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Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: Martha Norton is the chief Investment Officer for morning Star

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Speaker 1: Investment Management. They advise or directly manage about two hundred

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Speaker 1: and fifty billion dollars in client assets. She has a

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Speaker 1: fascinating career, starting at BLS, working a way up as

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Speaker 1: an analyst and eventually head of outcome based Strategies for

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Speaker 1: morning Star, eventually rising from that position and portfolio manager

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Speaker 1: to chief investment officer. We talk about everything from when

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Speaker 1: do you think about risk, how do you diversify a portfolio?

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Speaker 1: At what point do you really have to rethink the

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Speaker 1: fundamentals of what's going on in the economy and the marketplace.

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Speaker 1: I found this conversation to be absolutely fascinating, and I

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Speaker 1: think you will also with no further ado my conversation

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Speaker 1: with morning Stars Marta Norton, so BLS economist, how did

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Speaker 1: that happen? Tell us about that opening gig? Right, So

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Speaker 1: it's a pretty heavy title, maybe a generous title for

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Speaker 1: a twenty three year old. Bills recruits just like all

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Speaker 1: other organizations, recruits at college campuses. So there are a

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Speaker 1: number of us heading in out of college into the BLS,

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Speaker 1: and of course b allst home to the Consumer Price Index,

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Speaker 1: which we're all watching so closely. I was on the

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Speaker 1: Producer Price Index, so the sister index, focusing on the

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Speaker 1: prices that produces that's right. So I was on the

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Speaker 1: research team, so putting together research. I wrote a scintillating

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Speaker 1: piece on beef and cattle prices that's right, which you

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Speaker 1: can find in the monthly Labor Review. And I spent

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Speaker 1: a lot of time working with folks, helping with contract escalation,

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Speaker 1: identifying the right index for them. And actually I was

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Speaker 1: at the p p I. Most people may not remember this,

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Speaker 1: but in two thousand four, the p p I was

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Speaker 1: a month and a half late. So sometimes that process

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Speaker 1: my mind today when people are watching the cp I,

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Speaker 1: I can't imagine how people would react. Why was it

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Speaker 1: a month and a half late? No, for so, we

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Speaker 1: were converting from the Standard Industrial Classification system to the

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Speaker 1: North American Industrial Classification System, so taking potatoes from one area,

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Speaker 1: moving them into another area, making sure everything was in

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Speaker 1: its right place, and like all things, it took longer,

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Speaker 1: was more complex. Why wouldn't use the old model until

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Speaker 1: the new model is ready to you would think you

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Speaker 1: would think. I think it was just a bit of

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Speaker 1: poor planning more than anything. No, you know that that

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Speaker 1: can happen, and it's funny. I had my first brush

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Speaker 1: with you media as a professional at that time. The journalists,

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Speaker 1: of course, we're calling in. Folks were calling in, where's

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Speaker 1: our PPI? Conspiracy theories abounded, and a journalist, I think,

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Speaker 1: could how I was mostly a child and was trying

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Speaker 1: to get the dirt out of me, and I said

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Speaker 1: something like, we have no idea when the PPI is

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Speaker 1: coming out, And that's the quote that I got into

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Speaker 1: the papers. Let's it would change in model. You got

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Speaker 1: to give it a couple of weeks, you know, sometimes

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Speaker 1: the movers late. That's very funny. Show from Bureau of

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Speaker 1: Labor Statistics. How did you transition over to Morning Star? Right?

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Speaker 1: So I leave the Beer of Labor Statistics and I

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Speaker 1: move into economic consulting. And this is distinct from management consulting,

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Speaker 1: which I think a lot of people are pretty familiar with.

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Speaker 1: With econ consulting, at least at the firm I was at,

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Speaker 1: it was a lot of expert witness testimony, so litigation

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Speaker 1: around unfair competition or the like. A company would pull

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Speaker 1: in our expert witness, and I was part of the

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Speaker 1: team to put together the case to explain the market

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Speaker 1: size or the market share or what have you. And

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Speaker 1: it was interesting work. It was demanding, work, was pretty grueling.

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Speaker 1: But the career paths from there were either kind of

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Speaker 1: the PhD route or the legal routes, and those weren't passed.

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Speaker 1: I was necessarily interested in pursuing right then, So I thought, okay,

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Speaker 1: let's stop trying to apply the major directly to the

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Speaker 1: career and maybe have a little bit broader perspective. And

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Speaker 1: I loved research. I knew finance had a close corollary

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Speaker 1: to kN I was in Chicago, morning Star being the

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Speaker 1: research firms, so I applied and was hired as an

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Speaker 1: ec F analyst in two thousand five. They were actually

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Speaker 1: relatively nascent, but they were back then. You were there

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Speaker 1: really as they exploded, oh eight or nine, more or

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Speaker 1: less after the crisis, right, that's right, And so morning

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Speaker 1: Star coverage was really just getting started on e t

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Speaker 1: f s right in the two thousand five period. And

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Speaker 1: of course now it's a very robust coverage. It's sophisticated,

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Speaker 1: it has a philosophy, but then we were still feeling

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Speaker 1: our way and so there was a lot of need

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Speaker 1: on the active mutual fund fronts, and so my coverage

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Speaker 1: list it kind of converted over time to focus more

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Speaker 1: on mutual funds, to focus on five to nine plans

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Speaker 1: college savings. I was getting my c f A charter

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Speaker 1: around that time, so it was a period of I

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Speaker 1: guess I would call it intense study, intense focus on

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Speaker 1: understanding different investment strategies. What makes a good investment strategy.

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Speaker 1: I think a lot of people think of morning Star,

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Speaker 1: and rightly so for the Star ratings, which are performance measurements,

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Speaker 1: But morning Star spends a lot of time actually doing

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Speaker 1: fun to mental work analysis on what makes a good

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Speaker 1: mutual funds? You know, the people, the process in that work.

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Speaker 1: And that's where I was spending my time as an analyst.

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Speaker 1: So how do you find your way from economists to

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Speaker 1: analysts to asset manager? How did that transition happen? So

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Speaker 1: in two thousand eight, I I just perceived my c

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Speaker 1: F A charter and I was beginning to look around

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Speaker 1: and think about, you know, where else would I want

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Speaker 1: to go in this company or or outside the company.

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Speaker 1: And at that time, the morning Star managed portfolio's team,

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Speaker 1: which as you mentioned, as a subsidia, morning Star had

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Speaker 1: an opening, and so I tossed my hat in the

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Speaker 1: ring and moved over in October. Oh, so that's some

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Speaker 1: timing right in the storm. I know, I want to

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Speaker 1: run assets. Let me let me catch the falling night here.

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Speaker 1: No here, So you're about to start the worst six

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Speaker 1: months in a long time. What was experience like beginning

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Speaker 1: in asset management in the eye of the hurricane. I've

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Speaker 1: read that investors are really marked by the environment in

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Speaker 1: which they kind of of age. Um. And so I

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Speaker 1: came of age in the global financial crisis, and I

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Speaker 1: mean there were so many lessons learns that maybe I

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Speaker 1: had to process over time. One of them was very smart,

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Speaker 1: very credible, people with very good backgrounds and experience can

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Speaker 1: be very very wrong. Um. And I saw that firsthand

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Speaker 1: with some of the analysis that was done at that time.

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Speaker 1: I saw how personal money is. Let me give you

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Speaker 1: some background on morning Start managed portfolios. These are portfolios

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Speaker 1: that we're creating, whether their individual stocks or whether they're

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Speaker 1: multi asset portfolios, that we offer to financial advisors, who

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Speaker 1: in turn offer them to their clients. So these are stocks, bonds, ETFs,

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Speaker 1: mutual funds. They can be, yeah, they can be kind

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Speaker 1: of a varied collection, varied instruments that were implementing that

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Speaker 1: the views in and so our customer bases financial advisors

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Speaker 1: and their underlying clients, and so over that period, we

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Speaker 1: were having maybe bi weekly weekly calls with finance to advisors,

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Speaker 1: just opening up the doors and having a conversation. We're

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Speaker 1: doing the same with clients. And I can remember one

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Speaker 1: client on one of our calls. I was sitting in

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Speaker 1: a room nine oh one that I still sit in today, um,

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Speaker 1: and he was saying, just go to cash, Please, just

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Speaker 1: go to cash. And you know, it really struck home

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Speaker 1: with me that money is very personal, that it's closely

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Speaker 1: tied to security, and when we look at price movements

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Speaker 1: on a chart, sometimes we forget what it feels like

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Speaker 1: to be at those different points on the chart. And

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Speaker 1: it just stuck with me this idea that this is

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Speaker 1: a very serious matter when you're managing folks assets, it's

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Speaker 1: personal in all sorts of ways. It's not just their security.

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Speaker 1: A lot of people look at their portfolio values and

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Speaker 1: it impacts their sense of self worth, their confidence, how

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Speaker 1: they view the world. I mean, if you begin as

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Speaker 1: a trader or a portfolio manager, you kind of learn

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Speaker 1: like a surgeon. You have to compartmental opposite. You can't

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Speaker 1: wear it on your sleeve. But that's not how individuals perceived.

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Speaker 1: It's this role in real right, and I think that's

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Speaker 1: why there's so much importance. And this is something that

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Speaker 1: I think is close to the heart of Morning Star.

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Speaker 1: But there's so much importance in the purpose of education

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Speaker 1: and telling people what to look at, because that's what

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Speaker 1: I benefited from going to morning Star learning investing through

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Speaker 1: morning Stars lens. You don't necessarily need to take your

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Speaker 1: signals from recent market performance. There are other things that

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Speaker 1: should be your signals in terms of how you're doing

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Speaker 1: as an investor. So, so you as an investor, began

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Speaker 1: as an economist, then you're an analyst, then you're an

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Speaker 1: investment manager, then your portfolio manager, now you're in chief

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Speaker 1: investment officer. Each of those steps is a very different role,

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Speaker 1: and you're looking at different things and experiencing different things

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Speaker 1: throughout that progression. What really stands out, um, because that's

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Speaker 1: really interesting career path. Yeah, you know, I look at

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Speaker 1: my career and kind of three chunks there's the pre

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Speaker 1: Morning Star chunk of being an economist working in econ consulting,

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Speaker 1: and I see a lot of value in that UM,

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Speaker 1: in part because I think if you're with the same

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Speaker 1: company your entire career, you can sometimes fall into the

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Speaker 1: fallacy that grass is greener somewhere else. And so I

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Speaker 1: was able to have some career experience from that UM,

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Speaker 1: and then I have the period where I was with

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Speaker 1: Morning Start Inc. Doing research and just soaking things up,

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Speaker 1: and then I move into the money management UM part

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Speaker 1: of my career, and I would say that there was

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Speaker 1: a stretch from two thousand eight to call it two

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Speaker 1: thousand and fifteen where I was managing a ton of

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Speaker 1: different types of mandates. I was on the road with

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Speaker 1: clients and financial advisors sometimes once a week, understanding who

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Speaker 1: they were, what they were looking for from us, and

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Speaker 1: there was just a very rich development period, which I

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Speaker 1: think at the time, I don't know if I fully

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Speaker 1: appreciate it. I'm someone who likes to see change like

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Speaker 1: sncy development, and so it required a you know, a

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Speaker 1: bit of patience over that stretch, but it was I

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Speaker 1: think a very foundational period for me to just have

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Speaker 1: build that experience in the markets. So how do these

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Speaker 1: differences between being an economist and a researcher versus someone

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Speaker 1: who has to execute on theory. How do the difference

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Speaker 1: is manifest in your day to day You know, it's

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Speaker 1: a great question. I think the first thing that would

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Speaker 1: come to mind there is that I think when you

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Speaker 1: are a researcher or a theorist or an analyst, and

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Speaker 1: you're not putting money to work, it's a lot easier

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Speaker 1: to be an ideologue. And when you are an investor,

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Speaker 1: you have to learn how to have a philosophy but

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Speaker 1: remain flexible, be willing to be proven wrong in real

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Speaker 1: time and know when you're actually proven wrong um, and

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Speaker 1: being willing to know when you're not being proven wrong

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Speaker 1: and when the payoff is still coming, and to not

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Speaker 1: be so dogmatic. And I think that's a lesson that

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Speaker 1: value investors have learned repeatedly over the past. You know,

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Speaker 1: really since the global financial crisis on, I think there

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Speaker 1: was an assumption that value is always is going to

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Speaker 1: come back any second now, and I think people have

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Speaker 1: had to reevaluate how they think about things. Huh. You know,

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Speaker 1: I like that description. The feedback loop is so much

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Speaker 1: more rapid in practice. In theory you never are bitten

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Speaker 1: by the seeds that you plant, but in actual practice

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Speaker 1: you find out very quickly. Are you right wrong? Yeah?

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Speaker 1: And you know, Barry, I've been spending a lot of

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Speaker 1: time reading about decision making. So I think a lot

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Speaker 1: of folks have read Anti Duke book on on Thinking

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Speaker 1: and Bets, and I think that perspective of don't evaluate

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Speaker 1: the outcome, evaluate how you're making your decision the process.

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Speaker 1: That's something I've learned as a practitioner, not so much

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Speaker 1: as a as a theorist. She starts the book, if

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Speaker 1: I remember, with the story of do you go for

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Speaker 1: it on fourth down? And loves that story. That was

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Speaker 1: a very It's such a perfiximation of good process, bad outcome.

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Speaker 1: Over time that wins, but you lost that one game

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Speaker 1: that people can't get past that. So let's talk a

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Speaker 1: little bit about morning Stars history. They're in Chicago. I

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Speaker 1: know of them from their mutual fund reading business. Tell

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Speaker 1: us a bit about your association with the firm so

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Speaker 1: Um morning Star actually has a really rich history. And

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Speaker 1: to hear Joe and Suada our founder hell it Um,

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Speaker 1: there was a bit of you know, kind of an

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Speaker 1: Warren Buffett, and he was looking for kind of that

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Speaker 1: market opportunity and he found it in the mutual fund space. Now,

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Speaker 1: as he tells it, the mutual funds space was a

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Speaker 1: pretty nascent space in the early nineteen eighties. It's not

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Speaker 1: he saw it as a really positive good thing for

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Speaker 1: the individual investor to have access to these top money managers. UM.

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Speaker 1: But he found that morning Star was making a lot

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Speaker 1: of or excuse me, individual investors were making decisions based

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Speaker 1: solely on on trailing returns, which is we all know

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Speaker 1: it's not a good investing strategy. So he founds the

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Speaker 1: company in the early nineteen eighties. His focus is on

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Speaker 1: mutual funds, providing data, providing analysis, and generally helping individual

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Speaker 1: investors have better outcomes. And so that general sense of

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Speaker 1: empowering investor success is the same mentality that Morningstar has

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Speaker 1: now taken and its research to e t s, to

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Speaker 1: you know, individual stocks, to credits. UM, it's software, it's data,

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Speaker 1: and of course it's Investment management group. When did the

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Speaker 1: investment management saw to the business begin. There's different kind

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Speaker 1: of histories to different parts of it. The managed portfolio

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Speaker 1: business began in two thousand one, but we've had consulting arms.

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Speaker 1: We acquired Ibbotson, which has its own rich history, and

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Speaker 1: then we also have global groups UM outside the U

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Speaker 1: S And Sydney and London and in other places that

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Speaker 1: we've added to the mix over the years. So about

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Speaker 1: halfway through the history, really full bore asset management that's

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Speaker 1: is introduced, which kind of answers the question, Hey, why

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Speaker 1: would a research from new to CEE? I Oh, but

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Speaker 1: really it's much more than a research front, that's right.

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Speaker 1: That's right. So it's for the asset management business. And

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Speaker 1: in fact, there are four CIOs in the business. There's

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Speaker 1: one there's one for each region. So I sit in Chicago,

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Speaker 1: I have a colleague in London and one in Asia

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Speaker 1: pac Um, and then we have a global c IO

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Speaker 1: who we report into, who sits in London. So when

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Speaker 1: did Morning Star acquire Ibbotson? Because I interviewed Roger Ibbotson,

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Speaker 1: I want to say something like that. So two, yeah,

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Speaker 1: I didn't realize that Associates was part of morning Star

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Speaker 1: at the time, right, so now it's all kind of

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Speaker 1: folded together. What we what we did is we had

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Speaker 1: these separate strands, these separate capabilities, and there was an

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Speaker 1: effort to think about what do we want to look

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Speaker 1: like globally as one cohesive unit. And so we've pulled

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Speaker 1: together as an asset manager. Huh. So you do mutual funds,

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Speaker 1: traditional neutral funds, you do uh, E t fs? What

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Speaker 1: about bonds and fixed income? So what we do is

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Speaker 1: we have the individ dual security portfolios. We have our

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Speaker 1: own mutual funds that we use within our model portfolios,

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Speaker 1: and then we have model portfolios that rely on e

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Speaker 1: the two together as well as kind of an active

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Speaker 1: passive approach. Our fixed income exposure right now is through

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Speaker 1: third parties, so we'll buy e t f s or

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Speaker 1: we will use subadvisors. So if someone else is doing it,

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Speaker 1: it's an expensive Why do you want to recreate that wheel?

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Speaker 1: What we're actually focused on is these model portfolios that

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Speaker 1: we're managing, these multi asset financial solutions UM. And you know,

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Speaker 1: this is an area of expertise something that we've been

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Speaker 1: doing for more than twenty years, and what we're doing

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Speaker 1: now is thinking about how do we want to power

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Speaker 1: those model portfolios, and so that's where the mutual funds

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Speaker 1: come in. In In fact, for a long time we used

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Speaker 1: third party mutual funds. It's an area of expertise for Morning,

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Speaker 1: so are selecting those mutual funds and when we found that,

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Speaker 1: we just wanted to try to reduce the layers of costs.

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Speaker 1: When you're owning a bunch of mutual funds, you have

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Speaker 1: all the ancillary expenses built into those expense ratios. So

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Speaker 1: if we could take what we thought were best to

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Speaker 1: breed thinkers and put them within our mutual funds, we

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Speaker 1: could cut down on the layers of costs, and that's

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Speaker 1: in fact what we did. So if you guys are

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Speaker 1: driving the creation and exactly what these funds look like,

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Speaker 1: how involved have you gotten in thematic investing? Is that

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Speaker 1: something that's significant. So a big part of who we

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Speaker 1: are is our global research platform where we're covering you know,

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Speaker 1: equities any which way you can slice them globally in

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Speaker 1: the same thing on the fixed income side. So what

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Speaker 1: our Capital Markets i P really is is looking at

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Speaker 1: what are the fundamental drivers of these asset classes and

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Speaker 1: how do we think about them from evaluation perspective? What

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Speaker 1: do we think of them on a prospective basis, and

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Speaker 1: so you can think of that maybe I guess as

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Speaker 1: thematic we're sometimes focused on very narrow areas like a

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Speaker 1: country or a sector. UM. We also have the ability

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Speaker 1: within our mutual funds to create UM equity sleeves, so

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Speaker 1: individual stocks that represent the opportunity and we would do

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Speaker 1: that when we think the e t F is too

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Speaker 1: expensive or we think the e t F isn't actually

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Speaker 1: capturing what we think is the opportunity UM, So we

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Speaker 1: have that embedded in our mutual fense as well. The

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Speaker 1: past two decades has seen a giant rise in alternatives.

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Speaker 1: What do you look at in that space? How do

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Speaker 1: you think about private equity, venture capital, or even head

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Speaker 1: funds within alternatives. We actually have a pretty rich history

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Speaker 1: there and we've been managing an absolute return portfolio for

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Speaker 1: a long time, but our focus and alternatives UM, we

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Speaker 1: spent a lot of time thinking about what do we

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Speaker 1: want to do with this space? What you know, what's

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Speaker 1: different that we could get with alternatives from stocks and

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Speaker 1: from bonds, And what we landed on was a focus

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Speaker 1: on identifying strategies that are not driven by the same

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Speaker 1: factors that drive equity returns or you know, bond markets,

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Speaker 1: and focusing on strategies that have had limited draw down.

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Speaker 1: So our focus has been selecting these third party strategies

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Speaker 1: that we think are somewhat predictable so that we can

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Speaker 1: use them have a role in portfolio and also um

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Speaker 1: an alternative to what we have with and fixed income

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Speaker 1: and equities. So we have a merger arbitrage strategy, we

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Speaker 1: have a convertible arbitrage strategy. We have a strategy would

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Speaker 1: I wouldn't necessarily classified as global macro. It's kind of

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Speaker 1: a fund of funds approach with different models embedded in it.

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Speaker 1: And actually that that's suite. That collection of strategies, which

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Speaker 1: is in the morning Star Alternatives fund, is where a

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Speaker 1: lot of our portfolio managers were turning to at the

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Speaker 1: end of last year when you know, fixed income is

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Speaker 1: so poor on a prospective basis, equity valuations are really high,

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Speaker 1: and so alternatives are alternatives haven't been positive, but they

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Speaker 1: have lost a lot less than even short data bonds,

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Speaker 1: So it's been a good ballast for us in this environment. Yeah,

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Speaker 1: down five percent is better than down right, that's a

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Speaker 1: that's a huge difference. So let me stay with the

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Speaker 1: concept of not quite alternatives, but different way of thinking

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Speaker 1: about investing. What are your thoughts on things like personalization

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Speaker 1: and direct index in Yeah, so personalization is portfolio managers,

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Speaker 1: and I was a portfolio manager for a long time.

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Speaker 1: You really have your head down, your focus on your strategies.

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Speaker 1: So I put my head up as a c I oh,

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Speaker 1: I get a vision of the broader picture, and I

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Speaker 1: start hearing a lot about personalization, and I don't know

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Speaker 1: what people are talking about, frankly, um, and I ended

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Speaker 1: up presenting on this at the morning Star conference this spring,

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Speaker 1: and so I spent a lot of time trying to

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Speaker 1: understand it. And if you don't mind, let me give

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Speaker 1: you my understanding how I came about to how I

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Speaker 1: see it. Um. If you were like me and you

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Speaker 1: spent your high school wandering Blockbuster looking for something that

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Speaker 1: you wanted to see that was in stock, you found

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Speaker 1: yourself in a much different situation in the pandemic where

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Speaker 1: you're sprawled on your couch and you're just streaming content

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Speaker 1: through Netflix that is yes, and it's algorithmically chosen, just

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Speaker 1: for you or um If you have the privilege of

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Speaker 1: driving a Tesla, you don't have the indignity of your

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Speaker 1: husband messing with your mirror and your seat. You can

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Speaker 1: just create a drive out profile and it recognizes you.

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Speaker 1: So personalization is not just a marketing message where it's

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Speaker 1: dear Martha, you know whatever. It's actually products that are

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Speaker 1: built and adjusted for you. And it began outside of

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Speaker 1: financial services. Now, when I start to think about financial

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Speaker 1: advisory work, I can't think of a place where personalization

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Speaker 1: isn't already something that advisors are wrestling with. They want

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Speaker 1: to know their clients, they want to invest according to

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Speaker 1: what their clients need, but it's been a hard thing

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Speaker 1: to do at scale. The technology just hasn't been there

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Speaker 1: to be able to customize the way you want, from

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Speaker 1: profiling the clients to creating the right strategy, managing that strategy,

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Speaker 1: and then you know, a decumulation phase. It really hasn't

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Speaker 1: been there for the mass market. And the technology has

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Speaker 1: now advanced to the point where a lot of those

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Speaker 1: capabilities can be available to a lot of different advisors,

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Speaker 1: so they can personalize and create customized experiences for clients,

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Speaker 1: and that customized experience can be through client profiling, where

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Speaker 1: the profiling was far more iterative and behaviorally, you know,

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Speaker 1: infused with behavioral finance insights. Or it could be the

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Speaker 1: actual portfolio where you're taking to standard portfolios smashing them together,

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Speaker 1: where you're doing direct indexing. UM. So there's a whole

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Speaker 1: range of products and developments that are maybe changing the

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Speaker 1: way financial advisors can interact with their clients and improving it.

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Speaker 1: So let's talk a little bit about what's going on

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Speaker 1: with mutual funds and ETFs. We talked a little bit

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Speaker 1: about starting managing assets in the middle of the financial crisis.

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Speaker 1: It seems that's kind of the line in the sand.

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Speaker 1: After that, we saw a pretty robust appreciation for both

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Speaker 1: passive investing and E t F. Tell us a little

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Speaker 1: bit about what you've seen from from morning Star. Yeah, so,

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Speaker 1: I guess to kick things off, I listened to the

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Speaker 1: conversation you had with Eric but tunis the Vanguard Effect,

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Speaker 1: and I hadn't read the book, and I enjoyed that conversation.

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Speaker 1: I resonated with a lot of the insights, and as

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Speaker 1: I think about it from my perspective, I think back

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Speaker 1: to a book I read when I started Morning Star

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Speaker 1: called Piece of the Action by Joe no sarah Um

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Speaker 1: and he talks about how the middle class became part

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Speaker 1: of the investing class, and he outlines credit cards, and

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Speaker 1: he outlines mutual funds and money market funds and retirement accounts.

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Speaker 1: And the book I read, its version was in the

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Speaker 1: nineteen nineties. I think if he had continued it or

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Speaker 1: the book were written today, if I were writing the book,

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Speaker 1: I would add passive investing and e t F s

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Speaker 1: onto those milestones or mile markers where we're really seeing

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Speaker 1: great improvement for the average investor. And that's largely because

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Speaker 1: of the huge impact that passive investing has had on

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Speaker 1: fees um just giving people a much better um outcome.

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Speaker 1: So morning Star Ink research has shown time and time

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Speaker 1: again that fees are one of the few very reliable

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Speaker 1: predictors of future performance. And I think that's just a

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Speaker 1: mathematical reality, right that you just have more if you

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Speaker 1: didn't take out a lot at the beginning. So I

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Speaker 1: think there's a real benefit to the past of investing

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Speaker 1: the ET trend. In terms of kind of what this

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Speaker 1: means for active and passive I think there's a lot

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Speaker 1: to that. I don't know if it's a one for

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00:23:07,080 --> 00:23:10,359
Speaker 1: one question. But as as an active investor, I can

432
00:23:10,400 --> 00:23:13,800
Speaker 1: say I'm a big fan of passive investing. So you

433
00:23:13,880 --> 00:23:16,360
Speaker 1: brought up something that I have to give Morning Star

434
00:23:16,440 --> 00:23:19,920
Speaker 1: a ton of credit for. Ross Kinnel writes a piece.

435
00:23:19,960 --> 00:23:25,040
Speaker 1: I think it was um about how expense ratios and

436
00:23:25,119 --> 00:23:29,879
Speaker 1: star ratings predict success. And it's a pretty thorough analysis.

437
00:23:30,400 --> 00:23:33,879
Speaker 1: But the too long, didn't read version is, hey, if

438
00:23:33,880 --> 00:23:36,439
Speaker 1: you could look at nothing else, just look at expense

439
00:23:36,520 --> 00:23:40,239
Speaker 1: ratios and buy the cheapest one. And really, for a

440
00:23:40,280 --> 00:23:44,840
Speaker 1: company that built its reputation on the star rating, that

441
00:23:45,000 --> 00:23:49,280
Speaker 1: was a pretty um risky thing for not only morning

442
00:23:49,320 --> 00:23:52,840
Speaker 1: started release, but stand behind and keep it on the

443
00:23:52,880 --> 00:23:56,080
Speaker 1: site for a decade later. A lot of companies would

444
00:23:56,080 --> 00:23:58,840
Speaker 1: have would have buried that. So Morning Star has been

445
00:23:58,880 --> 00:24:01,639
Speaker 1: Morning Star Larify. The research side of Working Star has

446
00:24:01,680 --> 00:24:04,880
Speaker 1: been very clear on that expense case. So there's Russ's Peace,

447
00:24:04,920 --> 00:24:07,320
Speaker 1: and there's many other pieces throughout time that have said,

448
00:24:07,359 --> 00:24:10,400
Speaker 1: as we look at what we think predicts future outcomes,

449
00:24:10,400 --> 00:24:14,280
Speaker 1: those expenses are key. It's interesting on the star rating side. Now,

450
00:24:14,440 --> 00:24:16,680
Speaker 1: just for background, at a very high level, the star

451
00:24:16,800 --> 00:24:21,840
Speaker 1: rating is looking at risk adjusted returns, right, big difference

452
00:24:21,840 --> 00:24:25,120
Speaker 1: from just returns and relative to category peers. Star rating

453
00:24:25,200 --> 00:24:27,840
Speaker 1: launched very early on around and it's gone through a

454
00:24:27,880 --> 00:24:31,159
Speaker 1: lot of methodology updates over time, and it's a really

455
00:24:31,240 --> 00:24:35,639
Speaker 1: elegant measure of performance and a great starting point. But

456
00:24:35,760 --> 00:24:38,160
Speaker 1: I don't think there's an analyst on the research side

457
00:24:38,160 --> 00:24:40,080
Speaker 1: of the house who would say, look, you have the

458
00:24:40,080 --> 00:24:42,520
Speaker 1: star rating and you're all done. I mean, there's so

459
00:24:42,560 --> 00:24:44,760
Speaker 1: many of them who are spending so much of their

460
00:24:44,800 --> 00:24:47,679
Speaker 1: time analyzing the people in the process and how the

461
00:24:47,680 --> 00:24:50,720
Speaker 1: performance relates to that in the price. There's a lot

462
00:24:50,800 --> 00:24:53,560
Speaker 1: more that goes into picking a mutual fund or a

463
00:24:53,600 --> 00:24:56,760
Speaker 1: strategy than just taking a look at its historical track record,

464
00:24:56,760 --> 00:24:59,320
Speaker 1: and that to the very least. So let's talk a

465
00:24:59,359 --> 00:25:02,560
Speaker 1: little bit more. Are about active fund managers. One of

466
00:25:02,600 --> 00:25:06,720
Speaker 1: the criticisms that have been leveled by both other active

467
00:25:06,760 --> 00:25:10,080
Speaker 1: managers and academics is, hey, a lot of this is

468
00:25:10,119 --> 00:25:13,800
Speaker 1: just expensive closet indexing. How do you look at that

469
00:25:13,840 --> 00:25:18,000
Speaker 1: when you're thinking about either a portfolio you're analyzing or

470
00:25:18,040 --> 00:25:22,080
Speaker 1: creating your own portfolio. Within Morningstar Investment management, we are

471
00:25:22,200 --> 00:25:27,560
Speaker 1: very much high conviction investors, probably concentrated. Concentrated portfolios are

472
00:25:27,560 --> 00:25:30,480
Speaker 1: willing to stick our next out and look different than

473
00:25:30,560 --> 00:25:33,680
Speaker 1: a benchmark. And we've learned some hard lessons that way. Um,

474
00:25:34,000 --> 00:25:35,680
Speaker 1: you know is you can imagine we're not going to

475
00:25:35,760 --> 00:25:38,240
Speaker 1: get every call right and that at times can be costly,

476
00:25:38,560 --> 00:25:40,760
Speaker 1: and so we've put more thought on how you size

477
00:25:40,760 --> 00:25:43,960
Speaker 1: into positions or not. But I think closet indexing was

478
00:25:44,000 --> 00:25:46,359
Speaker 1: a big topic when I was in research, and there

479
00:25:46,400 --> 00:25:48,959
Speaker 1: was a lot of work around active share and the like.

480
00:25:49,160 --> 00:25:51,520
Speaker 1: And I think it's still it's always, I think, going

481
00:25:51,560 --> 00:25:55,720
Speaker 1: to be embedded in the community because when you're wrong

482
00:25:55,840 --> 00:25:58,720
Speaker 1: and you weren't close to the benchmark, it's incredibly costly.

483
00:25:58,760 --> 00:26:01,520
Speaker 1: I think Jeremy Grantham caused a career risks or you

484
00:26:01,520 --> 00:26:03,399
Speaker 1: know that kind of thing. So I think it's always

485
00:26:03,400 --> 00:26:06,880
Speaker 1: going to be part of human nature. Um. I wonder,

486
00:26:06,920 --> 00:26:09,000
Speaker 1: and I haven't done any research on this, but I

487
00:26:09,080 --> 00:26:11,879
Speaker 1: wonder if it's been harder over the past few years

488
00:26:11,920 --> 00:26:15,280
Speaker 1: to be a closet index or successfully you know, pretending

489
00:26:15,359 --> 00:26:18,159
Speaker 1: to be active but making the benchmark because of how big,

490
00:26:18,640 --> 00:26:21,160
Speaker 1: you know, the big six companies in the US have been.

491
00:26:21,200 --> 00:26:23,439
Speaker 1: It's been very hard to own them without becoming a

492
00:26:23,480 --> 00:26:26,680
Speaker 1: non diversified mutual fund at index weight. So I wonder

493
00:26:26,680 --> 00:26:28,879
Speaker 1: if it's been harder to play that game lately. And

494
00:26:29,119 --> 00:26:32,800
Speaker 1: you talked earlier about how software and technology has progressed.

495
00:26:32,840 --> 00:26:37,200
Speaker 1: It's so easy today to look at concentrated risk active

496
00:26:37,240 --> 00:26:40,080
Speaker 1: share and how different you are from the benchmark, and

497
00:26:40,119 --> 00:26:45,400
Speaker 1: whether that difference leads to outperformance or just expensive differences.

498
00:26:45,520 --> 00:26:48,240
Speaker 1: That's so, you're a long term investor, you work with

499
00:26:48,320 --> 00:26:52,280
Speaker 1: clients who themselves have clients that are long term investors.

500
00:26:52,600 --> 00:26:54,840
Speaker 1: What are some of the things you're doing now in

501
00:26:54,920 --> 00:26:59,600
Speaker 1: terms of portfolio construction. How are you thinking about changes

502
00:26:59,640 --> 00:27:02,960
Speaker 1: to be made and opportunities that are either available or

503
00:27:03,040 --> 00:27:06,720
Speaker 1: might have been missed over the past year. So you know,

504
00:27:06,760 --> 00:27:08,560
Speaker 1: as I think about a long term investor, and when

505
00:27:08,560 --> 00:27:10,480
Speaker 1: I'm thinking about a long term investor, I'm thinking of

506
00:27:10,480 --> 00:27:13,000
Speaker 1: anyone who doesn't have a need for their assets in

507
00:27:13,040 --> 00:27:15,240
Speaker 1: the next few years. So maybe we're talking about five

508
00:27:15,320 --> 00:27:18,040
Speaker 1: years and out. And you look at this investment climate

509
00:27:18,080 --> 00:27:21,239
Speaker 1: that we've been in, and when we were looking at

510
00:27:21,240 --> 00:27:24,720
Speaker 1: the markets at the end of both US equities and

511
00:27:24,840 --> 00:27:28,439
Speaker 1: US fixed income struck US as extremely expensive. I mentioned

512
00:27:28,440 --> 00:27:31,040
Speaker 1: that we'd put more assets and alternatives than we typically

513
00:27:31,080 --> 00:27:34,640
Speaker 1: had um At this point, markets are a lot more

514
00:27:34,760 --> 00:27:37,239
Speaker 1: attractively priced. I mean, there's a lot of nuance to that,

515
00:27:37,280 --> 00:27:39,239
Speaker 1: but they are more attractively priced. So if I'm a

516
00:27:39,280 --> 00:27:42,600
Speaker 1: long term investor and I'm thinking about what opportunities is

517
00:27:42,640 --> 00:27:46,960
Speaker 1: the market serving up today, my impulse, all else held equal,

518
00:27:47,160 --> 00:27:50,800
Speaker 1: should be to add back to exposures in the portfolio,

519
00:27:50,880 --> 00:27:54,440
Speaker 1: whether that's dollar cost averaging new money, or whether that's

520
00:27:54,520 --> 00:27:58,240
Speaker 1: looking at areas that have held up or been quite defensive,

521
00:27:58,280 --> 00:27:59,800
Speaker 1: which you know, it's hard to find those areas, but

522
00:27:59,840 --> 00:28:02,080
Speaker 1: they are out there, and adding back to more of

523
00:28:02,119 --> 00:28:05,679
Speaker 1: the risky areas. But the caveat there is that I

524
00:28:05,720 --> 00:28:08,160
Speaker 1: think that at least from our vantage point, markets are

525
00:28:08,200 --> 00:28:11,560
Speaker 1: closer to fairly valued than extremely cheap. So it feels

526
00:28:11,560 --> 00:28:13,880
Speaker 1: more like a dollar cost average market to us than

527
00:28:14,000 --> 00:28:16,720
Speaker 1: than anything else. Not picking a bottom quite yet, that's right,

528
00:28:17,680 --> 00:28:20,280
Speaker 1: I'm right there with you. So let's talk a little

529
00:28:20,280 --> 00:28:23,919
Speaker 1: bit about the state of today's markets. You said earlier

530
00:28:24,080 --> 00:28:29,159
Speaker 1: valuations were historically high, both stocks and bonds. Late right

531
00:28:29,200 --> 00:28:32,080
Speaker 1: about now, what are we twenty five year average for

532
00:28:32,160 --> 00:28:36,920
Speaker 1: the SMP International stocks look kind of cheap, small cap

533
00:28:37,000 --> 00:28:40,720
Speaker 1: and value were interesting. Just for a little context, we're

534
00:28:40,720 --> 00:28:44,280
Speaker 1: recording this mid October we really we haven't gotten the

535
00:28:44,360 --> 00:28:46,600
Speaker 1: latest pp I. We don't know what earnings look like

536
00:28:46,720 --> 00:28:51,240
Speaker 1: quite just yet, so we're still dealing with the worst

537
00:28:51,240 --> 00:28:55,520
Speaker 1: of and not knowing when the smoke clears, tell us

538
00:28:55,560 --> 00:28:58,280
Speaker 1: what you think about the current environment, what looks intriguing.

539
00:28:58,600 --> 00:29:01,600
Speaker 1: So there are a lot of nuance to today's market.

540
00:29:01,680 --> 00:29:05,440
Speaker 1: If we have proprietary models that we you know, update

541
00:29:05,440 --> 00:29:08,320
Speaker 1: with our insight to give us a sense what valuations

542
00:29:08,360 --> 00:29:11,080
Speaker 1: are you know, around the world here at home, and

543
00:29:11,120 --> 00:29:13,280
Speaker 1: when we look at the broad US bond market, the

544
00:29:13,280 --> 00:29:15,720
Speaker 1: broad US stock market there is as attractive as they've

545
00:29:15,760 --> 00:29:18,800
Speaker 1: been since we've been running this program, um since you

546
00:29:18,800 --> 00:29:23,880
Speaker 1: know about time frame. So that's good, but it's not great.

547
00:29:24,240 --> 00:29:27,680
Speaker 1: It's not as though they're pricing in armageddon or anything

548
00:29:27,720 --> 00:29:33,560
Speaker 1: along those lines. So we are still somewhat cautious. We're

549
00:29:33,600 --> 00:29:36,280
Speaker 1: adding back to US equities. That depends on the portfolio,

550
00:29:36,320 --> 00:29:38,840
Speaker 1: of course, but we're adding back to US equities, especially

551
00:29:38,840 --> 00:29:42,640
Speaker 1: where we were severely underweight that area. We are interested

552
00:29:42,640 --> 00:29:44,520
Speaker 1: in fixed income. But I think a lot of times

553
00:29:44,520 --> 00:29:47,600
Speaker 1: when people talk about valuations, they act almost as if

554
00:29:47,600 --> 00:29:50,040
Speaker 1: someone is in cash and equities, But if you're in

555
00:29:50,040 --> 00:29:52,720
Speaker 1: a multi asset portfolio, and your fixed income is also

556
00:29:52,800 --> 00:29:55,120
Speaker 1: getting a lot cheaper. That makes the calculus a little

557
00:29:55,120 --> 00:29:57,800
Speaker 1: bit trickier. Um, so maybe you want to be adding

558
00:29:57,840 --> 00:29:59,800
Speaker 1: to your fixed income as well, and that's something that

559
00:29:59,800 --> 00:30:02,920
Speaker 1: we're weighing a bit too. Where is the better opportunity

560
00:30:03,080 --> 00:30:06,120
Speaker 1: versus equities versus fixed income? And I wanted to follow

561
00:30:06,200 --> 00:30:08,400
Speaker 1: up on the point that you made about international because

562
00:30:08,440 --> 00:30:12,680
Speaker 1: those are meaningful positions for us. They've been relatively cheap

563
00:30:12,880 --> 00:30:15,239
Speaker 1: for a long time, but now through our models they

564
00:30:15,240 --> 00:30:18,520
Speaker 1: are looking absolutely cheap, and that means that they're cheap

565
00:30:18,560 --> 00:30:21,280
Speaker 1: relative to the fair value that we've identified for them.

566
00:30:21,280 --> 00:30:24,160
Speaker 1: And so I'm talking about really the nasty stuff here.

567
00:30:24,160 --> 00:30:26,719
Speaker 1: I'm talking about China and all the concerns that are

568
00:30:26,760 --> 00:30:29,080
Speaker 1: around it and the sell off that it's had. Talking

569
00:30:29,120 --> 00:30:31,640
Speaker 1: about Germany and it's you know, close and epicent our

570
00:30:31,760 --> 00:30:35,200
Speaker 1: nature to the European energy crisis and the impact that

571
00:30:35,240 --> 00:30:37,360
Speaker 1: the war has had on it. I'm talking about UK

572
00:30:38,440 --> 00:30:40,800
Speaker 1: and the troubles that it has. These are markets that

573
00:30:40,840 --> 00:30:43,560
Speaker 1: are under pressure, and I so wish that markets could

574
00:30:43,560 --> 00:30:48,320
Speaker 1: be absolutely cheap and not be in trouble, But oftentimes

575
00:30:48,520 --> 00:30:52,560
Speaker 1: it's the fact that yes, you're not gonna get stuff

576
00:30:52,600 --> 00:30:56,400
Speaker 1: absolutely cheap unless something at the something went wrong. So

577
00:30:56,440 --> 00:30:59,240
Speaker 1: what we're we're weighing is how much is priced in

578
00:31:00,000 --> 00:31:02,960
Speaker 1: it else could go wrong, And so we're sizing very

579
00:31:03,040 --> 00:31:05,680
Speaker 1: carefully in these opportunities, but we can't deny that there's

580
00:31:05,680 --> 00:31:09,120
Speaker 1: a valuation opportunity in them. So things are attractive, but

581
00:31:09,200 --> 00:31:11,720
Speaker 1: it's not dirt cheap. And this is why you mentioned

582
00:31:12,120 --> 00:31:15,600
Speaker 1: dollar cost averaging is an attractive strategy. We may not

583
00:31:15,680 --> 00:31:18,360
Speaker 1: be at the bottom, but we're close enough that hey,

584
00:31:18,400 --> 00:31:20,200
Speaker 1: maybe we're a few months earlier, and if we keep

585
00:31:20,280 --> 00:31:23,200
Speaker 1: d c A ing over the next year, you'll catch

586
00:31:23,760 --> 00:31:27,520
Speaker 1: early bottom recovery and then that's whatever the next cycle.

587
00:31:27,560 --> 00:31:30,640
Speaker 1: That's right, I mean as as a as a fundamental investor,

588
00:31:31,000 --> 00:31:32,800
Speaker 1: we're never going to call at the bottom. I know

589
00:31:32,840 --> 00:31:35,280
Speaker 1: a few people who can do that consistently. But what

590
00:31:35,320 --> 00:31:38,080
Speaker 1: we can do is have the right impulse as markets

591
00:31:38,080 --> 00:31:40,800
Speaker 1: are moving, as they're selling off. In general, the right

592
00:31:40,840 --> 00:31:44,440
Speaker 1: impulse should be to add. We know that um as

593
00:31:44,520 --> 00:31:47,640
Speaker 1: markets are rising, the impulse should be maybe holds tighter

594
00:31:47,760 --> 00:31:50,520
Speaker 1: or maybe you know, not the adding. And so we're

595
00:31:50,520 --> 00:31:54,400
Speaker 1: trying to find that behavioral discipline you mentioned you're looking

596
00:31:54,440 --> 00:31:57,680
Speaker 1: at fixed income as more attractive than it was. Not

597
00:31:57,800 --> 00:32:02,160
Speaker 1: only has fixed income fallen double digits, pretty substantial, but

598
00:32:02,320 --> 00:32:06,640
Speaker 1: you're now actually being paid when you're a fixed income buyer.

599
00:32:07,560 --> 00:32:09,640
Speaker 1: When we're recording this, the ten year is not too

600
00:32:09,720 --> 00:32:13,760
Speaker 1: far off from ten percent. There's some high quality corporates

601
00:32:13,800 --> 00:32:17,160
Speaker 1: that are about five percent, and you could look around

602
00:32:17,160 --> 00:32:21,280
Speaker 1: and find Muni's running a tax equivalent in the fours

603
00:32:21,520 --> 00:32:25,600
Speaker 1: or higher. Is there now an alternative? Can we no

604
00:32:25,640 --> 00:32:29,120
Speaker 1: longer say it's Tina and it's equities or nothing. I've

605
00:32:29,120 --> 00:32:32,560
Speaker 1: heard it's Tina, it's Tara, and it's Cindy. Um, so

606
00:32:32,640 --> 00:32:35,400
Speaker 1: let's go for so Tina. There is no alternative. Okay,

607
00:32:35,600 --> 00:32:40,240
Speaker 1: there's Tina, there is Tara. There are reasonable alternatives, and

608
00:32:40,280 --> 00:32:44,680
Speaker 1: then there is Cindy. Credit is now delivering yield to

609
00:32:44,760 --> 00:32:48,160
Speaker 1: the three sisters, the three sisters of fixed income. So

610
00:32:48,200 --> 00:32:50,880
Speaker 1: the era of you have no choice of but equity

611
00:32:50,920 --> 00:32:53,520
Speaker 1: or nothing is over. The era is over. But the

612
00:32:53,520 --> 00:32:57,800
Speaker 1: bottom line is there is yield in fixed income. And

613
00:32:57,880 --> 00:33:00,680
Speaker 1: even though it's below the most re and cp I,

614
00:33:00,880 --> 00:33:05,320
Speaker 1: the expectation is inflation is going to come down eventually,

615
00:33:05,800 --> 00:33:09,840
Speaker 1: and if you're buying a four, you're locked in above inflation.

616
00:33:09,880 --> 00:33:13,640
Speaker 1: Hopefully three percent or maybe even a two handle. So

617
00:33:13,680 --> 00:33:16,000
Speaker 1: as we look at the fixed income landscape, I think

618
00:33:16,120 --> 00:33:19,120
Speaker 1: what you're seeing, you're getting paid at the shorter end

619
00:33:19,160 --> 00:33:21,760
Speaker 1: of the curve much more attractively than you had. You're

620
00:33:21,800 --> 00:33:24,400
Speaker 1: not taking on enormous amounts of risk in that area.

621
00:33:24,480 --> 00:33:27,280
Speaker 1: Either from our credit or a rate perspective, we are

622
00:33:27,320 --> 00:33:29,440
Speaker 1: looking at high yield. We are looking at areas like

623
00:33:29,480 --> 00:33:32,920
Speaker 1: emerging market debt. The yields are much more attractive, but

624
00:33:33,320 --> 00:33:36,520
Speaker 1: we haven't seen a whole big pickup in defaults, and

625
00:33:36,640 --> 00:33:39,880
Speaker 1: emerging market debt has its own concerns in this type

626
00:33:39,880 --> 00:33:43,880
Speaker 1: of environment, so we're interested. But I think if we're

627
00:33:43,920 --> 00:33:46,840
Speaker 1: looking at where is the net dollar going today, I

628
00:33:46,880 --> 00:33:49,240
Speaker 1: think it's going to some of those higher quality segments

629
00:33:49,280 --> 00:33:51,920
Speaker 1: of the fixed income market. End tips. Of course, tips

630
00:33:51,960 --> 00:33:55,080
Speaker 1: have been a disappointment. I think, I right, you would

631
00:33:55,080 --> 00:33:58,840
Speaker 1: think inflation screaming tips are like, yeah, you know, they're

632
00:33:58,840 --> 00:34:00,480
Speaker 1: actually lost a little bit of that. Yeah, and they're

633
00:34:00,480 --> 00:34:03,600
Speaker 1: really showing kind of their sensitivity to real rates. But

634
00:34:04,080 --> 00:34:07,320
Speaker 1: because they've lost ground and because inflation expectations have come

635
00:34:07,360 --> 00:34:09,359
Speaker 1: back down, it's not a bad time to be thinking

636
00:34:09,360 --> 00:34:13,000
Speaker 1: about tips for a portfolio. What else can a fund

637
00:34:13,000 --> 00:34:16,640
Speaker 1: manager or adviser do to protect a portfolio in the

638
00:34:16,680 --> 00:34:20,440
Speaker 1: face of let's say transitory turns out to be wrong

639
00:34:20,960 --> 00:34:24,080
Speaker 1: and that inflation is persistent for another couple of years.

640
00:34:24,360 --> 00:34:26,880
Speaker 1: What should investors be thinking about the big struggle? And

641
00:34:26,920 --> 00:34:29,719
Speaker 1: so we've been working on that analysis. In fact, we

642
00:34:29,800 --> 00:34:33,160
Speaker 1: originally started analyzing our portfolios for inflation. What we do

643
00:34:33,360 --> 00:34:35,880
Speaker 1: We have our research platform, which is basically defining the

644
00:34:35,880 --> 00:34:38,920
Speaker 1: opportunity set for us based on kind of our viewpoints,

645
00:34:39,160 --> 00:34:41,560
Speaker 1: and then as portfolio managers we get together and we think,

646
00:34:41,560 --> 00:34:43,120
Speaker 1: how do we size this? What do we do with

647
00:34:43,160 --> 00:34:47,359
Speaker 1: this information in a portfolio? And so back in April one,

648
00:34:47,360 --> 00:34:49,920
Speaker 1: we started to think about what would inflation If inflation

649
00:34:50,000 --> 00:34:52,440
Speaker 1: isn't transitory, what would that mean for our portfolios? And

650
00:34:52,440 --> 00:34:54,719
Speaker 1: we started running a lot of scenario tests and we

651
00:34:54,840 --> 00:34:57,680
Speaker 1: found that with this value lean that we have the

652
00:34:57,800 --> 00:35:01,080
Speaker 1: energy exposure that we had on a relative basis, our

653
00:35:01,120 --> 00:35:05,000
Speaker 1: portfolios should hold up, you know, to the sixties of

654
00:35:05,000 --> 00:35:07,840
Speaker 1: the world. Um. And now what we're thinking about is

655
00:35:08,520 --> 00:35:12,080
Speaker 1: what's going to happen to financial assets of for inflation persists.

656
00:35:12,280 --> 00:35:15,160
Speaker 1: What's going to happen in a stagflationary environment? How do

657
00:35:15,200 --> 00:35:17,759
Speaker 1: you think about these things and how do you size them?

658
00:35:17,800 --> 00:35:21,319
Speaker 1: And you know, in a stagflationary environment, for example, when

659
00:35:21,320 --> 00:35:23,720
Speaker 1: we look at this, we're obviously looking at that nineteen

660
00:35:23,719 --> 00:35:27,040
Speaker 1: seventies nineteen eighties period. There were a few places to

661
00:35:27,120 --> 00:35:30,879
Speaker 1: hide in that environment, commodities energy related being one of them,

662
00:35:30,880 --> 00:35:32,960
Speaker 1: and tips weren't around back then, but you can kind

663
00:35:32,960 --> 00:35:36,480
Speaker 1: of simulate the experience of stagflation those held up. So

664
00:35:36,560 --> 00:35:38,520
Speaker 1: those are the types of assets. Energy has been a

665
00:35:38,560 --> 00:35:41,200
Speaker 1: long time holding for us. It's no longer attractive from

666
00:35:41,239 --> 00:35:44,359
Speaker 1: our valuation, but last a year ago it looked cheap.

667
00:35:44,480 --> 00:35:46,360
Speaker 1: There ago it looked dirt cheap, and so it's paid

668
00:35:46,400 --> 00:35:50,480
Speaker 1: off handsomely and we are slowly edging out of it

669
00:35:50,640 --> 00:35:54,120
Speaker 1: because we're thinking about this range of outcomes, these different environments,

670
00:35:54,160 --> 00:35:56,719
Speaker 1: and what can protect in these different the day the

671
00:35:56,760 --> 00:36:01,440
Speaker 1: war in Ukrainians see oil prices get that's right, So

672
00:36:01,480 --> 00:36:04,560
Speaker 1: you don't want to be at peak position size. But

673
00:36:04,680 --> 00:36:07,239
Speaker 1: you know, people have been wondering when does this come

674
00:36:07,280 --> 00:36:09,839
Speaker 1: to an end? Now? For this has gone on much

675
00:36:09,880 --> 00:36:12,080
Speaker 1: longer than people expect, and it looks like it's going

676
00:36:12,120 --> 00:36:15,640
Speaker 1: to go on much longer from here. So that's quite

677
00:36:15,640 --> 00:36:20,480
Speaker 1: a challenge you mentioned value. I feel like value investors

678
00:36:20,520 --> 00:36:24,200
Speaker 1: are the dog that keeps getting kicked. Everybody has been, well,

679
00:36:24,280 --> 00:36:27,280
Speaker 1: you know, it's been ten years. When does value start

680
00:36:27,360 --> 00:36:31,319
Speaker 1: to outperform growth? The past year, it certainly has done better.

681
00:36:31,440 --> 00:36:35,279
Speaker 1: How are you looking at value as an asset class? Yeah? So,

682
00:36:35,440 --> 00:36:38,640
Speaker 1: you know, when I was in research, there were a

683
00:36:38,719 --> 00:36:42,040
Speaker 1: lot of articles at that time that wrote how superior

684
00:36:42,120 --> 00:36:45,560
Speaker 1: value investing was to growth investing um and how it

685
00:36:45,600 --> 00:36:47,880
Speaker 1: always wins out. If you look at over history, value

686
00:36:47,880 --> 00:36:51,239
Speaker 1: always dominates and that should have been a flag that

687
00:36:51,320 --> 00:36:54,360
Speaker 1: maybe values time is done and certainly it has a

688
00:36:54,400 --> 00:36:56,960
Speaker 1: weight chest. Pounding is not a good look from from

689
00:36:57,239 --> 00:37:00,239
Speaker 1: fun managers and researchers. I'm gonna make an know to

690
00:37:00,320 --> 00:37:03,320
Speaker 1: that that's right. And so since then, growth has been dominant.

691
00:37:03,400 --> 00:37:05,400
Speaker 1: I think it's caused a lot of value investors to

692
00:37:05,440 --> 00:37:07,880
Speaker 1: do a lot of introspection. And I think one of

693
00:37:07,920 --> 00:37:10,799
Speaker 1: the takeaways that value investors have had is that valuation

694
00:37:10,880 --> 00:37:14,400
Speaker 1: itself is not a timing indicator. We've had our own

695
00:37:14,520 --> 00:37:18,520
Speaker 1: you know ltc M moment I guess as value investors.

696
00:37:18,520 --> 00:37:21,560
Speaker 1: But I think the very fact that we're talking about

697
00:37:21,640 --> 00:37:25,520
Speaker 1: value investing being dead in the water is really reminiscent

698
00:37:25,600 --> 00:37:28,239
Speaker 1: of the period when value investors were saying growth was

699
00:37:28,280 --> 00:37:31,399
Speaker 1: dead in the water. Um. I think these things run

700
00:37:31,400 --> 00:37:34,320
Speaker 1: in cycles, and I think paying attention to the price

701
00:37:34,400 --> 00:37:38,680
Speaker 1: that you're paying is a valuable strategy, whether you're buying

702
00:37:38,719 --> 00:37:42,200
Speaker 1: a growth company or a value company. David Einhorn was

703
00:37:42,280 --> 00:37:47,640
Speaker 1: speaking at the Robin Hood Investor Conference, and quote he says,

704
00:37:47,800 --> 00:37:51,279
Speaker 1: I don't know if value investing ever comes back. So

705
00:37:51,360 --> 00:37:54,920
Speaker 1: if you're looting for the opposite of value, is always

706
00:37:54,960 --> 00:37:58,719
Speaker 1: going to outperform growth. Well, here's the other side of

707
00:37:58,760 --> 00:38:00,920
Speaker 1: that in an argument. And I I think, and this

708
00:38:01,000 --> 00:38:04,200
Speaker 1: is something we've talked about a lot, the value growth

709
00:38:04,600 --> 00:38:08,360
Speaker 1: fight or narrative value versus growth. I think it's a

710
00:38:08,400 --> 00:38:10,319
Speaker 1: bit of a false narrative. I think you can be

711
00:38:10,360 --> 00:38:12,440
Speaker 1: a growth investor or you can be a value investor

712
00:38:12,480 --> 00:38:14,839
Speaker 1: and care about the price that you're paying for your asset. Hey,

713
00:38:14,920 --> 00:38:17,040
Speaker 1: isn't that what growth at a reasonable price was all

714
00:38:17,080 --> 00:38:20,400
Speaker 1: of the Yeah, yeah, you know, I think the I

715
00:38:20,400 --> 00:38:23,640
Speaker 1: think both strategies have value. It's just a matter of

716
00:38:23,640 --> 00:38:26,520
Speaker 1: whether you're doing fundamental work around the price that you're

717
00:38:26,520 --> 00:38:28,719
Speaker 1: paying or whether you're not. And I don't think that

718
00:38:28,800 --> 00:38:32,359
Speaker 1: belongs to one or the other. Alright, So two last

719
00:38:32,440 --> 00:38:35,920
Speaker 1: questions before I get to my favorite question, and the

720
00:38:36,000 --> 00:38:39,239
Speaker 1: first is, since you began at BLS and worked on

721
00:38:39,719 --> 00:38:44,360
Speaker 1: inflation data, I have to ask about the data dependent FED.

722
00:38:44,760 --> 00:38:47,440
Speaker 1: How does that affect you as a chief investment officer.

723
00:38:48,000 --> 00:38:53,680
Speaker 1: It seems like everybody is hanging on every CPI, margin report, earnings,

724
00:38:53,719 --> 00:38:57,080
Speaker 1: non farm payroll. Everything seems to take on extra weight.

725
00:38:57,800 --> 00:39:01,920
Speaker 1: How do you these days? You with a FED that

726
00:39:02,080 --> 00:39:04,880
Speaker 1: says we're gonna keep hiking until we see the white

727
00:39:05,000 --> 00:39:09,800
Speaker 1: of inflations eyes? You know? Um? I think the one

728
00:39:10,239 --> 00:39:13,040
Speaker 1: takeaway that you can have from this type of environment

729
00:39:13,480 --> 00:39:16,440
Speaker 1: is that it's certainly creating a ton of opportunities, right,

730
00:39:16,480 --> 00:39:19,480
Speaker 1: I mean, this type of volatility is where you can

731
00:39:19,520 --> 00:39:22,960
Speaker 1: start to make money and markets if you are careful

732
00:39:23,000 --> 00:39:25,640
Speaker 1: and if you're a thoughtful investor. Of course, I have

733
00:39:25,680 --> 00:39:28,279
Speaker 1: opinions on the FED. I think everybody has opinions on

734
00:39:28,320 --> 00:39:31,480
Speaker 1: the FED. Everybody has opinions on the macro environment, and

735
00:39:31,560 --> 00:39:34,080
Speaker 1: it's so tempting to want to just blast them all

736
00:39:34,080 --> 00:39:38,040
Speaker 1: out there. But the reality, right, But the reality is

737
00:39:38,040 --> 00:39:39,759
Speaker 1: it's not going to matter even if I was right,

738
00:39:39,760 --> 00:39:41,880
Speaker 1: which I wouldn't be what do I do about it

739
00:39:41,920 --> 00:39:44,600
Speaker 1: in a portfolio? And so what we're really focusing on

740
00:39:44,719 --> 00:39:47,920
Speaker 1: is that range of outcomes for our investors um and

741
00:39:47,960 --> 00:39:51,040
Speaker 1: thinking about if this then that, or is this priced

742
00:39:51,040 --> 00:39:53,279
Speaker 1: in or is it close enough to being priced in?

743
00:39:53,360 --> 00:39:56,120
Speaker 1: What's the margin of safety? And I think not getting

744
00:39:56,160 --> 00:39:58,319
Speaker 1: wedded to a worldview, and I think that can be

745
00:39:58,360 --> 00:40:01,400
Speaker 1: the danger with a laser focus on the FED and

746
00:40:01,480 --> 00:40:04,080
Speaker 1: on this macro data can be a real destruction. But

747
00:40:04,200 --> 00:40:07,240
Speaker 1: that being said, of course we're watching how inflation develops.

748
00:40:07,280 --> 00:40:10,600
Speaker 1: Of course we're watching how rates develop and and how companies,

749
00:40:10,719 --> 00:40:14,120
Speaker 1: how their fundamentals respond, and getting a sense for how

750
00:40:14,160 --> 00:40:17,160
Speaker 1: pervasive is this environment going to be. I asked you

751
00:40:17,200 --> 00:40:22,480
Speaker 1: earlier about personalization. One of the bigger new innovations that

752
00:40:22,719 --> 00:40:26,520
Speaker 1: made possible by technology is direct indexing. How do you

753
00:40:26,560 --> 00:40:30,799
Speaker 1: guys look at that sort of style of investing. What

754
00:40:30,840 --> 00:40:34,520
Speaker 1: do you think of its role within portfolios or people

755
00:40:35,000 --> 00:40:38,640
Speaker 1: who really want to get very fine tuning in terms

756
00:40:38,640 --> 00:40:41,920
Speaker 1: of tilting towards value or away, tilting to a specific

757
00:40:42,520 --> 00:40:44,640
Speaker 1: UH sector, or being able to work in all the

758
00:40:44,719 --> 00:40:48,640
Speaker 1: various E S G and other thematic screens that you

759
00:40:48,680 --> 00:40:50,640
Speaker 1: can build in too. Direct indow that's right. And so

760
00:40:50,719 --> 00:40:52,440
Speaker 1: for the folks who are a little slow on the

761
00:40:52,520 --> 00:40:54,400
Speaker 1: uptake like I am, and have their heads down in

762
00:40:54,440 --> 00:40:56,680
Speaker 1: their own work, let me offer a definition of direct

763
00:40:56,680 --> 00:41:00,239
Speaker 1: indexing because I certainly needed it. Um direct the next

764
00:41:00,239 --> 00:41:01,640
Speaker 1: thing is something that's been around for a long time.

765
00:41:01,680 --> 00:41:03,399
Speaker 1: It's it's been around in the kind of high net

766
00:41:03,400 --> 00:41:05,839
Speaker 1: worth area of the world. And what it is is

767
00:41:06,000 --> 00:41:08,160
Speaker 1: you have your index, you have your e t F,

768
00:41:08,640 --> 00:41:11,600
Speaker 1: but instead of buying an index fund or an ATF,

769
00:41:11,760 --> 00:41:14,680
Speaker 1: instead you buy a basket of security is optimized to

770
00:41:15,000 --> 00:41:18,640
Speaker 1: track that particular market. And when you own the underlying securities,

771
00:41:18,640 --> 00:41:21,000
Speaker 1: you can as to your point and bed your preferences.

772
00:41:21,320 --> 00:41:24,160
Speaker 1: And you can also do tax management and improve your

773
00:41:24,160 --> 00:41:27,680
Speaker 1: outcomes after tax UM and as you think about we

774
00:41:27,680 --> 00:41:32,160
Speaker 1: were talking about the development the rise of passive investing UM,

775
00:41:32,200 --> 00:41:34,080
Speaker 1: and I was talking about the piece of the action

776
00:41:34,120 --> 00:41:37,000
Speaker 1: and these markers and time where we've seen middle class

777
00:41:37,400 --> 00:41:40,400
Speaker 1: you know, get a big win. I think direct indexing

778
00:41:40,600 --> 00:41:43,720
Speaker 1: is another mile marker on that journey because it's another

779
00:41:43,840 --> 00:41:47,200
Speaker 1: way to substantially or I guess maybe to say, to

780
00:41:47,360 --> 00:41:51,520
Speaker 1: quantitatively tangibly improve outcomes for investors. When we run our

781
00:41:51,560 --> 00:41:55,160
Speaker 1: own tax alpha study, at morning Star Investment Management, we

782
00:41:55,280 --> 00:41:57,480
Speaker 1: found that the tax alpha that could be added on

783
00:41:57,520 --> 00:42:00,640
Speaker 1: an annualized basis, of course it ranges based on environment,

784
00:42:00,680 --> 00:42:03,520
Speaker 1: but was anywhere from forty basis points to somewhere around

785
00:42:03,560 --> 00:42:06,240
Speaker 1: three hundred. I mean, when we think about the huge

786
00:42:06,320 --> 00:42:09,120
Speaker 1: we think about especially if if you're sitting on things

787
00:42:09,200 --> 00:42:13,920
Speaker 1: like founder stock or low cost inherited stock joint. It

788
00:42:14,200 --> 00:42:16,400
Speaker 1: makes the difference. I mean, think about the obsession we

789
00:42:16,440 --> 00:42:19,319
Speaker 1: have expense ratios. It's ten basis points cheaper, sign me up.

790
00:42:20,960 --> 00:42:24,239
Speaker 1: And what's also really interesting about the spaces to the

791
00:42:24,280 --> 00:42:26,560
Speaker 1: point that you raise a lot of folks will have

792
00:42:26,600 --> 00:42:29,520
Speaker 1: these bizarre portfolios. Where have this company's stock, I inherited it,

793
00:42:29,560 --> 00:42:30,759
Speaker 1: this thing. I don't know what to do with it,

794
00:42:30,800 --> 00:42:33,320
Speaker 1: but I know it's sound a good portfolio. Direct indexing

795
00:42:33,320 --> 00:42:36,320
Speaker 1: allows you to smartly, you know, from a tax per sspective,

796
00:42:36,360 --> 00:42:39,120
Speaker 1: transition that into a more well rounded portfolio. So I

797
00:42:39,120 --> 00:42:41,560
Speaker 1: think it's really powerful. It's not for everyone, it's not

798
00:42:41,680 --> 00:42:44,480
Speaker 1: for every dollar size, but it's much more available to

799
00:42:44,520 --> 00:42:47,359
Speaker 1: the mass market than it is that the folks over

800
00:42:47,440 --> 00:42:50,000
Speaker 1: to oh shown us in asset management did a study

801
00:42:50,239 --> 00:42:55,200
Speaker 1: and found in because you had this thirt woosh down

802
00:42:55,280 --> 00:42:59,279
Speaker 1: during the pandemic and then a very quick recovery. They

803
00:42:59,320 --> 00:43:04,000
Speaker 1: were seeing direct index portfolios that we're doing four hundred

804
00:43:04,000 --> 00:43:07,000
Speaker 1: and five hundred basis points of tax less harvesting, which

805
00:43:07,040 --> 00:43:08,880
Speaker 1: is just astonishing. I mean, I love it, and I

806
00:43:08,880 --> 00:43:11,200
Speaker 1: think about a market environment like this, and I know

807
00:43:11,360 --> 00:43:14,719
Speaker 1: you're interested in behavioral finance. We are as well. And

808
00:43:14,760 --> 00:43:16,719
Speaker 1: one of the things that I think can really engender

809
00:43:16,800 --> 00:43:19,960
Speaker 1: good behaviors if you have dual mandates, so your focus

810
00:43:20,000 --> 00:43:23,719
Speaker 1: isn't just my opically total return, but indirect indexing world.

811
00:43:23,719 --> 00:43:26,480
Speaker 1: It's yeah, I want this exposure, but I'm also getting

812
00:43:26,480 --> 00:43:29,120
Speaker 1: all these tax benefits when the market sells off. So

813
00:43:29,160 --> 00:43:30,959
Speaker 1: you have this, it will pick me up when things

814
00:43:30,960 --> 00:43:33,080
Speaker 1: are going in the wrong direction. Listen to a year

815
00:43:33,160 --> 00:43:37,680
Speaker 1: like two. If you have other appreciated stock that you

816
00:43:37,680 --> 00:43:39,880
Speaker 1: want to sell, you should be killing it on the

817
00:43:39,920 --> 00:43:43,520
Speaker 1: tax tax less harvesting, even if you're not doing directing.

818
00:43:43,640 --> 00:43:46,279
Speaker 1: That's right, but that just makes it even even better.

819
00:43:46,560 --> 00:43:48,439
Speaker 1: So I know I only have you for a limited

820
00:43:48,440 --> 00:43:51,600
Speaker 1: amount of time. Let me jump to my favorite questions

821
00:43:51,600 --> 00:43:55,359
Speaker 1: that I ask all my guests, starting with tell us,

822
00:43:55,400 --> 00:43:57,839
Speaker 1: what's been keeping you entertaining these days? What were you

823
00:43:58,040 --> 00:44:01,319
Speaker 1: streaming during lockdown? Yes, so you know this is the thing.

824
00:44:01,360 --> 00:44:04,879
Speaker 1: With all the content, Barry, I have become really hard

825
00:44:04,920 --> 00:44:07,840
Speaker 1: to please. So I'll be watching a show imagine Ozarks

826
00:44:07,920 --> 00:44:11,160
Speaker 1: or imagine recently House of Dragons. As soon as it

827
00:44:11,160 --> 00:44:14,000
Speaker 1: starts to lag, I'm gone. I have no patience for

828
00:44:14,120 --> 00:44:15,839
Speaker 1: shows and constant the way us doe. But I am

829
00:44:15,920 --> 00:44:18,440
Speaker 1: watching and I haven't yet turned on. It is a

830
00:44:18,440 --> 00:44:22,440
Speaker 1: show called Endeavor. It's a British detective show. It's not

831
00:44:22,520 --> 00:44:24,600
Speaker 1: quite as grizzly. I don't think anything's grizzly with a

832
00:44:24,640 --> 00:44:27,440
Speaker 1: British accent. So I enjoyed myself. It keeps me on

833
00:44:27,520 --> 00:44:30,600
Speaker 1: my toes. So that's what I'm watching. That sounds really interesting.

834
00:44:30,600 --> 00:44:33,000
Speaker 1: In fact, I know everybody kind of went through all

835
00:44:33,040 --> 00:44:35,239
Speaker 1: the big ones like the Crown and whatever you but

836
00:44:35,360 --> 00:44:38,279
Speaker 1: I found myself during lockdown working my way through a

837
00:44:38,320 --> 00:44:42,000
Speaker 1: bunch of French, a bunch of British shows for that

838
00:44:42,040 --> 00:44:44,680
Speaker 1: exact reason. It's like, you have to work, you have

839
00:44:44,680 --> 00:44:46,560
Speaker 1: to pay attention, you have to pay attention, and that's

840
00:44:46,560 --> 00:44:48,560
Speaker 1: a good thing. The thing with all the streaming is

841
00:44:48,600 --> 00:44:51,040
Speaker 1: I'll have it on in the background and ten minutes

842
00:44:51,080 --> 00:44:55,480
Speaker 1: later I not know, right, I totally get that. Tell

843
00:44:55,560 --> 00:44:59,280
Speaker 1: us about your mentors who helped to shape your career. Okay,

844
00:44:59,280 --> 00:45:02,160
Speaker 1: So I say the US, knowing that she will hate

845
00:45:02,320 --> 00:45:04,759
Speaker 1: that I'm raising her name, but um, and I don't

846
00:45:04,760 --> 00:45:06,479
Speaker 1: even know if she knows that this was the case

847
00:45:06,520 --> 00:45:08,279
Speaker 1: for me. But when I joined the research group, I

848
00:45:08,320 --> 00:45:10,560
Speaker 1: was of course new to finance. I was new to investing,

849
00:45:11,000 --> 00:45:14,719
Speaker 1: and I was you know, I'm a very very deliberate,

850
00:45:14,840 --> 00:45:17,160
Speaker 1: diligent person. So I'm working nights and weekends trying to

851
00:45:17,200 --> 00:45:20,360
Speaker 1: discover the morning Star voice, which is where you explain

852
00:45:20,520 --> 00:45:24,080
Speaker 1: complex things and very simple and accessible ways, and also

853
00:45:24,239 --> 00:45:26,200
Speaker 1: just learning how to tell a good fund from a

854
00:45:26,239 --> 00:45:29,680
Speaker 1: bad friend. And Christine Benz, who is a big name

855
00:45:29,719 --> 00:45:32,280
Speaker 1: at morning Star, was on that team, a senior team member,

856
00:45:32,320 --> 00:45:34,760
Speaker 1: and the edits that she would give me were so

857
00:45:35,760 --> 00:45:38,319
Speaker 1: robust and helpful. I would get pages of edits, which

858
00:45:38,320 --> 00:45:40,040
Speaker 1: of course doesn't sound like a good thing, but it

859
00:45:40,160 --> 00:45:42,480
Speaker 1: was a really good thing because it it helps me

860
00:45:42,560 --> 00:45:45,759
Speaker 1: understand things so much better. And she she had a

861
00:45:45,840 --> 00:45:48,640
Speaker 1: number of standing slots on on TV shows, and when

862
00:45:48,680 --> 00:45:50,439
Speaker 1: she wouldn't be able to make it, she would ask

863
00:45:50,440 --> 00:45:52,120
Speaker 1: if I would want to do it in her place,

864
00:45:52,160 --> 00:45:54,480
Speaker 1: and it was just just the kind of endorsement and

865
00:45:54,560 --> 00:45:57,880
Speaker 1: encouragement that I needed. And I think that's kind of

866
00:45:57,920 --> 00:46:01,240
Speaker 1: a special thing about morning Star, this idea that nobody's

867
00:46:01,280 --> 00:46:05,480
Speaker 1: too big to help someone else grow in their career. Huh.

868
00:46:05,520 --> 00:46:07,680
Speaker 1: I love that answer, And I'm gonna do something I

869
00:46:07,680 --> 00:46:11,360
Speaker 1: don't normally do in this section, which is a follow

870
00:46:11,440 --> 00:46:15,360
Speaker 1: up question. We were talking earlier before we started recording.

871
00:46:15,960 --> 00:46:19,759
Speaker 1: We did the sound test. You said your voice was

872
00:46:19,760 --> 00:46:23,600
Speaker 1: your being, of your existence, your soft voice, and that

873
00:46:23,719 --> 00:46:27,359
Speaker 1: led to a whole other discussion. Tell us a little

874
00:46:27,360 --> 00:46:31,359
Speaker 1: bit about working with Christine and other women at morning Star,

875
00:46:31,800 --> 00:46:35,360
Speaker 1: and why is the soft voice so difficult in a

876
00:46:35,400 --> 00:46:37,840
Speaker 1: field like finance for a woman. I think one of

877
00:46:37,880 --> 00:46:40,040
Speaker 1: the things people look at. And maybe this is broadly

878
00:46:40,080 --> 00:46:42,600
Speaker 1: in business, and maybe it's you know, specific to finance.

879
00:46:42,640 --> 00:46:44,879
Speaker 1: I don't know. I'd imagine it's broader, but a very

880
00:46:44,960 --> 00:46:49,560
Speaker 1: commanding presence. I think the visualization and the audio of

881
00:46:49,600 --> 00:46:53,600
Speaker 1: a commanding presence is what captures attention. And as a woman,

882
00:46:53,680 --> 00:46:56,480
Speaker 1: I have a softer voice. I'm a smaller person. You're

883
00:46:56,520 --> 00:47:00,279
Speaker 1: relatively sure, that's right, So I don't have that that

884
00:47:00,640 --> 00:47:04,759
Speaker 1: commanding kind of leader of a clan um looked to

885
00:47:04,800 --> 00:47:07,440
Speaker 1: me and um, I think that might not be an

886
00:47:07,440 --> 00:47:09,640
Speaker 1: issue for other people, but it certainly can get in

887
00:47:09,719 --> 00:47:11,440
Speaker 1: my head from time to time. And I think what

888
00:47:11,600 --> 00:47:14,560
Speaker 1: was so what has been powerful about morning Stars? There

889
00:47:14,560 --> 00:47:17,120
Speaker 1: have been a lot of women at morning Star who

890
00:47:17,160 --> 00:47:20,279
Speaker 1: have had a lot of influence who don't necessarily fit

891
00:47:20,320 --> 00:47:23,120
Speaker 1: a profile UM. And I think, actually, as I think

892
00:47:23,160 --> 00:47:25,000
Speaker 1: back to my days and research, there are a number

893
00:47:25,000 --> 00:47:30,880
Speaker 1: of women who, um, we're really substantive, thoughtful people who um,

894
00:47:30,920 --> 00:47:33,600
Speaker 1: you know, looked like me or had features that I had,

895
00:47:33,640 --> 00:47:35,880
Speaker 1: And I think that was a real source of encouragement.

896
00:47:35,920 --> 00:47:37,920
Speaker 1: Now as you move into the investing world, there tends

897
00:47:37,920 --> 00:47:40,520
Speaker 1: to be fewer women, and that's something that of course

898
00:47:40,560 --> 00:47:43,480
Speaker 1: everyone's wrestling with. How do we kind of make people

899
00:47:43,560 --> 00:47:47,120
Speaker 1: feel like, um, they are welcome to climb any invisible

900
00:47:47,120 --> 00:47:50,320
Speaker 1: barrier that they might see because their voices is valued.

901
00:47:50,920 --> 00:47:56,879
Speaker 1: It's changing, although it takes a generation really have substantial

902
00:47:56,880 --> 00:48:00,000
Speaker 1: invisible change. But there's no doubt that there are more

903
00:48:00,000 --> 00:48:03,520
Speaker 1: women and senior listen your chief investment officers at morning Store.

904
00:48:03,560 --> 00:48:07,080
Speaker 1: There are lots of other very senior women at at

905
00:48:07,160 --> 00:48:11,320
Speaker 1: very large firms. I don't think women are as visible

906
00:48:11,360 --> 00:48:15,680
Speaker 1: as men. But it's clearly there's there's certainly momentum, and

907
00:48:15,880 --> 00:48:18,080
Speaker 1: you know, it's not a thing on its own, but

908
00:48:18,160 --> 00:48:19,880
Speaker 1: we do want to make sure that we're getting the

909
00:48:19,960 --> 00:48:24,120
Speaker 1: very best from the whole cross section of populations. Diversity

910
00:48:24,120 --> 00:48:27,560
Speaker 1: of thought leads to better no doubt about that. Let's

911
00:48:27,680 --> 00:48:30,879
Speaker 1: go to everybody's favorite question, talk about books. What are

912
00:48:30,920 --> 00:48:34,040
Speaker 1: some of your favorite and what are you reading right now? Okay,

913
00:48:34,040 --> 00:48:37,600
Speaker 1: so favorite books? And I'm thinking explicitly. I'm a big reader,

914
00:48:37,640 --> 00:48:40,280
Speaker 1: I think, but I'm thinking explicitly from an investment standpoint.

915
00:48:40,480 --> 00:48:42,800
Speaker 1: I think one of the books that I really loved

916
00:48:43,040 --> 00:48:46,600
Speaker 1: was Missing to Leads Fooled by Randomness. I love that

917
00:48:46,600 --> 00:48:49,040
Speaker 1: book partly because not I read it. I don't know,

918
00:48:49,080 --> 00:48:51,839
Speaker 1: maybe five six, seven years ago. And at the time,

919
00:48:51,880 --> 00:48:54,279
Speaker 1: I've been writing a lot of commentary where I'd say

920
00:48:54,360 --> 00:48:56,280
Speaker 1: what happened in the markets that month or that quarter,

921
00:48:56,680 --> 00:48:59,080
Speaker 1: and then I would think, I'm reading everyone else's commentary

922
00:48:59,120 --> 00:49:00,680
Speaker 1: and they said, and this has because of X, Y

923
00:49:00,680 --> 00:49:02,440
Speaker 1: and Z, and I would think it is I mean,

924
00:49:02,480 --> 00:49:05,440
Speaker 1: those things both happened. The market did that, and that happened,

925
00:49:05,440 --> 00:49:08,879
Speaker 1: but did one cause that? And they seemed as such

926
00:49:08,920 --> 00:49:12,319
Speaker 1: a brilliant job of clarifying the fact that a lot

927
00:49:12,360 --> 00:49:14,879
Speaker 1: of the things that we build narratives out of are

928
00:49:15,040 --> 00:49:17,840
Speaker 1: just noise. And I think that's a really important and

929
00:49:18,280 --> 00:49:19,960
Speaker 1: you know, the kind of truth that we should hold

930
00:49:19,960 --> 00:49:22,239
Speaker 1: on to a specialized active investors and we look for

931
00:49:22,239 --> 00:49:24,960
Speaker 1: those stories. Um that a lot of it is actually

932
00:49:25,000 --> 00:49:27,640
Speaker 1: quite frankly noise. So I love that answer. What other

933
00:49:27,680 --> 00:49:30,319
Speaker 1: books are you? Okay, so I'm reading right now, I'm

934
00:49:30,320 --> 00:49:33,680
Speaker 1: reading The Bond King. I'm reading a book called UM,

935
00:49:33,800 --> 00:49:36,279
Speaker 1: How to Have a Good Day, which is about how

936
00:49:36,360 --> 00:49:40,040
Speaker 1: to prioritize and and organize your day so you get

937
00:49:40,040 --> 00:49:43,160
Speaker 1: that satisfaction out of it that you long for. Um.

938
00:49:43,200 --> 00:49:46,160
Speaker 1: It's by a woman named Caroline Webb. Is it a

939
00:49:46,760 --> 00:49:50,759
Speaker 1: organizational tool or I do love checking those things? Well,

940
00:49:50,760 --> 00:49:53,480
Speaker 1: that's that's the kind of thing that is very satisfied.

941
00:49:53,520 --> 00:49:57,040
Speaker 1: That's the kind of thing she talks about. She talks about, uh,

942
00:49:57,239 --> 00:50:00,479
Speaker 1: just kind of the behavioral elements that that come into play.

943
00:50:00,560 --> 00:50:04,280
Speaker 1: So as a prioritization standpoint, planning your day ahead of time,

944
00:50:04,360 --> 00:50:06,680
Speaker 1: knowing what those key things are that you need to

945
00:50:06,760 --> 00:50:09,799
Speaker 1: do and not the other things. She talks about making focus,

946
00:50:10,080 --> 00:50:13,680
Speaker 1: putting your activities into blocks. So this is my email block,

947
00:50:13,800 --> 00:50:16,360
Speaker 1: this is my deep think block, so some really common

948
00:50:16,480 --> 00:50:19,640
Speaker 1: sense and it's just one practical piece of advice after another.

949
00:50:19,840 --> 00:50:22,240
Speaker 1: And then the last book that I just finished recently

950
00:50:22,360 --> 00:50:25,560
Speaker 1: was called Bowling Alone. It's by Robert Putnam. It was

951
00:50:25,560 --> 00:50:28,000
Speaker 1: written in two thousand and it's about the rise and

952
00:50:28,040 --> 00:50:31,160
Speaker 1: then decline of social capital. So social capital being kind

953
00:50:31,160 --> 00:50:34,759
Speaker 1: of the trust that we have in our community and

954
00:50:34,800 --> 00:50:38,000
Speaker 1: our neighbors and our peers um and it's it's tracing

955
00:50:38,040 --> 00:50:41,840
Speaker 1: that arc. And it was fascinating because obviously of COVID

956
00:50:41,880 --> 00:50:43,960
Speaker 1: and lockdowns and the way we were so separate from

957
00:50:43,960 --> 00:50:46,239
Speaker 1: one another and now we're coming back together. And it

958
00:50:46,320 --> 00:50:49,120
Speaker 1: just got me thinking about the value of social capital

959
00:50:49,160 --> 00:50:51,759
Speaker 1: and what that can mean for a country. What sort

960
00:50:51,760 --> 00:50:54,400
Speaker 1: of advice would you give to a recent college grad

961
00:50:54,480 --> 00:50:58,440
Speaker 1: who was interested in a career in either and for you,

962
00:50:58,520 --> 00:51:04,080
Speaker 1: this is a long list, economics analysis, fund management, or

963
00:51:04,440 --> 00:51:07,319
Speaker 1: being a chief investment officer. You know, one thing that

964
00:51:07,840 --> 00:51:11,200
Speaker 1: I was not good at in college. I'm a present

965
00:51:11,200 --> 00:51:14,760
Speaker 1: oriented person and I wasn't good at envisioning a career,

966
00:51:14,840 --> 00:51:17,040
Speaker 1: and so I had just very general careers. Well, I

967
00:51:17,080 --> 00:51:19,200
Speaker 1: could go into medicine, or I could be a lawyer.

968
00:51:19,480 --> 00:51:22,640
Speaker 1: It didn't really think about the wide array of careers

969
00:51:22,680 --> 00:51:25,000
Speaker 1: that are out there, and so I don't You don't

970
00:51:25,040 --> 00:51:27,279
Speaker 1: want someone to become a little professional at age of

971
00:51:27,360 --> 00:51:30,160
Speaker 1: nineteen and have some sort of you know, envision of

972
00:51:30,200 --> 00:51:32,040
Speaker 1: their future in mind. But you do want people to

973
00:51:32,160 --> 00:51:35,560
Speaker 1: know of the enormous amounts of variety that there is

974
00:51:35,600 --> 00:51:38,760
Speaker 1: in professional life, and so I would I would suggest

975
00:51:38,760 --> 00:51:41,520
Speaker 1: that people really pursue that really get a sense for

976
00:51:41,560 --> 00:51:45,439
Speaker 1: the variety, whether that's taking random internships or whether that's

977
00:51:45,600 --> 00:51:49,000
Speaker 1: you know, going to networking events in random things, just

978
00:51:49,120 --> 00:51:51,279
Speaker 1: that you get a sampling you kind of date the

979
00:51:51,560 --> 00:51:54,600
Speaker 1: investment market or the broader career market and get a

980
00:51:54,600 --> 00:51:57,760
Speaker 1: sense for what's actually a fit for you. Really interesting.

981
00:51:58,040 --> 00:52:00,879
Speaker 1: And our final question, what do know about the world

982
00:52:00,960 --> 00:52:04,640
Speaker 1: of investing today that you wish you knew twenty five

983
00:52:04,760 --> 00:52:07,319
Speaker 1: or so years ago when you were first getting started. Yeah.

984
00:52:07,360 --> 00:52:09,279
Speaker 1: So there's a few things I mentioned um at the

985
00:52:09,320 --> 00:52:13,040
Speaker 1: beginning of our conversation that during the global financial crisis,

986
00:52:13,080 --> 00:52:16,280
Speaker 1: I learned that a lot of very credible, experienced people

987
00:52:16,400 --> 00:52:19,239
Speaker 1: could be very very wrong. And the thing that I

988
00:52:19,239 --> 00:52:22,200
Speaker 1: would tell myself is that it's okay to ask the

989
00:52:22,280 --> 00:52:25,840
Speaker 1: dumb question. The dumb question is probably something that a

990
00:52:25,840 --> 00:52:29,359
Speaker 1: lot of people don't fully understand, and you need to have,

991
00:52:29,520 --> 00:52:31,640
Speaker 1: you know, the confidence and the willingness to put yourself

992
00:52:31,640 --> 00:52:33,759
Speaker 1: out there and be like, I don't get the subprime thing.

993
00:52:33,880 --> 00:52:36,400
Speaker 1: You know, I don't get these trunches, or you know,

994
00:52:36,440 --> 00:52:38,880
Speaker 1: I don't understand why we should be trading off of

995
00:52:38,920 --> 00:52:42,399
Speaker 1: CPI prints every month. Ask those questions. I think those

996
00:52:42,520 --> 00:52:47,680
Speaker 1: questions are way more profounds than people think, really really interesting.

997
00:52:48,440 --> 00:52:51,960
Speaker 1: We have been speaking with Marta Norton. She is c

998
00:52:52,160 --> 00:52:56,840
Speaker 1: i O of Morning Star Investment Management. If you enjoy

999
00:52:56,920 --> 00:52:59,759
Speaker 1: these conversations, well be sure and check out any of

1000
00:52:59,800 --> 00:53:02,880
Speaker 1: the previous I don't know four hundred and twenty seven

1001
00:53:02,880 --> 00:53:05,840
Speaker 1: we've done over the past eight years. You can find

1002
00:53:05,880 --> 00:53:11,240
Speaker 1: those at Bloomberg, Spotify, iTunes and now YouTube or wherever

1003
00:53:11,560 --> 00:53:15,480
Speaker 1: you fill your podcast uh fix. We love your comments,

1004
00:53:15,480 --> 00:53:18,880
Speaker 1: feedback and suggestions right to us at m IB podcast

1005
00:53:18,920 --> 00:53:22,440
Speaker 1: at Bloomberg dot net. Sign up for my daily reading

1006
00:53:22,480 --> 00:53:25,200
Speaker 1: list at Bloomberg dot com. Follow me on Twitter at

1007
00:53:25,280 --> 00:53:27,640
Speaker 1: rid Halts. I would be remiss if I did not

1008
00:53:27,760 --> 00:53:30,640
Speaker 1: thank the correct team that helps put these conversations together

1009
00:53:30,719 --> 00:53:35,200
Speaker 1: each week. Sarah Livesey is my audio engineer. Attica val

1010
00:53:35,239 --> 00:53:39,080
Speaker 1: Bron is my project manager. Our producer is Paris Wald.

1011
00:53:39,160 --> 00:53:42,840
Speaker 1: Our head of research is Sean Russo. I'm Barry Hults.

1012
00:53:43,040 --> 00:53:46,640
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.