WEBVTT - Broadcasting live from Schwab Impact in San Francisco 0:00:02.920 --> 0:00:10.719 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.720 --> 0:00:13.960 Wait inside from the reporters and editors who bring you 0:00:14.000 --> 0:00:18.360 America's most trusted business magazine, plus global business, finance and 0:00:18.400 --> 0:00:22.640 tech news. The Bloomberg Business Week Podcast with Carol Messer 0:00:23.040 --> 0:00:26.000 and Tim Stenebek from Bloomberg Radio. 0:00:27.320 --> 0:00:30.400 Retch swabinpat here in the Moscone Center. I just want 0:00:30.400 --> 0:00:32.640 to point out that UBS recently came out with a report. 0:00:32.720 --> 0:00:35.280 It found that millionaires already accounted for about one and 0:00:35.280 --> 0:00:38.959 a half percent of the adult population. They analyzed this 0:00:39.440 --> 0:00:41.800 in twenty twenty three, and they said, by twenty twenty eight, 0:00:42.120 --> 0:00:44.479 will that love risen in fifty two of the fifty 0:00:44.479 --> 0:00:47.240 six markets that it's surveyed. It's some markets the number 0:00:47.240 --> 0:00:49.319 of US dollar millionaires will increase by as much as 0:00:49.400 --> 0:00:52.839 fifty percent over the next five years. Wealth management has 0:00:52.880 --> 0:00:55.240 been a booming business for the last year, the last 0:00:55.280 --> 0:00:57.520 few years, I would say, and it continues to be so. 0:00:57.640 --> 0:01:00.160 Yeah, it's all kept those involved in the industry were 0:01:00.200 --> 0:01:02.880 busy client assets at the retail broker age Charles Schwab 0:01:02.920 --> 0:01:04.960 and the wealth arms of the six largest US bank 0:01:05.000 --> 0:01:07.880 Search five trillion dollars in the twelve months through September, 0:01:08.200 --> 0:01:10.400 twenty three percent jump is the group's revenue from the 0:01:10.400 --> 0:01:13.679 business collectively topped eighty four billion dollars so far this year. 0:01:13.760 --> 0:01:15.280 Let's get to it with a guest. He knows what's 0:01:15.319 --> 0:01:17.640 going on. We're delighted to be here in San Francisco 0:01:17.680 --> 0:01:21.640 with a Omar Aguila. He's the chief executive officer, chief 0:01:21.640 --> 0:01:25.480 investment officer at Schwab Asset Management. Omar. Nice to have 0:01:25.560 --> 0:01:27.880 you here with us. You see a lot. Tell us 0:01:27.880 --> 0:01:30.560 about what you guys are seeing in terms of wealth management. 0:01:30.920 --> 0:01:32.960 Yes, and welcome to impact. 0:01:33.040 --> 0:01:34.000 Thank you for having us. 0:01:34.000 --> 0:01:36.520 It's great to see you everybody here in San Francisco. 0:01:37.600 --> 0:01:42.120 You know, we see a continuous need and continuous demand 0:01:42.240 --> 0:01:46.319 of clients for advice. I think as people continue to 0:01:46.400 --> 0:01:49.720 grow in their lives and they continue to accumulate, well, 0:01:50.080 --> 0:01:52.360 you know, they need for them to have somebody that 0:01:52.400 --> 0:01:55.280 can rely on and continue to just work on how 0:01:55.320 --> 0:01:56.800 do what did I do with their money? How do 0:01:56.880 --> 0:01:58.840 they actually set up? And you know, it's kind of 0:01:58.840 --> 0:02:01.800 interesting with all the information that is available today, there's 0:02:01.880 --> 0:02:04.120 not a lot of people that actually can make a 0:02:04.160 --> 0:02:06.520 decision on what to do with their money. Seriously, and 0:02:06.600 --> 0:02:07.960 it's just difficult to do. 0:02:08.200 --> 0:02:10.040 Why what is it that they're lacking? What kind of 0:02:10.080 --> 0:02:11.240 information are they seeking? 0:02:11.280 --> 0:02:13.960 I think it's almost like when you go grocery shopping. 0:02:14.160 --> 0:02:16.600 There is a lot, a lot of options. You know. 0:02:16.760 --> 0:02:19.000 Back back when I started my career, you know, you 0:02:19.160 --> 0:02:21.280 wanted to say, for retirement, there was one option, just 0:02:21.280 --> 0:02:23.600 just a buy a target day fund. That's it. You're 0:02:23.680 --> 0:02:25.680 based on what year you're going to plan to retire. 0:02:25.960 --> 0:02:29.520 That's one option. But now today there's multiple options, multiple 0:02:29.520 --> 0:02:30.959 things you can do manager accounts, you could do it 0:02:31.040 --> 0:02:32.440 on your own, you could do a model, you can 0:02:32.480 --> 0:02:35.720 do there's several things that you can do. And therefore 0:02:35.840 --> 0:02:40.680 the there's a natural human you know, bias that tells you, oh, well, 0:02:40.720 --> 0:02:44.120 if there's too many options, I'm overly done. I cannot 0:02:44.120 --> 0:02:46.280 make a decision. It's almost like me trying to find 0:02:46.280 --> 0:02:49.360 a shampoo. It's like, no way you can actually pick 0:02:49.400 --> 0:02:51.400 something that will be good, and then once you pick it, 0:02:51.400 --> 0:02:53.440 there is a regret. It's like, well, did I pick 0:02:53.480 --> 0:02:55.359 the right one? Did I not pick the right one? 0:02:55.520 --> 0:02:57.760 Maybe it wasn't that or the price. And that's a 0:02:57.760 --> 0:02:59.760 big part of the same thing happens when it comes 0:02:59.800 --> 0:03:02.040 down to finances and where it comes that. That's why 0:03:02.240 --> 0:03:04.560 there is what we call a bull market for advice, 0:03:04.880 --> 0:03:08.560 especially when you accumulate wealth, there is a significant amount 0:03:08.600 --> 0:03:12.200 of need for clients to reach a financial advice or 0:03:12.240 --> 0:03:15.000 an RIA to be able to just find what is 0:03:15.040 --> 0:03:16.280 the right solution for them. 0:03:16.360 --> 0:03:18.919 What's interesting, though, is Charles Schwab offers both of these 0:03:18.960 --> 0:03:21.520 sort of different areas. You could do it all yourself 0:03:21.600 --> 0:03:25.040 using Charles Schwab's retail brokerage platform, or you could use 0:03:25.040 --> 0:03:27.920 an RIA whose back end is supported by Charles Schwab. 0:03:28.200 --> 0:03:30.440 How do you support both of those things even though 0:03:30.440 --> 0:03:32.040 they offer very different things. 0:03:32.200 --> 0:03:34.320 Yes, well, that's a big part of you know, the 0:03:34.360 --> 0:03:38.000 the institutional knowledge of trying to do things through client eyes. 0:03:38.080 --> 0:03:41.240 And in many cases there's many clients that you want 0:03:41.320 --> 0:03:43.600 to use their tools on their own and in many 0:03:43.800 --> 0:03:46.120 in many cases, they actually know what they want to 0:03:46.160 --> 0:03:48.600 do and they're looking exactly what it is and just 0:03:48.640 --> 0:03:51.240 thinking about you know, like a supermarket. You know, there's 0:03:51.280 --> 0:03:54.200 people that know exactly the brand they want, exactly how 0:03:54.240 --> 0:03:55.880 they want to do it, and they're loyal to what 0:03:55.960 --> 0:03:58.840 their pieces are and they will continue to do that. 0:03:59.080 --> 0:04:02.000 There are others that are feeling more comfortable, you know, 0:04:02.080 --> 0:04:04.960 relying on an advisor for them to find what their 0:04:05.000 --> 0:04:07.480 path is. And you know, both of them are reliable. 0:04:07.560 --> 0:04:10.200 Both of them are actually things that have people. There 0:04:10.200 --> 0:04:12.520 are some clients that like to trade every day. There 0:04:12.520 --> 0:04:14.240 are other clients that want to buy it today and 0:04:14.320 --> 0:04:17.280 forget about it. So there's a lot of flavors for everybody. 0:04:17.279 --> 0:04:19.520 Oh, Mark, in the wealth management business, I'm just curious 0:04:19.560 --> 0:04:22.400 how many people are you know, find it, park it, 0:04:22.520 --> 0:04:25.360 leave it there. They're thinking longer term and as a result, 0:04:25.640 --> 0:04:27.279 you know, we're gonna have a great bunch of the 0:04:27.279 --> 0:04:31.000 Schwab team tomorrow on Lysanne Sanders. We're going to talk equities, 0:04:31.000 --> 0:04:33.360 Global equities with you have Client hop. We're gonna talk 0:04:33.400 --> 0:04:36.520 fixed income with Kathy Jones. But increasingly we see people 0:04:36.600 --> 0:04:39.960 wanting access to the private markets, private credit, all assets. 0:04:40.080 --> 0:04:41.839 How much of that does that play with you guys too? 0:04:42.000 --> 0:04:44.159 Well, it is. It is a big part of the market. 0:04:44.440 --> 0:04:47.200 And I think to the first part of your question. 0:04:47.480 --> 0:04:49.359 You know, there's a lot of clients that like to 0:04:49.440 --> 0:04:51.640 have what we call a financial plan, that would like 0:04:51.720 --> 0:04:53.720 to have an asset allocation, that would like to have 0:04:53.760 --> 0:04:56.640 a long term setup and the majority of clients and 0:04:56.680 --> 0:05:00.520 our philosophy encourages for everybody to have a fundinancial plan. 0:05:00.600 --> 0:05:02.800 Everybody should have a financial plan. And then once you 0:05:02.839 --> 0:05:04.720 have a financial plan, you can set up your long 0:05:04.800 --> 0:05:07.640 term investment objectives on what you're investing for. And in 0:05:07.680 --> 0:05:09.839 many cases you could be retirement, it could be income, 0:05:09.880 --> 0:05:11.680 it could be you know, growing, it could be buying 0:05:11.680 --> 0:05:13.160 a house, it could be a lot of things that 0:05:13.200 --> 0:05:15.120 you can do and then put them money to work 0:05:15.160 --> 0:05:18.359 that way. Now that being said, the human part of 0:05:18.400 --> 0:05:21.720 every investor on every client basically shows that when you 0:05:21.760 --> 0:05:25.120 hear the word character currency, bitcoin, do you hear the 0:05:25.160 --> 0:05:27.719 worst AI? Do you hear them immediately you pick up 0:05:27.760 --> 0:05:29.640 the phone and say how can I be part of it? 0:05:29.680 --> 0:05:30.560 Do your clients do that? 0:05:30.760 --> 0:05:32.600 Of course they do that all the time, and they 0:05:32.640 --> 0:05:34.599 do it all the time in any situations where they 0:05:34.680 --> 0:05:36.800 have you know, and then you know how much exposure 0:05:36.880 --> 0:05:38.400 I have to the max seven? Do I need to 0:05:38.400 --> 0:05:39.800 get out of the max seven? Do I need to 0:05:39.839 --> 0:05:43.920 hedge my So the normal setup of a human behavior 0:05:44.040 --> 0:05:47.279 to try to act on recent information is something that 0:05:47.400 --> 0:05:48.479 happens all the time. 0:05:48.560 --> 0:05:50.520 What's the pressure that your clients are feeling when it 0:05:50.520 --> 0:05:52.279 comes to fees. And when I say your clients, I 0:05:52.279 --> 0:05:54.440 mean the rias and the wealth managers who are out 0:05:54.480 --> 0:05:57.719 there offering their services for a percentage of the assets 0:05:57.760 --> 0:06:00.360 that they're managing on your behalf. Because there are a 0:06:00.400 --> 0:06:03.120 lot of robo advisors out there, including a robo advisor 0:06:03.160 --> 0:06:03.920 from Charles Schwab. 0:06:04.279 --> 0:06:06.599 Yes, well, you know what we have done. We have 0:06:06.680 --> 0:06:10.040 run these studies over time that basically show what clients 0:06:10.080 --> 0:06:13.320 are looking for, you know. Number one, Yes, they're incredibly 0:06:13.360 --> 0:06:16.279 price sensitive. You know, price and cost is a big 0:06:16.320 --> 0:06:20.560 part of the driver for decision making. Transparency is a 0:06:20.560 --> 0:06:22.720 big part of Going back to the other question you 0:06:22.760 --> 0:06:24.719 had about private markets, that's a little bit of the 0:06:24.760 --> 0:06:28.200 hesitation today for clients to try to get more access 0:06:28.200 --> 0:06:31.320 to it. They're interested, they actually like to have, but 0:06:31.360 --> 0:06:34.440 they're cautious about it because of the transparency and the liquidity, 0:06:34.680 --> 0:06:37.320 you know, and in many cases, once you once you 0:06:37.400 --> 0:06:41.920 explain that there is less transparency and they're less liquidity 0:06:41.960 --> 0:06:44.760 for a private market, then they step back and say, oh, 0:06:44.800 --> 0:06:46.920 let me think about it. I mean, initially sounds great, 0:06:46.920 --> 0:06:49.120 and initially sounds like a great opportunity, and in fact, 0:06:49.120 --> 0:06:51.599 we encourage you know, a portion of their investments to 0:06:51.680 --> 0:06:55.240 be in private markets. However, you know, once you explain 0:06:55.279 --> 0:06:57.120 the trade offs, then it's started to just you know, 0:06:57.200 --> 0:06:58.000 make a big difference. 0:06:58.480 --> 0:06:59.920 I kind of love to hear that because I think 0:07:00.040 --> 0:07:01.919 I feel like we've spent so much time at various 0:07:01.920 --> 0:07:04.280 investment conferences and everybody just wants to talk about private 0:07:04.279 --> 0:07:06.760 equity and in particular private credit. But a lot of 0:07:06.760 --> 0:07:08.520 folks are saying, you know, you got to understand that 0:07:08.560 --> 0:07:10.960 you lock your money up, you can't get access, and 0:07:11.000 --> 0:07:13.960 the transparency issues are maybe not there. So it sounds 0:07:13.960 --> 0:07:18.960 to me that like your investors are savvy enough to 0:07:19.000 --> 0:07:20.800 be asking these questions. 0:07:21.120 --> 0:07:24.560 Yeah. No, And not only that, but the big part is, 0:07:24.600 --> 0:07:28.040 like you know, the investors like to see, especially younger investors, 0:07:28.160 --> 0:07:30.760 they like to see data. They like to see information, 0:07:31.040 --> 0:07:32.840 you know, before they make a decision. And this is 0:07:32.840 --> 0:07:34.240 a very you're looking at him. 0:07:34.120 --> 0:07:36.000 As younger investors are You're not looking at me. 0:07:36.800 --> 0:07:39.640 Looking at both of you. But when I actually think 0:07:39.640 --> 0:07:42.280 about it, when we do studies by generation, you know, 0:07:42.440 --> 0:07:45.000 like silent generation baby boomers, they tend to be a 0:07:45.000 --> 0:07:47.360 little more trusting in that sense, and in other words, 0:07:47.400 --> 0:07:49.480 like they trust the advisor they have a relationship with 0:07:49.520 --> 0:07:51.600 the advisor and they don't necessarily need to have that 0:07:51.680 --> 0:07:54.040 much evidence. You know, this happens actually when my kids, 0:07:54.080 --> 0:07:56.200 even when I recommend a restaurant, they still have to 0:07:56.280 --> 0:07:58.400 yelp it and try to figure out what the stars are. 0:07:58.440 --> 0:08:00.320 And even in many cases like that, what do you 0:08:00.320 --> 0:08:02.640 recommend that it only had three stars? So it is 0:08:02.800 --> 0:08:06.040 one of these that they suggest evidence. They need evidence 0:08:06.080 --> 0:08:08.120 to make a decision. And in those cases, when you 0:08:08.160 --> 0:08:13.440 compare performance on private markets and public markets, you immediately 0:08:13.480 --> 0:08:15.920 start saying, like, why would I lock my money in 0:08:16.080 --> 0:08:18.200 where I can actually in there? Now that's not the 0:08:18.240 --> 0:08:20.160 whole story, but I think that's a little bit of 0:08:20.160 --> 0:08:20.840 the hesitation. 0:08:21.040 --> 0:08:22.840 We tease that we were going to ask you about 0:08:22.880 --> 0:08:25.480 key behavioral biases to be able to look out for 0:08:25.720 --> 0:08:26.840 in today's environment. 0:08:27.040 --> 0:08:29.240 What are they said that again. 0:08:29.000 --> 0:08:31.640 The key behavioral biases that are out there in today's 0:08:31.680 --> 0:08:32.840 investment environment, Well. 0:08:32.760 --> 0:08:34.600 There is, I would say there are three that are 0:08:34.679 --> 0:08:38.520 incredibly you know, prevalent in today's market. There are Number 0:08:38.520 --> 0:08:42.200 one is hurting behavior. Hurting behavior, which is exactly what 0:08:42.200 --> 0:08:44.679 we're just talking about. And the Max seven was clearly 0:08:44.679 --> 0:08:49.480 a big part AI Max seven Bitcoin and video. You know, definitely, 0:08:49.559 --> 0:08:51.280 you know, part of like, you know, what's going to happen. 0:08:51.320 --> 0:08:53.760 A lot of people will be watching this afternoon actually 0:08:53.800 --> 0:08:56.760 in a few hours, just on that report. But that 0:08:56.760 --> 0:08:59.719 that component about that and in fact, for that particular thing, 0:09:00.080 --> 0:09:02.440 not a lot of clients knew what NBDIA was five 0:09:02.520 --> 0:09:05.400 years ago. It's not until now that became so popular. 0:09:05.440 --> 0:09:07.560 And that's and that's a big part of the what 0:09:07.640 --> 0:09:09.640 is it called the fomo And that's one of the biases. 0:09:09.640 --> 0:09:12.720 The second bias is called recency bias, which is people 0:09:12.800 --> 0:09:14.960 tend to just you know, look at the most recent 0:09:15.040 --> 0:09:18.080 information and extrapolate into the future. Oh, you know, the 0:09:18.120 --> 0:09:20.120 market has been up for three months, it should be 0:09:20.160 --> 0:09:22.480 going up forever. And that that's the kind of behavior 0:09:22.520 --> 0:09:24.480 that people tend to have. Well, the same thing goes 0:09:24.480 --> 0:09:27.000 back to, you know, to when things go wrong. It's 0:09:27.040 --> 0:09:29.120 like immediately they become like, well, if we have had 0:09:29.160 --> 0:09:31.319 two bad two bad days, it's time for get out 0:09:31.360 --> 0:09:33.600 and then try to just panic that right, And those 0:09:33.600 --> 0:09:36.440 are two of the typical, you know, behavioral biases that 0:09:36.480 --> 0:09:37.760 are very typical today. 0:09:38.320 --> 0:09:38.800 Uh. 0:09:39.440 --> 0:09:41.720 Carol mentioned crypto. So I got to asked about bitcoin 0:09:41.760 --> 0:09:43.200 because it did reach a new record. 0:09:43.559 --> 0:09:45.719 That's a whole show that's just about crypto. Everybody's doing 0:09:45.679 --> 0:09:46.920 your show that's just about crypto. 0:09:48.360 --> 0:09:50.480 Feel free to tune it, but it is. 0:09:50.559 --> 0:09:52.720 It's it's interesting because it's you know, the whole market 0:09:52.800 --> 0:09:55.000 of bitcoin, the whole market cap at Bitcoin, not even 0:09:55.120 --> 0:09:57.920 the market cap of Nvidia. So I think a lot 0:09:57.920 --> 0:09:59.480 of people would say there's still a lot of room 0:09:59.640 --> 0:10:02.920 for people who are crypto curious at this point. What 0:10:03.040 --> 0:10:10.120 portion of uninvestors' portfolio, if any, should be allocated to crypto. 0:10:10.320 --> 0:10:14.720 Well, we have had points of view on crypto in 0:10:14.800 --> 0:10:18.560 general to basically say, like, look, any any client could 0:10:18.559 --> 0:10:21.480 actually use you know, traits as a way to just 0:10:21.600 --> 0:10:24.080 generate or try to find any solutions they have for 0:10:24.160 --> 0:10:27.920 an strategic long term asset allocation. We haven't adopted crypto 0:10:27.960 --> 0:10:29.800 as being part of like what you would use for 0:10:29.840 --> 0:10:32.600 the long run. And in many cases the reason why 0:10:32.720 --> 0:10:36.880 is because for our strategic asset allocation work, we normally 0:10:36.920 --> 0:10:39.440 try to find what are the fundamentals that allowed that 0:10:39.559 --> 0:10:42.800 to be valued and what are the economic factors that 0:10:42.920 --> 0:10:46.480 drive the performance of certain asset classes. You compare NBDIA 0:10:46.520 --> 0:10:48.520 to crypto. Well, in the case of media. There is 0:10:48.600 --> 0:10:51.880 you know, earnings, there is clearly financial situations, there are results, 0:10:51.920 --> 0:10:52.800 there is everything else. 0:10:53.000 --> 0:10:56.320 In the case of this is actually regulatory SEC filings right. 0:10:56.360 --> 0:11:01.240 There is exactly they are accountable cash flows, the cash 0:11:01.280 --> 0:11:03.320 flow and actually there is that product out there that 0:11:03.360 --> 0:11:05.600 you can touch. In the case of crypto, a lot 0:11:05.679 --> 0:11:08.760 of these prices tend to be driven by supply and demand. 0:11:08.800 --> 0:11:11.840 It's supply and demand driven. You basically have people have 0:11:11.960 --> 0:11:13.880 asked me the question and said, like, well, but gold 0:11:14.000 --> 0:11:17.160 isn't gold the same like gold is also supply demand driven. Yes, 0:11:17.200 --> 0:11:18.880 it is, but the difference is there is a bar 0:11:19.000 --> 0:11:19.640 that you can touch. 0:11:19.920 --> 0:11:24.240 Oh, Mark twenty seconds. Top question you think on everybody's mind. 0:11:24.320 --> 0:11:27.320 Are registered investment advisors right now in this environment? Number 0:11:27.360 --> 0:11:28.720 one question? Investment question. 0:11:29.000 --> 0:11:31.120 The number one question is you know, what would we 0:11:31.160 --> 0:11:33.680 think about the market, you know, next year, given you 0:11:33.720 --> 0:11:39.199 know potential less regulation, potential tariffs and potential changes in 0:11:39.280 --> 0:11:41.520 the way that you know the sec you know will 0:11:41.640 --> 0:11:44.319 will move down their agenda next year. 0:11:44.520 --> 0:11:46.240 All right, good stuff, Thank you so much. 0:11:46.480 --> 0:11:47.360 It's good to see you guys. 0:11:47.440 --> 0:11:50.680 Great, great setup for us here on this Wednesday. Omar 0:11:50.840 --> 0:11:53.360 agolar He is the chief executive Officer, Chief Investment Officer 0:11:53.400 --> 0:11:56.280 of Schwab Asset Management. Joining us here Schwab Impact in 0:11:56.360 --> 0:11:57.040 San Francisco. 0:11:58.200 --> 0:12:01.520 You're listening to the Bloomberg Business This Week podcast. Catch 0:12:01.600 --> 0:12:04.600 us live weekday afternoons from two to five pm Eastern 0:12:04.720 --> 0:12:05.800 Listen on Apple. 0:12:05.559 --> 0:12:08.200 Car Play and then Brout Auto with a Bloomberg. 0:12:07.800 --> 0:12:10.240 Business act or want us live on YouTube. 0:12:11.520 --> 0:12:13.959 Co Master Jim Stanevik live at the Moscone Center in 0:12:13.960 --> 0:12:18.520 San Francisco, Schwab Impact surrounded by registered investment advisors, the 0:12:18.640 --> 0:12:21.679 Schwab team and really all of the support network that 0:12:21.840 --> 0:12:25.040 goes into the investment advisory world. There's just so much 0:12:25.080 --> 0:12:29.000 going on with its security, transparency, logistics, operational. This is 0:12:29.040 --> 0:12:29.960 what this event is about. 0:12:30.080 --> 0:12:32.440 Also, something different about an event in San Francisco. Lots 0:12:32.440 --> 0:12:36.000 of umbrellas here because it is raining a lot out there. 0:12:36.320 --> 0:12:36.839 What happened? 0:12:36.880 --> 0:12:37.360 I don't know. 0:12:37.880 --> 0:12:40.480 You come to California and you think it's going to beautiful. 0:12:40.480 --> 0:12:42.120 I had planned to go for a hike later today. 0:12:42.360 --> 0:12:43.160 That's not happening. 0:12:43.520 --> 0:12:46.240 That's fine, that's fine. Can we work on that. It's 0:12:46.280 --> 0:12:46.560 all good? 0:12:46.600 --> 0:12:46.920 All right? 0:12:46.960 --> 0:12:48.160 Listen. One of the things we want to talk a 0:12:48.160 --> 0:12:49.839 little bit about is the fixed income world, because we've 0:12:49.840 --> 0:12:52.440 seen the US government debt market declined since mid September 0:12:52.559 --> 0:12:56.160 on expectations the president, like Donald Trump's policies will boost 0:12:56.200 --> 0:12:59.360 growth and rekindle inflation. So we continue to see I 0:12:59.400 --> 0:13:01.240 think it's safe to say in twenty twenty four the 0:13:01.320 --> 0:13:04.800 narrative of around fixed income kind of evolved. We've got 0:13:04.800 --> 0:13:05.200 a great. 0:13:05.120 --> 0:13:05.520 Voice on this. 0:13:05.720 --> 0:13:09.720 Yeah, Manji Buriah's portfolio manager and head of Systematic Systematic 0:13:09.880 --> 0:13:12.400 Edge of Fixed Income and custom SMA Investments at all 0:13:12.440 --> 0:13:14.000 Spring at Global Investment Title. 0:13:14.160 --> 0:13:16.240 It is a big title. Does that fit on a 0:13:16.280 --> 0:13:19.760 business card? Is there an acroative you got to turnover for. 0:13:19.840 --> 0:13:20.920 The second half of title? 0:13:21.040 --> 0:13:21.160 Right? 0:13:21.320 --> 0:13:21.760 That's true? 0:13:21.840 --> 0:13:22.080 Yeah? 0:13:22.840 --> 0:13:25.199 Actually, well look, I mean you are responsible for overseeing 0:13:25.240 --> 0:13:28.640 all active factor based and enhanced passive fixed income capabilities 0:13:28.640 --> 0:13:32.079 and solution joining us here at Schwab Impact. What's the 0:13:32.160 --> 0:13:36.319 conversation that's happening right now around fixed income given that 0:13:36.520 --> 0:13:38.959 we have an election result, right, but it's kind of 0:13:39.120 --> 0:13:42.440 unclear what's going to happen in terms of government spending 0:13:42.480 --> 0:13:45.719 and also the collection of money from the government or 0:13:45.760 --> 0:13:46.440 by the government. 0:13:46.960 --> 0:13:48.959 Yeah, I think it's ups of policy away. So let's 0:13:49.000 --> 0:13:51.040 talk about what's in store for twenty twenty five. 0:13:51.720 --> 0:13:55.199 Do you feel like you have like transparency around it? 0:13:55.880 --> 0:13:56.480 Not really. 0:13:57.800 --> 0:13:59.240 As you set your forecast out. 0:13:59.640 --> 0:14:01.360 No, I don't think any of us have a crystal. 0:14:01.360 --> 0:14:02.280 But it's your best shot. 0:14:02.480 --> 0:14:03.319 That's my best shot. 0:14:03.400 --> 0:14:06.559 So let's think about the policy that's actually been outlined 0:14:06.559 --> 0:14:08.240 for twenty twenty five. Right, So there's going to be 0:14:08.320 --> 0:14:11.439 deregalation coming forward, right, so I don't know how much reregalation. 0:14:11.559 --> 0:14:15.240 And where the second is around tariffs, so you know 0:14:15.360 --> 0:14:19.200 potentially tariffs, right. And then the third one is tax cuts, right, 0:14:19.280 --> 0:14:22.760 So tax kits for corporations are wealthy individuals. So when 0:14:22.800 --> 0:14:26.320 I put it all three together, they're essentially inflationary in nature. 0:14:26.600 --> 0:14:29.720 So I think what's in store for us? I would 0:14:29.720 --> 0:14:34.000 say there's policy uncertainty, right. Policy uncertainty definitely translates to 0:14:34.160 --> 0:14:37.600 more wealthly across the different asset classes. And then also 0:14:38.040 --> 0:14:40.520 if all three or one of the three is enacted, 0:14:40.600 --> 0:14:43.960 I think there's potential inflation pressures that's going to actually 0:14:44.040 --> 0:14:44.360 creep in. 0:14:44.960 --> 0:14:46.360 So that's moves by the Fed. 0:14:46.440 --> 0:14:50.720 Then I don't know, potentially a pause, right, So from 0:14:50.760 --> 0:14:54.400 the pause December or pause next year, potentially a pause 0:14:54.440 --> 0:14:54.880 in December. 0:14:54.920 --> 0:14:58.040 Really, if you think about the you know what Chairman 0:14:58.160 --> 0:15:00.880 Paul has been talking about, right, So the recent directric 0:15:00.960 --> 0:15:03.440 that came out of him was essentially that he said 0:15:03.480 --> 0:15:05.960 that we will have to obviously be data driven, but 0:15:06.080 --> 0:15:08.280 he said that the rates at this point, the policy 0:15:08.400 --> 0:15:12.440 rates are in line with the expectations. So if there 0:15:12.560 --> 0:15:15.720 is sideways moment in inflation, if you don't see that 0:15:15.880 --> 0:15:19.160 creep down another like notchdown in the next month. 0:15:19.120 --> 0:15:20.760 Or so, potentially a pause. 0:15:20.960 --> 0:15:23.440 But if you look at the fet fund futures, that's 0:15:23.480 --> 0:15:27.040 actually pricing in like fifty percent probability. 0:15:27.280 --> 0:15:30.160 So we'll see what the data says, right, we get 0:15:30.200 --> 0:15:32.560 more inflation reads before the December meet, right where we 0:15:32.640 --> 0:15:34.760 used to have some data as you said, right, Yeah. 0:15:35.040 --> 0:15:37.200 But what this translates to in my view is right, 0:15:37.600 --> 0:15:40.400 higher rates for London. That's really what it really means 0:15:40.440 --> 0:15:42.280 for fixed income, right for twenty twenty five. 0:15:42.320 --> 0:15:43.760 So where do you find alpha? Then in the fixed 0:15:43.760 --> 0:15:45.080 income world, how do you do it? How do you 0:15:45.120 --> 0:15:45.400 find it? 0:15:45.760 --> 0:15:47.640 Yeah, so if their rates are going to be higher 0:15:47.720 --> 0:15:49.600 or moving sideways. So I think there are kind of 0:15:49.640 --> 0:15:52.080 three pieces. So one is focused on income, right, So 0:15:52.320 --> 0:15:56.240 you got to essentially maximize your income by diversifying duration. 0:15:56.440 --> 0:15:58.840 So one way to do that is to really kind 0:15:58.880 --> 0:16:02.560 of position across the curve, not really positioned on one 0:16:02.680 --> 0:16:05.080 or two parts of the curve, so you can essentially 0:16:05.160 --> 0:16:06.200 ladder across the curve. 0:16:06.320 --> 0:16:06.440 Right. 0:16:06.960 --> 0:16:09.680 Intermediate to long term rates is where I think there 0:16:09.760 --> 0:16:13.600 is alpha just because of the policy three five I 0:16:13.600 --> 0:16:16.800 would say five to fifteen, five fifteen or five to twenty. 0:16:17.280 --> 0:16:20.240 So because of the uncertainty in policy, I think there 0:16:20.320 --> 0:16:22.560 is going to be premium demanded by investors, so which 0:16:22.600 --> 0:16:24.360 means that the long term rates are going to stay 0:16:24.440 --> 0:16:27.920 higher for longer. The other part is really bring in 0:16:28.000 --> 0:16:31.160 some international exposure, right em international debt. 0:16:31.880 --> 0:16:34.600 So where internationally internationally it's a lot. Are you just 0:16:34.600 --> 0:16:35.520 saying pick a basket? 0:16:35.960 --> 0:16:39.960 I would say pick countries where there's divergence in market policy, right, 0:16:40.040 --> 0:16:43.040 so you essentially have some amount of divergence from market 0:16:43.080 --> 0:16:45.960 policy perspective, and then look for quality. Right So I 0:16:46.040 --> 0:16:49.560 think look for assets where there is potential you know, 0:16:50.200 --> 0:16:54.000 physical stability, you know, balancing of the budget and things 0:16:54.080 --> 0:16:54.240 like that. 0:16:54.520 --> 0:16:56.400 So I think you've got to pick wisely. 0:16:56.880 --> 0:16:59.520 We got news last week that the money market funds 0:16:59.640 --> 0:17:03.280 have are past seven trillion dollars in assets. Yeah, maybe 0:17:04.160 --> 0:17:05.800 it's good that I'm not in the job of managing 0:17:05.840 --> 0:17:08.920 money because I thought that as rates move lower, things 0:17:08.960 --> 0:17:11.280 would move out of the money market funds. Right, Well, 0:17:11.280 --> 0:17:12.760 how do you look at that seven trillion dollars in 0:17:12.840 --> 0:17:14.399 where it's going to go and when it's gonna go? 0:17:15.440 --> 0:17:17.919 Yeah, I mean that's the trillion dollar question, right, for the. 0:17:17.960 --> 0:17:19.080 Seven trillion dollar question? 0:17:19.200 --> 0:17:20.960 And should we assume it's going to go anywhere? Are 0:17:21.000 --> 0:17:23.720 people just gonna be happy and comfortable if rates go down? 0:17:23.800 --> 0:17:25.280 Then they might not be happy? 0:17:25.760 --> 0:17:28.360 Yeah, I mean that's again assuming the rates actually will 0:17:28.440 --> 0:17:29.040