WEBVTT - Here's Why 2025 Has Seen Popular Investment Strategies Fall Apart

0:00:02.400 --> 0:00:06.760
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:08.400 --> 0:00:10.960
<v Speaker 2>I'm Stephen Carroll and this is Here's Why, where we

0:00:11.000 --> 0:00:13.200
<v Speaker 2>take one new story and explain it in just a

0:00:13.240 --> 0:00:20.759
<v Speaker 2>few minutes with our experts here at Bloomberg. The ongoing

0:00:20.880 --> 0:00:25.520
<v Speaker 2>changes create the opening for a global euro moment.

0:00:28.480 --> 0:00:31.000
<v Speaker 1>Even if you're a dollar based investor, you should be

0:00:31.040 --> 0:00:35.519
<v Speaker 1>thinking about increasing your allocations to none dollar investments. You know,

0:00:35.560 --> 0:00:37.760
<v Speaker 1>we got up to one fifteen in euro dollar and

0:00:37.800 --> 0:00:40.559
<v Speaker 1>then put all the way back down towards one eleven.

0:00:40.680 --> 0:00:42.839
<v Speaker 2>Like that kind of thing is going to keep happening.

0:00:45.080 --> 0:00:48.600
<v Speaker 2>There is a declining trend of the US exceptionalism, and

0:00:48.680 --> 0:00:51.960
<v Speaker 2>particularly when we talk to global investors, the willingness to

0:00:52.040 --> 0:00:55.040
<v Speaker 2>diversify on a global basis. I think it's getting higher

0:00:56.960 --> 0:00:59.920
<v Speaker 2>these days. If you blink, you're risk missing a market melt.

0:01:00.520 --> 0:01:02.120
<v Speaker 2>A lot has changed in the world in the first

0:01:02.160 --> 0:01:04.840
<v Speaker 2>few months of twenty twenty five. There's been a whirlwind

0:01:04.880 --> 0:01:07.880
<v Speaker 2>of announcements from the Trump White House. Europe is racing

0:01:07.920 --> 0:01:11.679
<v Speaker 2>to rearm Germany's loosening its purse strings. The pace of

0:01:11.800 --> 0:01:15.040
<v Speaker 2>change has set investors on edge. Many are now questioning

0:01:15.080 --> 0:01:18.720
<v Speaker 2>what were considered established market principles, ones that had a

0:01:18.800 --> 0:01:22.880
<v Speaker 2>track record of making money until now. Here's why twenty

0:01:22.920 --> 0:01:30.560
<v Speaker 2>twenty five has seen popular investment strategies blown apart. Our

0:01:30.600 --> 0:01:34.520
<v Speaker 2>Market's Live managing editor, Christine Aquino, joins me now for more, Christine,

0:01:34.560 --> 0:01:37.080
<v Speaker 2>good to talk to you. Can we start with some examples?

0:01:37.120 --> 0:01:40.360
<v Speaker 2>What were the ideas or principles that investors used to

0:01:40.400 --> 0:01:43.000
<v Speaker 2>rely on and I've been thinking differently about since the

0:01:43.000 --> 0:01:43.920
<v Speaker 2>start of this year.

0:01:44.360 --> 0:01:47.000
<v Speaker 1>Yeah, absolutely, Steven. I mean, we have a lot of

0:01:47.040 --> 0:01:50.240
<v Speaker 1>these that are long held principles in markets that have

0:01:50.440 --> 0:01:53.920
<v Speaker 1>really started to be challenged, especially in the beginning of

0:01:53.960 --> 0:01:56.280
<v Speaker 1>this year, right. So one of them is definitely this

0:01:56.440 --> 0:02:00.000
<v Speaker 1>idea that the US dollar and treasuries are full proof

0:02:00.120 --> 0:02:04.240
<v Speaker 1>havens during times of stress. There's also the notion that

0:02:04.320 --> 0:02:06.960
<v Speaker 1>there's no way to go for the Magnificent seven but

0:02:07.080 --> 0:02:11.040
<v Speaker 1>up because you know, even in times of inflationary environments,

0:02:11.440 --> 0:02:13.280
<v Speaker 1>they tend to be more resilient because they have a

0:02:13.320 --> 0:02:16.560
<v Speaker 1>lot of cash flow, they have enough growth in the

0:02:17.120 --> 0:02:19.800
<v Speaker 1>companies that are in that group. And then, of course

0:02:20.160 --> 0:02:25.400
<v Speaker 1>the sixty forty investment strategy. Now that's been questioned even

0:02:25.440 --> 0:02:27.480
<v Speaker 1>prior to the start of this year, but I think

0:02:27.560 --> 0:02:30.040
<v Speaker 1>even more so since the beginning of twenty twenty.

0:02:29.760 --> 0:02:33.080
<v Speaker 2>Five, the sixty to forty portfolio sixty percent invested in stocks,

0:02:33.160 --> 0:02:35.400
<v Speaker 2>forty percent invested in bond. Something that we hear a

0:02:35.400 --> 0:02:38.960
<v Speaker 2>lot about are all of these changes because of Donald Trump.

0:02:39.320 --> 0:02:42.799
<v Speaker 1>He was definitely a big catalyst ever since President Donald

0:02:42.840 --> 0:02:46.560
<v Speaker 1>Trump took office, and it's particularly because of some of

0:02:46.600 --> 0:02:49.480
<v Speaker 1>the known aspects of his policy approach. Right, we knew

0:02:49.800 --> 0:02:52.200
<v Speaker 1>even before he took office that he was going to

0:02:52.240 --> 0:02:55.360
<v Speaker 1>take a look at the US's trade deals with the

0:02:55.400 --> 0:02:58.399
<v Speaker 1>rest of the world and attempt to redraw a lot

0:02:58.440 --> 0:03:00.520
<v Speaker 1>of that policy. And then of course a lot of

0:03:00.560 --> 0:03:03.600
<v Speaker 1>focus on immigration as well. And you know, that combination

0:03:04.000 --> 0:03:07.080
<v Speaker 1>had a lot of people really bracing for a renewal

0:03:07.520 --> 0:03:09.520
<v Speaker 1>of inflation in twenty twenty five.

0:03:09.960 --> 0:03:12.320
<v Speaker 2>So what are the other factors at play then outside

0:03:12.360 --> 0:03:13.720
<v Speaker 2>of the United States.

0:03:13.800 --> 0:03:16.200
<v Speaker 1>Well, Stephen, you know, because the US has enjoyed this

0:03:16.360 --> 0:03:19.919
<v Speaker 1>sense of exceptionalism, I would say over the past decade.

0:03:20.320 --> 0:03:23.480
<v Speaker 1>The result of that is that a lot of valuations

0:03:23.480 --> 0:03:26.160
<v Speaker 1>outside of the US have really become cheaper, you know,

0:03:26.560 --> 0:03:29.640
<v Speaker 1>and now that we're seeing US markets being on a

0:03:29.639 --> 0:03:33.960
<v Speaker 1>little bit more shaky ground, that cheaper valuation outside of

0:03:33.960 --> 0:03:37.160
<v Speaker 1>the country has really become a bigger draw for investors, right,

0:03:37.160 --> 0:03:40.280
<v Speaker 1>because they're cheaper and now they're looking like more of

0:03:40.320 --> 0:03:43.560
<v Speaker 1>a viable alternative to US assets. And outside of markets,

0:03:43.600 --> 0:03:46.520
<v Speaker 1>we've also seen a number of leadership changes in a

0:03:46.520 --> 0:03:49.120
<v Speaker 1>lot of other countries. Twenty twenty four was a big

0:03:49.160 --> 0:03:52.080
<v Speaker 1>gear for global elections, and you know, a lot of

0:03:52.160 --> 0:03:56.960
<v Speaker 1>leadership changes means that for countries, their diplomatic relationships are

0:03:57.000 --> 0:03:59.280
<v Speaker 1>bound to change. At the focal point of that, of course,

0:03:59.360 --> 0:04:03.680
<v Speaker 1>is President Donald Trump and how he's really shifting the

0:04:03.840 --> 0:04:08.120
<v Speaker 1>US's diplomatic relationships with some of its more traditional, closer allies.

0:04:08.400 --> 0:04:11.160
<v Speaker 1>And also it's farther flunk counterparts.

0:04:11.200 --> 0:04:14.280
<v Speaker 2>So money managers have to adapt their strategies all the time, right,

0:04:14.320 --> 0:04:17.680
<v Speaker 2>But how does this moment compared to other periods in

0:04:17.720 --> 0:04:20.080
<v Speaker 2>the past where we've seen big fundamental shifts.

0:04:20.440 --> 0:04:23.560
<v Speaker 1>I think what we're really hearing from money managers is

0:04:23.800 --> 0:04:26.440
<v Speaker 1>the fact that they're having to contend with a higher

0:04:26.480 --> 0:04:29.920
<v Speaker 1>than usual level of volatility, and what that really means

0:04:30.040 --> 0:04:32.880
<v Speaker 1>is that their reaction time has to be faster, it

0:04:32.920 --> 0:04:35.760
<v Speaker 1>has to be more tactical. You know, we're not necessarily

0:04:35.800 --> 0:04:40.240
<v Speaker 1>seeing a lot of money managers making big calls and

0:04:40.279 --> 0:04:44.640
<v Speaker 1>making long term proclamations because it's really difficult in this

0:04:44.680 --> 0:04:47.200
<v Speaker 1>current environment to do that, and so now they have

0:04:47.240 --> 0:04:49.560
<v Speaker 1>to be quick twitched, they have to be really reactive,

0:04:49.880 --> 0:04:53.240
<v Speaker 1>which is quite a different environment, especially if you're a

0:04:53.320 --> 0:04:56.360
<v Speaker 1>money manager who's used to, you know, making big investment

0:04:56.400 --> 0:05:00.000
<v Speaker 1>decisions once a year, maybe changing up your portfolio every

0:05:00.400 --> 0:05:04.400
<v Speaker 1>but not really having to mix it up all that much.

0:05:04.440 --> 0:05:07.800
<v Speaker 1>But yeah, now this is a really different environment. And

0:05:08.000 --> 0:05:09.720
<v Speaker 1>I think the other thing too, that we spoke to

0:05:09.800 --> 0:05:12.440
<v Speaker 1>earlier is the idea that there are a lot of

0:05:12.440 --> 0:05:16.360
<v Speaker 1>these long held quote unquote truths in markets that are

0:05:16.400 --> 0:05:19.400
<v Speaker 1>now really being challenged, and so a lot of money

0:05:19.440 --> 0:05:22.320
<v Speaker 1>managers really just can't rely on those anymore.

0:05:22.560 --> 0:05:26.000
<v Speaker 2>Yeah, even that expression quick twitch makes me nervous when

0:05:26.040 --> 0:05:28.440
<v Speaker 2>I hear it. What about the lasting effect of these changes.

0:05:28.480 --> 0:05:30.760
<v Speaker 2>Can we say, for example, that the era of US

0:05:30.839 --> 0:05:32.080
<v Speaker 2>exceptionalism is over.

0:05:32.560 --> 0:05:35.640
<v Speaker 1>Well, I don't think anyone's quite ready to proclaim that

0:05:35.880 --> 0:05:40.279
<v Speaker 1>just yet, but you do definitely see enough of a

0:05:40.360 --> 0:05:45.320
<v Speaker 1>diversification shift potentially that some of these previously held notions

0:05:45.320 --> 0:05:48.520
<v Speaker 1>in markets become a more water down version of their

0:05:48.600 --> 0:05:51.240
<v Speaker 1>previous selves. Right, even though the US will always have

0:05:51.320 --> 0:05:53.880
<v Speaker 1>the advantage of Tina which is there is no alternative

0:05:54.080 --> 0:05:56.880
<v Speaker 1>because a lot of its markets, both in stocks and

0:05:56.920 --> 0:06:02.080
<v Speaker 1>fixed income, deepest, biggest, broadest markets in the world. But

0:06:02.760 --> 0:06:06.600
<v Speaker 1>we might be seeing enough of a shift in portfolio

0:06:06.600 --> 0:06:09.840
<v Speaker 1>flows that even though that's still true to some extent,

0:06:10.120 --> 0:06:12.560
<v Speaker 1>it probably won't be to the same degree as we

0:06:12.640 --> 0:06:14.400
<v Speaker 1>have seen in years past.

0:06:14.720 --> 0:06:17.159
<v Speaker 2>Now, Christine, you are Queen of Markets at Bloomberg, Are

0:06:17.200 --> 0:06:19.720
<v Speaker 2>there any unusual market trends that you're keeping an eye

0:06:19.760 --> 0:06:20.720
<v Speaker 2>on in the coming months.

0:06:21.000 --> 0:06:24.880
<v Speaker 1>Well, I'm always a macro person at heart, and so

0:06:25.160 --> 0:06:28.200
<v Speaker 1>I'm really really interested in the shift in the dollar's

0:06:28.320 --> 0:06:31.039
<v Speaker 1>role in how investors are viewing it, because we have

0:06:31.240 --> 0:06:35.400
<v Speaker 1>seen it shift from a full proof, trusted haven during

0:06:35.480 --> 0:06:38.200
<v Speaker 1>times of previous episodes of turmoil. I'm talking about the

0:06:38.200 --> 0:06:41.880
<v Speaker 1>global financial crisis and even during the COVID years, and

0:06:42.000 --> 0:06:45.039
<v Speaker 1>now it's really struggled to rally and it almost has

0:06:45.080 --> 0:06:48.080
<v Speaker 1>become the face of the Cell America trade. And that's

0:06:48.120 --> 0:06:52.240
<v Speaker 1>really interesting that investors have been so quick to shift

0:06:52.279 --> 0:06:55.359
<v Speaker 1>their their views and a dollar, and I'm curious to

0:06:55.360 --> 0:07:00.159
<v Speaker 1>see whether it regains back a lot of that status

0:07:00.160 --> 0:07:03.760
<v Speaker 1>that it enjoyed before, or is it now fundamentally changed.

0:07:04.080 --> 0:07:07.039
<v Speaker 1>The other thing that I'm really looking at with interest.

0:07:07.240 --> 0:07:11.520
<v Speaker 1>Is this idea that macro factors taking a backseat to

0:07:11.600 --> 0:07:14.440
<v Speaker 1>politics in terms of driving markets? Is that the new

0:07:14.480 --> 0:07:16.440
<v Speaker 1>world order? Now? You know, are we going to have

0:07:16.480 --> 0:07:21.360
<v Speaker 1>to become in addition to economic armchair experts, are we

0:07:21.400 --> 0:07:24.840
<v Speaker 1>going to have to become policy and politics experts as

0:07:24.880 --> 0:07:26.960
<v Speaker 1>well in this sort of market And you know, just

0:07:27.000 --> 0:07:31.160
<v Speaker 1>a question of for instance, federal reserve policy playing second

0:07:31.200 --> 0:07:35.640
<v Speaker 1>fiddle to whatever the Trump administration's policies are. So something

0:07:35.680 --> 0:07:37.480
<v Speaker 1>that I'd like to keep an eye on. For sure,

0:07:37.560 --> 0:07:37.880
<v Speaker 1>I'm going.

0:07:37.840 --> 0:07:39.880
<v Speaker 2>To be dusting off our politics books to read up

0:07:39.880 --> 0:07:41.920
<v Speaker 2>on some of the precedents of the past. Thanks to

0:07:42.040 --> 0:07:46.280
<v Speaker 2>our Markets Live managing editor Christina Quino. For more explanations

0:07:46.360 --> 0:07:48.600
<v Speaker 2>like this from our team of three thousand journalists and

0:07:48.640 --> 0:07:51.960
<v Speaker 2>analysts around the world, go to Bloomberg dot com slash explainers.

0:07:53.800 --> 0:07:56.400
<v Speaker 2>I'm Stephen Carol. This is Here's why. I'll be back

0:07:56.440 --> 0:07:58.320
<v Speaker 2>next week with more. Thanks for listening.

0:08:00.480 --> 0:08:00.680
<v Speaker 1>Foo