WEBVTT - Microsoft Is One of Best Tech Turnarounds In Last 20 Years 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.800 at Bloomberg dot com. We're driving a conversation for one 0:00:21.840 --> 0:00:25.120 of the big names that reported earnings last night. Lisa 0:00:25.320 --> 0:00:28.159 was Facebook coming in with some numbers that came in 0:00:28.200 --> 0:00:30.560 a little bit below expectations, particularly as it relates to 0:00:30.560 --> 0:00:32.559 the top line revenue growth and maybe a little bit 0:00:32.640 --> 0:00:34.800 higher expenses. So that stock is off about six point 0:00:34.840 --> 0:00:37.600 four percent today and the otherwise, you know, pretty strong 0:00:37.760 --> 0:00:41.120 earnings tape for big tech. Let's be real clear. Facebook 0:00:41.120 --> 0:00:44.199 did not have bad earnings. They just didn't have amazing earnings. 0:00:44.200 --> 0:00:48.080 They beat estimates uh by less than one percent, which 0:00:48.120 --> 0:00:50.400 was a problem for them. And this sort of highlights 0:00:50.920 --> 0:00:53.920 this key driver of big tech, which is the expectation 0:00:53.960 --> 0:00:58.640 that this incredible exponential growth will continue. They're being penalized 0:00:58.960 --> 0:01:01.880 for not having that necessarily, and still there are things 0:01:01.920 --> 0:01:04.920 like Instagram and the fact that you could potentially check out, 0:01:04.959 --> 0:01:08.120 as Barriott Hols was talking about, they could potentially drive growth, 0:01:08.120 --> 0:01:11.039 And we were talking with David Garrity about how the 0:01:11.080 --> 0:01:14.880 campaign spending that will inevitably be ramping up heading into 0:01:14.640 --> 0:01:18.520 the elections will actually help fuel Facebook. So amid all 0:01:18.560 --> 0:01:21.880 of that, it still wasn't enough to get anything more 0:01:22.160 --> 0:01:24.800 than what you know, we saw the expenses had expenses 0:01:24.920 --> 0:01:27.720 up thirty percent, a little bit more than expected. So 0:01:27.760 --> 0:01:29.760 the company is investing in the company. A lot of 0:01:29.800 --> 0:01:32.880 it is for it's an anticipation of the election. They've 0:01:32.880 --> 0:01:34.800 been ramping up. They're spending on trying to make sure 0:01:34.840 --> 0:01:37.760 they have the right content, uh, that the content is 0:01:38.319 --> 0:01:41.160 appropriate content that the you know, as we come up 0:01:41.160 --> 0:01:43.160 to the election, that they don't have those same issues 0:01:43.160 --> 0:01:45.760 with election manipulation that we had in the last election. 0:01:45.800 --> 0:01:48.120 So they're spending a lot of money there that's ramping 0:01:48.160 --> 0:01:50.520 up the expenses just at a time when the revenue 0:01:50.560 --> 0:01:53.000 growth here in this quarter was the slowest they've reported 0:01:53.040 --> 0:01:56.640 as a public company. But I think most investors feel like, uh, 0:01:56.800 --> 0:02:00.720 the long term secular trends of digital advertise sing really 0:02:00.760 --> 0:02:03.800 support the likes of not only Facebook, but Google and 0:02:03.840 --> 0:02:07.120 the others that rely upon digital advertising. So longer term, 0:02:07.240 --> 0:02:10.400 you still have Instagram, you still a messenger, maybe WhatsApp 0:02:10.520 --> 0:02:13.120 to some degree, lots of revenue levers that this company 0:02:13.240 --> 0:02:15.359 can can pull. Yeah, And to be clear, Facebook shares 0:02:15.440 --> 0:02:17.400 a year to date or at one point seven percent, 0:02:17.480 --> 0:02:20.200 even with today's eight percent plunge. Given the fact that 0:02:20.240 --> 0:02:22.639 the shares have just been on a tear, let's get 0:02:23.160 --> 0:02:26.000 Dan eves opinion on both Facebook and also what to 0:02:26.000 --> 0:02:28.840 look ahead with Amazon, and then this this company called 0:02:28.919 --> 0:02:32.600 Tesla that seems to be absolutely on an absolute tear. 0:02:32.720 --> 0:02:35.480 Danives is the equit analystic web Bush Security is the 0:02:35.480 --> 0:02:38.480 biggest bull in Tesla and the biggest bull I should say, 0:02:38.880 --> 0:02:41.000 excuse me on Apple, and you've been right on that. 0:02:41.120 --> 0:02:44.080 Also seeing positive signs in Tesla. What are you looking 0:02:44.120 --> 0:02:47.200 at in Facebook is the main reason for today's tumble. 0:02:48.600 --> 0:02:50.520 I think I think the stock just got over at 0:02:50.600 --> 0:02:53.520 skis coming into the quarter. I view it is just 0:02:53.560 --> 0:02:55.320 a speed bump. I mean this is a stock of 0:02:55.360 --> 0:02:58.880 my opinion continues to go higher two and fifty in 0:02:58.960 --> 0:03:01.720 terms of our target it and I view it is 0:03:01.800 --> 0:03:06.120 one where anytime these fang names get hit. In our opinion, 0:03:06.200 --> 0:03:10.520 there's a buying opportunities because we believe ultimately thirty percent 0:03:10.680 --> 0:03:12.679 higher you know, for large cap tech the rest of 0:03:12.720 --> 0:03:16.560 the year. So let's switch gears to Tesla. The stock 0:03:16.639 --> 0:03:20.720 is just extrading up eleven point five today, all time 0:03:20.800 --> 0:03:24.320 high up. It's more than doubled over the last year. Dan, 0:03:25.680 --> 0:03:27.399 I guess you know, this has always been a fight 0:03:27.440 --> 0:03:29.960 between the bulls and the bears on this name, but 0:03:29.960 --> 0:03:31.720 it looks like the bulls are are winning this fight 0:03:31.800 --> 0:03:34.640 right now. Yeah, and I view it as a game 0:03:34.720 --> 0:03:40.480 changer quarter in terms of inflection around demand, especially going 0:03:40.520 --> 0:03:43.880 to thousand and twenty in China, and also profitability because 0:03:43.960 --> 0:03:46.360 right now it's gonna be a self funding model going forward, 0:03:46.400 --> 0:03:49.480 could be twin hours earnings power in three years. So 0:03:49.560 --> 0:03:52.160 I do view this is just a massive inflection point. 0:03:52.240 --> 0:03:54.840 That's from a stock perspective in terms of where it's 0:03:54.840 --> 0:03:57.520 your trade. That's going to continue to be a debate, 0:03:57.840 --> 0:04:01.120 but we believe right now the China of thesis both 0:04:01.200 --> 0:04:03.520 cases work three a share, which is how we get 0:04:03.560 --> 0:04:06.600 to a thousand dollars in terms of bookcase toy at 0:04:06.640 --> 0:04:10.040 hours and earning his power. How is it that Tesla 0:04:10.200 --> 0:04:14.520 is the second most valuable auto manufactory manufacturer in the world, 0:04:14.600 --> 0:04:18.200 considering that it's footprint is vastly smaller of the general 0:04:18.200 --> 0:04:21.599 motors and Fords of the world. Sure and next, and 0:04:21.640 --> 0:04:23.799 I hear that every day, I mean for for years 0:04:23.839 --> 0:04:28.320 right from investors is in an automotive company or technology company. 0:04:28.320 --> 0:04:30.120 And that's why, first of all, I'll viewed as a 0:04:30.200 --> 0:04:33.880 disruptive technology coming in terms of a multiple in terms 0:04:33.920 --> 0:04:36.680 of what it deserves, but in terms of the footprint 0:04:36.760 --> 0:04:39.000 relative to others. It comes down to e V demand 0:04:39.320 --> 0:04:42.360 two and a half percent global, We've we've gone eight 0:04:42.360 --> 0:04:45.120 percent in the next four years. You start to put 0:04:45.160 --> 0:04:48.040 that through. That's why right now, in terms of looking 0:04:48.040 --> 0:04:50.880 out how to continues to be the court ev play 0:04:50.960 --> 0:04:54.200 and penetration rates are so low. I look at a decade, 0:04:54.240 --> 0:04:56.040 I think one of every ten cars is going to 0:04:56.120 --> 0:04:58.560 be easy. And I think that's why right now you're 0:04:58.640 --> 0:05:02.880 seeing it reflecting the stock as this becomes really a 0:05:02.960 --> 0:05:06.680 parabolic and flashing point to some extent similar to what 0:05:07.160 --> 0:05:08.960 you know. I think we start even with the iPhone 0:05:09.000 --> 0:05:12.200 in two thousand and seven and the smartphone industry in 0:05:12.279 --> 0:05:15.320 terms of what's happening evy. So Dan, let's say the 0:05:15.320 --> 0:05:19.279 market for electro vehicles does develop, you know, very quickly, 0:05:20.000 --> 0:05:22.440 can they even make the cars to satisfy that demand 0:05:22.520 --> 0:05:24.600 or won't a General Motives or a Toyota or one 0:05:24.640 --> 0:05:27.160 of the people that already have big factories set up 0:05:27.440 --> 0:05:31.840 fill that demand. Yeah, and that's really been the shadow 0:05:31.960 --> 0:05:35.320 that that was going to happen thus far. If you 0:05:35.360 --> 0:05:38.400 look at it, they've not just had to moot in 0:05:38.520 --> 0:05:42.200 terms of tests, so they've continued to expand production Shanghai 0:05:42.560 --> 0:05:44.800 that you have. But when Bruin coming up this year 0:05:45.040 --> 0:05:47.800 and production you there'll be a million cars per year. 0:05:48.200 --> 0:05:50.960 If you look at traditional auto manufacturers both in the 0:05:51.040 --> 0:05:54.840 US and even internationally, been slow, slow to the gate 0:05:54.880 --> 0:05:58.720 in terms of production, in terms of releasing cars as 0:05:58.720 --> 0:06:01.560 well as one that could com with Tusla just from 0:06:01.600 --> 0:06:06.000 an e V perspective in terms of mileage and battery relations. 0:06:06.040 --> 0:06:09.000 So I think that's why right now it continues to 0:06:09.080 --> 0:06:12.920 be test Tesla and must swirld and everyone else is 0:06:12.960 --> 0:06:15.559 paying rent. In terms of the EV market, of course, 0:06:15.600 --> 0:06:18.400 there is this question about profitability per unit, and that's 0:06:18.400 --> 0:06:21.520 been coming down dramatically. It remains to be seen how 0:06:21.560 --> 0:06:24.799 profitable Elon Musk can be as he tries to dominate 0:06:24.839 --> 0:06:27.480 the electric vehicle market, especially because it really hasn't been 0:06:27.480 --> 0:06:30.280 taking off as much as people had expected globally when 0:06:30.320 --> 0:06:33.600 it comes to consumers preference, I'm wondering, does that concern 0:06:33.680 --> 0:06:37.760 you the profitability aspect of this, Yeah, and that I 0:06:37.800 --> 0:06:39.760 mean you obviously it's a great point because if you 0:06:39.800 --> 0:06:42.800 go back to three quarters ago, let's go, when the 0:06:42.839 --> 0:06:45.040 stocks to to fifty, the big issues are going to 0:06:45.080 --> 0:06:48.400 need to raise capital. They're not profitable, so they do 0:06:48.520 --> 0:06:51.880 raise capital in terms of the convert and then profitability 0:06:52.040 --> 0:06:54.520 starts in terms of the cuts and they're able to 0:06:54.560 --> 0:06:57.720 get the volume and show the profit. So that's why 0:06:57.839 --> 0:07:00.400 right now that's going to continue to be you know, 0:07:00.520 --> 0:07:03.280 a big question mark. But if you look at what 0:07:03.320 --> 0:07:06.560 they're approving now, you could get to twenty hours or 0:07:06.560 --> 0:07:10.920 earnings power two years earlier than expected. And that's a 0:07:11.000 --> 0:07:14.120 self funding model takes the capital raise off the table. 0:07:14.480 --> 0:07:16.560 And I think that's really what you're seeing reflecting the 0:07:16.560 --> 0:07:19.000 stock right now, is that there could be speed bumps 0:07:19.040 --> 0:07:22.000 along the way, but as of right right now, it 0:07:22.080 --> 0:07:25.560 looks like you know, may homes like performance. Hey, Dan, 0:07:25.640 --> 0:07:27.800 let's talk about another tech company that's hitting all time 0:07:27.880 --> 0:07:31.640 high today. Microsoft course, Uh, Mike, Microsoft had good numbers 0:07:32.360 --> 0:07:34.640 last night. What were your key takeaways there, because I'm 0:07:34.680 --> 0:07:37.880 hearing some really good things about the cloud business. Yeah, 0:07:37.920 --> 0:07:39.880 I mean, I think this is one I wouldn't quote 0:07:39.920 --> 0:07:41.520 under the radar, but if you look what the Dell 0:07:41.640 --> 0:07:46.000 has done Microsoft Golden Touch in terms of the cloud transformation, 0:07:46.760 --> 0:07:49.600 as your growth beet by a thousand BIPs, and I 0:07:49.720 --> 0:07:52.720 think what you're starting to see now is share shift 0:07:52.760 --> 0:07:55.960 from Amazon a w asked to Microsoft in terms of 0:07:56.000 --> 0:07:59.080 the next phase of cloud. Seven hundred billion that we've 0:07:59.120 --> 0:08:01.240 is going to be spent. I think Microsoft is going 0:08:01.280 --> 0:08:03.520 to be the winner. You saw that numbers, you start 0:08:03.600 --> 0:08:07.200 reflecting gotten it's a rereading in terms of what's happened 0:08:07.280 --> 0:08:10.080 the stock and really a metamorphosis and probably one of 0:08:10.120 --> 0:08:12.920 the best tech turnaround, if not the best, in the 0:08:13.040 --> 0:08:15.560 last twenty years. How does that factor into what we're 0:08:15.560 --> 0:08:19.720 gonna see today potentially out of Amazon with AWS. Yeah, 0:08:19.760 --> 0:08:22.800 I mean, right now, it's gonna be a comparison because 0:08:22.840 --> 0:08:25.480 if you look at Amazon, even though growth rates are 0:08:25.520 --> 0:08:28.720 swelling and it's it's not necessary apples to apples. If 0:08:28.760 --> 0:08:32.120 there's any sort of ding on a w S. It 0:08:32.280 --> 0:08:36.720 just further solidifies the thesis that Microsoft's gaining versus Bezos 0:08:36.760 --> 0:08:39.720 and Amazon. And it all comes down even though there's 0:08:39.720 --> 0:08:42.920 a lot of noise. Jedi biggest cloud deal ever, Pentagon, 0:08:43.280 --> 0:08:47.200 who wanted Microsoft that trophy sitting in Redmond. It's been 0:08:47.240 --> 0:08:49.840 a major black guy from Bezos and a w S. 0:08:49.920 --> 0:08:52.960 That's right tonight. Need to prove to the street that 0:08:53.080 --> 0:08:56.319 they're not losing share versus Microsoft, because all the other 0:08:56.400 --> 0:08:59.079 indications are if you look at numbers and everything, all 0:08:59.120 --> 0:09:01.840 the work we do, they are so down. That's kind 0:09:01.880 --> 0:09:04.040 of where I wanted to go. How do you differentiate 0:09:04.480 --> 0:09:07.200 a lay person like myself between Azure, which is owned 0:09:07.200 --> 0:09:10.319 by Microsoft, and AWS, which is owned by Amazon. Aren't 0:09:10.320 --> 0:09:14.960 they just like servers somewhere out in the desert or something? Yeah? 0:09:14.960 --> 0:09:17.560 And what And I think at the first phase of cloud, 0:09:17.600 --> 0:09:20.520 that's what That's what it was. It was Amazon just 0:09:20.800 --> 0:09:23.960 parabolic expansion on cloud. They owned it. In terms of 0:09:23.960 --> 0:09:26.680 a WS has been a big key part of the 0:09:26.760 --> 0:09:31.760 valuation of Amazon. But now it's happening is enterprise Microsoft's backyard. 0:09:31.960 --> 0:09:36.040 Those companies are moving the cloud only of workloads during 0:09:36.080 --> 0:09:40.320 the cloud today going to next three years. Microsoft right 0:09:40.320 --> 0:09:43.319 now they're turf Is, they moved to Azure. They are 0:09:43.400 --> 0:09:48.200 extremely well positioned and better position to Windows Enterprise Deals 0:09:48.280 --> 0:09:53.160 Verse WS and then miles behind his Google trailing in 0:09:53.280 --> 0:09:56.120 third place with g g P. I'm just wondering, if 0:09:56.120 --> 0:09:57.920 you take a holistic look at what we've seen so 0:09:57.960 --> 0:10:00.280 far at a big tech in the earnings for fourth quarter, 0:10:00.679 --> 0:10:03.839 are we seeing enough to justify the rally that we 0:10:03.880 --> 0:10:05.960 saw last year. I just sort of propel it forward 0:10:06.160 --> 0:10:08.760 to be the leading category yet again in the SMP 0:10:08.800 --> 0:10:11.920 and the NASTAC this year. Yeah. I think if you 0:10:11.960 --> 0:10:14.640 when you strip away all the noise and forget just 0:10:14.679 --> 0:10:17.920 the headlines in terms of near term coronavirus and everything else, 0:10:18.360 --> 0:10:23.400 you look at earnings earnings Untech I viewed as major 0:10:23.440 --> 0:10:25.520 fuel on the engine because you look at where there's 0:10:25.559 --> 0:10:28.840 parabox spending going on software in the cloud, look at 0:10:28.880 --> 0:10:32.520 the five G supercycle thesis with Apple, and then I 0:10:32.520 --> 0:10:35.440 think you have strong numbers out of Amazon tonight. Now 0:10:35.559 --> 0:10:37.920 there could be little things here with You saw it 0:10:37.960 --> 0:10:40.480 in Netflix, you saw it with Facebook. I've viewed as 0:10:40.520 --> 0:10:44.000 a short term issues and I continue to view it 0:10:44.080 --> 0:10:46.480 as tax is going to continue to lead the charge, 0:10:46.800 --> 0:10:48.960 which is why we continue to be overweight and think 0:10:49.000 --> 0:10:52.480 we still have eighteen months left a lease in this 0:10:52.679 --> 0:10:56.080 both thesis for attack. Hey, Dan, thanks so much for 0:10:56.160 --> 0:10:58.000 being with us. We love having you on Talking Tech. 0:10:58.040 --> 0:11:00.760 You've been very consistent with that Bowl call, particularly with 0:11:00.800 --> 0:11:04.720 the Apple Yeah, absolutely right, Dan. I'ves managing director Equity 0:11:04.720 --> 0:11:06.720 Research for what Bush Securities, joining us on the phone 0:11:06.760 --> 0:11:11.760 from New York City. The great migration to e t 0:11:12.080 --> 0:11:14.000 S has been treated off and in tandem with the 0:11:14.040 --> 0:11:18.320 shift towards index funding, index funds and just generally trying 0:11:18.360 --> 0:11:21.680 to avoid active management. But is that really the path 0:11:21.720 --> 0:11:24.120 forward for the E t F industry? Joining us now, 0:11:24.200 --> 0:11:26.920 Ryan Sullivan, Senior vice president of Global e t F 0:11:27.040 --> 0:11:30.520 S at Brown Brothers Harriman, based in Boston. Ryan, thank 0:11:30.559 --> 0:11:32.160 you so much for being with us. I want to 0:11:32.200 --> 0:11:35.559 start with this idea of the migration of assets to 0:11:35.760 --> 0:11:37.960 e t F s. How much is this just a 0:11:38.040 --> 0:11:40.640 general push towards indexing and how much is this something 0:11:40.679 --> 0:11:44.720 specific with e t F rapper Paul Lisa. Hey, great 0:11:44.760 --> 0:11:46.520 to be here. Thanks for the time. You know, I 0:11:46.559 --> 0:11:49.120 think what we're seeing here this this great migration that 0:11:49.160 --> 0:11:52.160 you talked about We've been seeing this really take shape 0:11:52.200 --> 0:11:54.640 over the last few years. Uh, you're you're spot on. 0:11:54.720 --> 0:11:57.120 I think historically E t F are really seen as 0:11:57.160 --> 0:12:01.280 just a delivery mechanism for for passive investment strategies and indexing. 0:12:01.800 --> 0:12:04.160 But over the last five, six, seven years, we've seen 0:12:04.200 --> 0:12:08.160 this influx of you know, traditional active managers across the 0:12:08.160 --> 0:12:11.839 globe really adopt the E t F rapper and seek 0:12:11.920 --> 0:12:17.760 to drive uh, you know, more specialized, more actively managed strategies, 0:12:17.760 --> 0:12:20.840 and that's taken shape in both the domestic and international 0:12:20.920 --> 0:12:23.920 equity strategies, fixed income UH. And now this year in 0:12:23.960 --> 0:12:27.480 our seventh annual et F investor survey, we're seeing a 0:12:27.480 --> 0:12:29.920 lot more demand for active e t F. So the 0:12:29.960 --> 0:12:33.720 share in particular, UH six of US investors said they 0:12:33.720 --> 0:12:38.120 wanted to increase their allocations in to actively managed strategies 0:12:38.160 --> 0:12:40.320 in the E t F rapper. So we think this 0:12:40.400 --> 0:12:43.160 is really just the beginning of this tilt where et 0:12:43.320 --> 0:12:46.480 F are seeing as a viable rapper for a number 0:12:46.520 --> 0:12:49.120 of different types of investment strategies. I'm glad you mentioned 0:12:49.120 --> 0:12:51.760 acted e t F because to me, that's an oxymoron. 0:12:51.920 --> 0:12:53.839 What is an active et F? I thought an E 0:12:54.040 --> 0:12:57.120 T F by definition, is it's passive. Well, yeah, it's 0:12:57.160 --> 0:12:59.880 Historically again, they had always the strategies within the rapper 0:13:00.000 --> 0:13:03.760 had really sought to track a benchmark, to track an index. Uh. Here, 0:13:03.840 --> 0:13:07.640 what we're seeing is that active strategies work just fine 0:13:08.080 --> 0:13:11.600 in this particular rapper. Uh. Traditionally, and for all the 0:13:11.600 --> 0:13:14.640 e t fs that exist today, whether they're active or passive, 0:13:15.000 --> 0:13:17.920 they do need to disclose their holdings on a daily basis. 0:13:18.200 --> 0:13:19.880 That does make the E t F rapper a little 0:13:19.920 --> 0:13:21.679 bit unique and one of the ways that differs some 0:13:21.800 --> 0:13:24.640 other investment products that usually disclose the portfolio on a 0:13:24.720 --> 0:13:27.960 lag Uh So, right now, active ets do need to 0:13:28.000 --> 0:13:31.640 disclose that portfolio. Obviously, some asset managers are okay with that. 0:13:31.840 --> 0:13:36.199 On fixed income in particular, works very well on that rapper. However, 0:13:36.240 --> 0:13:38.439 you know, over the years, a lot of equity managers 0:13:38.480 --> 0:13:41.440 were concerned about that opening them up for front running 0:13:41.440 --> 0:13:44.679 in their portfolio if they were disclosing their trades each day. 0:13:44.760 --> 0:13:48.439 This year, just before the holidays, we saw some approvals 0:13:48.480 --> 0:13:51.560 from the SEC here in the States to approve new 0:13:51.640 --> 0:13:54.640 types of active E t F structures. Uh. So, you've 0:13:54.640 --> 0:13:59.400 got managers like Fidelity, Presidian T Row Price, Blue Tractor, 0:14:00.120 --> 0:14:03.200 and the New York Stock Exchange all offering a new 0:14:03.360 --> 0:14:06.120 structure that would seek to kind of mirror the disclosure 0:14:06.120 --> 0:14:09.560 policies of a traditional mutual fund, uh so delaying the 0:14:09.679 --> 0:14:12.520 release in the publication of the fund's portfolio, but still 0:14:12.559 --> 0:14:15.360 putting that in the e t F rapper. So again, 0:14:15.400 --> 0:14:17.880 it's going to the this notion that e t S 0:14:17.960 --> 0:14:21.640 the evolution of this market is now really enveloping all 0:14:21.680 --> 0:14:24.080 different types of investment strategies. So what's the point of 0:14:24.080 --> 0:14:26.800 going to an e t F and a mutual fund. Well, 0:14:26.840 --> 0:14:30.360 there's a few structural benefits that the e t F 0:14:30.480 --> 0:14:33.560 can offer when compared to some other other investment products. 0:14:33.600 --> 0:14:36.920 So one and I think this is typically well understood 0:14:36.920 --> 0:14:38.200 for for folks kind of looking at the e d 0:14:38.280 --> 0:14:40.920 F market. There's been a lot of mentions and media 0:14:40.960 --> 0:14:43.320 headlines around the so called fee wars going on in 0:14:43.360 --> 0:14:45.400 the e t F space. So certainly on one end 0:14:45.400 --> 0:14:48.360 of the spectrum, you've got very inexpensive, very cheap beta 0:14:48.440 --> 0:14:50.880 solutions from some of the biggest managers in the planet. 0:14:51.640 --> 0:14:54.960 But that low cost is driven by some structural elements 0:14:55.280 --> 0:14:58.280 within the e t F rapper. There's elements like the 0:14:58.320 --> 0:15:00.280 cost of the transfer agent. This is near and dear 0:15:00.360 --> 0:15:02.440 to our heart at Brown Brothers, where we really support 0:15:02.480 --> 0:15:04.800 the plumbing behind these funds. So the role of the 0:15:04.800 --> 0:15:07.960 transfer agent is a bit less onerous, uh. Within E 0:15:08.040 --> 0:15:09.840 t F and the mutual funds, that can present some 0:15:09.880 --> 0:15:12.000 cost savings and one of the ways that they help 0:15:12.120 --> 0:15:14.880 keep the expense for ratio of the fund lower than 0:15:14.920 --> 0:15:17.400 other investment products. And I would say the other biggest 0:15:17.400 --> 0:15:19.800 benefit in the US is the tax efficiency that e 0:15:19.880 --> 0:15:22.680 t s really drive, uh, the the use of in 0:15:22.800 --> 0:15:25.400 kind trading between the e t F and the funds 0:15:25.440 --> 0:15:28.600 authorized participants, where the portfolio and the e t F 0:15:28.640 --> 0:15:32.479 shares are exchanged in kind. That's a tax exempt transaction 0:15:32.560 --> 0:15:34.040 here in the States, and that really drives a lot 0:15:34.040 --> 0:15:36.720 of tax efficiency in terms of reducing capital gains to 0:15:36.840 --> 0:15:39.320 E t S investors. So, Ryan, one of the things 0:15:39.440 --> 0:15:41.560 that we hear more and more about in terms of 0:15:41.640 --> 0:15:45.520 investment strategies is focusing on E s G, Environmental, social, 0:15:45.680 --> 0:15:49.040 and governance. Are we seeing Are you seeing flows into 0:15:49.160 --> 0:15:52.480 E s G E t F s. We're starting to 0:15:52.520 --> 0:15:55.800 see them. Yes, this is something we've been tracking year 0:15:55.880 --> 0:15:57.880 on year and our survey in terms of the demand 0:15:57.920 --> 0:16:00.440 for E s G products. I think you've got two 0:16:00.440 --> 0:16:03.520 things kind of coming uh and slowly emerging and taking 0:16:03.520 --> 0:16:06.360 shape here in the States. We we've definitely seen stated 0:16:06.440 --> 0:16:09.440 demand for these products. Uh. You know, it's it's it's 0:16:09.760 --> 0:16:12.400 something that investors over the years have all said that 0:16:12.440 --> 0:16:15.520 they plan to increase their allocations. And we finally got 0:16:15.560 --> 0:16:19.720 upwards of about six of US investors planning to increase 0:16:19.760 --> 0:16:24.120 E s G allocations across the board, so somewhat product agnostic, 0:16:24.160 --> 0:16:27.720 but about six saying they planned to increase those allocations 0:16:27.720 --> 0:16:29.840 over the next five years. I think a couple of 0:16:29.840 --> 0:16:32.920 things are at play here behind that one. Increasingly, we're 0:16:32.920 --> 0:16:38.320 seeing public pensions, UH, insurance companies, larger institutional asset managers 0:16:38.840 --> 0:16:42.760 really setting floors for minimum allocations to E s G 0:16:43.040 --> 0:16:46.520 oriented investment strategies. And we think that's a trend that 0:16:46.560 --> 0:16:49.440 will likely continue in those floors, those uh, those those 0:16:49.440 --> 0:16:53.400 minimum allocations will only come up in that institutional community. 0:16:53.680 --> 0:16:55.680 And I think on the other hand, on the retail side, 0:16:55.720 --> 0:16:58.840 you've got this large demographic shift that is just beginning 0:16:58.840 --> 0:17:01.680 to kind of take shape with the wealth transfer to 0:17:01.680 --> 0:17:05.200 the millennial generation. And as this audience continues to attract 0:17:05.200 --> 0:17:07.800 assets as they build capital. That will take time to 0:17:07.880 --> 0:17:12.000 be clear, but they have such stated preference of you know, 0:17:12.080 --> 0:17:15.240 investing according to their values that we think that will 0:17:15.280 --> 0:17:17.720 be another driver for s G T. S. Hey, Ryan, 0:17:17.720 --> 0:17:19.920 thanks so much for joining us. We really appreciate your 0:17:20.040 --> 0:17:23.040 thoughts there, Ryan Sullivan, Senior Vice President of Global Exchange 0:17:23.080 --> 0:17:25.679 Traded Fund Services, A Brown Brothers Harriman based in Boston, 0:17:25.760 --> 0:17:31.520 joining us on the phone. But we are joined by 0:17:31.560 --> 0:17:33.959 our own oracle here, Barry rid Holts, who we can 0:17:34.000 --> 0:17:36.760 just say go and he'll go. Barry rid Holts, Bloomber 0:17:36.760 --> 0:17:39.920 opinion columnists and host of Masters and Business on Bloomberg Radio. 0:17:39.960 --> 0:17:43.439 Also of course, the founder, chairman and chief investment officer 0:17:43.560 --> 0:17:46.520 of rid Holts Wealth Management, joining us here in Interactive 0:17:46.560 --> 0:17:48.800 Broker Studios. I want to really focus in on the 0:17:48.840 --> 0:17:50.840 consumer that has been the main driver of the U 0:17:50.920 --> 0:17:54.320 S economy. A big question has been how much longer 0:17:54.440 --> 0:17:58.199 can that continue? And what is the potential ramification of 0:17:58.240 --> 0:18:01.760 the strong consumer on the entire retail sector. I want 0:18:01.800 --> 0:18:03.320 to start with the data we guy out this morning. 0:18:03.359 --> 0:18:07.359 Consumer spending decelerated to a one point eight percent pace. 0:18:07.760 --> 0:18:10.719 This is below projections and the weakest since the first quarter. 0:18:11.280 --> 0:18:14.520 Do you view this as a potentially concerning sign of 0:18:14.600 --> 0:18:18.480 a weakening consumer. You know, you can't just take one 0:18:19.240 --> 0:18:24.160 monthly report and extrapolated too much of a conclusion. Remember 0:18:24.200 --> 0:18:26.640 this year, the holiday season was very strong, up four 0:18:26.680 --> 0:18:29.920 point one percent year of a year. That's very powerful 0:18:29.920 --> 0:18:34.320 set of numbers. Just keep in mind that versen were 0:18:34.480 --> 0:18:40.000 easy comparables. Remember Q we had a lot of recession fears. 0:18:40.040 --> 0:18:43.960 The market had sold off about so maybe people throttled 0:18:43.960 --> 0:18:47.680 back a little bit last year and this past Christmas 0:18:47.760 --> 0:18:49.800 they made up for a little bit. So when you 0:18:49.800 --> 0:18:54.000 look at the broader picture, uh, you know, still growing, 0:18:54.119 --> 0:18:57.720 but a little softer than expected. That's mostly noise. It's 0:18:57.760 --> 0:19:00.600 too difficult to say, oh, we're one instead of to 0:19:00.760 --> 0:19:04.719 two it's over because look, the landscape is littered with 0:19:04.760 --> 0:19:08.800 the bodies of economists predicting the demise of the U S. Consumer. 0:19:08.960 --> 0:19:12.800 It so far, it just hasn't happened. The consumer has 0:19:12.800 --> 0:19:17.040 been driving this economy. Do you feel like that can continue? 0:19:17.040 --> 0:19:20.560 Because we're still seeing weakness and manufacturing barrier. Business investment 0:19:20.640 --> 0:19:22.840 is not great. It's really been hanging on the consumer. 0:19:23.480 --> 0:19:28.920 So the fascinating thing about retail and consumer is there's 0:19:28.960 --> 0:19:32.399 so many cross currents happening at once. It's such a 0:19:32.640 --> 0:19:39.640 noisy environment. It's really difficult to draw and paint broad conclusions. 0:19:39.720 --> 0:19:42.920 So we know we've been going through a retail apocalypse 0:19:42.960 --> 0:19:48.080 for a decade. The United States wildly um over retailed 0:19:48.160 --> 0:19:52.320 compared to other countries like the UK or France or Japan. 0:19:52.440 --> 0:19:56.479 We just have seven square feet per person versus five 0:19:56.600 --> 0:20:00.280 and three and two elsewhere. So we're gonna con tinue 0:20:00.280 --> 0:20:03.880 to see retail stores closed, and we continue to see 0:20:03.960 --> 0:20:07.080 nine year of your growth nineteen point eight year your 0:20:07.080 --> 0:20:12.399 growth in online retail stores. Not only is that a 0:20:12.440 --> 0:20:17.000 big number, it's accelerating versus previous years. So I think 0:20:17.040 --> 0:20:19.600 this internet thingy is gonna be big one day, and 0:20:19.640 --> 0:20:23.040 it's going to continue to grow at just an astonishing pace. 0:20:23.480 --> 0:20:27.560 Online retail is now about fifteen percent of retail, up 0:20:27.600 --> 0:20:31.000 from about a third of that a decade and change ago. 0:20:31.760 --> 0:20:34.560 We will eventually start the plateau, but there are no 0:20:34.600 --> 0:20:38.360 signs that's coming anytime soon. So in all these crazy crosscurrents, 0:20:38.760 --> 0:20:41.359 looking at one month of retail sales and saying, oh, 0:20:41.400 --> 0:20:44.800 that's it for the consumer really difficult. So let's talk 0:20:44.840 --> 0:20:47.159 about the Internet thingy and talk about what a strong 0:20:47.200 --> 0:20:50.960 consumer means for this thingy that seems to be taking 0:20:51.000 --> 0:20:54.080 over it. It's technical terms. By the way, I wish 0:20:54.119 --> 0:20:56.840 that we had a camera showing all of the hand motions, 0:20:56.920 --> 0:20:58.600 the idea that you know that he says, you know, 0:20:58.640 --> 0:21:02.240 painted broadbrush. He's he's literally painting that broad brush acrosta across. 0:21:02.400 --> 0:21:07.760 If only there was a camera, right, we just haven't 0:21:07.760 --> 0:21:09.760 turned it on. Okay, So what are you looking at 0:21:09.800 --> 0:21:13.200 in terms of the disruption in so so the first 0:21:13.240 --> 0:21:16.760 generation of disruptors, the Amazons of the world, the Ebays, 0:21:17.200 --> 0:21:21.600