Speaker 1: Bloomberg Audio studios, podcasts, radio news.
Speaker 2: What's the hot sector of the moment? Is it ai?
Speaker 2: The metaverse? Gold oil? Why do some stocks and styles
Speaker 2: fall in and out of favor on such a regular basis?
Speaker 2: The challenge for investors is whether or not to jump
Speaker 2: into or out of these changing sectors, and when it's
Speaker 2: actually much harder than it looks. I'm Barry Ritolts, and
Speaker 2: on today's edition of At the Money, we're going to
Speaker 2: discuss what to do with assets that have fallen out
Speaker 2: of favor with the markets. To help us unpack all
Speaker 2: of this and what it means for your portfolio, Let's
Speaker 2: bring in Yon van Ck, CEO of van X Funds.
Speaker 2: The company manages about seventy five billion dollars across a
Speaker 2: variety of ETFs and mutual funds. Let's just start with
Speaker 2: the basic concept. Why do broad things tend to fall
Speaker 2: in and out of favor?
Speaker 3: Well, Barry, you know the firm was found in nineteen
Speaker 3: fifty five. In our perspective on the markets is that markets,
Speaker 3: financial markets live within a broader world of political trends,
Speaker 3: economic trends, and technology. Also, the game of investing is
Speaker 3: really a art more than the science. If you go
Speaker 3: back one hundred years Barry, people had one hundred percent
Speaker 3: bonds in their portfolio. That was the prudent thing to do.
Speaker 2: Didn't Some people also have widow and orphan funds, some railroads,
Speaker 2: some banks, some telephones.
Speaker 3: Oh yeah, Well, obviously people have been chasing disruptive technology
Speaker 3: forever and a lot of lessons to be learned if
Speaker 3: we want to go there. But I'm just saying, listen,
Speaker 3: if you look at institutional portfolios today, now half of
Speaker 3: them are in private equity and ventor capital. So just
Speaker 3: the basic what you put in your portfolio has changed
Speaker 3: a lot over the decades.
Speaker 4: So I take a very skeptical.
Speaker 3: View and recognize that we're appoint in time and history,
Speaker 3: and you want to be conscious.
Speaker 4: About how you put your portfolio together.
Speaker 2: So let's talk about some of those asset classes that
Speaker 2: have either become popular or too popular, or have fallen
Speaker 2: out of favor and become so unpopular that they're becoming attractive. Again,
Speaker 2: let's start with the basics. How do you identify when
Speaker 2: an asset class has fallen out of favor?
Speaker 4: These are great questions.
Speaker 3: I mean, I think the question is, what do you
Speaker 3: even feel comfortable putting in your portfolio. I'm going to
Speaker 3: be the radical skeptic. Let's start with US equities. We've
Speaker 3: been a very great economy, great place to be. That's
Speaker 3: the core of your portfolio. But people will say, oh,
Speaker 3: value investing is the way to go, and they'll show
Speaker 3: you a study of forty years of databaary and value
Speaker 3: beats growth all the time until it stops, right.
Speaker 2: Which you've just done over the past fifteen years.
Speaker 3: So what we've learned, I think right in the industry
Speaker 3: now is you better be very benchmark aware, Like nowhere
Speaker 3: the market is saying that there is value and take
Speaker 3: it at face value. That should be your starting off point.
Speaker 3: And US equities are certainly the core.
Speaker 2: Right.
Speaker 3: Then the question is, well, are there other things happening
Speaker 3: in the world that might favor something like commodities or
Speaker 3: is fixed income going to be in favor or not
Speaker 3: in favor? And that depends on some of the cycles
Speaker 3: that we're talking about.
Speaker 2: Let's use money market funds as an example. For the
Speaker 2: longest time, money market funds were barely yielding anything. Rates
Speaker 2: were zero. You're getting twenty BIPs thirty BIPs in a
Speaker 2: money market fund. Suddenly you're getting five to five and
Speaker 2: a quarter and literally six trillion dollars in cash flows
Speaker 2: into money market funds. What should an investor make of
Speaker 2: that asset class suddenly coming back into favor.
Speaker 3: Yeah, I mean, listen, My point is be skeptical about everything.
Speaker 3: So people say, oh, bonds are allocation. Well, we know
Speaker 3: and have been reminded in twenty twenty two that bonds
Speaker 3: are very subject to interest rate movements. And so we're
Speaker 3: sitting here at let's say four and a half on
Speaker 3: the ten year. I'm very worried about our fiscal situation
Speaker 3: in the United States. We don't need to go into that.
Speaker 3: But that leads me to say, you know what, I'm
Speaker 3: very very happy sitting in t bills right now. I
Speaker 3: don't feel as the skeptic that I need to be
Speaker 3: that core position. I'm happy to get the same yield
Speaker 3: for a lot less interest rate risk.
Speaker 2: So meaning you're looking at shorter duration.
Speaker 4: Shorter duration, any kind of shorter duration fixed income. So
Speaker 4: I bother with, you know, interest rate risk.
Speaker 2: Let's talk about sectors that have rotated into favor. How
Speaker 2: do you identify these three to five year trends that
Speaker 2: are a good place to park some capital for you know,
Speaker 2: a couple of years.
Speaker 3: So let's say commodities, you had the industrialization of China,
Speaker 3: which was a super trend of commodities. I would say
Speaker 3: more of a tactical acid class. But we look at
Speaker 3: global growth as measured by PMI, and if PMI is
Speaker 3: over fifty, which it only became now in Q one,
Speaker 3: that's what I think is driving commodity prices. And once
Speaker 3: you have I think sort of the China property implosion
Speaker 3: is behind us. It can't prove it, but because the
Speaker 3: global economy is now growing, that's an asset class where
Speaker 3: now the sun is shining on you.
Speaker 2: So when you mentioned the supercycle with growth from China
Speaker 2: and commodities, you know, during the twenty and twenty tens,
Speaker 2: China was consuming all manner of raw material cement and
Speaker 2: lumber and copper, and prices went up, but not crazy
Speaker 2: until the pandemic lockdown. Then we really saw prices spike.
Speaker 2: So what are you looking at on the commodity side.
Speaker 2: How do you look at an asset class like precious
Speaker 2: metals to decide whether or not this is not one
Speaker 2: of the many false starts we've seen over the past
Speaker 2: couple of years.
Speaker 3: Yeah, I look at gold as a financial asset more
Speaker 3: than commodities, which is driven by the real economy. Gold
Speaker 3: would fall into that category. If you we're worried about
Speaker 3: interest rates and our fiscal problems in the United.
Speaker 2: States, and hence the rise of gold, hence owned.
Speaker 3: Some gold and God forbid bitcoin. Absolutely, if you're ever
Speaker 3: going to own it, as I've been saying over last year,
Speaker 3: this is the time to own it. We're in a
Speaker 3: bull market for those two assets. You will have big corrections,
Speaker 3: twenty percent corrections, but I think you're in a bull
Speaker 3: market for those two assets until our fiscal problems are solved.
Speaker 2: Well, there's a follow up discussion, are we ever going
Speaker 2: to solve our fiscal problems? You and I are not
Speaker 2: that far apart age wise our entire adult lives. We've
Speaker 2: been warned about the dangers of fiscal excess. None of
Speaker 2: the warnings have come to pass. There. There hasn't been
Speaker 2: a crowding out of capital. The dollar is still the
Speaker 2: strongest currency of the may out there. There's been no
Speaker 2: crowding out of private investment. Why should we even care
Speaker 2: about the fiscal deficit.
Speaker 3: We're ticking to levels where we've reacted before, so under
Speaker 3: the Clinton administration, the costs of interest on our debt
Speaker 3: approach that of defense spending. It's now past that of
Speaker 3: defense spending.
Speaker 4: So you're right.
Speaker 3: The big question is will the FED do what the
Speaker 3: Japanese Central Bank did and treasury, which is buy up
Speaker 3: all the debt?
Speaker 4: Right?
Speaker 3: Who cares if there's too much debt? If there's a
Speaker 3: buyer of last result, We've never had that in United States,
Speaker 3: but you can't rule it out. That's why I'm like,
Speaker 3: you know what, there's all these scenarios. Just make sure
Speaker 3: you know what they are and that you're kind of
Speaker 3: comfortable with your portfolio given.
Speaker 4: Though, So you're absolutely right. The way to kick the.
Speaker 3: Can is for the government to do what they did
Speaker 3: in Japan. I don't know I'll see that happening in
Speaker 3: the US, but you never know.
Speaker 2: What other asset classes have you noticed, either coming into
Speaker 2: or out of favor that are worth talking about?
Speaker 3: What I like from a three to five year perspective,
Speaker 3: I think countries tend a trend because you have changes
Speaker 3: in governments that are either positive for the markets or negative.
Speaker 2: So let's talk about two countries that have seen quite
Speaker 2: a bid over the past year. You mentioned Japan, obviously
Speaker 2: their stock market has been doing very well lately, and
Speaker 2: India is perennially in the running to either catch up
Speaker 2: or replace China. What do you think about those two
Speaker 2: countries as asset classes coming in or out of favor?
Speaker 4: One hundred percent?
Speaker 3: Like, I mean, India is by far the best macro story.
Speaker 3: In fact, no one really debates that. It's just what's
Speaker 3: the pe ratio? How expensive are the stocks? How much
Speaker 3: are you willing to pay? But I've got a trade
Speaker 3: within that, which is the two technologies of our lifetimes
Speaker 3: have been the Internet and AI right, basically the mag
Speaker 3: seven it's just one trade.
Speaker 4: It's the Internet.
Speaker 3: It's the companies that stand between us and the internet
Speaker 3: right giving us new capabilities. In India, there's now two companies,
Speaker 3: so they cheapen the cost of cell phones to below
Speaker 3: ten a month. They competition beat them brains out and
Speaker 3: there's only two survivors, so it's a duopoly. Those two
Speaker 3: companies in India are serving eight hundred million customers and
Speaker 3: they are now the internet play in India. So I
Speaker 3: think that is like very high confidence that that's going
Speaker 3: to be a good investable trend over the next couple
Speaker 3: of years. You know, I think it's easy to pick
Speaker 3: a couple of countries where you may be wondering about
Speaker 3: your allocation there.
Speaker 2: What other countries are of interest? What has fallen out
Speaker 2: of favor?
Speaker 4: Well, I think I think China has obviously fallen out.
Speaker 2: I mean, if you're a US investor in China since
Speaker 2: the early nineties, you're lucky if you.
Speaker 3: Break even right, Whereas over the last ten years Indian
Speaker 3: equities this will shock most people have matched that of.
Speaker 4: US equities over the last real years.
Speaker 3: Yes, and it's interesting that equity owners in India have
Speaker 3: been treated much better than in China. Obviously there's a
Speaker 3: devaluation of the Pe ratio right valuation.
Speaker 2: So Europe as an investing region has been another underperformer
Speaker 2: for a while. What will it take to get Europe
Speaker 2: to be attractive to you as an area coming into favor?
Speaker 3: If the default is the benchmark, I don't see any
Speaker 3: tremendous internet or AI or technology plays that are large
Speaker 3: weights in those countries in Europe that would get me
Speaker 3: super excited.
Speaker 2: So to wrap up, if you're a long term investor
Speaker 2: and looking to add to your core portfolio, you might
Speaker 2: want to consider some of these areas that have come
Speaker 2: into favor and are likely to persist in favor. We
Speaker 2: were talking geographically Japan and particular India, but you can
Speaker 2: also look at things like semiconductors and AI as asset
Speaker 2: classes that have suddenly been come much more investable than
Speaker 2: they once were. I'm Barry riud Halts. This is Bloomberg's
Speaker 2: At the Money