

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Speaker 1: m LPs as a way of replacing you know, loft income,

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Speaker 1: but we also have to understand their attendant risks with that.

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Speaker 1: They're not fixed income securities. They don't have the safety

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Speaker 1: and security of a guaranteed return of principle UM. So

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Speaker 1: obviously there's a new a new set of risk to

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Speaker 1: come with that. So what I would say is we

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Speaker 1: have to strike the right balance. Strike the balance and

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Speaker 1: trying to generate a level of income that's going to

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Speaker 1: be acceptable for the clients given the level of risk

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Speaker 1: that they're willing to assume. So for me, that includes

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Speaker 1: not only getting it from traditional sources as we just

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Speaker 1: talked about in terms of six income markets, but also

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Speaker 1: looking at the non traditional places as we said MLPs

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Speaker 1: and reads, but also let's look at it in a

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Speaker 1: place where we haven't been searching for income for quite

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Speaker 1: some time, and that's the equity market. Remember that the

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Speaker 1: ability to throw a dividend over time is perhaps one

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Speaker 1: of the best ways of replacing lost income. It's interesting though,

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Speaker 1: that we were PAYM and I were speaking with Frank

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Speaker 1: Laslo yesterday UH from B and Y Melon. We were

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Speaker 1: out in Tucson, Arizona at a conference, and Frank made

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Speaker 1: the same point about a low inflation, low return environment.

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Speaker 1: A lot of investors are going to be looking at

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Speaker 1: these we can call them alts, liquid alts, alternatives, etcetera.

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Speaker 1: But the kinds of investments that they may take longer

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Speaker 1: to bear fruit, but they may seem more less volatile

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Speaker 1: and a little more promising than stocks at this point. Well,

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Speaker 1: I look, I think there's a place for them in

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Speaker 1: the portfolio. I certainly think that we have to look

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Speaker 1: at a a broader, a broader set of investment opportunities

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Speaker 1: if we want to capture the income and the returns

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Speaker 1: that clients are looking for today. But I'd be careful

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Speaker 1: not to look at UH certain asset classes as as

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Speaker 1: precluding others. For example, I still think that equities needs

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Speaker 1: to be a core holding within a fix, within an

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Speaker 1: diversified portfolio. And by the way, I do think that

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Speaker 1: we have to think differently about equities going forward, where

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Speaker 1: we sort of during the eighties and nineties and even

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Speaker 1: two thousand's we sort of looked at equities purely as

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Speaker 1: a source of capital gains and we were going to

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Speaker 1: get all of the yield of the income needs from

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Speaker 1: fixed income. I think that has a change, Kathleen. I

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Speaker 1: think we have to look more holistically at our entire

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Speaker 1: portfolio and trying to figure out how we're going to

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Speaker 1: get as much income out of the portfolio from all

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Speaker 1: the sources of return across the holding base. Well, one

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Speaker 1: of the sources of returns, at least in the past,

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Speaker 1: have been variety of hedge fund strategies. Do you see

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Speaker 1: that that will continue and will customers continue to pay

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Speaker 1: two and twenty for performance that if it doesn't outpace

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Speaker 1: the SMP certainly isn't delivering as they say alpha. Well, look,

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Speaker 1: I I it's it's hard to me to come with

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Speaker 1: them the know what what clients are willing to pay.

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Speaker 1: I do know that that increasingly what you're seeing is

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Speaker 1: is competition. UH is certainly something that all managers are

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Speaker 1: being faced with. Clients are demanding better returns, they're certainly

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Speaker 1: demanding accountability for outcomes. So I suspect there's gonna be

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Speaker 1: fee pressure regardless of the type of investment vehicle people choose.

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Speaker 1: So whether it's two and twenty or any other structure,

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Speaker 1: I think people are certainly going to demand performance um

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Speaker 1: for the fees that they're paying. That said, I do

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Speaker 1: think that hedge funds and alternatives still have a place

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Speaker 1: within the portfolio. UM. I think we we tend to,

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Speaker 1: you know, you know, periodically we sort of um fall

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Speaker 1: out of love or or we sort of um have

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Speaker 1: our our our interest in certain types of asset classes,

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Speaker 1: kind of Wax and Wayne. I do think though that

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Speaker 1: there are a number of really strong managers in the space.

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Speaker 1: There's something some really really prudence strategy that are being employed,

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Speaker 1: and therefore I think it's still is a place that

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Speaker 1: investors need to be looking at in terms of opportunities. Uh,

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Speaker 1: let's just spend you down on the FED. You've been

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Speaker 1: watching the FED along with me for many years, Mike Ryan.

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Speaker 1: Uh so, what what's your best if you're if you're

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Speaker 1: a trader on a desk and you have to put

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Speaker 1: some money on this, what would you bet? June, July, September.

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Speaker 1: I think it's most likely by July whether it's the

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Speaker 1: June and July meeting is a little harder call to me.

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Speaker 1: I think there's two things that work here. First of all,

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Speaker 1: what would be in favor of holding off in June

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Speaker 1: is simply that we're going to get the UK referendum

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Speaker 1: on EU membership um just shortly after the meeting. And

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Speaker 1: while the SET officials have said that, you know, certainly

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Speaker 1: that's not going to be a primary determinant of a

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Speaker 1: policy decision, I think the FED once clarity on anything

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Speaker 1: that's going to have a potential impact on global growth dynamics,

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Speaker 1: so that could be one of the things that tips

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Speaker 1: of scale. The other hand, one of the problems about

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Speaker 1: the July meeting is sort of an off cycle meeting,

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Speaker 1: meaning it doesn't have the press conference attached to it,

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Speaker 1: so it doesn't allow the FED to have a kind

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Speaker 1: of communication they've tried to have around policy changes. So

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Speaker 1: I still think though, if between the two, I think

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Speaker 1: they actually opt to go in July and forego the

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Speaker 1: press conference, because I think that's better timing their standpoint.

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Speaker 1: My Brian, thank you so much for joining us. The

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Speaker 1: chief investment strategists at UBS Wealth Management America's I'm Kathleen

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Speaker 1: Hayes along with Pim Fox, We're gonna take a look

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Speaker 1: at the movers and shakers at the clothes, Coming up

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Speaker 1: now on Bloomberg Radio.