WEBVTT - Bloomberg Markets: Sheldon on Possible Pullback, Growth Stocks

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<v Speaker 1>Global business news twenty four hours a day, Cat Bloomberg

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<v Speaker 1>dot com, the radio plus mobile lab and on your

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<v Speaker 1>radio please. He's a Bloomberg business plan for am Bloomberg

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<v Speaker 1>World hand Quarters. I'm Charlie Pellot. The DAL, the SMP,

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<v Speaker 1>NEZ dank all slumping. We have got thirteen minutes to

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<v Speaker 1>go ahead of the close. US equities on cautious footing

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<v Speaker 1>b SMP down two points now at seventy two and

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<v Speaker 1>dropped there of one tenth of one percent. The Downtown

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<v Speaker 1>fifty one down two tenths of one percent, as stank

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<v Speaker 1>is down twenty three, down four tenths of one percent.

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<v Speaker 1>The ten year of five thirty seconds, the yield two

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<v Speaker 1>point two four percent, Gold up nineteen thirty the ounce

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<v Speaker 1>have an assets advancing gold now at twelve seventy eight.

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<v Speaker 1>The ounce up one and a half percent. West Texas

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<v Speaker 1>Intermediate crude oil up thirty eight cents of barrel forty

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<v Speaker 1>nine fifty five on w t I. That is a

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<v Speaker 1>gain of eight tenths of one percent. I'm Charlie Pellett.

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<v Speaker 1>That's a Bloomberg business flash. Thank you very much, Charlie Pellett.

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<v Speaker 1>Well Bloomber Markets has brought to you on the ever

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<v Speaker 1>able to help. To learn more of please visit black

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<v Speaker 1>Hurricanes can hit ocean front property and they can also

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<v Speaker 1>strike junk e t F. Listen, They're called drunk bonds

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<v Speaker 1>for a reason. And I think you know inside the industry,

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<v Speaker 1>there's some professionals who are worried about the high yield

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<v Speaker 1>debt e t s having a problem when there's a

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<v Speaker 1>real sell off, because how could the e t F

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<v Speaker 1>be so liquid when the underlying isn't his liquid. Bloomberg

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<v Speaker 1>intelligen CTF analyst Eric boltun Is calls it a valid concern.

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<v Speaker 1>If you take h YG the black Rock high Yield

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<v Speaker 1>dead ETF only of the bonds in their trade every day,

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<v Speaker 1>and only six trade on any given day. That is

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<v Speaker 1>totally different than the equitiside of the market or treasuries,

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<v Speaker 1>So it is a legitimate fear. H y G has

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<v Speaker 1>been up about five percent over the past five years,

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<v Speaker 1>but beltun Is warns that the e t F is

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<v Speaker 1>especially sensitive to interest rates and credit concerns. When a

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<v Speaker 1>hurricane hits, it's gonna hurt. I mean, if you look

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<v Speaker 1>at h y G it's had about a dozen days

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<v Speaker 1>below three percent drops. So that to me is the

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<v Speaker 1>bigger takeaway. Don't buy this thing. I equated to beach

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<v Speaker 1>property in a Florida a lot of benefits, but you

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<v Speaker 1>better expect an occasional hurricane. I'm Jenna Dagenhardt and that's

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<v Speaker 1>your Bloomberg et F report. This is Bloomberg Markets with GARYL.

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<v Speaker 1>Masser and Corey Johnson on Bloomberg Radio. There's an air

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<v Speaker 1>rab blow vent of hagginess and there did the fresh

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<v Speaker 1>Prince is new definition of some of that. Yes, that's

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<v Speaker 1>George Gersh from the summertime. That would be fresh Prince.

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<v Speaker 1>I believe, of course, same thing all right, anyway, summertime

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<v Speaker 1>and it is summertimes. And Michael Sheldon's right now, chief

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<v Speaker 1>investment officer of Arty On Financial Group, looking at summertime

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<v Speaker 1>and selling May and go away Maybe wasn't the best advice.

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<v Speaker 1>And this time summertime when it comes to dequity Marcus Michael, well,

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<v Speaker 1>right now I think we're as we look ahead, we

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<v Speaker 1>haven't had a. We haven't had a five percent or

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<v Speaker 1>a ten percent pullback in some time, and on average,

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<v Speaker 1>the markets experience a five percent pullback about every seven

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<v Speaker 1>months or so, in a uh ten percent pullback or

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<v Speaker 1>more about every twenty four months or so. So we're

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<v Speaker 1>maybe a little bit overdue. But I think the bigger

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<v Speaker 1>picture really for us is that we don't see a

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<v Speaker 1>recession ahead. Corporate profits are rising at a healthy pace.

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<v Speaker 1>I'm sorry, go ahead, sure, corporate profits look good. You're

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<v Speaker 1>optimistic on that. Yeah, corporate profits are rising in the

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<v Speaker 1>double digit rate. U We've now had about of the

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<v Speaker 1>company's reports second quarter results and EPs are once again

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<v Speaker 1>rising at a double digit rate, which are higher than

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<v Speaker 1>estimates going into the quarter. Revenues are up about five

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<v Speaker 1>and margins actually surprised on the upside by about thirty

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<v Speaker 1>eight basis points. Are so I think some of the

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<v Speaker 1>other things to point to, our credit spreads remain very healthy.

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<v Speaker 1>Defense raising rates, yes, and that could be a longer

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<v Speaker 1>term issue, especially as they wind down their balance sheet,

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<v Speaker 1>but right now they're taking a gradual approach. And one

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<v Speaker 1>of the factor we keep an eye on is the

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<v Speaker 1>Conference Boards Leading Economic Index, the l e I comes

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<v Speaker 1>out every month, and it basically forecasts the direction of

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<v Speaker 1>the economy over the next two to three quarters and

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<v Speaker 1>right now that increase for ten months in a row.

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<v Speaker 1>So right now, we remain optimistic, we remain constructive, but

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<v Speaker 1>we're aware of the fact that some kind of pullback

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<v Speaker 1>or market correction maybe in the cards before too long.

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<v Speaker 1>But it's it's hard to time a correction. You have

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<v Speaker 1>to get the right time to get out of the

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<v Speaker 1>market and the right time to get in. But so

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<v Speaker 1>overall we're constructive, but aware of the market maybe in

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<v Speaker 1>for a little bit of a bump or two. So

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<v Speaker 1>what do you do, I mean, other things you don't

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<v Speaker 1>want to own? Given that, I mean, I'm really surprised

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<v Speaker 1>to see, for example, the strength of Netflix today after

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<v Speaker 1>an important business partner, Disney, and not his plans to

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<v Speaker 1>not only not be a business partner in some very

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<v Speaker 1>important ways anymore, but also uh, you know, compete with

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<v Speaker 1>them very directly. Well, we can't, unfortunately, we can't talk

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<v Speaker 1>about individual companies. But but in terms of I'm gonna

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<v Speaker 1>make it easy for let's let me put it easy forward. Say,

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<v Speaker 1>if we look at Netflix, if we look at Tesla,

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<v Speaker 1>if we look at some of those momentum stocks that

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<v Speaker 1>have carried a lot of this market. What's happening there

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<v Speaker 1>that they're still carrying this market? Do you still want

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<v Speaker 1>to be in those stocks if you're saying that is

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<v Speaker 1>the possibility to sell off, Well, it's interesting. I wrote

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<v Speaker 1>a blog about the fact that there there's been a

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<v Speaker 1>lot of press about the fang type stocks and a

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<v Speaker 1>small narrow group of growth stocks have been leading to markets.

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<v Speaker 1>And if you look back over the past five or

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<v Speaker 1>twenty years or so, the number of stocks or the

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<v Speaker 1>senators stocks that are creating the majority of games this

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<v Speaker 1>year is actually not that different than what you've seen

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<v Speaker 1>over the past twenty years or so. Yes, some of

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<v Speaker 1>these growth stocks are getting a lot of a lot

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<v Speaker 1>of the press and a lot of the market buzz,

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<v Speaker 1>but but overall there you know, until just about a

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<v Speaker 1>couple of weeks ago when we started to see a

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<v Speaker 1>little bit of weakness in the small caps and the

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<v Speaker 1>transport stocks, the altar, the advanced decline line for the

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<v Speaker 1>S and P five hundred, which looks at all the

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<v Speaker 1>stocks rising on an ongoing basis, was at all time highs.

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<v Speaker 1>So we we have been seeing fairly broad participation. But

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<v Speaker 1>the leadership has been in those bank stocks, and I

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<v Speaker 1>think the reason for that it's it's really interesting to

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<v Speaker 1>look at is growth. Last year value outperformed growth, but

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<v Speaker 1>this year growth is one once again at performing value.

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<v Speaker 1>And the reason for that is so far this economic cycle,

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<v Speaker 1>GDP growth has only been about two and when investors

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<v Speaker 1>are unsure about the level of economic growth, they're going

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<v Speaker 1>to sort of migrate towards these growth stocks, which can

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<v Speaker 1>produce not revenue growth of two or three percent, but

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<v Speaker 1>ten or over time. So when the GDP is crawling,

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<v Speaker 1>growth stocks hotter growth stocks, growth stock typically performed better

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<v Speaker 1>because they're able to put up no matter what the

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<v Speaker 1>despite the economic environment, they are able to put up

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<v Speaker 1>more robot, more robust revenue and earning super share growth

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<v Speaker 1>because of the growth profile that they demonstrate. So the

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<v Speaker 1>correlator might be that the caterpillars of the world and

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<v Speaker 1>the consumer staples and stuff aren't in a in a

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<v Speaker 1>in a modeling GDP world aren't going to get see

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<v Speaker 1>a lot of growth because they will also model along.

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<v Speaker 1>But that the intrinsic story of a tech company changing

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<v Speaker 1>something might or a growth company might actually grow regardless

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<v Speaker 1>the economy. Well, every sector is a little bit different

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<v Speaker 1>in the case of consumer staples, for example, or utilities,

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<v Speaker 1>which are two sectors that were not overly inclined towards

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<v Speaker 1>Both of those have above average valuation levels right now,

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<v Speaker 1>and they're also not putting up very strong revenue growth,

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<v Speaker 1>So both of those are sectors were sort of staying

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<v Speaker 1>away from. And in terms of the growth versus value,

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<v Speaker 1>that's a that's a big story on the minds of investors.

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<v Speaker 1>Growth is continuing to do well this year, and for

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<v Speaker 1>value to really start to do better, we need to

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<v Speaker 1>see a sustained pickup in economic growth, and we need

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<v Speaker 1>to see stronger margins. We need to see more robust

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<v Speaker 1>economic data on a sustained basis, and part of that

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<v Speaker 1>could happen if some of the Trump plans come to fruition.

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<v Speaker 1>But at this point, the market's going up despite the

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<v Speaker 1>economic plans from Trump really not coming coming through, so

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<v Speaker 1>that growth that could help the value will probably more

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<v Speaker 1>more of a two thousand eighteen event if it happens.

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<v Speaker 1>I mean, it's pretty remarkable to see what has happened

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<v Speaker 1>with the value trade, because, like you mentioned, there was

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<v Speaker 1>lots of optimistic there after Trump was elected, and that

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<v Speaker 1>seems to have faded. But I also want to ask

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<v Speaker 1>you about something that you've done with your portfolio that

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<v Speaker 1>it sounds is not in the norm for your actions,

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<v Speaker 1>and that would be adding low cost ets. Certain if

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<v Speaker 1>you could quickly walk us through what that decision was

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<v Speaker 1>to add ets to your portfolio and seconds. Thanks sure.

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<v Speaker 1>Um what our d M financial We believe it's important

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<v Speaker 1>to focus. We think there's a place for both active

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<v Speaker 1>and passive management. The majority of active managers have not

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<v Speaker 1>outperformed the benchmarks, but we do a lot of homework

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<v Speaker 1>on that. We kicked the tires and we've been able

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<v Speaker 1>to find active managers that outperform. At the same time,

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<v Speaker 1>we've also found some passive managers to complement those in

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<v Speaker 1>areas of the market. We that we think when you

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<v Speaker 1>put together an entire portfolio that that works just as well.

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<v Speaker 1>So we believe there's a place where passive and act

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<v Speaker 1>invest and active investments within a portfolio. Well. Certainly interesting

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<v Speaker 1>times and lots of options out there. It's sort of

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<v Speaker 1>amazing all the different types of things that one computer

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<v Speaker 1>to portfolio. These guys, um, uh, interesting that you guys

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<v Speaker 1>are looking across all platforms. Michael Shelton Georges right now

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<v Speaker 1>joining us. Thank you very much appreciate the Chef Investment

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<v Speaker 1>Officer from r DM Financial Group. You're listen to Bloomberg Markets.

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<v Speaker 1>I'm Bloomba ready with Corey Johnson and Danny Burger. This

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<v Speaker 1>is Bloomberg