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Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. 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. Well, the market appears to be

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Speaker 1: pricing in three rate cuts for the remainder of twenty nineteen.

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Speaker 1: I guess the only real question is at the next

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Speaker 1: meeting will it be twenty five basis points or fifty.

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Speaker 1: To get a sense of what to look for when

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Speaker 1: the Fed does meet, we welcome Neil Data from Renaissance

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Speaker 1: macro Research. He is ahead of economics there. Neil, thanks

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Speaker 1: so much for joining us. So what is your sense

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Speaker 1: that when we when the FED does meet on the

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Speaker 1: thirty feet will they cut by twenty five or fifty?

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Speaker 1: What is your sense, Neal? My sense is that they

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Speaker 1: cut by um? I think first, um, you know historically

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Speaker 1: if you look at it, you took sickly get fifty

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Speaker 1: basis point cuts going into recession or we have some

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Speaker 1: sort of um, you know, crisis on our hands. Um,

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Speaker 1: we don't have either of those things at the moment um,

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Speaker 1: so this looks like a basis point cut. It is probably, um,

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Speaker 1: what's more likely. At the same time, I mean, if

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Speaker 1: you just sort of read the FED speak that we've seen,

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Speaker 1: I mean, you have the most devish members calling for

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Speaker 1: twenty five basis point cuts. So if you can't convince

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Speaker 1: them of a fifty basis point move, um, you know,

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Speaker 1: I think it's it's it's pretty unlikely. So I think

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Speaker 1: the first go is probably a twenty five basis point

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Speaker 1: cut at the end of the month. So, Neil, I'm

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Speaker 1: curious what your impression is just generally of where we

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Speaker 1: are in the economic cycle, because we are getting these

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Speaker 1: bank earnings and they show a very strong consumer yet

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Speaker 1: relatively muted capital markets activity. Is there some kind of

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Speaker 1: leading indicator that you see in there of businesses perhaps

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Speaker 1: slowing some of their big moves while the consumers stays

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Speaker 1: strong right now? Yeah, maybe, I mean I don't I

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Speaker 1: can't speak Lisa specifically to two bank earnings, but uh,

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Speaker 1: I mean that my my sense is basically that, um,

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Speaker 1: you know, these issues that we've been talking about a

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Speaker 1: lot in the macro space. You know, trade tensions, um,

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Speaker 1: you know week overseas activity. UM. You know. My sense

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Speaker 1: is that probably impacts um, you know, medium and large

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Speaker 1: sized firms more than it does domestic consumers and so um.

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Speaker 1: And you're seeing that largely reflected in the data. Business

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Speaker 1: fixed investment has been quite sluggish, but consumer spending has

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Speaker 1: been quite good. Now of course, UM, you know, at

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Speaker 1: some point something's going to have to give. A final

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Speaker 1: demand is holding up reasonably well, um, you know, then

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Speaker 1: businesses are going to have to play catch up and um.

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Speaker 1: And that means that you know, you you may see

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Speaker 1: sort of a pickup in in investment activity as as

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Speaker 1: firm sort of real one well but with final demand good.

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Speaker 1: But but Neil, I mean you could go either way here, right,

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Speaker 1: So businesses may have to play catch up with the

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Speaker 1: consumer and invest more, or you could say the other

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Speaker 1: way around. The consumers will have to catch up with

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Speaker 1: the businesses if the businesses aren't investing and aren't necessarily

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Speaker 1: hiring more people, are even cutting in the face of

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Speaker 1: some of these trade tensions, right, I mean you could

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Speaker 1: go either way. Lisa had that work in you want

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Speaker 1: to make that mistake again. I mean, I think consumers

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Speaker 1: ultimately are the sort of main driver, the primary driver

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Speaker 1: of dynamics, you know, I mean, consumer spending tends to

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Speaker 1: lead investment. UM, even when you look at you know,

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Speaker 1: sort of just changes in growth dynamics. So UM. And

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Speaker 1: you know, even when you look at investments spending in

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Speaker 1: the U S it's it's um. I mean compared now

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Speaker 1: to to how it was that when we actually did

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Speaker 1: have a Capex procession, which was in Capex is holding

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Speaker 1: up reasonably well all things considered. I mean, we were

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Speaker 1: here talking about, um, you know how terrible things are

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Speaker 1: in the global economy with the stock market at all

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Speaker 1: time highs and you know, all this trade to trade uncertainty,

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Speaker 1: and even then, UM, you know, investment spending is still

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Speaker 1: holding up reasonably well. So you know the fact that

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Speaker 1: US investment spending is doing so much better than many

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Speaker 1: other places in the world tells you that there's already

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Speaker 1: something going on with respect to those companies respond but

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Speaker 1: with respective firms responding to final demands. So um, you know,

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Speaker 1: you're not seeing big declines and employment. Uh, you're seeing

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Speaker 1: plum plumbing continue to expand your consumers um, continuing to

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Speaker 1: spend money, and it's that final demand that firms ultimately

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Speaker 1: have to respond to. So you're one of the things

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Speaker 1: that the FED is looking at is inflation. Where we

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Speaker 1: right now with the inflation outlooking the US UM, you know,

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Speaker 1: I mean, I think inflation is running persistently below the

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Speaker 1: FEDS target. You know, I think if you have like

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Speaker 1: if you look at it, you know, very very near term.

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Speaker 1: I mean, it's pretty clear that, you know, the FEDS

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Speaker 1: transitory story that they had been sort of pitching for

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Speaker 1: a two months there, I mean, that's actually kind of

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Speaker 1: worked out. I mean, inflation has you know, co inflation

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Speaker 1: has popped up a bit, but it's not enough to

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Speaker 1: kind of, you know, change the underlying story about inflation. UM.

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Speaker 1: Inflation is persistently below two percent, and that means that,

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Speaker 1: you know, in my view, at least you know, the

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Speaker 1: benefits of the FED doing something here in terms of

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Speaker 1: you know, accommodating UM you know, outweighs the cost. So

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Speaker 1: you're bullish. You're very bullish, it sounds like, and I'm

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Speaker 1: curious when you think that things. Yeah, I mean you're welcome, right,

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Speaker 1: I mean, you know, yes, you know, I love it,

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Speaker 1: absolutely love it. UM it's a happy Wednesday, Neale. I

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Speaker 1: do want to look at it though, and wonder, you know,

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Speaker 1: when you see these credit cycle perhaps aging, because people

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Speaker 1: have been saying we're the ninth Inning for the past

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Speaker 1: six years, and I'm just wondering, from your perspective, what

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Speaker 1: will it'll what it will actually take to get there?

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Speaker 1: What in terms of credit I mean for the business cycle,

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Speaker 1: I mean, when are we actually see a downturn? What

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Speaker 1: is what do I think it's going to be looking

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Speaker 1: less rosy? Um? Well, I mean I think when you

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Speaker 1: have a sharp upturn in real interest rates, uh, you know,

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Speaker 1: then I think that would be something that would that

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Speaker 1: would concern me. Um. But at the moment, I mean,

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Speaker 1: you still have you know, nominal growth running well above

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Speaker 1: the level of overnight interest rates. I mean that's that's

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Speaker 1: that's as reasonable and indication as any of the business

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Speaker 1: cycle still has room to run. Um. You know, you

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Speaker 1: have you know, when you take a look at sort

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Speaker 1: of the kind of classic sort of check boxes that

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Speaker 1: people have when they want to make a recession call

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Speaker 1: um there, no, they're not and um and so it's

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Speaker 1: gonna be a while. Yeah. And I just think that

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Speaker 1: the housing market in the U s is arecovering and

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Speaker 1: it's really unusual to see, you know, some kind of

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Speaker 1: a big downturn in the economy with residential with residential

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Speaker 1: investment accelerating. Neil Data, thank you so much, love having

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Speaker 1: you on. Neil Data, head of economics for Renaissance Macro Research,

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Speaker 1: joining us. Seeing positive signs ahead. Well, it has been

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Speaker 1: obvious for sometime the President Trump is not a fan

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Speaker 1: of the US Federal Reserve and its chairman j Pal.

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Speaker 1: The question is whether the President's tweets and other commentary

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Speaker 1: influences the FED to get some analysis. So this we

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Speaker 1: welcome our next guest, Christopher Condon. Christopher is a reporter

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Speaker 1: for Bloomberg News covering the Federal Reserve. Chris, thanks so

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Speaker 1: much for joining us from Washington. So let's go to

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Speaker 1: that big question. To what extent, if any, do you

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Speaker 1: think President's Trump's commentary and tweets about j Pal about

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Speaker 1: the Federal Reserve influences the FED at all? I really

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Speaker 1: don't think it has that much influence. The Fed has

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Speaker 1: a pretty clear process. It goes through a very rigorous

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Speaker 1: an intense process UH to prepare for each of the

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Speaker 1: f O m C meetings. They happen eight times a year,

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Speaker 1: and it's a it's a big deal, and the participants

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Speaker 1: have to really have their act together, um when they

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Speaker 1: come and make arguments at that table about what they

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Speaker 1: should do with policy. And by all accounts, current members,

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Speaker 1: former members, people who understand this process, staff people, politics

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Speaker 1: just doesn't have a place in there now. At the

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Speaker 1: same time, we have to grant that, you know, these

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Speaker 1: are human beings. They don't sit there talking about the

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Speaker 1: president's pressure, but they must feel it. They really see

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Speaker 1: the tweets, they see the news about it. Uh and

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Speaker 1: if anything, you know, um, former senior staff have told me,

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Speaker 1: it may actually make it harder for the president to

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Speaker 1: get what he wants when a decision is a real

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Speaker 1: close call. So let's hold hold one, okay, But before

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Speaker 1: we get into, you know, the idea that they might

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Speaker 1: try to rebel against him and show that their independence

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Speaker 1: by not doing what he wants. In on the margins,

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Speaker 1: I want to talk about moves that President Trump could

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Speaker 1: actually make that economically would create a better picture for

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Speaker 1: a rate cut or further rate cuts. And I'm talking

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Speaker 1: about tariffs because President Trump is cutting out now, coming

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Speaker 1: out now and threatening additional tariffs in China saying he

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Speaker 1: can levy them whenever he wants, and a lot of

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Speaker 1: people are saying, you know, is this perhaps an effort

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Speaker 1: to push the FED into cutting rates even more ahead

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Speaker 1: of the election, In other words, that the FED would

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Speaker 1: be compelled to do so from an economic perspective, even

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Speaker 1: though it's a politically driven economic perspective. Yeah, that it

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Speaker 1: does seem like a bit of a circular. I'm not

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Speaker 1: sure how strategically he thinks about what the he wants

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Speaker 1: the FED to do when he considers imposing tariffs and China.

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Speaker 1: There's a whole other agenda there, obviously, with respect to

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Speaker 1: our trade relations with China, and what's he what he

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Speaker 1: wants to achieve there. Um, that may be putting too

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Speaker 1: many uses in play at once. It certainly is true

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Speaker 1: that the FED has to deal with the reality of

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Speaker 1: those terrorists and the extent to which they hurt the economy.

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Speaker 1: They certainly are hurting business sentiment and the way companies

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Speaker 1: think about investing and hiring. That seems to be showing up.

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Speaker 1: So it is factoring in to their analysis of whether

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Speaker 1: the economy may need a rate cut or not, that's

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Speaker 1: for sure. So Chris one of the issues. I think

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Speaker 1: is probably maybe even more potentially impactful on the Fed

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Speaker 1: um than tweets is you know, kind of an effort

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Speaker 1: on part of the president too, you know, arguably quote

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Speaker 1: unquote pack the Fed with uh not with people that

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Speaker 1: are more amenable to his uh easing of FED policy.

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Speaker 1: So it gives a sense of kind of where that

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Speaker 1: stands within the Fed, how how are they? That is

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Speaker 1: that it represents a big turn of events that happened gradually,

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Speaker 1: and I'm told that has set folks inside the FED

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Speaker 1: much more than the barrage of tweets and comments attacking

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Speaker 1: the Fed over monetary policy. It represents a serious potential

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Speaker 1: threat in a couple of ways. First of all, it

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Speaker 1: could be a direct a way to get political partisans

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Speaker 1: inside uh the f O m C. You know of

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Speaker 1: course that he Trump made a number of nominations some

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Speaker 1: of which they cut through that were entirely conventional and

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Speaker 1: have support helped the Fed. But this year the nominations

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Speaker 1: where the people considered for nominations has changed. Currently we

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Speaker 1: have a couple of people, uh and one and one

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Speaker 1: person in particular represents this kind of change. Her name

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Speaker 1: is Judy Shelton. She has been an economic advisor to

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Speaker 1: Trump during the campaign. Um, she's a she is, uh,

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Speaker 1: I would say, a classic libertarian thinker and author, has

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Speaker 1: been a long standing UM advocate of the gold standard.

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Speaker 1: Now she's been talking despite that at around strangely has

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Speaker 1: been talking about wanting to lower interest rates. So that

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Speaker 1: makes people think she represents just a sort of partisan

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Speaker 1: loyalty to the president, and if confirmed, that puts that

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Speaker 1: partisan political agenda potentially right inside the rate setting meetings.

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Speaker 1: And second, UM, she also uh just really does not

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Speaker 1: seem to agree with the fundamental mission of the Central

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Speaker 1: Bank of the United States. She does not think they

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Speaker 1: should be setting a benchmark interest rate to guide the market.

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Speaker 1: But in fairness, right now, a lot of people in

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Speaker 1: the market are very unclear of what the Fed's mandate

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Speaker 1: actually is because it was on one at one point,

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Speaker 1: inflation at one point, it was employment at one point.

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Speaker 1: People are speculating it's just keep the markets propped up. Well,

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Speaker 1: the law is pretty clear they have a dual mandate

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Speaker 1: to keep prices stable through their inflation target and to

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Speaker 1: maximize employment in a sustainable way. UM. It can't be

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Speaker 1: much clearer than it is in the law. UM, and

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Speaker 1: of course, as as economic and financial conditions change, um,

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Speaker 1: the FED focuses on one area another. If they're meeting

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Speaker 1: one mandate, then they they look at the other and

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Speaker 1: how they can try to guide the the economy back

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Speaker 1: to a point where they're meeting both of those targets. Um.

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Speaker 1: And of course, when it comes to you know, Judy's

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Speaker 1: argument about the market should be setting rights, I don't

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Speaker 1: think it can be reasonably said that the Fed just

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Speaker 1: sets a rate and expects everyone to fall in line.

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Speaker 1: Actual borrowing costs are kind of a result of a

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Speaker 1: dance between the Fed and the markets. They're very much

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Speaker 1: listening to each other. Um. So her her thinking is

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Speaker 1: a bit more fundamentalist. I think and and and does

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Speaker 1: what Whether it's right or wrong, The bottom line is

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Speaker 1: it really disturbs folks at the FED. Christopher Conton, thank

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Speaker 1: you so much as always for joining us, as well

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Speaker 1: as for your Bloomberg Business Week piece about just the

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Speaker 1: political pressure on the Federal Reserve and whether it will

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Speaker 1: actually have any impact on their decision making. It looks

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Speaker 1: like it may not, despite the fact that the pressure

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Speaker 1: is rising from President Trump. Chris Condon of Bloomberg News, Well,

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Speaker 1: we have read on the screen. As Greg reported, let's

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Speaker 1: see where the action is in small caps with Bloomberg

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Speaker 1: stocks that or Dave Wilson, Dave, what are you looking at?

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Speaker 1: I'm looking at more red than I'm seeing with the

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Speaker 1: larger companies, that's for sure. The RUST of two thousand

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Speaker 1: index down seven tenths of a percent, of the SMP

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Speaker 1: five hundreds lower by just three tenths of a percent.

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Speaker 1: One of the Russell's deepest declines belongs to Beyond Spring,

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Speaker 1: who's ticker is b y s I, the cancer drug

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Speaker 1: developer has fallen more than fifteen percent after raising thirty

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Speaker 1: five million dollars in a share sale, representing more than

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Speaker 1: an eight percent steak, and Obio Pharmaceuticals ticker i n

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Speaker 1: O was dropped fourteen percent. The drug developer ended research

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Speaker 1: on a bladder cancer treatment and said its workforce would

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Speaker 1: be reduced by twenty eight percent as part of an

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Speaker 1: effort to cut costs. Malan Krott ticker m n K

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Speaker 1: has lost about nine and a half percent. The drug

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Speaker 1: maker end of the study of its biggest selling product,

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Speaker 1: hp acthar gel as a treatment for Luke Garrig's disease.

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Speaker 1: Now the Russell's biggest game belongs to avro Bio ticker

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Speaker 1: a v r O, the stem cell therapy developer has

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Speaker 1: risen more than sixteen percent. Avro Bio raised twenty million

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Speaker 1: dollars by selling the equivalent of a twenty one percent

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Speaker 1: steak and may Come Technology Solutions to m t s

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Speaker 1: I has added more than eight percent. The chip maker

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Speaker 1: was raised equivalent buy from Neutral and Piper Jeffrey David Wilson,

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Speaker 1: thank you so much for being with us, Steve Wilson,

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Speaker 1: always with those great updates. Bank of America shares up

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Speaker 1: a little bit about four tens of a percent after

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Speaker 1: reporting earnings. UH that had good had bad. You basically

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Speaker 1: could plug in the name of a number of different

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Speaker 1: banks this earning season and have the same story. Told

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Speaker 1: Alison Williams joining us here, she is the hardest working

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Speaker 1: woman at Bloomberg these days of Bloomberg Intelligence senior financial analysts. So, Alison,

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Speaker 1: what's the deal with b of A? So UH net

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Speaker 1: interest margin MS guidance coming down. That's similar to what

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Speaker 1: we saw across the big four banks that that I cover, UM,

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Speaker 1: but the differentiator has been costs and so for Bank

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Speaker 1: of America. Basically they had said Um, they expected cost

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Speaker 1: to be flat this year. Now they're saying there may

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Speaker 1: be some opportunity for those to come down, so offsetting

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Speaker 1: the net interest margin. Pain, Let's back up for a second.

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Speaker 1: When they have opportunity to reduce those costs, is that

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Speaker 1: another way of saying we can cut jobs. Well, it

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Speaker 1: depends where the costs are coming from, right, So to

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Speaker 1: some extent, um, they don't want to be cutting jobs

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Speaker 1: in certain areas, right because there there's a pickup in

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Speaker 1: UM opportunity. So mortgage banking is an area actually where

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Speaker 1: you might be see some additions across uh, some of

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Speaker 1: the companies well as far Ago yesterday also saying that

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Speaker 1: was an area for for higher costs. They're also saying

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Speaker 1: they're not going to cut tech spending. So that's, um,

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Speaker 1: you know, something that you don't want to see banks doing,

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Speaker 1: especially given sort of the battleground in some of the

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Speaker 1: U S companies winning on that front. UM. But you know,

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Speaker 1: in terms of other areas cutting back, you know, uh, Paul,

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Speaker 1: you can remember the days when um, you go through

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Speaker 1: the department and everybody gets a little bit more focused

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Speaker 1: on where no certain expenses are coming from, and everybody

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Speaker 1: just sort of keeps and keeps a closer eye in

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Speaker 1: terms of what you're spending, what travel, you're technical, lunch necessary,

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Speaker 1: where you guys are going out for lunch, the number

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Speaker 1: of black cars that are lined up outside um the

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Speaker 1: investment banks. So you guys have lived a different life

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Speaker 1: than I had. That's like it was a different time.

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Speaker 1: So yeah, So there are some expenses that very very

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Speaker 1: with revenue, and then there are some where you can

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Speaker 1: be a little bit more efficient, and so technologies, uh,

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Speaker 1: you know, we were we've been talking more recently about

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Speaker 1: technology helping on the revenue front, but that's also helping

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Speaker 1: helping on the efficiency front. Right, So mobile deposits are

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Speaker 1: a great experience for the customer, but they're also like

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Speaker 1: three cents on the dollar for some of these. So

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Speaker 1: also when I worked on the street, the big trading

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Speaker 1: desk were really drivers of profitability, whether it's the you know,

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Speaker 1: fixed income trading desk, the equities, the commodities. Are we

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Speaker 1: ever going to get back to a time on the

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Speaker 1: wall street where they can be consistently profitable and really

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Speaker 1: drive some of the returns for these big global banks.

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Speaker 1: I think that, you know, one of the big changes

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Speaker 1: is really the electronification UM and again, and you know,

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Speaker 1: Paul and I have been tortured by this throughout our

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Speaker 1: careers in terms of seeing what's happened on the equities front. Right,

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Speaker 1: So UM a business UM that has really shifted over

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Speaker 1: time to be more UH to be traded a lot

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Speaker 1: more through the electronic venue, and we're seeing a lot

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Speaker 1: more UM progress on that front on the fixed income side.

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Speaker 1: So I think as volumes continue to go electronic, that

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Speaker 1: does UM you know obviously has it has an impact

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Speaker 1: of thing go low touch versus high touch UM. And

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Speaker 1: in general, you know, the volatility there there are some

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Speaker 1: cyclical factors that that may get better in terms of

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Speaker 1: volatility and quantitative easing. But the other big pressure is

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Speaker 1: the pressure on customers, right, so passive versus active. You think,

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Speaker 1: you know, an active customer is doing trades, they're providing

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Speaker 1: flow for desks. A passive customer UM is generally not

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Speaker 1: And so I think that's you know, hedge hedge funds

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Speaker 1: are another area where we've seen a lot of fee pressure.

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Speaker 1: Less fees, broadly for the end stry is less revenue.

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Speaker 1: If your customers have less revenue to pay, you know,

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Speaker 1: that's less opportunity for you. Just real quick here. We

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Speaker 1: talked earlier, perhaps year or two ago, that the banks

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Speaker 1: would have to pass along some of the increase in

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Speaker 1: interest rates to their depositors. Was there any talk about

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Speaker 1: that this time around? The increases that you've seen, so

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Speaker 1: you've seen increases in two businesses, the wealth business and

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Speaker 1: the commercial small business side of things, right, So that's

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Speaker 1: where you get people where sort of the shopping around

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Speaker 1: is going to pay off. So when you have you know,

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Speaker 1: ten customer let's let's say you know, ten customers with

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Speaker 1: a hundred dollars versus one customer a thousand, you know,

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Speaker 1: multiply that, right, So someone with a million dollars is

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Speaker 1: going to shop around, whereas someone with like a thousand

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Speaker 1: dollars isn't likely. So when you look at UM the

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Speaker 1: core franchises, you're still seeing, you know, things pretty sticky there,

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Speaker 1: but you are seeing a pick up in terms of UM.

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Speaker 1: As I said, the wild small business, you know, City

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Speaker 1: Group also had sort of a notable pick up. They're

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Speaker 1: building digital, So when you're gonna go digital again, you're

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Speaker 1: probably paying up for those deposits. Alison William, thank you

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Speaker 1: so much. Allison Covers all Things Banks for Bloomberg Intelligence,

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Speaker 1: joining us on a Bloomberg Interact the Broker Studio. Funds

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Speaker 1: are having a very good year by historical standards, although

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Speaker 1: I will note that equity funds are still lagging the

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Speaker 1: SMP five hundred the broader market. Here to get a

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Speaker 1: sense of which strategies are performing better, we welcome UH

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Speaker 1: Don Steinbruger. Don is the chairman UH and founder and

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Speaker 1: CEO of Agecroft Partners. John Don joins us here in

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Speaker 1: the Bloomberg Interactor Broker Studio. Don, thanks so much for

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Speaker 1: joining us again, just give us a sense, just kind

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Speaker 1: of We're six months into the books for the year.

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Speaker 1: How are the hedge funds, broadly defined doing so? From

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Speaker 1: an absolute standpoint, they're doing the best they've done in

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Speaker 1: ten years. The average hedge fund for the first six

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Speaker 1: months of the year was up seven point five percent

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Speaker 1: based on the h f R I index, and that's

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Speaker 1: significantly better than the acid weighted index. It is dominated

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Speaker 1: by large hedge funds. Smaller hedge funds outperform large hedge

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Speaker 1: funds for the first six months of this year. So

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Speaker 1: here's my question, and this is going to be the

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Speaker 1: question that everyone's wondering which is it's two and twenty

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Speaker 1: worth it. I mean, it's not really two and twenty

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Speaker 1: anymore of the fee structure because it's come down dramatically.

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Speaker 1: But if these hedge funds are performing the best at

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Speaker 1: an absolute level and still under performing the broader market,

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Speaker 1: is it worth it? So when you think of first

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Speaker 1: of all, relative defease, I don't think anyone should pay

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Speaker 1: two in twenty less they find just an absolutely fabulous

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00:23:02,320 --> 00:23:04,440
Speaker 1: hedge fund manager, there's no reason to do it. There's

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Speaker 1: a lot of hedge funds that are offering founders share

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Speaker 1: fees at one and ten. Fees matter, and if you're

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Speaker 1: analyzing a hedge fund, you should focus on fees, all

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Speaker 1: things being equal, always go with the manager that has

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Speaker 1: less fees. But looking at hedge fund performance, you know,

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Speaker 1: hedge funds are a fund structure, they're not an asset class.

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Speaker 1: So you really gotta look at what the strategy is

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Speaker 1: and what the underlying benchmark is that specific strategy. And

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Speaker 1: although I think most hedge funds are not very good,

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Speaker 1: there are a lot that have outperformed indicas and I

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Speaker 1: think add values, so yes, I think there is a

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Speaker 1: place for hedge funds in UM sophisticated large institutional investors portfolios.

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Speaker 1: So what are some of the strategies that are particularly

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Speaker 1: performing well here in the first half of the year. Well,

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Speaker 1: you know, obviously, anything to do with the equity markets

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Speaker 1: did very well. The UM average long shot equity manager

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Speaker 1: was a nine in four four percent. But what I

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Speaker 1: think is really interesting is, for the first time in

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Speaker 1: a long time, fundamentally oriented hedge funds did well. UH.

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Speaker 1: The average fundamental manager, and you've got to remember they

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Speaker 1: only have about half the exposure of the of the

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Speaker 1: broad market, were up ten point eight eight percent, and

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Speaker 1: they significantly outperformed systematic UH long shirt equity managers that

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Speaker 1: were only up about six point nine one So fundamental

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Speaker 1: fundamentals for the first time in a long time worked.

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Speaker 1: It'll be interesting to see if they work going forward.

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Speaker 1: You know, some sectors within the long shirt equity area

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Speaker 1: sector managers did pretty well. Those focused on healthcare technology

428
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Speaker 1: were up over eleven percent, and from a regional perspective,

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Speaker 1: managers have focus on China, We're up thirteen point one percent.

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Speaker 1: I can touch on a couple others if I have time,

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Speaker 1: you know, I want to actually ask something about what

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00:24:50,760 --> 00:24:53,800
Speaker 1: you said earlier, which is there are good fund managers

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00:24:53,840 --> 00:24:56,359
Speaker 1: out there, and if you find them, they can add

434
00:24:56,400 --> 00:24:59,399
Speaker 1: some real value to your portfolio. How do you judge?

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00:24:59,400 --> 00:25:02,280
Speaker 1: How do you herman whether a fund manager is good

436
00:25:02,359 --> 00:25:05,919
Speaker 1: or not? Because it's not just past performance. It is

437
00:25:05,960 --> 00:25:08,440
Speaker 1: definitely not past performance. So I think you've got to

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00:25:08,520 --> 00:25:11,639
Speaker 1: use multiple factors and analyzing the hedge fund, I think

439
00:25:11,720 --> 00:25:14,000
Speaker 1: you need to look at the organization and make sure

440
00:25:14,040 --> 00:25:17,320
Speaker 1: that it's institutional quality. You've got to go to the office,

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00:25:17,520 --> 00:25:19,680
Speaker 1: meet the people there. I think you need to look

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00:25:19,720 --> 00:25:22,760
Speaker 1: at the people managing the portfolio. What are their bios

443
00:25:22,800 --> 00:25:24,919
Speaker 1: look like? You know, what is it? What edge do

444
00:25:25,000 --> 00:25:28,600
Speaker 1: they have to implement the process? You need to listen

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00:25:28,640 --> 00:25:32,680
Speaker 1: to what their investment processes. Can they articulate what inefficiency

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00:25:32,680 --> 00:25:35,119
Speaker 1: in the marketplace or trying to take advantage of and

447
00:25:35,240 --> 00:25:39,560
Speaker 1: clearly explain how they're able to take advantage of that inefficiency.

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00:25:39,800 --> 00:25:42,000
Speaker 1: You need to look at risk control. As far as

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00:25:42,080 --> 00:25:44,760
Speaker 1: performance goes, you need to decouple it. You need to

450
00:25:44,800 --> 00:25:48,280
Speaker 1: really understand that was their performance, but why did they

451
00:25:48,320 --> 00:25:50,920
Speaker 1: do what they did and how is that going to

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00:25:51,560 --> 00:25:54,199
Speaker 1: the strategy going to do going forward? For example, you

453
00:25:54,240 --> 00:25:57,639
Speaker 1: know this year there's been broad rallies of the fixed

454
00:25:57,640 --> 00:26:01,800
Speaker 1: income marketplace. You've had um the ten year treasury rally

455
00:26:01,920 --> 00:26:05,040
Speaker 1: by you know, over sixty basis points. You've had high

456
00:26:05,080 --> 00:26:08,679
Speaker 1: yield spreads come down almost a hundred and fifty basis points.

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00:26:08,880 --> 00:26:11,720
Speaker 1: The more risk you took into fixed income portfolio, the

458
00:26:11,760 --> 00:26:13,399
Speaker 1: betty you did. But that doesn't mean you're gonna do

459
00:26:13,440 --> 00:26:16,760
Speaker 1: better going forward. So you need to understand why performance

460
00:26:16,880 --> 00:26:19,080
Speaker 1: was what it was and also have some idea of

461
00:26:19,160 --> 00:26:20,800
Speaker 1: you know, what you think the markets you're gonna do

462
00:26:20,840 --> 00:26:24,520
Speaker 1: going forward, and how that strategy in a stress tested

463
00:26:24,600 --> 00:26:28,640
Speaker 1: environment will do going forward. So it's interesting. So they

464
00:26:28,680 --> 00:26:31,600
Speaker 1: don't outperform. So the equity hedge funds kind of about

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00:26:31,600 --> 00:26:33,560
Speaker 1: half what the SMP has done on the upside this year.

466
00:26:33,600 --> 00:26:35,840
Speaker 1: How about when we have a down market, did they

467
00:26:36,040 --> 00:26:37,879
Speaker 1: do better than the market, Because I'm wondering what I'm

468
00:26:37,880 --> 00:26:40,280
Speaker 1: paying for again, I'm not getting performance on the upside,

469
00:26:40,400 --> 00:26:41,639
Speaker 1: but I am not gonna are they gonna protect me

470
00:26:41,680 --> 00:26:44,360
Speaker 1: on the downside? Well, first of all, on the upside,

471
00:26:44,359 --> 00:26:48,160
Speaker 1: I do think they're When you start looking at niche oriented,

472
00:26:48,359 --> 00:26:51,800
Speaker 1: long shoot equity strategies that focus on more inefficient markets,

473
00:26:51,840 --> 00:26:54,600
Speaker 1: I think they've done a better job beating whatever the

474
00:26:54,600 --> 00:26:57,840
Speaker 1: relevant benchmark is. For example, if you go over to Asia, UH,

475
00:26:57,920 --> 00:27:01,000
Speaker 1: managers that focus on Asia or China um have some

476
00:27:01,080 --> 00:27:04,360
Speaker 1: of them have outperformed their indicas by very large margins

477
00:27:04,440 --> 00:27:06,400
Speaker 1: over long period of time. You know, if you're talking

478
00:27:06,440 --> 00:27:09,480
Speaker 1: about US equity managers that are focusing on you know,

479
00:27:09,520 --> 00:27:11,879
Speaker 1: the apples and the very large cap stocks, I mean,

480
00:27:11,920 --> 00:27:14,280
Speaker 1: it's really hard to get information advantage and most of

481
00:27:14,280 --> 00:27:18,199
Speaker 1: those have underperformed. But just a real quick here, we

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00:27:18,280 --> 00:27:20,919
Speaker 1: just have about thirty seconds and a listener is writing

483
00:27:20,920 --> 00:27:22,880
Speaker 1: in who does manage a lot of money and isn't

484
00:27:23,359 --> 00:27:27,159
Speaker 1: in charge of determining what investments there are? And he

485
00:27:27,359 --> 00:27:29,720
Speaker 1: was asking, how long of a track record do you require?

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00:27:31,560 --> 00:27:34,119
Speaker 1: You know, I think the longer the track record the better,

487
00:27:34,520 --> 00:27:36,600
Speaker 1: And I would want to see a track record at

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00:27:36,640 --> 00:27:41,200
Speaker 1: least three years UM. And you know, you just need

489
00:27:41,240 --> 00:27:43,320
Speaker 1: to make sure that when you analyze the track record,

490
00:27:43,359 --> 00:27:45,200
Speaker 1: you understand what the track record is. There's a lot

491
00:27:45,200 --> 00:27:48,280
Speaker 1: of discrepancies as far as showing net performance and what

492
00:27:48,359 --> 00:27:51,280
Speaker 1: fees people are using to show net performance versus what

493
00:27:51,320 --> 00:27:54,680
Speaker 1: their normal benchmark is. Don Steinbruger, thank you so much

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00:27:54,680 --> 00:27:57,359
Speaker 1: for being with us. Really appreciate it. Don Steinbruger is

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Speaker 1: Agecroft Partners founder and CEO, joining us here in our

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Speaker 1: Bloomberg Interactive Broker's studios. Thanks for listening to the Bloomberg

497
00:28:04,840 --> 00:28:07,040
Speaker 1: P and L podcast. You can subscribe and listen to

498
00:28:07,080 --> 00:28:10,280
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.

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00:28:10,520 --> 00:28:13,200
Speaker 1: I'm Paul Sweeney, I'm on Twitter at pt Sweeney. I'm

500
00:28:13,240 --> 00:28:15,960
Speaker 1: Lisa abram Woits. I'm on Twitter at Lisa A. Bramwoits.

501
00:28:15,960 --> 00:28:18,800
Speaker 1: One before the podcast, you can always catch us worldwide

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00:28:18,840 --> 00:28:19,800
Speaker 1: on Bloomberg Radio