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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you,

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Speaker 1: along with my co host Lisa Brahma wits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. The big news of the day

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Speaker 1: certainly China and the US. The other big news is

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Speaker 1: Argentina at the pace so continuing to sell off versus

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Speaker 1: the dollar currently at its lowest weakest level on record,

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Speaker 1: after the surprise defeat of Mauricio mccli the current president, yesterday,

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Speaker 1: and questions about who will take his place, the fact

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Speaker 1: that Christina Kirshner could be coming back to power. Joining

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Speaker 1: us how to talk about how investors have to view

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Speaker 1: all this is Paul Greer. He's a portfolio manager focusing

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Speaker 1: on emerging markets, debt and fax at Fidelity International. He's

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Speaker 1: joining us from our London studios. Paul, thank you so

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Speaker 1: much for being with me today. The main question is

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Speaker 1: how much is Argentina a specific story about a country

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Speaker 1: that has defaulted many times on its debt and how

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Speaker 1: much does this reflect true risk and emerging markets that

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Speaker 1: is currently mispriced by debt investors A Lisa and yeah,

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Speaker 1: I guess with Argentina, you know, clearly it's been that

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Speaker 1: the story of the week. I think the nature of

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Speaker 1: the story is quite idiosyncratic in many ways. We had

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Speaker 1: a very specific primary vote over the weekend, which you

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Speaker 1: know clearly had an adverse result for investors in Argentinean

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Speaker 1: debt and currency, and investors have have voted with their feet.

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Speaker 1: You know, we've seen a pretty sharp sell off in

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Speaker 1: bonds and in currency markets. I think there's been a

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Speaker 1: little bit of contusion, certainly yesterday, a little bit today

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Speaker 1: into the rest of emerging markets. I think it's you know,

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Speaker 1: maybe quite difficult for investors to exit the Argentinian market

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Speaker 1: at the moment. It's it's quite a liquid, it's under

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Speaker 1: a lot of pressure. But I think from here on,

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Speaker 1: with every passing day, I think for the rest of

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Speaker 1: emerging markets, in terms of contagion, we'll probably see a

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Speaker 1: reduced impact in terms of the spill over into the

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Speaker 1: rest of the market. Clearly, it's going to remain topical

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Speaker 1: and thematic for Argentina is specifically, but I think we've

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Speaker 1: probably seen the peak for the rest of EM in

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Speaker 1: terms of contagion. Well, what is the node of contagion

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Speaker 1: that we should be looking at? I'm sorry I didn't

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Speaker 1: In other words, what how how is the contagion expressing itself.

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Speaker 1: Is it just that investors, if they can't get rid

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Speaker 1: of Argentinean assets, they're simply selling other high beta emerging

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Speaker 1: markets securities. Is that sort of the way it's expressed.

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Speaker 1: Or is it just that you have negative news and

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Speaker 1: in a big emerging market or one that a lot

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Speaker 1: of people own, and then certain retail investors say, you

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Speaker 1: know what, I'm not going to go any into EM

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Speaker 1: or I'm going to yank some funds from my E

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Speaker 1: M E TF. I think it's exactly that, I mean,

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Speaker 1: I mean, the two biggest risks with Argentina right throughout

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Speaker 1: this year have always been politics and positioning, and on

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Speaker 1: the latter issue, you know, Argentinean dead and currency. You know,

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Speaker 1: it has been a popular, crowded market in many ways

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Speaker 1: with investors. Clearly there's been a big draw down in

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Speaker 1: terms of the performance that's hit you know, investors, funds,

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Speaker 1: and we've seen a little bit of de risking in

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Speaker 1: other markets. It's been most acute in Latin America, particularly

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Speaker 1: on the f X side. I would say, you know,

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Speaker 1: it's very difficult to sell the Argentinian pesto at the minute.

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Speaker 1: Liquidity is quite poor. So you know, certainly yesterday we

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Speaker 1: saw currencies like the Mexican pesso, Brazilian royale, Chile, Columbia,

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Speaker 1: et cetera come under pressure as investors really look for

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Speaker 1: an option somehow to hedge the risk in Argentina. I

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Speaker 1: think it worked yesterday, you know, maybe a little bit today.

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Speaker 1: But with each passing day, I think the Argentinian story

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Speaker 1: will become increasingly idiosyncratic and it will be harder to

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Speaker 1: hedge it using, you know, other countries and other markets.

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Speaker 1: Earlier this year, you wrote a column for the Financial

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Speaker 1: Times where you said that emerging markets are in a

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Speaker 1: sweet spot, and certainly that came to fruition and returns

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Speaker 1: with emerging markets debt outperforming us risk of your securities.

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Speaker 1: I'm wondering, from your perspective, is that sweet spot over?

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Speaker 1: Have we sort of closed that out? Yeah? I don't

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Speaker 1: think it's quite over. I mean, if you look at

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Speaker 1: the returns year to did you know sovereign external debt,

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Speaker 1: you know, we're up twelve and a half percent. Local

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Speaker 1: currency markets were up percent. I think probably the lion's

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Speaker 1: share of the returns have already come and gone so

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Speaker 1: far in emerging markets this year, but between nine year end,

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Speaker 1: we still think there'll be incremental positive returns for for

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Speaker 1: e M debt investors. I mean, it's it's not a

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Speaker 1: perfect asset class. We've seen this horrible story in Argentina

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Speaker 1: over the weekend. You know, em is still suffering from

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Speaker 1: softening global growth. We've still got the threat of you know,

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Speaker 1: US trying to cheer trade tarts, etcetera. But you know,

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Speaker 1: there's there's in lots of parallels with with last year,

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Speaker 1: you know, the big sell off and e M in

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Speaker 1: summer eighteen, but there are also some notable differences. You know,

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Speaker 1: the industrate environment globally is a lot more favorable this year,

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Speaker 1: and we'll be seeing that the Fed and other central

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Speaker 1: banks cut interest rates. So you know, yields have been

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Speaker 1: falling generally in the G ten world. Investors have been

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Speaker 1: looking towards emerging markets as summer that has an attractive

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Speaker 1: yield and a spread that that will offer them them

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Speaker 1: some returns. So I don't think the sweet story is

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Speaker 1: that the sweet spot is is quite over. You know,

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Speaker 1: we're also seeing stimulus from the Chinese authorities as well,

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Speaker 1: but I think probably most of the returns for nineteen

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Speaker 1: have already been witnessed. Yeah, talking about picking up some

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Speaker 1: yield and emerging markets. Argentinian A hundred year bonds currently

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Speaker 1: almost yield fourteen percent. Are you buying? We're not buying now.

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Speaker 1: We think it pays to be cautious and in the

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Speaker 1: ear term. As I mentioned earlier, the two biggest risks

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Speaker 1: this year in argent You for us, we're really politics

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Speaker 1: and positioning. And politics has clearly played out with the

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Speaker 1: primary result in Sunday. But the positioning overhang that technical

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Speaker 1: is it's still quite awkward for investors. It's been crowded,

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Speaker 1: it's been a popular trade. I think the market still

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Speaker 1: needs to find a balancing clearing level for for both

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Speaker 1: bonds and for currencies. So we think that positioning and

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Speaker 1: technical angle will continue to to weigh in Argentina in

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Speaker 1: the short term and more medium term. It does offer,

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Speaker 1: you know, an interesting opportunity. The bonds, I guess are done,

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Speaker 1: you know, points in the last kind of one and

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Speaker 1: a half days were very quickly moving towards the scenario

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Speaker 1: where default is you know, getting towards priced in by

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Speaker 1: the market, with you know, bonds trading below fifty cents

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Speaker 1: in the dollar today, so you know, a lot of

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Speaker 1: bad news has been priced in. We think in the

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Speaker 1: near term bonds are probably at risk of drifting further

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Speaker 1: lower and by you know, as we get down to

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Speaker 1: the forties and some of these Argentinean dollar bonds, and

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Speaker 1: you start to think about recovery values and kind of

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Speaker 1: the assets that the country has, I think, you know,

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Speaker 1: over the media in term it could be an interesting opportunity,

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Speaker 1: but but certainly not in the short term. Where else

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Speaker 1: are you buying just quickly thirty seconds? Yeah, I mean

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Speaker 1: our highest conviction and e m that at the minute

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Speaker 1: is on the local currency side. You know, inflation and

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Speaker 1: growth has been falling in a number of countries and

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Speaker 1: many markets have got you know, steep yield curves and

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Speaker 1: pretty attractive real yields. So we really like local currency bonds,

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Speaker 1: and you know, countries like China, Russia, Indonesia, Serbia, Peru, etcetera.

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Speaker 1: Love these countries were expecting to see more interest rate

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Speaker 1: cuts from central banks, and we think the risk premium

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Speaker 1: is is pretty attractive even at these levels. Paul Greer,

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Speaker 1: thank you so much for spending the time, wonderful speaking

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Speaker 1: with you. Paul Greers, portfolio manager focusing on emerging markets,

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Speaker 1: debt and f X for Fidelity International, joining us from

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Speaker 1: our London studios. How do you trade this market? The

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Speaker 1: key question facing so many portfolio managers today. We're going

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Speaker 1: to post that question to Grady Briquette. He's a portfolio

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Speaker 1: manager at diamond Hill Capital Management, joining us here in

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Speaker 1: our interactive broker studio. So, Grady, one key question here

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Speaker 1: as markets get whipside, who's trading? Are you out there

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Speaker 1: actively trading these headlines? Thanks for having me. We're not.

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Speaker 1: So we take a strategic approach to the portfolio construction.

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Speaker 1: We my team and I meet on a on a

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Speaker 1: scheduled basis to decide what we want to buy and

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Speaker 1: what we want to sell, and it's really based on

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Speaker 1: valuation and our expectations for future fundamental fundamentals of each business.

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Speaker 1: So a day like today, you it's unlikely that you'd

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Speaker 1: see us make any any big changes, if if any

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Speaker 1: changes at all. So Diamond Hill Capital Management, overseeing twenty

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Speaker 1: three billion dollars normally in Columbus, Ohio. Grady, I'm wondering

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Speaker 1: if you're saying, and so many people are saying, we're

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Speaker 1: not trading this, In fact, we're trading less. Are you

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Speaker 1: trading less due to some of the geopolitical uncertainty and

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Speaker 1: the backdrop of the trade tensions. Well, if we we

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Speaker 1: would trade less if we don't see relative valuation opportunities.

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Speaker 1: If we saw relative evaluation opportunities emerge as a result

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Speaker 1: of these issues, then we might allocate more. So, for instance,

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Speaker 1: if we saw China become relatively attractive compared to Europe

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Speaker 1: or some of the other markets, we might start to

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Speaker 1: allocate more to China. Right now, we have a larger

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Speaker 1: allocation to the UK because first a couple of years now,

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Speaker 1: we've we've felt that the valuations in the UK attractive.

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Speaker 1: But on a day to day basis, we're gonna we're

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Speaker 1: gonna step back and breathe and uh and look and

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Speaker 1: make sure that we're comfortable buying more of the businesses

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Speaker 1: that we own as they get cheaper. So when did

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Speaker 1: you start buying UK? Oh? We started? We we we've

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Speaker 1: We've always allocated the UK since the funds inception. Um,

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Speaker 1: but we we we I'd say we increase the weight

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Speaker 1: over time right after the initial vote to to leave

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Speaker 1: the European Union, and how how are you accessing it

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Speaker 1: with bonds? Stocks? So we're so in the international fund,

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Speaker 1: we're all equity, all equity. And one thing that you

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Speaker 1: mentioned in a note recently was it's reasonable to expect

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Speaker 1: seven to nine percent annualized returns for global equities over

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Speaker 1: the next ten years. I'm wondering how that can be

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Speaker 1: given the fact that so much of the growth has

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Speaker 1: already been front loaded, priced in, and sort of juiced

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Speaker 1: by the central banks. Do you ever get pushed back

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Speaker 1: on that that that yield target? I just did from

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Speaker 1: one of my colleagues when I presented it to you.

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Speaker 1: All right, so what did you say? Well, so my

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Speaker 1: answer is, right now, when I look at our portfolio,

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Speaker 1: and I'm using our portfolio as a proxy for for

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Speaker 1: global equities because we are global portfolio, the dividend yield

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Speaker 1: right now is about two point six percent. I think

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Speaker 1: the valuations are reasonable now, some some markets are more

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Speaker 1: valuations are more stretched than others. I would argue the

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Speaker 1: US is one of the more stretched markets in terms

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Speaker 1: of just statistical valuation. UM. But I think that you

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Speaker 1: get three percent uh real GDP growth, and you get

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Speaker 1: a couple of percentage points of earnings growth on top

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Speaker 1: of that through share by backs, that operating efficiencies. So

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Speaker 1: you've got five percent on the on the earnings growth potential,

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Speaker 1: and then you've got another two at two point six

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Speaker 1: percent DIVEN yields. That's that's right at eight percent. The

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Speaker 1: idea of predicting out ten years at a time of

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Speaker 1: you know, tweets and things moving uh really quickly depending

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Speaker 1: on the headline of the day is mind boggling. And

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Speaker 1: I wonder how sensitive your returns prediction is to a

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Speaker 1: trade deal or some sort of kind of global order

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Speaker 1: staying the same way that it is right now. So

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Speaker 1: again this is this is my base case, and so

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Speaker 1: there's certain enter tails around that and you can see

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Speaker 1: return and we have seen historical returns be much higher

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Speaker 1: and much lower. UM. I think that if you get

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Speaker 1: a negative sentiment in the market that compresses valuations, than

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Speaker 1: our forward tenure return would be higher. And if you

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Speaker 1: get positive sentiment that causes valuations to stretch further than

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Speaker 1: there are today that I would expect my return expectations

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Speaker 1: to go down, but on a tenure basis, it's more

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Speaker 1: about the current dividend yield and earnings growth expectations. Do

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Speaker 1: you expect a recession anytime soon? I think within the

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Speaker 1: tenure time frame that I mentioned, But in the next

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Speaker 1: and the next day, in the next year, uh, potentially

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Speaker 1: earnings some earnings pressure, but but a true recession, global recession,

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Speaker 1: I don't personally see it. What about emerging markets? I

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Speaker 1: think emerging markets can be attractive. The way that we

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Speaker 1: typically access that is through developed market companies that have

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Speaker 1: strong exposure to emerging markets. So like a b NBEV Ashmore,

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Speaker 1: which is a UK asset manager that's emerging market debt

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Speaker 1: manager UM Diagio and so we understand that we're out

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Speaker 1: on the ground and emerging markets as a team, so

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Speaker 1: we want to access companies with good management teams who

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Speaker 1: have people on the ground to understand those markets well.

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Speaker 1: Any areas you're absolutely avoiding well UM. Fortunately we haven't

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Speaker 1: been allocated to Argentina on a direct basis, although we

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Speaker 1: do have exposure through COPA Airlines. They have seven percent

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Speaker 1: of the revenue from Argentina. UM any market where we

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Speaker 1: see very high inflation and unstable political environments, we tend

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Speaker 1: to tend to avoid. Great cat Thank you so much

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Speaker 1: for being here. Grady brick Hats, portfolio manager at Diamond

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Speaker 1: Hil Capital Management, overseeing twenty three billion dollars, joining us

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Speaker 1: here in New York. Try to check in with Bloomberg Opinion.

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Speaker 1: We're joined by the Bloomberg Opinion Commnst. Max Neeson. Uh.

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Speaker 1: There have been recent proposals out of the Trump administration's

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Speaker 1: headquarters that perhaps the way to lower prices on prescription

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Speaker 1: drugs in the United States is simply to import drugs

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Speaker 1: from Canada. Can you just give us a little bit

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Speaker 1: more about the proposal. Yeah, absolutely so. It's basically a

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Speaker 1: two part proposal, One that that states and wholesalers and

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Speaker 1: pharmacies can apply to HHS to basically give them a

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Speaker 1: proposal for importing certain subsets of drugs from Canada, which

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Speaker 1: has lower prices than we do, if they can prove

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Speaker 1: that it's going to be safe for consumers for them

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Speaker 1: to do so. The other one, which is a little

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Speaker 1: bit more puzzling, is that drug makers would be able

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Speaker 1: to import their own medicines from another country. That part

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Speaker 1: I basically ignore because it doesn't make any sense to me.

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Speaker 1: But um, the issue, as always with drug pricing is

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Speaker 1: that although this sounds good, you know you have lower

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Speaker 1: price in an other country. If you bring those drugs in,

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Speaker 1: it's good for consumers, it brings in competition, it brings

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Speaker 1: the price down. But it's it's more complicated because in

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Speaker 1: order to actually do this, you need Canadian wholesalers and

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Speaker 1: the government of Canada to cooperate, and they have no

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Speaker 1: incentive whatsoever to do So why not more business, more

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Speaker 1: profits because they depend on on drug makers to actually

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Speaker 1: provide those medicines, and the price differential in the US

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Speaker 1: is basically the most valuable thing in the world for

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Speaker 1: the pharmaceutical industry, the fact that they can charge higher

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Speaker 1: prices here. They will do whatever they can to preserve it.

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Speaker 1: And if that means basically cutting off drug supply for

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Speaker 1: Canadian wholesalers that that start importing drugs in the United States,

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Speaker 1: they may very well do so. Um. So you know,

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Speaker 1: they really relies on drug makers to cooperate in a

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Speaker 1: scheme that would cost them money in the long run,

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Speaker 1: and I don't I don't expect them to do that. Yeah, Max,

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Speaker 1: here's what I'm struggling with. We have been talking about

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Speaker 1: prescription drug prices for decades, right, I mean, this has

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Speaker 1: been an issue for a really long time. Why has

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Speaker 1: there been no material progress and coming up with some

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Speaker 1: way to lower drug prices while continuing to encourage uh

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Speaker 1: innovation within the pharmaceutical industry. I think it's because there's

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Speaker 1: such a lobby on the second part of that thing

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Speaker 1: where or it's become sort of this perceived wisdom for

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Speaker 1: for a lot of politicians that anything you do to

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Speaker 1: to bring down drug prices is going to irrevocably and

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Speaker 1: harmfully impact innovation. The reality is is probably something a

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Speaker 1: little bit different, and and the problem is, in order

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Speaker 1: to actually bring prices down, you really do have to

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Speaker 1: make big structural change. You need to do what every

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Speaker 1: other developed country in the world does, which is make

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Speaker 1: drug approval conditional on and pricing conditional on the value

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Speaker 1: it brings to patients, as opposed to the system we

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Speaker 1: have right now where negotiating power is so fragmented that

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Speaker 1: that that sort of fundamental market action that the real

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Speaker 1: competition only happens in limited ways and is specifically prohibited

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Speaker 1: from happening in certain government programs. So it's just a mess,

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Speaker 1: and there has to be a kind of a fundamental

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Speaker 1: shift in in mindset and ambition that's just not happening

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Speaker 1: right now. Max. When I talked to a lot of

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Speaker 1: investment managers right now, they say that because of the

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Speaker 1: trade wars, because of what's going on with geopolitical uncertainty,

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Speaker 1: they are piling into healthcare shares in the United States

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Speaker 1: because they see that as immune to some of these

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Speaker 1: tensions and immune to a potential downturn. People still have

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Speaker 1: to spend on their healthcare. Do you think that the

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Speaker 1: outlook for healthcare companies right now it's pretty positive or

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Speaker 1: do you think that perhaps people are overlooking other issues

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Speaker 1: that are facing some of these companies. I think in

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Speaker 1: the near to midterm, and and kind of in a

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Speaker 1: general macro sense, they're They're probably right in the sense

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Speaker 1: that we're not going to see a significant health reform,

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Speaker 1: which is kind of the health or drug press reform,

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Speaker 1: which is the real only real threat to that sort

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Speaker 1: of thesis, at least until you know, the after the

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Speaker 1: next election, and who knows that how that's going to

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Speaker 1: go in the first place. Um, you know, the things

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Speaker 1: that we're seeing out of the sentence out of Congress

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Speaker 1: right now, would definitely have an impact on on drugmakers

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Speaker 1: and potentially on providers as well. Speaking about UM, basically

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Speaker 1: an effort to reform how Medicare pays for drugs and

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Speaker 1: to crimp surprise bills from from hospitals. But those are

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Speaker 1: all sort of incremental changes, especially when compared to the

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Speaker 1: more ambitious reform efforts you're you're just seeing proposed by

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Speaker 1: by Democrats that are running for president UM. In order

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Speaker 1: to kind of pass those those larger efforts at reform,

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Speaker 1: they basically have to throw put aside any other political

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Speaker 1: priority and also have a very specific outcome in Congress

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Speaker 1: as well in the next year's elections. So they may

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Speaker 1: not be too far off. It's cynical, but but they

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Speaker 1: may be right. And just real quick here in general,

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Speaker 1: is the idea that healthcare companies are somewhat recession immune.

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Speaker 1: Is that accurate? It historically has been the case. You know,

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Speaker 1: as you said, you know, people are going to get

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Speaker 1: sick no matter what. People are going to have to

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Speaker 1: pay for healthcare no matter what. And at the end

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Speaker 1: of the day, there are there are these sort of

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Speaker 1: safety net programs that even if people do lose their

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Speaker 1: jobs or lose some part of discretionary income, they're they're

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Speaker 1: going to fall back on those There there is at

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Speaker 1: the margin an impact. You know, there's more uncompensated care.

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Speaker 1: People choose to you know, not fill prescriptions that they

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Speaker 1: might otherwise feel if they they were seeing you know,

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Speaker 1: they had jobs that they were seeing wage growth. But

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Speaker 1: you know, relative to other parts of the economy, when

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Speaker 1: when things go badly, healthcare does does generally turn out

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Speaker 1: to be a lot safer. Max Neeson, thank you so

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Speaker 1: much for being with us today. Max Neeson is biotech, pharma,

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Speaker 1: and healthcare columnist for Bloomberg Opinion. Read all his columns,

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Speaker 1: They're fantastic. You can read them at O. P I

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Speaker 1: N Go on the Bloomberg or you can read them

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Speaker 1: at Bloomberg dot com Slash Opinion. Right now, we are

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Speaker 1: talking so much about the shift from active fund management

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Speaker 1: to passive fund management at a time of index outperformance,

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Speaker 1: but there really is a more important question, which is

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Speaker 1: what's behind this shift? And joining us now Michelle Sites

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Speaker 1: She's chairman and chief executive officer of Russell Investments, which

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Speaker 1: oversees two hundred and ninety billion dollars of assets. Michelle

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Speaker 1: joins us here in our eleven three oh studios or

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Speaker 1: interactive broker studios. Michelle, I want to pull this to

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Speaker 1: you because I think it's more important to view this

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Speaker 1: shift in light of the drivers than it is the

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Speaker 1: shift itself. So what do you think is behind the move?

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Speaker 1: Right well throughout my career, but also at Russell Investments,

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Speaker 1: you know, the touchstone always is the clients and whatever

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Speaker 1: the client's problems are or where the industry is going

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Speaker 1: to go. And so at the moment, the problem is

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Speaker 1: more people are concerned about going broke than they are dying.

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Speaker 1: We're living longer, and we have a massive underfunding of

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Speaker 1: pension plans. dB plans are being frozen or shut down

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Speaker 1: going to d C. So you have this massive shift

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Speaker 1: from institutions providing for retirements to individuals having to provide

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Speaker 1: for their own retirements. That is driving down in a

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Speaker 1: low return environment, driving down the costs of what we've

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Speaker 1: all we all used to do. And so that is

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Speaker 1: a byproduct passive to active. Active from passive, etcetera. Is

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Speaker 1: a byproduct of really trying to solve a root problem,

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Speaker 1: which is the retirement crisis. So some people would turn

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Speaker 1: that on its head and say, as people get more

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Speaker 1: aware of the income that they get, they become more

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Speaker 1: aware of the fees they're paying out, and because they're

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Speaker 1: not able to necessarily prove outperformance, some of these active

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Speaker 1: funds investors are fleeing. Do you think that that narrative

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Speaker 1: is accurate? That simply put, Yes, as people get more

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Speaker 1: focused on the fact that they've got to make money

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Speaker 1: on their money, they realize that the human managers aren't

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Speaker 1: aren't doing the job. Yeah, no, that's that's a very

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Speaker 1: accurate depiction as well. Uh, the focus is increasingly on

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Speaker 1: the returns that are needed in order for people to

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Speaker 1: be able to retire well. And so as the focus

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Speaker 1: goes on that, as returns are lower, and the percent

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Speaker 1: of the return that we're taking and fees collectively as

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Speaker 1: an as an industry needs to go down. Right, When

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Speaker 1: you have double digit returns and the average fee is

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Speaker 1: one percent or whatever it might be, that's one thing.

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Speaker 1: When you have a goal digit returns and it's still

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Speaker 1: one percent, that's a very different thing. So what do

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Speaker 1: you advise clients as the sort of risk reward factor

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Speaker 1: becomes so tenuous where people are less worried about dying

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Speaker 1: than they are about just making enough money to survive

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Speaker 1: for the thirty years after the retirement. How do you

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Speaker 1: advise clients this late in the credit cycle, right, Well, well,

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Speaker 1: there's a structural change going on in the industry, which

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Speaker 1: is this gap uh and the need to be focused

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Speaker 1: on outcomes and solutions that are tailored to individuals. And

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Speaker 1: then there's the amplification of the cyclical, which is what

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Speaker 1: you're talking about, which which is the this long in

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Speaker 1: the cycle, there's going to be risk two returns as well,

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Speaker 1: So that's an amplification, but the structural problem will still

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Speaker 1: be here, and so focus is first and foremost on

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Speaker 1: the liability that you're trying to cover, and so our

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Speaker 1: work with our clients, through intermediaries and through advisors is

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Speaker 1: to make sure that people understand the liability, how to

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Speaker 1: get their cost effectively, and how to make sure that

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Speaker 1: they measure not a benchmark relative performance. You can't retire

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Speaker 1: on a benchmark. You have to retire on absolute returns.

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Speaker 1: That's the key focus. We're speaking with Michelle Sites, chairman

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Speaker 1: and CEO of Russell Investments over seeing two billion dollars

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Speaker 1: in assets. We were talking about the expected return rate

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Speaker 1: that individual investors should target. And I think it's important

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Speaker 1: when you talk about the mix between stocks and bonds

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Speaker 1: and how much risk to take on, what is appropriate

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Speaker 1: for individuals to expect over the next ten years? Right, Well,

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Speaker 1: I love this question because we're all different. And target

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Speaker 1: date funds, which were a great invention and have been

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Speaker 1: a great default option, assumed that everyone at the same

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Speaker 1: age as exactly the same and should have the same

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Speaker 1: target return. We believe that that's not not effective, not enough.

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Speaker 1: It's effective, but not enough. And so what we're espousing

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Speaker 1: and really put in and implementation mode is personalized retirement

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Speaker 1: accounts where we take every data point that we can

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Speaker 1: for you and virtually create many define benefit plans for

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Speaker 1: each individual, how how old you are, how long you're

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Speaker 1: going to work, what your gender is, what your salary is,

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Speaker 1: what your income needs are, and so that it's less

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Speaker 1: about a target return, it's more about customizing around your

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Speaker 1: unique your unique attributes and what the outcome is that

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Speaker 1: you need. How far are we in this shift from

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Speaker 1: active to passive? I mean, how far in the transformation? Um? Well,

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Speaker 1: first of all, we we do believe that active is

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Speaker 1: a critical part of the ecosystem of capital markets. So

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Speaker 1: we believe in active, UM, we do need to deliver

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Speaker 1: active more consistent for a value price point that's uh

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Speaker 1: in line with the value derived for the clients. So

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Speaker 1: agreed on all of that. But but I would say

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Speaker 1: there have been a lot of studies. I don't know

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Speaker 1: that fifty fifty is uh the exact right talents. It

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Speaker 1: could be uh that the majority of investing is done

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Speaker 1: through index and systematic and factor investing UM, but it's not.

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Speaker 1: It's not ever going to stamp out the value that

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Speaker 1: active brings to the equation. Just real quick here, I'm

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Speaker 1: just trying to understand going forward with the next step

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Speaker 1: is in terms of the evolution of the asset management industry.

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Speaker 1: I mean, what's sort of the next thing we should

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Speaker 1: be talking about. Yeah, so I think absolutely the next shift.

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Speaker 1: It's a major pivot. The pivot is from managing money

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Speaker 1: primarily for institutions to making sure that we're managing money

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Speaker 1: for the end individual so that we can do mass

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Speaker 1: customization at scale and it's much more tailored. The second

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Speaker 1: major pivot is to alternative asset classes. Michelle Sides, Chairman

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Speaker 1: and CEO of Russell Investments, Thank you so much for

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Speaker 1: being with us. Thanks for listening to the Bloomberg P

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Speaker 1: and L podcast. You can subscribe and listen to interviews

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Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paulse Sweeney,

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Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram Wohits.

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Speaker 1: I'm on Twitter at Lisa Abram Wohits. One before the podcast,

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Speaker 1: you can always catch us worldwide on Bloomberg Radio