Speaker 1: Because you're hot.
Speaker 2: What's the hot sector of the moment, is it ai?
Speaker 2: The metaverse? Gold oil? Why do some stocks and styles
Speaker 2: fall in and out of favor on such a regular basis?
Speaker 2: The challenge for investors is whether or not to jump
Speaker 2: into or out of these changing sectors, and when it's
Speaker 2: actually much harder than it looks. I'm Barry red Halts
Speaker 2: and on today's edition of At the Money, we're going
Speaker 2: to discuss what to do with assets that have fallen
Speaker 2: out of favor with the markets. To help us unpack
Speaker 2: all of this and what it means for your portfolio,
Speaker 2: Let's bring in Yon van Ck, CEO of van X Funds.
Speaker 2: The company manages about seventy five billion dollars across a
Speaker 2: variety of ETFs and mutual funds. Let's just start with
Speaker 2: the basic concept. Why do broad things tend to fall
Speaker 2: in and out of favor?
Speaker 3: Well, Barry, you know the firm was found in nineteen
Speaker 3: fifty five. In our perspective on the markets is that markets,
Speaker 3: financial markets live within a broader world of political trends,
Speaker 3: economic trends, and technology. Also, the game of investing is
Speaker 3: really a art more than a science. If you go
Speaker 3: back one hundred years Barry, people had one hundred percent
Speaker 3: bonds in their portfolio. That was the prudent thing to do.
Speaker 2: Didn't Some people also have widow and orphan funds, some railroads,
Speaker 2: some banks, some telephones.
Speaker 3: Oh yeah, Well, obviously people have been chasing disruptive technology
Speaker 3: forever and a lot of lessons to be learned if
Speaker 3: we want to go there. But I'm just saying, listen,
Speaker 3: if you look at institutional portfolios today, now half of
Speaker 3: them are in private equity and ventor capital. So just
Speaker 3: the basic what you put in your portfolio has changed
Speaker 3: a lot over the decades.
Speaker 1: So I take a very skeptical.
Speaker 3: View and rerecize that we're appoint in time and history,
Speaker 3: and you want to be conscious.
Speaker 1: About how you put your portfolio together.
Speaker 2: So let's talk about some of those asset classes that
Speaker 2: have either become popular or too popular, or have fallen
Speaker 2: out of favor and become so unpopular that they're becoming attractive. Again,
Speaker 2: let's start with the basics. How do you identify when
Speaker 2: an asset class has fallen out of favor?
Speaker 1: These are great questions.
Speaker 3: I mean, I think the question is what do you
Speaker 3: even feel comfortable putting in your portfolio. I'm going to
Speaker 3: be the radical skeptic. Let's start with US equities. We've
Speaker 3: been a very great economy, great place to be. That's
Speaker 3: the core of your portfolio. But people will say, oh,
Speaker 3: value investing is the way to go, and they'll show
Speaker 3: you a study of forty years of databaary and value
Speaker 3: beats growth all the time until it stops.
Speaker 2: Right, which you've done over the past fifteen years.
Speaker 3: So what we've learned, I think right in the industry
Speaker 3: now is you better be very benchmark aware, Like nowhere
Speaker 3: the market is saying that there is value and take
Speaker 3: it at face value. That should be your starting off point.
Speaker 3: And US equities are certainly the core. Right then the
Speaker 3: question is, well, are there other things happening in the
Speaker 3: world that might favor something like commodities or is fixed
Speaker 3: income going to be in favor or not in favor?
Speaker 3: And that depends on some of the cycles that we're
Speaker 3: talking about.
Speaker 2: Let's use money market funds as an example. For the
Speaker 2: longest time, money market funds were barely yielding anything. Rates
Speaker 2: were zero. You're getting twenty BIPs thirty BIPs in a
Speaker 2: money market fund. Suddenly you're getting five to five and
Speaker 2: a quarter and literally six trillion dollars in cash flows
Speaker 2: into money market funds. What should an investor make of
Speaker 2: that asset class suddenly coming back into favor.
Speaker 3: Yeah, I mean, listen, My point is be skeptical about everything.
Speaker 3: So people say, oh, bonds are a normal allocation, Well,
Speaker 3: we know and have ever been reminded in twenty twenty
Speaker 3: two that bonds are very subject.
Speaker 1: To intro straight movements.
Speaker 3: And so we're sitting here at let's say four and
Speaker 3: a half on the ten year, I'm very worried about
Speaker 3: our fiscal.
Speaker 1: Situation in the United States. We don't need to go
Speaker 1: into that.
Speaker 3: But that leads me to say, you know what, I'm
Speaker 3: very very happy sitting in t bills right now. I
Speaker 3: don't feel as the skeptic that I need to be
Speaker 3: that core position. I'm happy to get the same yield
Speaker 3: for a lot less interest rate risk.
Speaker 2: So meaning you're looking at shorter duration.
Speaker 3: Shorter duration, any kind of shorter duration fixed income. So
Speaker 3: I bother with you know, interest rate risk.
Speaker 2: Let's talk about sectors that have rotated into favor. How
Speaker 2: do you identify these three to five year trends that
Speaker 2: are a good place to park some capital for you? Know,
Speaker 2: a couple of years.
Speaker 3: So let's say commodities, you had the industrialization of China,
Speaker 3: which was a super trend of commodities. COMI, I would
Speaker 3: say more of a tactical asset class.
Speaker 1: But we look at global growth.
Speaker 3: As measured by PMI, and if PMI is over fifty,
Speaker 3: which it only became now in Q one, that's what
Speaker 3: I think is driving commodity prices. And once you have
Speaker 3: I think sort of the China property implosion is behind us.
Speaker 1: It can't prove it, but because the global.
Speaker 3: Economy is now growing, that's an asset class where now
Speaker 3: the sun is shining on you.
Speaker 2: So when you mentioned the supercycle with growth from China
Speaker 2: and commodities, you know, during the twenty and twenty tens,
Speaker 2: China was consuming all manner of raw material cement and
Speaker 2: lumber and copper, and prices went up, but not crazy
Speaker 2: until the pandemic lockdown. Then we really saw prices spike.
Speaker 2: So what are you looking at on the commodity side?
Speaker 2: Right now? We have gold not too far from all
Speaker 2: time highs, you know, twenty three hundred. How do you
Speaker 2: look at an assea class like precious metals to decide
Speaker 2: whether or not this is not one of the many
Speaker 2: false starts we've seen over the past couple of years.
Speaker 3: Yeah, I look at gold as a financial asset more
Speaker 3: than commodities, which is driven by the real economy. Gold
Speaker 3: would fall into that category. If you we're worried about
Speaker 3: interest rates and our fiscal problems in the United.
Speaker 1: States, and hence the rise of gold, hence owned.
Speaker 3: Some gold and God forbid bitcoin. Absolutely, if you're ever
Speaker 3: going to own it, as I've been saying over last year,
Speaker 3: this is the time to own it.
Speaker 1: We're in a bull market for those two assets.
Speaker 3: You will have big corrections, twenty percent corrections, but I
Speaker 3: think you're in a bull market for those two assets
Speaker 3: until our fiscal problems are solved.
Speaker 2: Well, there's a follow up discussion. Are we ever going
Speaker 2: to solve our fiscal problems? You and I are not
Speaker 2: that far apart age wise, our entire adult lives. We've
Speaker 2: been warned about the dangers of fiscal access. None of
Speaker 2: the warnings have come to pass.
Speaker 1: There.
Speaker 2: There hasn't been a crowding out of capital. The dollar
Speaker 2: is still the strongest currency of the majors out there.
Speaker 2: There's been no crowding out of private investment. Why should
Speaker 2: we even care about the fiscal deficit.
Speaker 3: We're ticking to levels where we've reacted before. So under
Speaker 3: the Clinton administration, the costs of interest on our debt
Speaker 3: approach that of defense spending.
Speaker 1: It's now past that defense spending. So you're right.
Speaker 3: The big question is will the FED do what the
Speaker 3: Japanese Central Bank did and treasury, which is buy up
Speaker 3: all the debt?
Speaker 1: Right? Who cares if there's too much debt?
Speaker 3: If there's a buyer of last result, We've never had
Speaker 3: that in United States, but you can't rule it out.
Speaker 3: That's why I'm like, you know what, there's all these scenarios.
Speaker 3: Just make sure you know what they are and that
Speaker 3: you're kind of comfortable with your portfolio given though.
Speaker 1: So you're absolutely right.
Speaker 3: The way to kick the can is for the government
Speaker 3: to do what they did in Japan.
Speaker 1: I don't know. I don't see that happening in the US,
Speaker 1: But you never know.
Speaker 2: What other asset classes have you noticed, either coming into
Speaker 2: or out of favor that are worth talking about?
Speaker 3: Whatuld I like from a three to five year perspective,
Speaker 3: I think countries tend to trend because you have changes
Speaker 3: in governments that are either positive for the markets or negative.
Speaker 2: So let's talk about two countries that have seen quite
Speaker 2: a bid over the past year. You mentioned Japan obviously
Speaker 2: their stock market has been doing very well lately, and
Speaker 2: India is perennially in the running to either catch up
Speaker 2: or replace China. What do you think about those two
Speaker 2: countries as asset classes coming in or out of favor?
Speaker 3: One hundred percent? Like I mean, India is by far
Speaker 3: the best macro story. In fact, no one really debates that.
Speaker 3: It's just what's the pe ratio? How expensive are the stocks?
Speaker 3: How much are you willing to pay? But I've got
Speaker 3: a trade within that, which is the two technologies of
Speaker 3: our lifetimes have been the Internet and AI right, basically
Speaker 3: the mac seven it's just one trade.
Speaker 1: It's the Internet.
Speaker 3: It's the companies that stand between us and the internet
Speaker 3: right giving us new capabilities. In India, there's now two companies,
Speaker 3: so they cheapen the cost of cell phones to below
Speaker 3: ten bucks a month. They competition beat them brains out
Speaker 3: and there's only two survivors, so it's a duopoly. Those
Speaker 3: two companies in India are serving eight hundred million customers
Speaker 3: and they are now the internet play in India. So
Speaker 3: I think that is like very high confidence that that's
Speaker 3: going to be a good investable trend over the next
Speaker 3: couple of years. You know, I think it's easy to
Speaker 3: pick a couple of countries where you may be wondering
Speaker 3: about your allocation there.
Speaker 2: What other countries are of interest, What has fallen out
Speaker 2: of favor?
Speaker 1: Well, I think I think China's obviously fallen out.
Speaker 2: I mean, if you're a US investor in China since
Speaker 2: the early nineties, you're lucky if you break.
Speaker 3: Even right, Whereas over the last ten years, Indian equities
Speaker 3: this will shock most people have matched that of US
Speaker 3: equities over the last real years. Yes, and it's interesting
Speaker 3: that equity owners in India have been treated much better
Speaker 3: than in China. There's a devaluation of the Pe ratio
Speaker 3: right valuation.
Speaker 2: So Europe as an investing region has been another underperformer
Speaker 2: for a while. What will it take to get Europe
Speaker 2: to be attractive to you as an area coming into favor?
Speaker 3: If the default is the benchmark, I don't see any
Speaker 3: tremendous internet or AI or technology plays that are large
Speaker 3: weights in those countries in Europe that would get me
Speaker 3: super excited.
Speaker 2: So to wrap up, if you're a long term investor
Speaker 2: and looking to add to your core portfolio, you might
Speaker 2: want to consider some of these areas that have come
Speaker 2: into favor and are likely to persist in favor. We
Speaker 2: were talking geographically Japan and particular India, but you can
Speaker 2: also look at things like semiconductors and AI as asset
Speaker 2: classes that have suddenly become much more investable than they
Speaker 2: once were. I'm Barry Ritolts. This is Bloomberg's at the Money,
Speaker 2: because you can't