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Speaker 1: Bloomberg Audio studios, podcasts, radio news.

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Speaker 2: What's the hot sector of the moment? Is it ai?

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Speaker 2: The metaverse? Gold oil? Why do some stocks and styles

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Speaker 2: fall in and out of favor on such a regular basis?

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Speaker 2: The challenge for investors is whether or not to jump

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Speaker 2: into or out of these changing sectors, and when it's

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Speaker 2: actually much harder than it looks. I'm Barry Ritolts, and

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Speaker 2: on today's edition of At the Money, we're going to

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Speaker 2: discuss what to do with assets that have fallen out

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Speaker 2: of favor with the markets. To help us unpack all

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Speaker 2: of this and what it means for your portfolio, Let's

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Speaker 2: bring in Yon van Ck, CEO of van X Funds.

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Speaker 2: The company manages about seventy five billion dollars across a

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Speaker 2: variety of ETFs and mutual funds. Let's just start with

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Speaker 2: the basic concept. Why do broad things tend to fall

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Speaker 2: in and out of favor?

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Speaker 3: Well, Barry, you know the firm was found in nineteen

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Speaker 3: fifty five. In our perspective on the markets is that markets,

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Speaker 3: financial markets live within a broader world of political trends,

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Speaker 3: economic trends, and technology. Also, the game of investing is

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Speaker 3: really a art more than the science. If you go

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Speaker 3: back one hundred years Barry, people had one hundred percent

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Speaker 3: bonds in their portfolio. That was the prudent thing to do.

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Speaker 2: Didn't Some people also have widow and orphan funds, some railroads,

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Speaker 2: some banks, some telephones.

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Speaker 3: Oh yeah, Well, obviously people have been chasing disruptive technology

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Speaker 3: forever and a lot of lessons to be learned if

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Speaker 3: we want to go there. But I'm just saying, listen,

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Speaker 3: if you look at institutional portfolios today, now half of

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Speaker 3: them are in private equity and ventor capital. So just

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Speaker 3: the basic what you put in your portfolio has changed

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Speaker 3: a lot over the decades.

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Speaker 4: So I take a very skeptical.

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Speaker 3: View and recognize that we're appoint in time and history,

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Speaker 3: and you want to be conscious.

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Speaker 4: About how you put your portfolio together.

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Speaker 2: So let's talk about some of those asset classes that

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Speaker 2: have either become popular or too popular, or have fallen

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Speaker 2: out of favor and become so unpopular that they're becoming attractive. Again,

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Speaker 2: let's start with the basics. How do you identify when

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Speaker 2: an asset class has fallen out of favor?

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Speaker 4: These are great questions.

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Speaker 3: I mean, I think the question is, what do you

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Speaker 3: even feel comfortable putting in your portfolio. I'm going to

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Speaker 3: be the radical skeptic. Let's start with US equities. We've

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Speaker 3: been a very great economy, great place to be. That's

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Speaker 3: the core of your portfolio. But people will say, oh,

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Speaker 3: value investing is the way to go, and they'll show

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Speaker 3: you a study of forty years of databaary and value

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Speaker 3: beats growth all the time until it stops, right.

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Speaker 2: Which you've just done over the past fifteen years.

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Speaker 3: So what we've learned, I think right in the industry

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Speaker 3: now is you better be very benchmark aware, Like nowhere

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Speaker 3: the market is saying that there is value and take

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Speaker 3: it at face value. That should be your starting off point.

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Speaker 3: And US equities are certainly the core.

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Speaker 2: Right.

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Speaker 3: Then the question is, well, are there other things happening

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Speaker 3: in the world that might favor something like commodities or

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Speaker 3: is fixed income going to be in favor or not

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Speaker 3: in favor? And that depends on some of the cycles

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Speaker 3: that we're talking about.

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Speaker 2: Let's use money market funds as an example. For the

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Speaker 2: longest time, money market funds were barely yielding anything. Rates

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Speaker 2: were zero. You're getting twenty BIPs thirty BIPs in a

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Speaker 2: money market fund. Suddenly you're getting five to five and

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Speaker 2: a quarter and literally six trillion dollars in cash flows

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Speaker 2: into money market funds. What should an investor make of

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Speaker 2: that asset class suddenly coming back into favor.

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Speaker 3: Yeah, I mean, listen, My point is be skeptical about everything.

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Speaker 3: So people say, oh, bonds are allocation. Well, we know

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Speaker 3: and have been reminded in twenty twenty two that bonds

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Speaker 3: are very subject to interest rate movements. And so we're

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Speaker 3: sitting here at let's say four and a half on

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Speaker 3: the ten year. I'm very worried about our fiscal situation

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Speaker 3: in the United States. We don't need to go into that.

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Speaker 3: But that leads me to say, you know what, I'm

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Speaker 3: very very happy sitting in t bills right now. I

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Speaker 3: don't feel as the skeptic that I need to be

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Speaker 3: that core position. I'm happy to get the same yield

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Speaker 3: for a lot less interest rate risk.

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Speaker 2: So meaning you're looking at shorter duration.

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Speaker 4: Shorter duration, any kind of shorter duration fixed income. So

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Speaker 4: I bother with, you know, interest rate risk.

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Speaker 2: Let's talk about sectors that have rotated into favor. How

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Speaker 2: do you identify these three to five year trends that

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Speaker 2: are a good place to park some capital for you know,

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Speaker 2: a couple of years.

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Speaker 3: So let's say commodities, you had the industrialization of China,

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Speaker 3: which was a super trend of commodities. I would say

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Speaker 3: more of a tactical acid class. But we look at

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Speaker 3: global growth as measured by PMI, and if PMI is

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Speaker 3: over fifty, which it only became now in Q one,

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Speaker 3: that's what I think is driving commodity prices. And once

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Speaker 3: you have I think sort of the China property implosion

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Speaker 3: is behind us. It can't prove it, but because the

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Speaker 3: global economy is now growing, that's an asset class where

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Speaker 3: now the sun is shining on you.

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Speaker 2: So when you mentioned the supercycle with growth from China

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Speaker 2: and commodities, you know, during the twenty and twenty tens,

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Speaker 2: China was consuming all manner of raw material cement and

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Speaker 2: lumber and copper, and prices went up, but not crazy

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Speaker 2: until the pandemic lockdown. Then we really saw prices spike.

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Speaker 2: So what are you looking at on the commodity side.

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Speaker 2: How do you look at an asset class like precious

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Speaker 2: metals to decide whether or not this is not one

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Speaker 2: of the many false starts we've seen over the past

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Speaker 2: couple of years.

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Speaker 3: Yeah, I look at gold as a financial asset more

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Speaker 3: than commodities, which is driven by the real economy. Gold

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Speaker 3: would fall into that category. If you we're worried about

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Speaker 3: interest rates and our fiscal problems in the United.

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Speaker 2: States, and hence the rise of gold, hence owned.

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Speaker 3: Some gold and God forbid bitcoin. Absolutely, if you're ever

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Speaker 3: going to own it, as I've been saying over last year,

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Speaker 3: this is the time to own it. We're in a

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Speaker 3: bull market for those two assets. You will have big corrections,

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Speaker 3: twenty percent corrections, but I think you're in a bull

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Speaker 3: market for those two assets until our fiscal problems are solved.

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Speaker 2: Well, there's a follow up discussion, are we ever going

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Speaker 2: to solve our fiscal problems? You and I are not

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Speaker 2: that far apart age wise our entire adult lives. We've

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Speaker 2: been warned about the dangers of fiscal excess. None of

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Speaker 2: the warnings have come to pass. There. There hasn't been

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Speaker 2: a crowding out of capital. The dollar is still the

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Speaker 2: strongest currency of the may out there. There's been no

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Speaker 2: crowding out of private investment. Why should we even care

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Speaker 2: about the fiscal deficit.

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Speaker 3: We're ticking to levels where we've reacted before, so under

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Speaker 3: the Clinton administration, the costs of interest on our debt

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Speaker 3: approach that of defense spending. It's now past that of

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Speaker 3: defense spending.

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Speaker 4: So you're right.

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Speaker 3: The big question is will the FED do what the

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Speaker 3: Japanese Central Bank did and treasury, which is buy up

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Speaker 3: all the debt?

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Speaker 4: Right?

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Speaker 3: Who cares if there's too much debt? If there's a

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Speaker 3: buyer of last result, We've never had that in United States,

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Speaker 3: but you can't rule it out. That's why I'm like,

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Speaker 3: you know what, there's all these scenarios. Just make sure

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Speaker 3: you know what they are and that you're kind of

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Speaker 3: comfortable with your portfolio given.

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Speaker 4: Though, So you're absolutely right. The way to kick the.

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Speaker 3: Can is for the government to do what they did

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Speaker 3: in Japan. I don't know I'll see that happening in

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Speaker 3: the US, but you never know.

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Speaker 2: What other asset classes have you noticed, either coming into

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Speaker 2: or out of favor that are worth talking about?

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Speaker 3: What I like from a three to five year perspective,

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Speaker 3: I think countries tend a trend because you have changes

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Speaker 3: in governments that are either positive for the markets or negative.

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Speaker 2: So let's talk about two countries that have seen quite

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Speaker 2: a bid over the past year. You mentioned Japan, obviously

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Speaker 2: their stock market has been doing very well lately, and

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Speaker 2: India is perennially in the running to either catch up

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Speaker 2: or replace China. What do you think about those two

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Speaker 2: countries as asset classes coming in or out of favor?

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Speaker 4: One hundred percent?

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Speaker 3: Like, I mean, India is by far the best macro story.

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Speaker 3: In fact, no one really debates that. It's just what's

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Speaker 3: the pe ratio? How expensive are the stocks? How much

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Speaker 3: are you willing to pay? But I've got a trade

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Speaker 3: within that, which is the two technologies of our lifetimes

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Speaker 3: have been the Internet and AI right, basically the mag

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Speaker 3: seven it's just one trade.

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Speaker 4: It's the Internet.

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Speaker 3: It's the companies that stand between us and the internet

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Speaker 3: right giving us new capabilities. In India, there's now two companies,

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Speaker 3: so they cheapen the cost of cell phones to below

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Speaker 3: ten a month. They competition beat them brains out and

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Speaker 3: there's only two survivors, so it's a duopoly. Those two

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Speaker 3: companies in India are serving eight hundred million customers and

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Speaker 3: they are now the internet play in India. So I

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Speaker 3: think that is like very high confidence that that's going

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Speaker 3: to be a good investable trend over the next couple

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Speaker 3: of years. You know, I think it's easy to pick

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Speaker 3: a couple of countries where you may be wondering about

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Speaker 3: your allocation there.

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Speaker 2: What other countries are of interest? What has fallen out

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Speaker 2: of favor?

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Speaker 4: Well, I think I think China has obviously fallen out.

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Speaker 2: I mean, if you're a US investor in China since

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Speaker 2: the early nineties, you're lucky if you.

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Speaker 3: Break even right, Whereas over the last ten years Indian

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Speaker 3: equities this will shock most people have matched that of.

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Speaker 4: US equities over the last real years.

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Speaker 3: Yes, and it's interesting that equity owners in India have

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Speaker 3: been treated much better than in China. Obviously there's a

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Speaker 3: devaluation of the Pe ratio right valuation.

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Speaker 2: So Europe as an investing region has been another underperformer

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Speaker 2: for a while. What will it take to get Europe

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Speaker 2: to be attractive to you as an area coming into favor?

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Speaker 3: If the default is the benchmark, I don't see any

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Speaker 3: tremendous internet or AI or technology plays that are large

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Speaker 3: weights in those countries in Europe that would get me

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Speaker 3: super excited.

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Speaker 2: So to wrap up, if you're a long term investor

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Speaker 2: and looking to add to your core portfolio, you might

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Speaker 2: want to consider some of these areas that have come

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Speaker 2: into favor and are likely to persist in favor. We

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Speaker 2: were talking geographically Japan and particular India, but you can

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Speaker 2: also look at things like semiconductors and AI as asset

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Speaker 2: classes that have suddenly been come much more investable than

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Speaker 2: they once were. I'm Barry riud Halts. This is Bloomberg's

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Speaker 2: At the Money