WEBVTT - UBS' Ryan Says Market Getting Comfortable With Fed Path (Audio) 0:00:03.240 --> 0:00:06.640 Global business news twenty four hours a day at Bloomberg 0:00:06.680 --> 0:00:09.760 dot com, the Radio plus Mobile Act and on your radio. 0:00:10.039 --> 0:00:14.120 This is a Bloomberg Business flag from Bloomberg World Handquarters. 0:00:14.200 --> 0:00:16.840 I'm Charlie Pellot. We've got thirteen minutes to go ahead 0:00:16.840 --> 0:00:19.400 of the clothes on a Tuesday. Stalks rising the most 0:00:19.480 --> 0:00:23.160 in more than two months, a surgeon home sales, fueling 0:00:23.200 --> 0:00:27.720 speculation the economy can withstand higher interest rates amid rising 0:00:27.760 --> 0:00:31.240 bets that that are reserve will tighten policy this summer. 0:00:31.600 --> 0:00:33.800 Right now, the S and P five hundred index up 0:00:33.800 --> 0:00:37.080 twenty nine points to two thousand seventy six, a gain 0:00:37.240 --> 0:00:40.280 of one point four percent. Nas stack up ninety five 0:00:40.320 --> 0:00:43.479 and advance there of two percent down. Industrials up two 0:00:43.720 --> 0:00:46.440 d twenty four points, a gain of one point three percent. 0:00:46.960 --> 0:00:50.479 Gold down twenty three twenty bence to twelve thirty, a 0:00:50.560 --> 0:00:53.840 drop of one point nine percent. Crewed up one and 0:00:53.920 --> 0:00:56.680 a half percent. Hired by seventy three cents a barrel 0:00:56.760 --> 0:00:59.960 to forty eight dollars eighty one cents. I'm Charlie pellet 0:01:00.280 --> 0:01:03.440 us a bloom Bred business flash. Charlie Pellett, thanks so 0:01:03.560 --> 0:01:05.720 much time off for the E t F report brought 0:01:05.760 --> 0:01:07.520 to you by van Eck Vector's e t F s. 0:01:07.560 --> 0:01:10.560 Expect more from your muni's target tax exempt income by 0:01:10.600 --> 0:01:13.440 maturity and credit quality, all with low cost e t 0:01:13.680 --> 0:01:16.720 F s. Visit van k dot com slash Muni vanek 0:01:17.040 --> 0:01:20.240 access the opportunities for e t F report our own 0:01:20.319 --> 0:01:24.759 Katherine Katherine Cowdery. Another boutique et F firm is being 0:01:24.760 --> 0:01:28.560 purchased by a large active fund manager. This time it's 0:01:28.640 --> 0:01:31.840 Lattice Strategies, as San Francisco based firm known for its 0:01:31.840 --> 0:01:34.920 factor focused and smart data e t s. It's being 0:01:34.920 --> 0:01:37.800 acquired by Hartford Funds. The m a activity e t 0:01:37.959 --> 0:01:40.840 F S is basically reading reaching fever pitch um. We've 0:01:40.880 --> 0:01:44.520 seen three acquisitions this year and eight in the past 0:01:44.560 --> 0:01:48.000 two years. Bloomberg Intelligence analyst Eric val Tunis explains what 0:01:48.080 --> 0:01:50.960 Hartford Funds hopes to gain with the acquisition. They're not 0:01:51.040 --> 0:01:53.640 buying them for the products. Okay, they don't really care about. 0:01:53.680 --> 0:01:56.440 Lattice is two and fifty million dollars in in e 0:01:56.520 --> 0:01:58.559 t F assets. There's no big deal compared to Hartford 0:01:58.640 --> 0:02:02.440 seventy six billion. Okay. What they're buying is talent, brains, 0:02:02.480 --> 0:02:05.560 and experience because Lottice has a couple of guys who 0:02:05.760 --> 0:02:08.400 wear black Rock and Barclays. I'm talking like twenty year veterans. 0:02:08.560 --> 0:02:10.880 Terms of the deal were not released. It's expected to 0:02:10.919 --> 0:02:13.560 close in the third quarter of this year. That's your 0:02:13.560 --> 0:02:19.640 Bloomberg at fy Fort. I'm Catherine Cowdery. You're listening to 0:02:19.760 --> 0:02:24.239 Taking Stock with Bim Box and Kathleen Hayes on Bloomberg Radio. 0:02:25.120 --> 0:02:28.200 An investment in the SMP five hundred so far this 0:02:28.280 --> 0:02:33.040 year has offered a gain of one and a half percent. Currently, 0:02:33.080 --> 0:02:35.640 the SMP five hundred offers a yield of a little 0:02:35.680 --> 0:02:40.399 bit more than two percent. Can we expect similar returns 0:02:40.440 --> 0:02:43.880 for the remainder of Well, that's why we have Mike Ryan. 0:02:43.960 --> 0:02:47.760 He is the chief investment strategist for UBS Wealth Management 0:02:47.800 --> 0:02:51.920 America's Mike, thank you very much for being with us. 0:02:51.960 --> 0:02:55.480 So do we just have to adjust our expectations. I 0:02:55.520 --> 0:02:57.600 think we do. I don't. I'm not sure it's going 0:02:57.680 --> 0:02:59.440 to play out exactly it has in the in the 0:02:59.480 --> 0:03:01.480 first and a half months of this year. I remember 0:03:01.960 --> 0:03:04.440 this was an extraordinary period where you had an extraordinary 0:03:04.520 --> 0:03:07.880 draw down in markets, suffered you know, pretty big losses. 0:03:07.880 --> 0:03:10.919 Through mid February only to see this pretty impressive bounce back. 0:03:11.000 --> 0:03:14.320 So it's been a period of extraordinary volatility within equity markets. 0:03:14.480 --> 0:03:16.320 I think going forward what we're likely to see as 0:03:16.360 --> 0:03:18.320 the following I do think the markets are in the 0:03:18.320 --> 0:03:22.040 process right now of becoming more comfortable with the pathway 0:03:22.080 --> 0:03:24.720 the FED has set pre monetary policy. In other words, 0:03:24.760 --> 0:03:27.519 I do think we're going to see rate increases over 0:03:27.560 --> 0:03:29.600 the course of this year, but remember from they're gonna 0:03:29.639 --> 0:03:33.200 be a very gradual, very deliberate, very measured type of 0:03:33.400 --> 0:03:35.800 rate hike. So against the backup, we're starting to see 0:03:35.800 --> 0:03:38.280 more and more evidence that the economy is improving. I 0:03:38.280 --> 0:03:40.880 think that's going to create a favorable backdrop for risk assets, 0:03:41.040 --> 0:03:43.880 and therefore it's going to favor certainly equity markets. But again, 0:03:43.920 --> 0:03:46.240 I do think that the point you raised about the 0:03:46.280 --> 0:03:48.840 gains being more measured in terms of the equity markets, 0:03:48.880 --> 0:03:51.320 I think we're gonna be focused on trying to generate 0:03:51.520 --> 0:03:54.400 gains in the mid to high single digits rather than 0:03:54.400 --> 0:03:56.800 any gains in the double digits. It defend is moving 0:03:56.800 --> 0:04:01.200 slowly and gradually. Mike, Is this also not so bad 0:04:01.320 --> 0:04:04.280 for bonds, at least not when you get out to 0:04:04.320 --> 0:04:06.400 the longer end of the curve because they're not going 0:04:06.440 --> 0:04:08.800 to do that many boosts at the short end. Number 0:04:08.800 --> 0:04:12.320 one and number two, the Feds getting tighter to hold 0:04:12.360 --> 0:04:15.120 down inflation or with that, I mean they actually want 0:04:15.120 --> 0:04:18.400 inflation to rise, but doesn't openly hold down inflation. Doesn't 0:04:18.400 --> 0:04:19.960 it mean that the long end isn't such a bad 0:04:19.960 --> 0:04:22.160 place to be. I think you're right, Kathleen. I think 0:04:22.160 --> 0:04:24.680 what the what the bond market wants to see is 0:04:24.680 --> 0:04:26.479 that the FED is going to be in the process 0:04:26.520 --> 0:04:29.080 of slowly normalizing rates, but that they're not going to 0:04:29.160 --> 0:04:32.520 do it in in a pre ordained man In other words, 0:04:32.600 --> 0:04:35.440 they're not simply go out and rotally raise rates by 0:04:35.560 --> 0:04:38.120 you know, a quarter of a percentage point every quarter 0:04:38.200 --> 0:04:40.560 or the Hunter basis points, which is sort of the 0:04:40.600 --> 0:04:43.039 signaling they gave us earlier. There. Instead, I think the 0:04:43.080 --> 0:04:47.200 bond market appreciates the fact that the Fed is reflecting 0:04:47.320 --> 0:04:49.320 upon what we see in terms of the macroac now 0:04:49.360 --> 0:04:53.960 in developments. They're certainly sensitive to the financial market reactions 0:04:54.400 --> 0:04:57.520 to policy decisions, and therefore they're going to plot what 0:04:57.600 --> 0:04:59.880 I consider to be again a pragmatic course. So like 0:05:00.000 --> 0:05:02.400 it's that backdrop, it tells me then that the bondom 0:05:02.440 --> 0:05:04.480 market repricing is not going to be as extreme as 0:05:04.520 --> 0:05:07.919 we saw before the temper the Taper tantrum, when the 0:05:07.920 --> 0:05:11.359 markets overreacted to expectations about set rate hikes. So I 0:05:11.360 --> 0:05:14.359 do think it's an environment where rate increases will be 0:05:14.440 --> 0:05:16.760 more muted. And I also think you're right that the 0:05:16.800 --> 0:05:19.599 extent this is viewed as being a necessary step in 0:05:19.680 --> 0:05:21.560 making sure that we don't have any problems down the 0:05:21.600 --> 0:05:23.800 road with inflation. I think that does provide a more 0:05:23.839 --> 0:05:25.760 favorable backdrop for the back end of the curve as well. 0:05:26.200 --> 0:05:27.760 All right, Mike, So let's say that you get a 0:05:27.760 --> 0:05:30.200 telephone call or an email from one of the investment 0:05:30.279 --> 0:05:35.080 strategists or analysts who are dealing directly with clients, and 0:05:35.120 --> 0:05:37.680 they say, you know, the clients keep calling and they 0:05:37.760 --> 0:05:42.720 cannot live on two percent. What is your recommendation if 0:05:42.720 --> 0:05:45.680 the time horizon is three to five years. I think 0:05:45.680 --> 0:05:48.200 it's gonna be a tough conversation because I think we 0:05:48.320 --> 0:05:51.360 have to understand that if we're going to try and 0:05:51.400 --> 0:05:54.760 generate returns or levels of income materially higher than that, 0:05:55.160 --> 0:05:57.920 we're gonna be willing to take on incremental risk. So 0:05:58.000 --> 0:06:01.320 that means either I'm going to take investment choices that 0:06:01.520 --> 0:06:05.560 have lower credit quality, move much much further out in 0:06:05.600 --> 0:06:08.640 mature respectrum that I have been accustomed to, or perhaps 0:06:08.680 --> 0:06:11.960 look at look for income in non traditional sources. Now 0:06:11.960 --> 0:06:14.960 we've certainly seen some folks have gravitated to reads and 0:06:15.120 --> 0:06:18.040 m LPs as a way of replacing you know, loft income, 0:06:18.320 --> 0:06:20.880 but we also have to understand their attendant risks with that. 0:06:21.480 --> 0:06:24.000 They're not fixed income securities. They don't have the safety 0:06:24.040 --> 0:06:27.080 and security of a guaranteed return of principle UM. So 0:06:27.120 --> 0:06:28.920 obviously there's a new a new set of risk to 0:06:28.960 --> 0:06:30.599 come with that. So what I would say is we 0:06:30.600 --> 0:06:33.039 have to strike the right balance. Strike the balance and 0:06:33.040 --> 0:06:36.240 trying to generate a level of income that's going to 0:06:36.320 --> 0:06:39.760 be acceptable for the clients given the level of risk 0:06:39.839 --> 0:06:42.760 that they're willing to assume. So for me, that includes 0:06:42.839 --> 0:06:45.440 not only getting it from traditional sources as we just 0:06:45.480 --> 0:06:47.960 talked about in terms of six income markets, but also 0:06:48.040 --> 0:06:50.680 looking at the non traditional places as we said MLPs 0:06:50.680 --> 0:06:53.440 and reads, but also let's look at it in a 0:06:53.520 --> 0:06:55.960 place where we haven't been searching for income for quite 0:06:56.000 --> 0:06:58.880 some time, and that's the equity market. Remember that the 0:06:58.920 --> 0:07:02.280 ability to throw a dividend over time is perhaps one 0:07:02.320 --> 0:07:05.360 of the best ways of replacing lost income. It's interesting though, 0:07:05.360 --> 0:07:07.120 that we were PAYM and I were speaking with Frank 0:07:07.160 --> 0:07:10.680 Laslo yesterday UH from B and Y Melon. We were 0:07:10.680 --> 0:07:14.040 out in Tucson, Arizona at a conference, and Frank made 0:07:14.040 --> 0:07:17.840 the same point about a low inflation, low return environment. 0:07:17.880 --> 0:07:19.840 A lot of investors are going to be looking at 0:07:19.880 --> 0:07:23.440 these we can call them alts, liquid alts, alternatives, etcetera. 0:07:23.520 --> 0:07:27.160 But the kinds of investments that they may take longer 0:07:27.200 --> 0:07:30.960 to bear fruit, but they may seem more less volatile 0:07:31.000 --> 0:07:35.920 and a little more promising than stocks at this point. Well, 0:07:35.960 --> 0:07:37.720 I look, I think there's a place for them in 0:07:37.720 --> 0:07:40.840 the portfolio. I certainly think that we have to look 0:07:40.840 --> 0:07:44.840 at a a broader, a broader set of investment opportunities 0:07:44.880 --> 0:07:47.960 if we want to capture the income and the returns 0:07:47.960 --> 0:07:50.600 that clients are looking for today. But I'd be careful 0:07:50.680 --> 0:07:54.480 not to look at UH certain asset classes as as 0:07:54.480 --> 0:07:57.760 precluding others. For example, I still think that equities needs 0:07:57.800 --> 0:07:59.920 to be a core holding within a fix, within an 0:08:00.280 --> 0:08:03.400 diversified portfolio. And by the way, I do think that 0:08:03.440 --> 0:08:06.920 we have to think differently about equities going forward, where 0:08:06.960 --> 0:08:09.400 we sort of during the eighties and nineties and even 0:08:09.400 --> 0:08:12.840 two thousand's we sort of looked at equities purely as 0:08:12.880 --> 0:08:14.720 a source of capital gains and we were going to 0:08:14.800 --> 0:08:16.720 get all of the yield of the income needs from 0:08:16.760 --> 0:08:19.000 fixed income. I think that has a change, Kathleen. I 0:08:19.000 --> 0:08:21.760 think we have to look more holistically at our entire 0:08:21.800 --> 0:08:24.320 portfolio and trying to figure out how we're going to 0:08:24.400 --> 0:08:27.120 get as much income out of the portfolio from all 0:08:27.200 --> 0:08:30.600 the sources of return across the holding base. Well, one 0:08:30.600 --> 0:08:32.480 of the sources of returns, at least in the past, 0:08:32.520 --> 0:08:35.280 have been variety of hedge fund strategies. Do you see 0:08:35.320 --> 0:08:38.640 that that will continue and will customers continue to pay 0:08:38.679 --> 0:08:42.040 two and twenty for performance that if it doesn't outpace 0:08:42.120 --> 0:08:47.120 the SMP certainly isn't delivering as they say alpha. Well, look, 0:08:47.160 --> 0:08:48.679 I I it's it's hard to me to come with 0:08:48.760 --> 0:08:50.679 them the know what what clients are willing to pay. 0:08:50.720 --> 0:08:53.880 I do know that that increasingly what you're seeing is 0:08:53.880 --> 0:08:59.120 is competition. UH is certainly something that all managers are 0:08:59.160 --> 0:09:03.760 being faced with. Clients are demanding better returns, they're certainly 0:09:03.800 --> 0:09:07.120 demanding accountability for outcomes. So I suspect there's gonna be 0:09:07.160 --> 0:09:10.199 fee pressure regardless of the type of investment vehicle people choose. 0:09:10.240 --> 0:09:12.640 So whether it's two and twenty or any other structure, 0:09:13.200 --> 0:09:16.880 I think people are certainly going to demand performance um 0:09:17.160 --> 0:09:19.520 for the fees that they're paying. That said, I do 0:09:19.640 --> 0:09:22.520 think that hedge funds and alternatives still have a place 0:09:22.559 --> 0:09:25.040 within the portfolio. UM. I think we we tend to, 0:09:25.360 --> 0:09:29.679 you know, you know, periodically we sort of um fall 0:09:29.720 --> 0:09:32.400 out of love or or we sort of um have 0:09:32.559 --> 0:09:36.840 our our our interest in certain types of asset classes, 0:09:36.920 --> 0:09:39.040 kind of Wax and Wayne. I do think though that 0:09:39.280 --> 0:09:42.280 there are a number of really strong managers in the space. 0:09:42.320 --> 0:09:45.800 There's something some really really prudence strategy that are being employed, 0:09:46.000 --> 0:09:48.600 and therefore I think it's still is a place that 0:09:48.720 --> 0:09:52.079 investors need to be looking at in terms of opportunities. Uh, 0:09:52.160 --> 0:09:54.160 let's just spend you down on the FED. You've been 0:09:54.160 --> 0:09:57.679 watching the FED along with me for many years, Mike Ryan. 0:09:58.000 --> 0:10:00.559 Uh so, what what's your best if you're if you're 0:10:00.600 --> 0:10:02.320 a trader on a desk and you have to put 0:10:02.320 --> 0:10:05.000 some money on this, what would you bet? June, July, September. 0:10:05.600 --> 0:10:08.760 I think it's most likely by July whether it's the 0:10:08.840 --> 0:10:11.320 June and July meeting is a little harder call to me. 0:10:11.440 --> 0:10:13.600 I think there's two things that work here. First of all, 0:10:14.320 --> 0:10:16.880 what would be in favor of holding off in June 0:10:16.960 --> 0:10:19.439 is simply that we're going to get the UK referendum 0:10:19.440 --> 0:10:22.440 on EU membership um just shortly after the meeting. And 0:10:22.480 --> 0:10:25.319 while the SET officials have said that, you know, certainly 0:10:25.400 --> 0:10:27.520 that's not going to be a primary determinant of a 0:10:27.559 --> 0:10:30.800 policy decision, I think the FED once clarity on anything 0:10:30.880 --> 0:10:33.560 that's going to have a potential impact on global growth dynamics, 0:10:33.559 --> 0:10:35.319 so that could be one of the things that tips 0:10:35.320 --> 0:10:38.200 of scale. The other hand, one of the problems about 0:10:38.240 --> 0:10:40.679 the July meeting is sort of an off cycle meeting, 0:10:40.760 --> 0:10:43.640 meaning it doesn't have the press conference attached to it, 0:10:43.679 --> 0:10:45.640 so it doesn't allow the FED to have a kind 0:10:45.640 --> 0:10:49.600 of communication they've tried to have around policy changes. So 0:10:49.760 --> 0:10:52.360 I still think though, if between the two, I think 0:10:52.360 --> 0:10:56.280 they actually opt to go in July and forego the 0:10:56.280 --> 0:10:59.440 press conference, because I think that's better timing their standpoint. 0:10:59.800 --> 0:11:01.599 My Brian, thank you so much for joining us. The 0:11:01.760 --> 0:11:06.600 chief investment strategists at UBS Wealth Management America's I'm Kathleen 0:11:06.640 --> 0:11:08.760 Hayes along with Pim Fox, We're gonna take a look 0:11:08.760 --> 0:11:11.120 at the movers and shakers at the clothes, Coming up 0:11:11.160 --> 0:11:12.600 now on Bloomberg Radio.