WEBVTT - Marta Norton on Direct Indexing and Investments 0:00:02.000 --> 0:00:07.160 This is Mesters in Business with Very Results on Bloomberg Radio. 0:00:08.520 --> 0:00:11.640 This week on the podcast, I have an extra special guest. 0:00:11.960 --> 0:00:16.200 Martha Norton is the chief Investment Officer for morning Star 0:00:16.360 --> 0:00:20.400 Investment Management. They advise or directly manage about two hundred 0:00:20.400 --> 0:00:23.319 and fifty billion dollars in client assets. She has a 0:00:23.360 --> 0:00:27.520 fascinating career, starting at BLS, working a way up as 0:00:27.560 --> 0:00:31.520 an analyst and eventually head of outcome based Strategies for 0:00:31.600 --> 0:00:36.519 morning Star, eventually rising from that position and portfolio manager 0:00:36.880 --> 0:00:42.160 to chief investment officer. We talk about everything from when 0:00:42.159 --> 0:00:45.440 do you think about risk, how do you diversify a portfolio? 0:00:45.680 --> 0:00:49.120 At what point do you really have to rethink the 0:00:49.200 --> 0:00:52.880 fundamentals of what's going on in the economy and the marketplace. 0:00:53.440 --> 0:00:57.080 I found this conversation to be absolutely fascinating, and I 0:00:57.120 --> 0:01:00.960 think you will also with no further ado my conversation 0:01:01.480 --> 0:01:06.600 with morning Stars Marta Norton, so BLS economist, how did 0:01:06.640 --> 0:01:09.640 that happen? Tell us about that opening gig? Right, So 0:01:09.640 --> 0:01:12.520 it's a pretty heavy title, maybe a generous title for 0:01:12.560 --> 0:01:15.680 a twenty three year old. Bills recruits just like all 0:01:15.720 --> 0:01:18.360 other organizations, recruits at college campuses. So there are a 0:01:18.480 --> 0:01:21.680 number of us heading in out of college into the BLS, 0:01:22.040 --> 0:01:24.720 and of course b allst home to the Consumer Price Index, 0:01:24.720 --> 0:01:27.319 which we're all watching so closely. I was on the 0:01:27.360 --> 0:01:31.840 Producer Price Index, so the sister index, focusing on the 0:01:31.880 --> 0:01:35.679 prices that produces that's right. So I was on the 0:01:35.720 --> 0:01:39.319 research team, so putting together research. I wrote a scintillating 0:01:39.360 --> 0:01:43.200 piece on beef and cattle prices that's right, which you 0:01:43.240 --> 0:01:46.240 can find in the monthly Labor Review. And I spent 0:01:46.319 --> 0:01:49.240 a lot of time working with folks, helping with contract escalation, 0:01:49.320 --> 0:01:52.360 identifying the right index for them. And actually I was 0:01:52.400 --> 0:01:55.200 at the p p I. Most people may not remember this, 0:01:55.280 --> 0:01:57.200 but in two thousand four, the p p I was 0:01:57.240 --> 0:02:00.360 a month and a half late. So sometimes that process 0:02:00.400 --> 0:02:02.840 my mind today when people are watching the cp I, 0:02:02.840 --> 0:02:04.960 I can't imagine how people would react. Why was it 0:02:05.000 --> 0:02:07.000 a month and a half late? No, for so, we 0:02:07.000 --> 0:02:12.320 were converting from the Standard Industrial Classification system to the 0:02:12.440 --> 0:02:17.200 North American Industrial Classification System, so taking potatoes from one area, 0:02:17.280 --> 0:02:19.720 moving them into another area, making sure everything was in 0:02:19.720 --> 0:02:22.160 its right place, and like all things, it took longer, 0:02:22.360 --> 0:02:25.840 was more complex. Why wouldn't use the old model until 0:02:25.880 --> 0:02:27.680 the new model is ready to you would think you 0:02:27.680 --> 0:02:29.400 would think. I think it was just a bit of 0:02:29.560 --> 0:02:35.400 poor planning more than anything. No, you know that that 0:02:35.560 --> 0:02:38.440 can happen, and it's funny. I had my first brush 0:02:38.520 --> 0:02:42.400 with you media as a professional at that time. The journalists, 0:02:42.400 --> 0:02:45.280 of course, we're calling in. Folks were calling in, where's 0:02:45.320 --> 0:02:49.480 our PPI? Conspiracy theories abounded, and a journalist, I think, 0:02:49.480 --> 0:02:51.520 could how I was mostly a child and was trying 0:02:51.520 --> 0:02:53.800 to get the dirt out of me, and I said 0:02:53.880 --> 0:02:56.519 something like, we have no idea when the PPI is 0:02:56.560 --> 0:02:58.639 coming out, And that's the quote that I got into 0:02:58.639 --> 0:03:00.600 the papers. Let's it would change in model. You got 0:03:00.600 --> 0:03:03.320 to give it a couple of weeks, you know, sometimes 0:03:03.320 --> 0:03:06.519 the movers late. That's very funny. Show from Bureau of 0:03:06.600 --> 0:03:10.160 Labor Statistics. How did you transition over to Morning Star? Right? 0:03:10.200 --> 0:03:12.200 So I leave the Beer of Labor Statistics and I 0:03:12.280 --> 0:03:16.280 move into economic consulting. And this is distinct from management consulting, 0:03:16.320 --> 0:03:18.240 which I think a lot of people are pretty familiar with. 0:03:18.240 --> 0:03:21.240 With econ consulting, at least at the firm I was at, 0:03:21.400 --> 0:03:24.040 it was a lot of expert witness testimony, so litigation 0:03:24.080 --> 0:03:26.839 around unfair competition or the like. A company would pull 0:03:26.880 --> 0:03:29.160 in our expert witness, and I was part of the 0:03:29.200 --> 0:03:31.480 team to put together the case to explain the market 0:03:31.560 --> 0:03:34.160 size or the market share or what have you. And 0:03:34.160 --> 0:03:37.400 it was interesting work. It was demanding, work, was pretty grueling. 0:03:37.680 --> 0:03:40.360 But the career paths from there were either kind of 0:03:40.400 --> 0:03:44.000 the PhD route or the legal routes, and those weren't passed. 0:03:44.000 --> 0:03:47.200 I was necessarily interested in pursuing right then, So I thought, okay, 0:03:47.280 --> 0:03:49.680 let's stop trying to apply the major directly to the 0:03:49.720 --> 0:03:52.960 career and maybe have a little bit broader perspective. And 0:03:53.320 --> 0:03:56.120 I loved research. I knew finance had a close corollary 0:03:56.240 --> 0:03:59.880 to kN I was in Chicago, morning Star being the 0:04:00.360 --> 0:04:02.440 research firms, so I applied and was hired as an 0:04:02.480 --> 0:04:05.080 ec F analyst in two thousand five. They were actually 0:04:05.240 --> 0:04:08.880 relatively nascent, but they were back then. You were there 0:04:08.920 --> 0:04:12.360 really as they exploded, oh eight or nine, more or 0:04:12.480 --> 0:04:15.120 less after the crisis, right, that's right, And so morning 0:04:15.120 --> 0:04:17.880 Star coverage was really just getting started on e t 0:04:18.040 --> 0:04:20.800 f s right in the two thousand five period. And 0:04:20.839 --> 0:04:24.080 of course now it's a very robust coverage. It's sophisticated, 0:04:24.200 --> 0:04:27.560 it has a philosophy, but then we were still feeling 0:04:27.560 --> 0:04:29.360 our way and so there was a lot of need 0:04:29.400 --> 0:04:31.719 on the active mutual fund fronts, and so my coverage 0:04:31.760 --> 0:04:35.000 list it kind of converted over time to focus more 0:04:35.000 --> 0:04:37.560 on mutual funds, to focus on five to nine plans 0:04:37.640 --> 0:04:40.400 college savings. I was getting my c f A charter 0:04:40.520 --> 0:04:42.640 around that time, so it was a period of I 0:04:42.680 --> 0:04:46.200 guess I would call it intense study, intense focus on 0:04:46.600 --> 0:04:50.440 understanding different investment strategies. What makes a good investment strategy. 0:04:50.720 --> 0:04:52.480 I think a lot of people think of morning Star, 0:04:52.720 --> 0:04:56.839 and rightly so for the Star ratings, which are performance measurements, 0:04:57.000 --> 0:04:59.560 But morning Star spends a lot of time actually doing 0:04:59.600 --> 0:05:03.240 fun to mental work analysis on what makes a good 0:05:03.320 --> 0:05:05.760 mutual funds? You know, the people, the process in that work. 0:05:05.760 --> 0:05:07.800 And that's where I was spending my time as an analyst. 0:05:08.040 --> 0:05:10.440 So how do you find your way from economists to 0:05:10.480 --> 0:05:13.880 analysts to asset manager? How did that transition happen? So 0:05:13.920 --> 0:05:16.120 in two thousand eight, I I just perceived my c 0:05:16.279 --> 0:05:18.279 F A charter and I was beginning to look around 0:05:18.360 --> 0:05:20.160 and think about, you know, where else would I want 0:05:20.160 --> 0:05:22.400 to go in this company or or outside the company. 0:05:22.600 --> 0:05:25.960 And at that time, the morning Star managed portfolio's team, 0:05:26.120 --> 0:05:29.520 which as you mentioned, as a subsidia, morning Star had 0:05:29.560 --> 0:05:31.240 an opening, and so I tossed my hat in the 0:05:31.279 --> 0:05:36.120 ring and moved over in October. Oh, so that's some 0:05:36.320 --> 0:05:39.599 timing right in the storm. I know, I want to 0:05:39.640 --> 0:05:43.240 run assets. Let me let me catch the falling night here. 0:05:43.320 --> 0:05:46.520 No here, So you're about to start the worst six 0:05:46.560 --> 0:05:50.600 months in a long time. What was experience like beginning 0:05:50.600 --> 0:05:54.120 in asset management in the eye of the hurricane. I've 0:05:54.120 --> 0:05:59.000 read that investors are really marked by the environment in 0:05:59.040 --> 0:06:02.280 which they kind of of age. Um. And so I 0:06:02.480 --> 0:06:05.800 came of age in the global financial crisis, and I 0:06:05.839 --> 0:06:08.960 mean there were so many lessons learns that maybe I 0:06:08.960 --> 0:06:13.680 had to process over time. One of them was very smart, 0:06:13.920 --> 0:06:18.520 very credible, people with very good backgrounds and experience can 0:06:18.560 --> 0:06:22.520 be very very wrong. Um. And I saw that firsthand 0:06:22.560 --> 0:06:25.640 with some of the analysis that was done at that time. 0:06:26.320 --> 0:06:28.440 I saw how personal money is. Let me give you 0:06:28.480 --> 0:06:32.200 some background on morning Start managed portfolios. These are portfolios 0:06:32.440 --> 0:06:35.640 that we're creating, whether their individual stocks or whether they're 0:06:35.680 --> 0:06:39.839 multi asset portfolios, that we offer to financial advisors, who 0:06:39.880 --> 0:06:43.839 in turn offer them to their clients. So these are stocks, bonds, ETFs, 0:06:43.920 --> 0:06:45.840 mutual funds. They can be, yeah, they can be kind 0:06:45.880 --> 0:06:49.240 of a varied collection, varied instruments that were implementing that 0:06:49.279 --> 0:06:53.159 the views in and so our customer bases financial advisors 0:06:53.320 --> 0:06:56.440 and their underlying clients, and so over that period, we 0:06:56.440 --> 0:07:00.800 were having maybe bi weekly weekly calls with finance to advisors, 0:07:00.880 --> 0:07:03.880 just opening up the doors and having a conversation. We're 0:07:03.880 --> 0:07:06.600 doing the same with clients. And I can remember one 0:07:06.880 --> 0:07:09.279 client on one of our calls. I was sitting in 0:07:09.320 --> 0:07:12.120 a room nine oh one that I still sit in today, um, 0:07:12.200 --> 0:07:14.400 and he was saying, just go to cash, Please, just 0:07:14.480 --> 0:07:17.320 go to cash. And you know, it really struck home 0:07:17.360 --> 0:07:20.520 with me that money is very personal, that it's closely 0:07:20.600 --> 0:07:23.480 tied to security, and when we look at price movements 0:07:23.480 --> 0:07:26.200 on a chart, sometimes we forget what it feels like 0:07:26.320 --> 0:07:28.400 to be at those different points on the chart. And 0:07:28.440 --> 0:07:31.400 it just stuck with me this idea that this is 0:07:31.440 --> 0:07:34.840 a very serious matter when you're managing folks assets, it's 0:07:34.880 --> 0:07:38.920 personal in all sorts of ways. It's not just their security. 0:07:38.960 --> 0:07:41.880 A lot of people look at their portfolio values and 0:07:41.920 --> 0:07:46.080 it impacts their sense of self worth, their confidence, how 0:07:46.120 --> 0:07:49.280 they view the world. I mean, if you begin as 0:07:49.320 --> 0:07:51.760 a trader or a portfolio manager, you kind of learn 0:07:52.160 --> 0:07:55.239 like a surgeon. You have to compartmental opposite. You can't 0:07:55.320 --> 0:07:58.920 wear it on your sleeve. But that's not how individuals perceived. 0:07:59.240 --> 0:08:01.720 It's this role in real right, and I think that's 0:08:01.760 --> 0:08:03.920 why there's so much importance. And this is something that 0:08:03.960 --> 0:08:05.600 I think is close to the heart of Morning Star. 0:08:06.000 --> 0:08:08.760 But there's so much importance in the purpose of education 0:08:08.880 --> 0:08:11.400 and telling people what to look at, because that's what 0:08:11.440 --> 0:08:14.280 I benefited from going to morning Star learning investing through 0:08:14.320 --> 0:08:17.600 morning Stars lens. You don't necessarily need to take your 0:08:17.640 --> 0:08:20.880 signals from recent market performance. There are other things that 0:08:20.920 --> 0:08:23.600 should be your signals in terms of how you're doing 0:08:23.840 --> 0:08:27.600 as an investor. So, so you as an investor, began 0:08:27.960 --> 0:08:30.400 as an economist, then you're an analyst, then you're an 0:08:30.440 --> 0:08:34.880 investment manager, then your portfolio manager, now you're in chief 0:08:35.000 --> 0:08:40.080 investment officer. Each of those steps is a very different role, 0:08:40.120 --> 0:08:43.280 and you're looking at different things and experiencing different things 0:08:45.040 --> 0:08:49.800 throughout that progression. What really stands out, um, because that's 0:08:49.920 --> 0:08:52.720 really interesting career path. Yeah, you know, I look at 0:08:52.760 --> 0:08:55.719 my career and kind of three chunks there's the pre 0:08:55.880 --> 0:08:59.280 Morning Star chunk of being an economist working in econ consulting, 0:08:59.280 --> 0:09:01.680 and I see a lot of value in that UM, 0:09:01.720 --> 0:09:03.760 in part because I think if you're with the same 0:09:03.800 --> 0:09:06.920 company your entire career, you can sometimes fall into the 0:09:06.920 --> 0:09:09.400 fallacy that grass is greener somewhere else. And so I 0:09:09.440 --> 0:09:12.079 was able to have some career experience from that UM, 0:09:12.120 --> 0:09:13.480 and then I have the period where I was with 0:09:13.480 --> 0:09:16.400 Morning Start Inc. Doing research and just soaking things up, 0:09:16.720 --> 0:09:19.680 and then I move into the money management UM part 0:09:19.720 --> 0:09:21.760 of my career, and I would say that there was 0:09:21.800 --> 0:09:25.040 a stretch from two thousand eight to call it two 0:09:25.080 --> 0:09:28.160 thousand and fifteen where I was managing a ton of 0:09:28.200 --> 0:09:30.400 different types of mandates. I was on the road with 0:09:30.480 --> 0:09:34.400 clients and financial advisors sometimes once a week, understanding who 0:09:34.440 --> 0:09:36.920 they were, what they were looking for from us, and 0:09:36.960 --> 0:09:40.760 there was just a very rich development period, which I 0:09:40.800 --> 0:09:42.920 think at the time, I don't know if I fully 0:09:42.920 --> 0:09:45.480 appreciate it. I'm someone who likes to see change like 0:09:45.559 --> 0:09:48.280 sncy development, and so it required a you know, a 0:09:48.280 --> 0:09:50.960 bit of patience over that stretch, but it was I 0:09:51.000 --> 0:09:54.600 think a very foundational period for me to just have 0:09:54.880 --> 0:09:58.120 build that experience in the markets. So how do these 0:09:58.160 --> 0:10:02.959 differences between being an economist and a researcher versus someone 0:10:02.960 --> 0:10:06.800 who has to execute on theory. How do the difference 0:10:06.880 --> 0:10:08.839 is manifest in your day to day You know, it's 0:10:08.840 --> 0:10:12.000 a great question. I think the first thing that would 0:10:12.040 --> 0:10:14.720 come to mind there is that I think when you 0:10:14.760 --> 0:10:19.360 are a researcher or a theorist or an analyst, and 0:10:19.400 --> 0:10:22.840 you're not putting money to work, it's a lot easier 0:10:22.880 --> 0:10:26.920 to be an ideologue. And when you are an investor, 0:10:27.360 --> 0:10:30.160 you have to learn how to have a philosophy but 0:10:30.280 --> 0:10:33.600 remain flexible, be willing to be proven wrong in real 0:10:33.640 --> 0:10:36.840 time and know when you're actually proven wrong um, and 0:10:37.040 --> 0:10:39.120 being willing to know when you're not being proven wrong 0:10:39.160 --> 0:10:41.640 and when the payoff is still coming, and to not 0:10:41.760 --> 0:10:44.120 be so dogmatic. And I think that's a lesson that 0:10:44.240 --> 0:10:48.800 value investors have learned repeatedly over the past. You know, 0:10:48.840 --> 0:10:51.640 really since the global financial crisis on, I think there 0:10:51.720 --> 0:10:54.240 was an assumption that value is always is going to 0:10:54.400 --> 0:10:56.160 come back any second now, and I think people have 0:10:56.200 --> 0:11:00.200 had to reevaluate how they think about things. Huh. You know, 0:11:00.520 --> 0:11:03.920 I like that description. The feedback loop is so much 0:11:03.960 --> 0:11:08.600 more rapid in practice. In theory you never are bitten 0:11:08.720 --> 0:11:12.040 by the seeds that you plant, but in actual practice 0:11:12.280 --> 0:11:14.520 you find out very quickly. Are you right wrong? Yeah? 0:11:14.559 --> 0:11:16.280 And you know, Barry, I've been spending a lot of 0:11:16.320 --> 0:11:18.679 time reading about decision making. So I think a lot 0:11:18.679 --> 0:11:21.080 of folks have read Anti Duke book on on Thinking 0:11:21.080 --> 0:11:25.560 and Bets, and I think that perspective of don't evaluate 0:11:25.600 --> 0:11:28.960 the outcome, evaluate how you're making your decision the process. 0:11:29.080 --> 0:11:31.840 That's something I've learned as a practitioner, not so much 0:11:31.880 --> 0:11:34.720 as a as a theorist. She starts the book, if 0:11:34.760 --> 0:11:37.559 I remember, with the story of do you go for 0:11:37.679 --> 0:11:40.640 it on fourth down? And loves that story. That was 0:11:40.720 --> 0:11:45.200 a very It's such a perfiximation of good process, bad outcome. 0:11:45.360 --> 0:11:47.800 Over time that wins, but you lost that one game 0:11:48.040 --> 0:11:50.679 that people can't get past that. So let's talk a 0:11:50.720 --> 0:11:55.160 little bit about morning Stars history. They're in Chicago. I 0:11:55.320 --> 0:11:58.920 know of them from their mutual fund reading business. Tell 0:11:58.960 --> 0:12:02.160 us a bit about your association with the firm so 0:12:02.400 --> 0:12:05.920 Um morning Star actually has a really rich history. And 0:12:06.120 --> 0:12:09.800 to hear Joe and Suada our founder hell it Um, 0:12:09.840 --> 0:12:11.160 there was a bit of you know, kind of an 0:12:11.240 --> 0:12:15.040 entrepreneurial spirit. He wanted to be an entrepreneurial UM. He 0:12:15.240 --> 0:12:19.040 was in the investing world and he was intrigued by 0:12:19.160 --> 0:12:23.199 Warren Buffett, and he was looking for kind of that 0:12:23.480 --> 0:12:27.720 market opportunity and he found it in the mutual fund space. Now, 0:12:27.800 --> 0:12:30.840 as he tells it, the mutual funds space was a 0:12:30.880 --> 0:12:33.920 pretty nascent space in the early nineteen eighties. It's not 0:12:34.000 --> 0:12:36.960 like it is today where mutual funds are ubiquitous, and 0:12:37.000 --> 0:12:40.480 he saw it as a really positive good thing for 0:12:40.520 --> 0:12:45.559 the individual investor to have access to these top money managers. UM. 0:12:45.559 --> 0:12:48.080 But he found that morning Star was making a lot 0:12:48.120 --> 0:12:51.240 of or excuse me, individual investors were making decisions based 0:12:51.280 --> 0:12:53.840 solely on on trailing returns, which is we all know 0:12:53.920 --> 0:12:57.760 it's not a good investing strategy. So he founds the 0:12:57.800 --> 0:13:01.680 company in the early nineteen eighties. His focus is on 0:13:01.800 --> 0:13:07.280 mutual funds, providing data, providing analysis, and generally helping individual 0:13:07.360 --> 0:13:10.920 investors have better outcomes. And so that general sense of 0:13:11.000 --> 0:13:14.840 empowering investor success is the same mentality that Morningstar has 0:13:14.880 --> 0:13:18.640 now taken and its research to e t s, to 0:13:19.200 --> 0:13:24.040 you know, individual stocks, to credits. UM, it's software, it's data, 0:13:24.240 --> 0:13:27.000 and of course it's Investment management group. When did the 0:13:27.040 --> 0:13:30.439 investment management saw to the business begin. There's different kind 0:13:30.480 --> 0:13:33.119 of histories to different parts of it. The managed portfolio 0:13:33.160 --> 0:13:36.880 business began in two thousand one, but we've had consulting arms. 0:13:36.920 --> 0:13:40.319 We acquired Ibbotson, which has its own rich history, and 0:13:40.360 --> 0:13:43.600 then we also have global groups UM outside the U 0:13:43.720 --> 0:13:46.240 S And Sydney and London and in other places that 0:13:46.280 --> 0:13:49.320 we've added to the mix over the years. So about 0:13:49.360 --> 0:13:53.760 halfway through the history, really full bore asset management that's 0:13:54.280 --> 0:13:57.280 is introduced, which kind of answers the question, Hey, why 0:13:57.320 --> 0:14:00.160 would a research from new to CEE? I Oh, but 0:14:00.280 --> 0:14:02.480 really it's much more than a research front, that's right. 0:14:02.520 --> 0:14:04.880 That's right. So it's for the asset management business. And 0:14:04.880 --> 0:14:07.880 in fact, there are four CIOs in the business. There's 0:14:07.960 --> 0:14:11.120 one there's one for each region. So I sit in Chicago, 0:14:11.600 --> 0:14:14.800 I have a colleague in London and one in Asia 0:14:14.840 --> 0:14:17.199 pac Um, and then we have a global c IO 0:14:17.320 --> 0:14:20.800 who we report into, who sits in London. So when 0:14:20.800 --> 0:14:24.720 did Morning Star acquire Ibbotson? Because I interviewed Roger Ibbotson, 0:14:25.000 --> 0:14:30.920 I want to say something like that. So two, yeah, 0:14:30.960 --> 0:14:34.560 I didn't realize that Associates was part of morning Star 0:14:34.600 --> 0:14:36.760 at the time, right, so now it's all kind of 0:14:36.800 --> 0:14:39.080 folded together. What we what we did is we had 0:14:39.120 --> 0:14:41.720 these separate strands, these separate capabilities, and there was an 0:14:41.720 --> 0:14:43.720 effort to think about what do we want to look 0:14:43.760 --> 0:14:46.600 like globally as one cohesive unit. And so we've pulled 0:14:46.600 --> 0:14:50.880 together as an asset manager. Huh. So you do mutual funds, 0:14:50.960 --> 0:14:55.440 traditional neutral funds, you do uh, E t fs? What 0:14:55.560 --> 0:14:58.720 about bonds and fixed income? So what we do is 0:14:59.000 --> 0:15:02.400 we have the individ dual security portfolios. We have our 0:15:02.440 --> 0:15:05.640 own mutual funds that we use within our model portfolios, 0:15:05.720 --> 0:15:07.760 and then we have model portfolios that rely on e 0:15:07.880 --> 0:15:10.520 t f s from third parties UM, and we mixed 0:15:10.520 --> 0:15:12.880 the two together as well as kind of an active 0:15:12.880 --> 0:15:17.120 passive approach. Our fixed income exposure right now is through 0:15:17.480 --> 0:15:19.840 third parties, so we'll buy e t f s or 0:15:19.880 --> 0:15:23.840 we will use subadvisors. So if someone else is doing it, 0:15:23.840 --> 0:15:26.320 it's an expensive Why do you want to recreate that wheel? 0:15:26.800 --> 0:15:29.920 What we're actually focused on is these model portfolios that 0:15:29.960 --> 0:15:33.880 we're managing, these multi asset financial solutions UM. And you know, 0:15:33.920 --> 0:15:35.960 this is an area of expertise something that we've been 0:15:35.960 --> 0:15:37.920 doing for more than twenty years, and what we're doing 0:15:37.920 --> 0:15:40.600 now is thinking about how do we want to power 0:15:40.760 --> 0:15:43.800 those model portfolios, and so that's where the mutual funds 0:15:43.840 --> 0:15:46.160 come in. In In fact, for a long time we used 0:15:46.240 --> 0:15:49.000 third party mutual funds. It's an area of expertise for Morning, 0:15:49.040 --> 0:15:51.400 so are selecting those mutual funds and when we found that, 0:15:51.560 --> 0:15:54.040 we just wanted to try to reduce the layers of costs. 0:15:54.120 --> 0:15:55.840 When you're owning a bunch of mutual funds, you have 0:15:55.880 --> 0:15:59.400 all the ancillary expenses built into those expense ratios. So 0:15:59.400 --> 0:16:01.240 if we could take what we thought were best to 0:16:01.320 --> 0:16:04.360 breed thinkers and put them within our mutual funds, we 0:16:04.360 --> 0:16:06.480 could cut down on the layers of costs, and that's 0:16:06.480 --> 0:16:08.600 in fact what we did. So if you guys are 0:16:08.680 --> 0:16:12.320 driving the creation and exactly what these funds look like, 0:16:12.680 --> 0:16:15.880 how involved have you gotten in thematic investing? Is that 0:16:16.000 --> 0:16:19.040 something that's significant. So a big part of who we 0:16:19.080 --> 0:16:23.120 are is our global research platform where we're covering you know, 0:16:23.400 --> 0:16:26.160 equities any which way you can slice them globally in 0:16:26.200 --> 0:16:28.600 the same thing on the fixed income side. So what 0:16:28.800 --> 0:16:32.720 our Capital Markets i P really is is looking at 0:16:33.280 --> 0:16:35.960 what are the fundamental drivers of these asset classes and 0:16:36.000 --> 0:16:38.720 how do we think about them from evaluation perspective? What 0:16:38.760 --> 0:16:41.160 do we think of them on a prospective basis, and 0:16:41.160 --> 0:16:43.000 so you can think of that maybe I guess as 0:16:43.040 --> 0:16:46.680 thematic we're sometimes focused on very narrow areas like a 0:16:46.760 --> 0:16:50.080 country or a sector. UM. We also have the ability 0:16:50.120 --> 0:16:53.960 within our mutual funds to create UM equity sleeves, so 0:16:54.040 --> 0:16:57.520 individual stocks that represent the opportunity and we would do 0:16:57.600 --> 0:16:59.080 that when we think the e t F is too 0:16:59.120 --> 0:17:01.720 expensive or we think the e t F isn't actually 0:17:01.800 --> 0:17:04.679 capturing what we think is the opportunity UM, So we 0:17:04.760 --> 0:17:07.439 have that embedded in our mutual fense as well. The 0:17:07.520 --> 0:17:11.560 past two decades has seen a giant rise in alternatives. 0:17:11.960 --> 0:17:13.600 What do you look at in that space? How do 0:17:13.640 --> 0:17:17.040 you think about private equity, venture capital, or even head 0:17:17.080 --> 0:17:21.119 funds within alternatives. We actually have a pretty rich history 0:17:21.200 --> 0:17:24.199 there and we've been managing an absolute return portfolio for 0:17:24.240 --> 0:17:28.159 a long time, but our focus and alternatives UM, we 0:17:28.240 --> 0:17:29.639 spent a lot of time thinking about what do we 0:17:29.680 --> 0:17:31.840 want to do with this space? What you know, what's 0:17:31.880 --> 0:17:34.919 different that we could get with alternatives from stocks and 0:17:34.960 --> 0:17:37.760 from bonds, And what we landed on was a focus 0:17:37.800 --> 0:17:41.600 on identifying strategies that are not driven by the same 0:17:41.600 --> 0:17:44.960 factors that drive equity returns or you know, bond markets, 0:17:45.400 --> 0:17:48.520 and focusing on strategies that have had limited draw down. 0:17:48.600 --> 0:17:51.600 So our focus has been selecting these third party strategies 0:17:51.920 --> 0:17:54.679 that we think are somewhat predictable so that we can 0:17:54.760 --> 0:17:58.000 use them have a role in portfolio and also um 0:17:58.119 --> 0:18:01.000 an alternative to what we have with and fixed income 0:18:01.000 --> 0:18:04.520 and equities. So we have a merger arbitrage strategy, we 0:18:04.560 --> 0:18:07.560 have a convertible arbitrage strategy. We have a strategy would 0:18:07.560 --> 0:18:10.399 I wouldn't necessarily classified as global macro. It's kind of 0:18:10.440 --> 0:18:13.199 a fund of funds approach with different models embedded in it. 0:18:13.680 --> 0:18:17.480 And actually that that's suite. That collection of strategies, which 0:18:17.480 --> 0:18:20.320 is in the morning Star Alternatives fund, is where a 0:18:20.320 --> 0:18:23.080 lot of our portfolio managers were turning to at the 0:18:23.240 --> 0:18:25.639 end of last year when you know, fixed income is 0:18:25.680 --> 0:18:30.119 so poor on a prospective basis, equity valuations are really high, 0:18:30.440 --> 0:18:33.520 and so alternatives are alternatives haven't been positive, but they 0:18:33.560 --> 0:18:36.440 have lost a lot less than even short data bonds, 0:18:36.720 --> 0:18:39.520 So it's been a good ballast for us in this environment. Yeah, 0:18:39.560 --> 0:18:43.080 down five percent is better than down right, that's a 0:18:43.160 --> 0:18:45.720 that's a huge difference. So let me stay with the 0:18:45.760 --> 0:18:49.520 concept of not quite alternatives, but different way of thinking 0:18:49.520 --> 0:18:54.680 about investing. What are your thoughts on things like personalization 0:18:54.760 --> 0:18:59.560 and direct index in Yeah, so personalization is portfolio managers, 0:18:59.560 --> 0:19:01.360 and I was a portfolio manager for a long time. 0:19:01.400 --> 0:19:03.920 You really have your head down, your focus on your strategies. 0:19:04.200 --> 0:19:06.080 So I put my head up as a c I oh, 0:19:06.160 --> 0:19:08.000 I get a vision of the broader picture, and I 0:19:08.040 --> 0:19:10.560 start hearing a lot about personalization, and I don't know 0:19:10.600 --> 0:19:13.320 what people are talking about, frankly, um, and I ended 0:19:13.400 --> 0:19:16.000 up presenting on this at the morning Star conference this spring, 0:19:16.000 --> 0:19:17.359 and so I spent a lot of time trying to 0:19:17.440 --> 0:19:19.879 understand it. And if you don't mind, let me give 0:19:19.920 --> 0:19:22.040 you my understanding how I came about to how I 0:19:22.080 --> 0:19:25.439 see it. Um. If you were like me and you 0:19:25.520 --> 0:19:30.040 spent your high school wandering Blockbuster looking for something that 0:19:30.080 --> 0:19:32.359 you wanted to see that was in stock, you found 0:19:32.359 --> 0:19:34.720 yourself in a much different situation in the pandemic where 0:19:34.720 --> 0:19:38.080 you're sprawled on your couch and you're just streaming content 0:19:38.160 --> 0:19:43.280 through Netflix that is yes, and it's algorithmically chosen, just 0:19:43.480 --> 0:19:46.199 for you or um If you have the privilege of 0:19:46.280 --> 0:19:49.680 driving a Tesla, you don't have the indignity of your 0:19:49.720 --> 0:19:52.280 husband messing with your mirror and your seat. You can 0:19:52.320 --> 0:19:55.240 just create a drive out profile and it recognizes you. 0:19:55.640 --> 0:19:58.640 So personalization is not just a marketing message where it's 0:19:58.680 --> 0:20:02.480 dear Martha, you know whatever. It's actually products that are 0:20:02.520 --> 0:20:06.439 built and adjusted for you. And it began outside of 0:20:06.440 --> 0:20:09.480 financial services. Now, when I start to think about financial 0:20:09.520 --> 0:20:12.760 advisory work, I can't think of a place where personalization 0:20:12.840 --> 0:20:15.600 isn't already something that advisors are wrestling with. They want 0:20:15.640 --> 0:20:18.159 to know their clients, they want to invest according to 0:20:18.200 --> 0:20:20.640 what their clients need, but it's been a hard thing 0:20:20.760 --> 0:20:24.440 to do at scale. The technology just hasn't been there 0:20:24.480 --> 0:20:27.000 to be able to customize the way you want, from 0:20:27.040 --> 0:20:31.800 profiling the clients to creating the right strategy, managing that strategy, 0:20:31.840 --> 0:20:35.200 and then you know, a decumulation phase. It really hasn't 0:20:35.200 --> 0:20:38.320 been there for the mass market. And the technology has 0:20:38.359 --> 0:20:40.800 now advanced to the point where a lot of those 0:20:40.840 --> 0:20:44.560 capabilities can be available to a lot of different advisors, 0:20:44.560 --> 0:20:48.640 so they can personalize and create customized experiences for clients, 0:20:48.640 --> 0:20:51.680 and that customized experience can be through client profiling, where 0:20:51.680 --> 0:20:55.520 the profiling was far more iterative and behaviorally, you know, 0:20:55.800 --> 0:20:59.480 infused with behavioral finance insights. Or it could be the 0:20:59.520 --> 0:21:03.600 actual portfolio where you're taking to standard portfolios smashing them together, 0:21:04.000 --> 0:21:07.240 where you're doing direct indexing. UM. So there's a whole 0:21:07.560 --> 0:21:12.439 range of products and developments that are maybe changing the 0:21:12.480 --> 0:21:15.760 way financial advisors can interact with their clients and improving it. 0:21:15.960 --> 0:21:18.840 So let's talk a little bit about what's going on 0:21:18.960 --> 0:21:21.879 with mutual funds and ETFs. We talked a little bit 0:21:21.920 --> 0:21:25.440 about starting managing assets in the middle of the financial crisis. 0:21:25.840 --> 0:21:28.119 It seems that's kind of the line in the sand. 0:21:28.200 --> 0:21:33.240