Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. So
Speaker 1: it turns out that pumping your fist and screaming yeah
Speaker 1: is big business, in fact, somewhere in the order of
Speaker 1: two billion dollars. Here to talk about the cheerleading business
Speaker 1: is Jeff Webb, founder and chairman of Varsity Spirit, which
Speaker 1: is based in Memphis, Tennessee. And Jeff, you know, I'm interested.
Speaker 1: When I think about cheerleading, I think about very much
Speaker 1: an all American type of vision with girls and pigtails
Speaker 1: and pumping their pom poms and wearing those pleated skirts
Speaker 1: and specific sneakers, which I'm sure all costs money, but
Speaker 1: your and I toward a bigger business overseas. So where
Speaker 1: is the cheerleading that's going on outside of the US. So, well,
Speaker 1: it's still in its infancy, but it is definitely a
Speaker 1: gaining momentum. We we actually have an international federation that
Speaker 1: is just recently recognized by the International Olympic Committee, which
Speaker 1: kind of gives you validation as an emerging sport or
Speaker 1: sport that's actually arrived. And we have a hundred and
Speaker 1: ten countries in that federation, so it gives you an
Speaker 1: idea of of where true how much activity there is
Speaker 1: on a broad basis. Now as far as it being deep, uh,
Speaker 1: there's no doubt that the you know, the U s
Speaker 1: has because of its traditions children, has been around the
Speaker 1: US for over a hundred years at school gyms and
Speaker 1: so on. So we have a we have a lot
Speaker 1: more people here involved in cheerleading, but it is beginning
Speaker 1: all over the world and a lot of that just
Speaker 1: has to do with the exposure we've gotten with our
Speaker 1: now sational championships and world championships and uh saw some
Speaker 1: of the educational programs we've been involved in overseas. But
Speaker 1: it's a it's an exciting time. Cheff. I understand that
Speaker 1: you were a yell leader at the University of Oklahoma.
Speaker 1: What is a yell leader? And did your families say, gee,
Speaker 1: you know, law school would have been a good idea,
Speaker 1: but you founded this company. Tell us how it all happened. Yeah, well, yeah,
Speaker 1: later it's the term that was used in in the
Speaker 1: day for the men who were involved in interiorleading. And
Speaker 1: as far as the company itself, yeah, I was gonna
Speaker 1: go to law school. As a matter of fact, that
Speaker 1: was that was the that was the plan after after
Speaker 1: college and um, I've been I've been working uh three
Speaker 1: or four jobs to get through school, and gentleman who
Speaker 1: had a company that did cheerleading camps and clinics, asked
Speaker 1: me to come work for him for a year to
Speaker 1: make money to go to law school. Did that kind
Speaker 1: of came up with different concepts, decided to leave there,
Speaker 1: start my company, and the rest is history, I guess. Well,
Speaker 1: I'm glad you mentioned the camps and the training because
Speaker 1: I wanted to just help people a little bit the
Speaker 1: scale of what is going on, how many people, how
Speaker 1: many camps, and maybe just enlightened everybody that is not
Speaker 1: part of this business. Well, the actually started with the camps,
Speaker 1: and of course now we also have a uniform business
Speaker 1: and also the competitions that we do um throughout the country.
Speaker 1: But the camps themselves are are different than other sports
Speaker 1: camps that are normally for individuals. These are for teams.
Speaker 1: Teams are already selected high school cheerleaders, college cheerleading teams.
Speaker 1: There four days and three nights, usually done on a
Speaker 1: college campus. We have about three hundred thousand students at
Speaker 1: our camps every summer. We're the largest especially camp operator
Speaker 1: of any kind in the world. Jeff, how much has
Speaker 1: cheerleading as a sport moved away from the sidelines of
Speaker 1: sports games and to its own discipline that is completely
Speaker 1: independent of a football game. Well, it's it's interesting there.
Speaker 1: They're now different what we call disciplines of cheer the
Speaker 1: traditional cheerleading that you see at the football games and
Speaker 1: basketball games. It's still it's the largest part of cheerleading
Speaker 1: and we don't want to do anything to take away
Speaker 1: from that. When when when I started the company, the
Speaker 1: idea was to take the traditional leadership role on the
Speaker 1: sidelines at pep rallies and you know, in the in
Speaker 1: the parking lots before the game, and add entertainment and
Speaker 1: athleticism and just kind of modernize it. And I don't
Speaker 1: think any of us realized the the how powerful that
Speaker 1: that combination would be. So for us, it's we look
Speaker 1: as all the all the the actual sport aspect is
Speaker 1: being additive to leadership. We think, you know, college cheerleading,
Speaker 1: high school cheerleading are very important and we don't want
Speaker 1: to do anything take away from the leadership. Having said that,
Speaker 1: there there's also an actual pure sport play that's exists
Speaker 1: here in the US and overseas. Yeah, what I think
Speaker 1: about cheerleading now, I mean I have two sons, and
Speaker 1: if one of them went into cheerleading, I think I'd
Speaker 1: be frightened because I see some of the flips that
Speaker 1: they'll do and come down. I mean, it's it's it's
Speaker 1: really a gymnastic type of endeavor, correct, whether there are
Speaker 1: a lot of acrobatics involved in the entertainment aspect of it.
Speaker 1: And one of the things that has allowed us to
Speaker 1: expand like we have is we've developed all the techniques
Speaker 1: and the progressions of skills to actually do those stunts
Speaker 1: is what they're called, in in a safer way as possible.
Speaker 1: I mean, there was some risk and there were some injuries,
Speaker 1: and one injury is too many, but we've been pretty
Speaker 1: successful in in mapping this out to where it can
Speaker 1: be done in controlled way. Uh your company have they
Speaker 1: have you attracted any interest from by from from buyers
Speaker 1: private equity firms. Well, we're actually we were owned by
Speaker 1: private equity primarily right now. We've been through different types
Speaker 1: of iterations. UM started in proprietor individual proprietorship. We went
Speaker 1: through venture capital. We are a public company for a
Speaker 1: while and have and now with private equity a Charles
Speaker 1: Bank based in Banks in Boston. And we also our
Speaker 1: companies has transformed itself and that we we have our
Speaker 1: traditional cheerleading and school spirit division or un which is
Speaker 1: Varsity Spirit, but we also have a varsity brands has
Speaker 1: a sporting goods sports uniform division called bs IN Sports.
Speaker 1: And also we have a graduation company called her Jones
Speaker 1: which is class rings and so on, and um, you
Speaker 1: know the company itself. The CEO of the companies Adam Blumenfeld,
Speaker 1: who came up through the bs N ranks, and uh
Speaker 1: he and I and our entire management team along with
Speaker 1: Charles Bank work to take the company as far as
Speaker 1: we can take it. I want to thank you for
Speaker 1: coming in and maybe off off Michael give us that
Speaker 1: Oklahoma University of Oklahoma, yell call well done, Bloomer Sooner,
Speaker 1: well done, very good. Jeff Webb is the founder and
Speaker 1: chairman of Varsity Spirit. They are based in Memphis. So
Speaker 1: does the world really need another travel website? Well, apparently
Speaker 1: it does, and here to tell us more about it
Speaker 1: is Bob guccion Jr. He is the founder of wonder
Speaker 1: Lust travel dot com. He's also the founder of Spin magazine,
Speaker 1: Gear and Discover Media. Nice to have you with us,
Speaker 1: Thanks for coming into the studio. Than how do you
Speaker 1: move on from Spin which was music, right, a Gear
Speaker 1: which is gadgets and I believe men's lifestyle and lifestyle,
Speaker 1: and then Discovery Media, which is kind of science. Right,
Speaker 1: it was a science magazine. So how does that morph
Speaker 1: into this next iteration of Bob guccion Jr. Well, actually
Speaker 1: it does. You know know that it had to by
Speaker 1: the way, um as a media editor and businessman, you know,
Speaker 1: I could have just simply said this is a great category.
Speaker 1: But it has because it's really got the same kind
Speaker 1: of uh vain of overwhelming curiosity. You know, when I
Speaker 1: went into the music magazine business always said it isn't
Speaker 1: really a music magazine. It's a magazine for young people
Speaker 1: crossing the threshold between adolescents and young adulthood. It was
Speaker 1: much more than music magazine. It is much more holistic.
Speaker 1: And the same with Wonderless. It's not just a magazine
Speaker 1: about nice places to go. It's about the experience of
Speaker 1: traveling UM, the experiences you can expect, the experiences you
Speaker 1: have had, UM, the sort of awkwardness of of of
Speaker 1: Often travel is very awkward. That's part of the liberating
Speaker 1: beauty of it, you know. I say. The one thing
Speaker 1: about what we travel is always going to happen is
Speaker 1: we are always going to surrender our sense of control.
Speaker 1: It was always a lousory anyway, but we think we
Speaker 1: have a sense of control, and you surrender it um,
Speaker 1: and that is what allows you to take in to
Speaker 1: absorb everything. You're not trying to pick and choose. You're
Speaker 1: actually just absorbing everything because you're like an infant dependent
Speaker 1: on the largess of the people around you. So, Bob,
Speaker 1: the website wonder lust travel dot com launched today and
Speaker 1: I'm looking at it right now, and there's a story
Speaker 1: how to pack from Mars, which makes it really raises
Speaker 1: a question for me. Who's your audience Mostly Martians? You know,
Speaker 1: all the Martians out there, this is for you. Yeah,
Speaker 1: It's the first site exclusively for people from Mars. Um,
Speaker 1: you know this point that the audience question is. I
Speaker 1: think we're looking at, you know, everybody who's smart and
Speaker 1: curious and likes to travel. And I would imagine it's
Speaker 1: going to fall more money as money yes, exactly as
Speaker 1: I say, it's gonna fall more into the gen X
Speaker 1: generation as matured, the baby booners who I am part
Speaker 1: of a hopefully matured and the rest have I don't
Speaker 1: know if I have, um and you know, slightly older millennial,
Speaker 1: the older of the millennial world. But really, anybody's curious,
Speaker 1: as you said, has a bit of money so they
Speaker 1: can get on a plane. But um, I think curiosity
Speaker 1: is the main thing that the had a pack for
Speaker 1: Mars thing was a bit of a sort of joke.
Speaker 1: Started out as a joke, it became a very serious article. Um,
Speaker 1: because you know, our competitors, dearly beloved, the competitors who
Speaker 1: I won't name, I don't want to anybody, but they
Speaker 1: run articles as you may have seen, called how to
Speaker 1: pack Well once is fine, but a hundred times, almost
Speaker 1: two hundred times. These two publications we were actually in
Speaker 1: the list all of them as links. And I just
Speaker 1: just said, looked ugly, but it was it about two
Speaker 1: hundred between videos and articles that they have done about
Speaker 1: how to pack, and I thought, how you know, how
Speaker 1: much is there to say? So I said, but however,
Speaker 1: even they have not done how to pack for Mars.
Speaker 1: And having had a science magazine, I was at NASA
Speaker 1: on a couple of occasions, and I know that they
Speaker 1: have an entire chunk of the entire organization dedicated to
Speaker 1: this one question. How do you pack from ours? It's
Speaker 1: not a small issue, you know, it's a six month flight,
Speaker 1: it's thirty three plus million miles and only one tenth
Speaker 1: of one percent of the entire weight of the spacecraft
Speaker 1: is not fuel or rocket, so the rest of it,
Speaker 1: everything else has to go in all your people scientific equipment.
Speaker 1: So actually they're very strict about what you can take,
Speaker 1: and they have number the heavy down to fifteen pairs
Speaker 1: of clothing, not not sixteen fifteen And they want you
Speaker 1: to bring a book. There was a suggestion, I said,
Speaker 1: to cheap, bring two books, you know, but to a
Speaker 1: fun thingur next one is how to pack for prison,
Speaker 1: because by the way, you can there are things you
Speaker 1: can bring to prison. And after that we can do
Speaker 1: how to pack for the Apocalypse, which by the way,
Speaker 1: should be self defining as the last of the articles.
Speaker 1: What do you let us know when you're going to
Speaker 1: publish that up, that one that's the ultimate trip, you know, Yeah,
Speaker 1: you know, I want you to just offer some examples,
Speaker 1: because that way it maybe crystallizes what you're doing here.
Speaker 1: And I noticed, for example, you've got something papermaking in Korea.
Speaker 1: You also have a recommendation for restaurants in Italy that
Speaker 1: are a little bit different than perhaps the run of
Speaker 1: the mill reviews. Just to give us some examples. Yeah, well,
Speaker 1: the one you're referring to, Hanji, it was a video
Speaker 1: made by a very young and very very talented Korean filmmaker.
Speaker 1: We discovered in Oxford, Mississippi, where I taught for a year,
Speaker 1: so I have a lot of friends and relationships there now.
Speaker 1: So uh. He did this beautiful piece about how to
Speaker 1: make paper, the ancient art of papermaking, which I thought
Speaker 1: was wonderfully ironic given that we're in the digital age,
Speaker 1: and and the piece is about how this is really
Speaker 1: kind of a spring art but just a beautiful piece
Speaker 1: of filmmaking, and it's cultural and you're there, you know,
Speaker 1: every one of my pieces let's say my hours. Everyone
Speaker 1: who wandered us to pieces has to bring you there,
Speaker 1: and that's not just by saying this is a great
Speaker 1: hotel room. We do that too with the Rome Hotel Guide.
Speaker 1: If you want to know where to stay in Rome,
Speaker 1: check our guide out, because we went through all hotels
Speaker 1: and decided these are the best ones and most interesting
Speaker 1: from a mixture of personal experience and research. You know,
Speaker 1: my own experience was very good in that respect. Um
Speaker 1: So another contemple, the one about the restaurants. I think
Speaker 1: you're probably talking about ten places to eat before you
Speaker 1: die and then you can die, and you know that's
Speaker 1: I'm glad you brought it up, because obviously there are
Speaker 1: ten million places you could eat that are gonna be
Speaker 1: interesting on this planet. But I just wanted to pick
Speaker 1: ten places, not all of them restaurants. One of them
Speaker 1: is a Vietnamese barge that my main food writer guy
Speaker 1: called Chris John's as a superb travel writer. He uhs
Speaker 1: best meal ever had in his life, best meal anywhere
Speaker 1: about it? For us? We put that in. I put
Speaker 1: in the Mondo X place before in a drug rehab
Speaker 1: and it's a drug rehab center in Italy. It also
Speaker 1: happens to have amazing food. Yeah, well, world class restaurant,
Speaker 1: world class restaurant and autombiotics. Bob, you know you have
Speaker 1: a very long history in magazines. Your father founded Penthouse,
Speaker 1: which also is into experiences of different natures. Um. But
Speaker 1: I have to wonder, and you talked about how the
Speaker 1: irony of papermaking in a digital era, in a digital
Speaker 1: era where the barrier to entry in magazines is so low,
Speaker 1: what gives you confidence that this will be successful? Oh?
Speaker 1: I think a large doses of stupidity. But alcohol helps well.
Speaker 1: But people have, people have, you know, obviously an immense
Speaker 1: appetite for stupidity. I'm just wondering with my stupid No
Speaker 1: not there is no God, no, no glare we cleared
Speaker 1: that up? No? No, I mean I think I was joking.
Speaker 1: But in one respect, you do have to be dumb
Speaker 1: enough to believe that it will work. And I've done
Speaker 1: that my entire career. You know, I started it's been magazine.
Speaker 1: Literally did not know how to start a magazine. Um.
Speaker 1: In fact, we got all of the pages together and
Speaker 1: we all look at each others at what we do now,
Speaker 1: and everybody I thought you knew. I I thought you knew,
Speaker 1: So I called a friend of mine up come and
Speaker 1: tell me what we did next, and she christens us
Speaker 1: the Land of the Lost Boys. Because literally none of
Speaker 1: us knew then we got the magazine. Now I think,
Speaker 1: I think it's a beautiful, healthy dosage of innocence and
Speaker 1: naivet naive he made inscence is very helpful in these
Speaker 1: times because it keeps you focused on like you might
Speaker 1: as well do the right thing, the thing you had
Speaker 1: in mind, because you don't know how to do it otherwise.
Speaker 1: And the only thing I know how to do is
Speaker 1: tell a good story occasionally, well hopefully a lot more
Speaker 1: and occasionally, and all stories have to be a human beings,
Speaker 1: so that that's a that's a thing. Bob Guccioni Jr.
Speaker 1: Thank you so much for joining us. Bob gucci Founder
Speaker 1: of wonder Lust wonder Lust travel dot com, which is
Speaker 1: based in New York and launched today. Well, we've heard
Speaker 1: a lot about consolidation and partnerships within the airline industry,
Speaker 1: and Avianca Holdings is not immune to that. We're gonna
Speaker 1: be speaking now with someone who knows all about the
Speaker 1: latest partnership agreements, and that is Ernan Rincon, who is
Speaker 1: the chief executive officer of Avianca Holdings, which is based
Speaker 1: in Bogota, Colombia. Her Nan, thank you so much for
Speaker 1: joining us, and I know that Avianca has talked about
Speaker 1: some kind of partnership with content with United Correct where
Speaker 1: what stage is that in right now? Well, thank you
Speaker 1: for having me really pleasure to be here. Last year
Speaker 1: we began to search for a commercial strategic partner that
Speaker 1: would allow Avianca, who serves Let's in America very well,
Speaker 1: to connect well with the United States and North America,
Speaker 1: and after a long process, we chose United as our
Speaker 1: best choice. Many reasons for that. First of all, United
Speaker 1: an Avianca already are part of the State Alliance and
Speaker 1: that provided a very good foundation for us to work together.
Speaker 1: And then we found out that we have similar approaches
Speaker 1: and very complimentary routes. And we're trying to do right
Speaker 1: now is come to an agreement so that our passengers
Speaker 1: from Colombia, South America, Brazil into the United States or
Speaker 1: from the United States into Latin America would have a
Speaker 1: seamless experience either with United within the United States and
Speaker 1: then connect with a Bianca in Latin America or vice versa.
Speaker 1: We make great progress in that negotiation. We meet on
Speaker 1: a weekly basis. We have made great progress and we
Speaker 1: believe we're aspiring to close the agreement in this year. Now,
Speaker 1: you also have something coming up this year and that
Speaker 1: is a court day. I believe it's on the nineteenth
Speaker 1: of September, and I'm wondering if you could just explain
Speaker 1: how this all happened, that you're ending up in a
Speaker 1: court case and in a lawsuit which I believe it's
Speaker 1: your second largest shareholder. That is correct. King's Land is
Speaker 1: the company that file is sued against A Yanka. They
Speaker 1: finally suited against a Bianca United UH Synergy, which is
Speaker 1: the parent company of A Yanka and the from of
Speaker 1: his brothers. We believe that the slaw suit has absolutely
Speaker 1: no merit. As a matter of fact, the judge in
Speaker 1: the state of New York UH ruled in our favor
Speaker 1: the first two instances, and now we have, as you
Speaker 1: clearly said on September nineteen hearing. The hearing is because
Speaker 1: we file for dismissal of the case because there is
Speaker 1: no merit. We're looking forward to having that conversation with
Speaker 1: the judge and we are optimistic that he will judge
Speaker 1: he will rule against in our favor. So you're somewhat
Speaker 1: new to the airline industry. You joined AVIANCA a little
Speaker 1: bit more than a year ago. You're obviously Microsoft Latin America,
Speaker 1: the chief executive officer of that. How is your opinion
Speaker 1: been changed about the airline industry since joining a banca
Speaker 1: and what were you most surprised to learn regarding the
Speaker 1: challenges of this industry. That's a great question, and I
Speaker 1: can give you an answer for hours, but let's let
Speaker 1: me say the following. The number one qualification that I
Speaker 1: had to be considered for CEO of AVIANCA is that
Speaker 1: I have six point five million miles with other airlines,
Speaker 1: So you've You've had a lot of experience in the
Speaker 1: passenger seat, all right there exactly. I have been left
Speaker 1: in airport for three days. I have been given royal
Speaker 1: treatment by other airlines, so I know all the experiences
Speaker 1: that that a passenger can have. But what I'm bringing
Speaker 1: to a YANKA is two things. Number One, the digital
Speaker 1: and information technology background. For many years, fourteen years from Microsoft,
Speaker 1: I help companies embraced technology, change their business model and
Speaker 1: embrace digital. And that's what we're gonna do with Avianca.
Speaker 1: We are transforming Avianca into a digital company that flies aircraft,
Speaker 1: and at the same time, we're building one of the
Speaker 1: top two one of the top two airlines Latin American
Speaker 1: Why serving the whole continent. I love that everybody wants
Speaker 1: to be a tech company. Even airlines are saying We're
Speaker 1: going to be a tech company that also flies planes.
Speaker 1: But I'm wondering, you know, what is the biggest challenge
Speaker 1: to the business model going forward? I know that some
Speaker 1: analysts have some pretty uh ambitious growth targets for Avianca.
Speaker 1: What's the biggest challenge? The biggest challenge is to take
Speaker 1: at ninety seven year old company. Avianca is the oldest
Speaker 1: erline continuously flying in the world, not in an America,
Speaker 1: in the world, taking that rich culture that was not
Speaker 1: digital and transforming into a digital company. What do we
Speaker 1: mean by that? The number one thing that we need
Speaker 1: to do is that every interaction between our passengers and
Speaker 1: Avianca be fully digital at the moment that are we
Speaker 1: identify eighteen points in which a passenger interacts with a Bianca.
Speaker 1: One of those seven eighteen is when they're actually in
Speaker 1: the aircraft. The other seventeen or elsewhere, when you make
Speaker 1: a reservation, when you make a change, when you get
Speaker 1: and check in, when you go to the counter, all
Speaker 1: of that and we're beginning to transform that and we're
Speaker 1: applying digital technology to each one of those eighteen points.
Speaker 1: Let me give you an example. Millennials live in Facebook.
Speaker 1: That's where their life is, and we realize that for
Speaker 1: them to make a reservation, they would have to get
Speaker 1: out of Facebook, go to a bianca and make a reservation.
Speaker 1: We developed a digital assistant that is part of Facebook Messenger,
Speaker 1: and within Facebook, you can make a reservation to fly
Speaker 1: with a bianca. That's what we mean by digital I
Speaker 1: just want to ask you one quick question. This is
Speaker 1: about money. Are you going to be raised any money
Speaker 1: this year? You're going to be doing a dead offering.
Speaker 1: How are you going to proceed? We are planning a
Speaker 1: capital increase of two million dollars. That capital increase has
Speaker 1: been given the green light by the board of directors
Speaker 1: and we're now in the process of doing all the
Speaker 1: legal and financial to raise capital by the hundred million dollars. Well, John,
Speaker 1: thank you very much for being with us. Her Nan
Speaker 1: Rincon he is the chief executive of Avianca holdings. They
Speaker 1: are also expanding in North America. Do you know that
Speaker 1: they have a new route that goes from Boston home
Speaker 1: to Bloomberg one O six one to Bogata. Thank you
Speaker 1: very much. We hear a lot about active versus passive,
Speaker 1: in particular about how money is absolutely pouring into exchange
Speaker 1: traded funds that seek to just passively mimic broad indexes
Speaker 1: and away from active fund But when it comes to
Speaker 1: debt markets, the trend is starting to reverse, and this
Speaker 1: I find really fascinating. Eric Balconis, who does incredible research
Speaker 1: on this, joins us now. Eric Baltnis is senior et
Speaker 1: F analyst for Bloomberg Intelligence and is a font of
Speaker 1: incredible knowledge when it comes to all things fund related. Eric,
Speaker 1: can you give us a sense of just how much
Speaker 1: this trend of money toward passive out of active, how
Speaker 1: much that's reversing within the bond universe? Right, So, when
Speaker 1: we talk about active mutual fun outflows, uh, you look,
Speaker 1: it's pretty bad. We're talking about seven hundred and fifty
Speaker 1: billion over the last five years. However, almost all of
Speaker 1: that is out of equity. That's the story. Nobody really
Speaker 1: talks about UM active fixed income has held held its
Speaker 1: own over the last couple of years. It had maybe
Speaker 1: fifty billion out here and there, but it's cumulative flows
Speaker 1: over the last four years are in positive territory. But
Speaker 1: here's the thing. This year they've taken in a hundred
Speaker 1: billion dollars, which is more than dead ETFs have taken in.
Speaker 1: So it really does kind of screw up a narrative
Speaker 1: here about everything going to a E T S and
Speaker 1: be passive. And the reason they're doing it is because
Speaker 1: they're outperforming. Most of that money is going into the
Speaker 1: corporate bond managers, and those managers are taking advantage of
Speaker 1: what they consider to be a really bad group of indexes,
Speaker 1: namely the AGG They're able to just beat it pretty easily,
Speaker 1: and I think equity managers have a tougher time with
Speaker 1: the SMP. Well, Eric, I wanted to ask you because
Speaker 1: for a number of years there wasn't as reliable of
Speaker 1: an outperformance by active corporate bond fund managers versus broader indexes.
Speaker 1: Is the outperformance particularly notable this year? Yeah, Well, Spiva,
Speaker 1: the SMP five Active versus Index report came out and
Speaker 1: had numbers there were even a little more better than
Speaker 1: ours for them and they started over ten years, five years,
Speaker 1: three years, so it's pretty consistent. Um. Where it doesn't
Speaker 1: work is government government bond fund managers are doing awful,
Speaker 1: but munise and corporate bond fund managers are doing really well.
Speaker 1: And look, part of it is right now, if you
Speaker 1: look at the best performing active fixed income mutual funds,
Speaker 1: like the top five, they all have a higher duration
Speaker 1: and more high yield exposure than the egg. So you
Speaker 1: could call it cheating, you could call it tricks. Whatever
Speaker 1: it has that could turn the other direction though, So
Speaker 1: they are sort of going out on a limb a
Speaker 1: bit to pick up some extra juice, but that adds
Speaker 1: more risks. In other words, you're saying that the broad
Speaker 1: bet among active managers is to have longer dated bonds
Speaker 1: in their portfolios and risk your bonds, specifically investment grade
Speaker 1: credit investors, right, um, And you're basically saying that this
Speaker 1: is a bet that could have absolutely gone the wrong way,
Speaker 1: but they just got lucky or whatever the case may bee. Yeah,
Speaker 1: I mean this is where a bond manager would say, look,
Speaker 1: if it does go the way, I'll be able to
Speaker 1: react way quicker than say a smart bay to et
Speaker 1: F for something and then maybe they will um. In
Speaker 1: the case of Gunlock, he's heavy and the mortgages so
Speaker 1: much so that we had to move his fund into
Speaker 1: the mortgage category. But there's other ways to do it.
Speaker 1: And you know, I work with um Irah Jersey who
Speaker 1: has been just a great resource for Active Fix that
Speaker 1: he used to manage a bond fund, and he also
Speaker 1: talks about there's like it's just a bigger world. I mean,
Speaker 1: you've got liquidity premiums in bonds that aren't on the
Speaker 1: in the index. You know, it's compared to the equity world,
Speaker 1: where there's only four thousand stocks total and there's the
Speaker 1: SMP five hundreds. So if you're a large cap you
Speaker 1: don't have much room to outperform, and the SMP five
Speaker 1: hundred essentially is full of momentum um. You know. Fang
Speaker 1: stocks are a good example. They weren't really a big
Speaker 1: waiting maybe one percent five six years ago. Now there
Speaker 1: are a seven percent waiting and the SMP road those
Speaker 1: stocks up and got their performance as the market cap
Speaker 1: got bigger. So I think this is part of the
Speaker 1: difference between being a bond manager and being an equity manager. Eric,
Speaker 1: I want you to just comment on the concept of size,
Speaker 1: for example, the amount of money that is in an
Speaker 1: exchange trade and funds, because the Guggenheim High Yield Fund
Speaker 1: that beat the benchmark, and I'm just wondering if you
Speaker 1: could put that into context for us. Yeah, so this
Speaker 1: is one where it looked like some security picking and
Speaker 1: it had it had a little bit of senior loans
Speaker 1: in it that the HyG doesn't have that, but it
Speaker 1: didn't do too much. And what I liked about this
Speaker 1: one the Guggenheim High Yield is it's triple C was
Speaker 1: about the same as h y G. But what it
Speaker 1: it's sharp ratio was pretty high. In other words, it
Speaker 1: got has good risk adjusted returns, so it didn't take
Speaker 1: on that much extra risk. And so I think if
Speaker 1: you have a high sharp ratio and you don't see
Speaker 1: anything that's like too far out on a limb, I
Speaker 1: think you have a good manager there. And I think
Speaker 1: that one that's why I highlight it is because I
Speaker 1: couldn't really find anything that was that dramatically risky. At
Speaker 1: the same time, it outperformed without taking too much risk. Eric,
Speaker 1: just another point and maybe just to shift your thoughts here,
Speaker 1: um the percentage of money that is in bond and
Speaker 1: equity markets that are in index products or funds versus
Speaker 1: just the act of funds. Do we see any overall
Speaker 1: numbers for that. It's very low. We're talking about um
Speaker 1: in the equity case. Uh, you're looking at more like
Speaker 1: in the bond case. It's more this is a ballpark
Speaker 1: ten bond e t s and index funds have about
Speaker 1: a ten year or equity has a headstart. Passive equity
Speaker 1: has about a tenure head start on fixed income, so
Speaker 1: they you know, the flows are good, bond flows are
Speaker 1: like debt. E t F flows are good. But the
Speaker 1: thing is e t f s really gotta made a
Speaker 1: killing on the equity side because of that under performance.
Speaker 1: If that our performance persists from active fixed income, e
Speaker 1: t s won't have as big of a space to
Speaker 1: go and enter that market. Well, and Eric, this is
Speaker 1: exactly what I wanted to touch on with you. Do
Speaker 1: you expect from the people that you speak with and
Speaker 1: from your own analyzes that right now we're seeing saturation
Speaker 1: of fixed income specifically within the corporate debt uniform universe,
Speaker 1: or do you think that there still is room for
Speaker 1: a spansion of passive e t F s in this area. Well,
Speaker 1: the big thing that like l q D and T
Speaker 1: and um H y g DO is there being used
Speaker 1: in place of derivatives by institutions. So it's not just
Speaker 1: like the ts IS is competing with the fixed income
Speaker 1: mutual fund. It's also competing with derivatives. So those those
Speaker 1: ETFs are like a whole different species. But for a
Speaker 1: lot of the like the power shares and the SCHWA
Speaker 1: bond ets that are competing with mutual funds, they're not
Speaker 1: you know, they're still pretty small. They they're probably going
Speaker 1: to get assets ultimately because they're so cheap. And one
Speaker 1: thing I've been going over a smart beta. So you
Speaker 1: know how what we just talked about how the AG
Speaker 1: is so beatable, Well that's smart beta. Ets are now
Speaker 1: coming out that take that beatable strategy and just put
Speaker 1: it into an index. So I Shares has a risk
Speaker 1: weighted ETF NEUVIN has a new AGG which is basically
Speaker 1: the AGG with like a little dip into high yield.
Speaker 1: So they're taking the tricks of the fixed income bond
Speaker 1: managers and turning it into an index. If that can
Speaker 1: get root, then the bond managers are going to have
Speaker 1: a problem them because if they're graded against that index,
Speaker 1: it's going to be tougher to beat than the egg.
Speaker 1: And just quickly, Erica, the use of indexes is how's
Speaker 1: that changing? Give you about twenty seconds there. Yeah, the
Speaker 1: use of index is well looked. The I'm sure the
Speaker 1: bond managers love that the agg is still but if
Speaker 1: you look at what they invest in, it's probably not
Speaker 1: the right one. So I think that's something they're going
Speaker 1: to want to keep. But I think the E t
Speaker 1: F market is going to try to prove that, hey,
Speaker 1: look this is actually not the right index. They should
Speaker 1: be graded against these other ones. Well done, all right,
Speaker 1: thanks very much. Eric val Tunis has always our senior
Speaker 1: et F analysts for Bloomberg Intelligence. You can follow him
Speaker 1: on Twitter at Eric Baltunas. Thanks for listening to the
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio KA