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Speaker 2: Checking with Jay Hatho.
Speaker 3: He's the CEO CIO Infrastructure Capital Management.
Speaker 2: Jay, how do you think about twenty twenty six year?
Speaker 3: Because we're coming out of twenty twenty five, I mean
Speaker 3: great equity returns, really solid returns in the fix, the
Speaker 3: come space off hearing commodities, gold, silver, platinum plated bore.
Speaker 3: You're looking good there. How do you think about twenty
Speaker 3: twenty six?
Speaker 4: Good morning, Paul Alexis. Hey, I'm happy to hear. Well.
Speaker 4: You know, we remain bullish. We are bullish this year still.
Speaker 5: We have a seven thousand target, which, by the way,
Speaker 5: you should sell targets now just buy them. So it's
Speaker 5: okay if we fade a little bit before seven thousand.
Speaker 5: So we use the same methodology that we did this year,
Speaker 5: twenty three times twenty seven earnings consensus and we get
Speaker 5: to an eight thousand target. So that's almost fifteen percent
Speaker 5: from here. So we're bullish and this is normal the
Speaker 5: rally and metals as well as normal when you come
Speaker 5: out of a FED tidening cycle.
Speaker 6: And I'm going to ask you what I've been asking
Speaker 6: all of our guests today, and that is leadership in
Speaker 6: this market in the new year. We know that we've
Speaker 6: seen a rotation into value. Is that going to continue
Speaker 6: to the extent that it becomes the new leader for
Speaker 6: this market and tech maybe takes a bit of a backseat.
Speaker 5: Ali So we have what we call GARP models of
Speaker 5: the magate, so includes Broadcom and last time when we
Speaker 5: had sixty nine, the upside of those eight companies is
Speaker 5: only two percent, so they're fully valued, even assuming they're
Speaker 5: pretty high growth rates. And if we look, we have
Speaker 5: dividend funds, so we have every sector and a lot
Speaker 5: of those companies are super cheap, pay great dividends, have
Speaker 5: good growth, and trade a really low market pay ratios.
Speaker 4: So that's normal.
Speaker 5: Same thing normal when you have a FED loosening cycle,
Speaker 5: there's rotation into other sectors, including small caps. So we
Speaker 5: do think that'll continue, and we're happy about it. Benefits
Speaker 5: our funds because we have small allocations towards tech and
Speaker 5: our income funds.
Speaker 3: Jay, we came into twenty twenty five with a new
Speaker 3: administration here thinking that financials would be an area that
Speaker 3: would really benefit from, if nothing else, a lighter regulatory
Speaker 3: touch here. Talk to us about financials, how you look
Speaker 3: at that sector.
Speaker 5: We had a little bit different take on it in
Speaker 5: that you know, I used to be an investment.
Speaker 4: Banker, so I can kind of that's too best since when.
Speaker 5: Heat up and so we were super bold up about
Speaker 5: the big investment banks early in the Trump administration, and
Speaker 5: that was a great call. The regular banks have lagged
Speaker 5: because the FED is lagged. So we think this year
Speaker 5: there'll be a rotation. Not the investment banks won't do
Speaker 5: well because they're blowing out their earnings, but they're very
Speaker 5: fully valued. But we're recommending investors rotating into what I
Speaker 5: call boring banks or standard banks like CFG. We hold
Speaker 5: that in my cap our dividend fund. And we're even
Speaker 5: more bulled up about the private equity firms because they've
Speaker 5: been unfairly punished by this irrational fear about private credit.
Speaker 5: So we would recommend rotating from the investment banks into
Speaker 5: standard banks and into private equity.
Speaker 6: And I want to bring up we started this conversation
Speaker 6: talking about commodities, Copper topping thirteen thousand, got silver and
Speaker 6: gold add on near all time highs. What do you
Speaker 6: do with the commodities trade next year?
Speaker 5: Well, I think I have to be a little bit
Speaker 5: costious because if you look at charts, they're pretty far
Speaker 5: away from their moving averages, and gold did break down
Speaker 5: when it blew out well above its moving averages. I
Speaker 5: think a bigger question is really oil. Oil has been horrible,
Speaker 5: which is great for inflation. By the way, you know,
Speaker 5: the seventies inflation was really eighty percent caused by oil,
Speaker 5: So if super bolish for inflation, we're modestly constructive on
Speaker 5: oil fifty five to sixty five this year. We think
Speaker 5: that ope's not going to increase production as much as
Speaker 5: it did last year, so we're more constructive on oil.
Speaker 5: There will continue to be rallied, particularly silver and copper.
Speaker 5: You know, have an AI electricity play, but just be
Speaker 5: a little bit costious because it has a momentum element
Speaker 5: to it as well, whereas oil has negative momentum.
Speaker 2: Jay, you mentioned dividends here.
Speaker 3: We don't talk that much about dividends because it's all
Speaker 3: about big tech and most of the tech players don't
Speaker 3: pay dividends here, what's your dividend strategy? How do you
Speaker 3: think investors should think about dividends.
Speaker 5: Well, I think, particularly for more conservative investors, it's good
Speaker 5: to have a substantial amount of dividends that can cover
Speaker 5: a significant portion of your cash needs, and then the
Speaker 5: rest of it your portfolio can have a higher higher
Speaker 5: volatility companies. So we love preferred stocks pffas our flagship fond,
Speaker 5: has a great yield, has a good total return. We
Speaker 5: do like highyal bonds if we're right about the market
Speaker 5: going to eight thousand, and you want to be in
Speaker 5: the riskier part of bonds. And as I briefly alluded to,
Speaker 5: there's a ton of really high quality companies like Philip Morris,
Speaker 5: next Era. They're not overvalued, have strong dividends, good dividend growth.
Speaker 4: So we do think that you'll actually get paid for that.
Speaker 5: It's usually kind of a thankless proposition that you'll get
Speaker 5: paid for that, because when there is a rotation, those
Speaker 5: stocks tend to do better because when you get money
Speaker 5: flowing in, they're looking for bargains versus just looking for
Speaker 5: the latest AI trade.
Speaker 6: So well, small cap stocks continue to get some love
Speaker 6: next year, because I was looking at the Russell two
Speaker 6: thousand up about thirteen and a half percent year to date.
Speaker 6: There aren't They're sort of not the sexy index, right,
Speaker 6: the Russell two thousand. But do you see there? Do
Speaker 6: you see support for it next year?
Speaker 4: We do.
Speaker 5: We have a small cap fund, Desk Cap, and I
Speaker 5: would urge investors, whether you do yourself or hire people
Speaker 5: like ourselves, focus on the money making companies because that's
Speaker 5: where you stop gambling and you start investing. So if
Speaker 5: you invest in profitable companies, they retain earnings, grow earnings.
Speaker 4: So small caps are.
Speaker 5: Attracted if you if you curate them for being profitable.
Speaker 5: And what's the biggest trade you're making there is it
Speaker 5: is a notch and that's so the value part of
Speaker 5: it's on about ten percent tech, So it's really part
Speaker 5: of that whole trade. It's not that small caps borrow
Speaker 5: way more much more money or have superig amount.
Speaker 4: Of floating rate.
Speaker 5: It's just the normal rotation out of tech into other sectors.
Speaker 5: And although the small cap sectors are do have slightly
Speaker 5: lower valuations and do have upside like Digital Bridge you
Speaker 5: know you mentioned earlier, right, it is smaller cap stock.
Speaker 5: So that you do benefit from M and A as well.
Speaker 5: So we do think it's going to be a good
Speaker 5: place to be next year, you know, and it has
Speaker 5: been since the FED became more dubbish.
Speaker 4: It's worked this year as well.
Speaker 3: Jay, thanks so much for joining us. Always appreciate getting
Speaker 3: a few minutes of your time. Jay Haffield, CEO CIO
Speaker 3: Infrastructure Capital Advisors also reformed investment Banker did substance of
Speaker 3: Morgan Stanley, CIBC, Oppenheimer, all those haunts down there in
Speaker 3: the city.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 6: You know, Paul, when you look at it, we're heading
Speaker 6: into the new year with a lot of the same
Speaker 6: old problems and concerns. Right, We've got Tariff's inflation debt,
Speaker 6: we still have global wars going on. Yep, the vix
Speaker 6: is pretty low compared to all that. So our next
Speaker 6: guest is that might mean the market a little complacent,
Speaker 6: maybe we're ignoring the risks. Joy Yang, head of index
Speaker 6: product management at market Vector Index's, joins us in studio. Joy,
Speaker 6: good morning, Good to have you.
Speaker 7: Here, mining thanks for having me.
Speaker 6: Is this market getting a little too comfortable and are
Speaker 6: we ignoring the risks?
Speaker 4: Yeah?
Speaker 7: I think it's a good time for us to just
Speaker 7: step back and look at what's happening.
Speaker 4: You know.
Speaker 7: So we're looking at another twenty percent year in the markets,
Speaker 7: and I think we've just gotten used to twenty percent
Speaker 7: because we saw it last year, we saw it the
Speaker 7: year before. But we now have over one hundred years
Speaker 7: of data on the markets, and do you know how
Speaker 7: many times that we see the markets deliver over twenty
Speaker 7: percent three years in a row.
Speaker 6: It's got to be pretty low.
Speaker 7: It's very low. We've only seen it twice and the
Speaker 7: last time was the lead up to the dot com bubble,
Speaker 7: So that was three years of positive twenty percent returns
Speaker 7: followed by three years of negative returns. So I think
Speaker 7: we investors have to be careful because on average we
Speaker 7: only see the markets deliver about eleven percent returns per year.
Speaker 7: But we never see eleven. Sometimes we'll see twenty, which
Speaker 7: means next year we'll see maybe negative ten, but on
Speaker 7: average you get eleven, twelve, thirteen percent returns. So what's
Speaker 7: unusual is we've seen twenty percent returns this year, low volatility,
Speaker 7: everything else, rising gold copy, silver, even value, as you
Speaker 7: mentioned before. So this has got to be a little
Speaker 7: bit kind of you know, uncomfortable. And yet you know,
Speaker 7: people are euphoric about AI. And again, where did we
Speaker 7: come off At the beginning of the year. We had
Speaker 7: tariff uncertainty, we had fed policy uncertainty, we had high
Speaker 7: government debt, we had AI is it you know, is
Speaker 7: it a bubb all? And we had geopolitical tensions. We
Speaker 7: have all those things right now exactly nothing has changed.
Speaker 7: And yet you know, the market still seems to be
Speaker 7: going up. You know, you get market returns for taking
Speaker 7: on risk, and the risks are still out there. But
Speaker 7: that said, does that mean people should get out?
Speaker 4: You know? Right?
Speaker 2: You know, time diversifying?
Speaker 3: How about diversifying? Maybe we saw even a little bit
Speaker 3: earlier in twenty twenty five people diversifying outside of the US,
Speaker 3: maybe going to European equities, and we weren't sure whether
Speaker 3: that was is a short term trade maybe a longer
Speaker 3: term rotation. How do you look at diversification outside the US.
Speaker 7: So I think price still matters, and then US earlier,
Speaker 7: you know, everything seems expensive. Well, I say, look outside
Speaker 7: of the US, because I think we tend to think
Speaker 7: of you know, just US markets. You know, markets outside
Speaker 7: of the US still look like they have good valuation.
Speaker 7: So international markets, emerging markets this year, they already had
Speaker 7: a strong rally, but that's on the back of being
Speaker 7: under allocated and undernoticed. You know, in the previous years.
Speaker 6: You mentioned we didn't have a lot of volatility. This
Speaker 6: past year is twenty twenty sixth the year that comes back.
Speaker 6: And why well, something's got to give.
Speaker 7: You can't have high returns low volatility, So either returns
Speaker 7: have to come down or volatility has to go up.
Speaker 7: And I think one thing that's interesting about the VICS
Speaker 7: is because it doesn't seem like it's telling us the
Speaker 7: fear of you know, what investors are really feeling, because
Speaker 7: if you ask anybody, they are thinking about is this
Speaker 7: above all? But it's not reflected in the you know VIX.
Speaker 7: So I think we tend to look at crypto markets
Speaker 7: and bitcoin. We have the crypto heat Index, which is
Speaker 7: telling us fear is high. You know, we saw bitcoin crash,
Speaker 7: and you know, it's still hanging around that fear indicators.
Speaker 7: So it feels like the VIX is just holding its breadth,
Speaker 7: whereas you know, crypto markets are really measuring the pulse
Speaker 7: of investors.
Speaker 4: Yep.
Speaker 3: Looking at bitcoin here for tom Keen, just under eighty
Speaker 3: seven thousand dollars per token. We've been anywhere from seventy
Speaker 3: thousand to one hundred and twenty seven thousand this year
Speaker 3: on topic.
Speaker 2: Volatility exactly right.
Speaker 7: Yeah, but that's also interesting because you know Bitcoin is
Speaker 7: negative this year, but for you know, bitcoin holders and ETFs,
Speaker 7: you know, it started back in January twenty twenty four,
Speaker 7: it's up, it's delivered still one hundred percent returns for investors.
Speaker 3: Absolutely absolutely, Alternatives, private equity, private credit, you know, I
Speaker 3: don't know hedge funds. How do you guys think about
Speaker 3: all these days?
Speaker 7: I think it's interesting because we're seeing this, you know,
Speaker 7: the launch of the number of ETSS indexes that are
Speaker 7: trying to measure this space for kind of daily flows
Speaker 7: into an area that's meant to be a long term
Speaker 7: buy and hold strategy. So what's the right price? You know,
Speaker 7: you can't look at it every single day and it's
Speaker 7: meant to be a diversified holding for investors. So I
Speaker 7: think investors should allocate to alternative.
Speaker 3: What percentage do you think. I've talked to registered investment
Speaker 3: advisors and I would have thought either they're not really
Speaker 3: in all they are, and I would have thought maybe
Speaker 3: the allocation would five percent. They're talking much higher than that.
Speaker 3: How do you guys think about it?
Speaker 7: Well, I think with everything you should really it's really
Speaker 7: based on your own risk allocation. You know, people say
Speaker 7: even twenty percent gold. Now you know, but that seems
Speaker 7: quite a hot and that seems like nobody's up there
Speaker 7: at twenty percent. It should never be a core portion
Speaker 7: of your holdings. And if you have twenty percent cent
Speaker 7: to gold, five percent to private equity, you know, it
Speaker 7: builds up. You know, what does that leave your core holdings?
Speaker 6: I'm going to put you on the spot, Joy and
Speaker 6: ask where are we going to see leadership in twenty
Speaker 6: twenty six? Make place your bat.
Speaker 7: Okay, that is on this spot, and I would say,
Speaker 7: still look at a diversified global allocation to all assets,
Speaker 7: but adjust it to you know, their weight in the markets,
Speaker 7: which is still have a you know, solid portion in
Speaker 7: equities and bonds, but also think about your allocation to
Speaker 7: whether it's gold, bigcoin, private equity, so you know, be
Speaker 7: be strategic and long term about it rather than what's
Speaker 7: driving next year.
Speaker 3: How about just just in terms of leadership in the
Speaker 3: equity markets. Boy, it's been AI has been really the
Speaker 3: story for I don't know three years now, is that
Speaker 3: still me?
Speaker 2: Hang your hat on that big cap tech trade?
Speaker 8: Do you think?
Speaker 7: I think AI is a disruptive innovation, but you know,
Speaker 7: can it come from a five trillion dollar company? You know,
Speaker 7: people have been People haven't noticed the leadership that's building
Speaker 7: up in Asia. You know, China's coming up with really innovative,
Speaker 7: disruptive companies, and I think people should be more diversified
Speaker 7: in their AI holdings.
Speaker 3: Joy, thanks so much for joining us.
Speaker 4: Really appreciated.
Speaker 2: Joey Yang.
Speaker 3: She's a head of index product management at market Vector Indexes.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 3: Well you go out to side, you go to over
Speaker 3: to Europe. The eurostock index justin for currencies up thirty
Speaker 3: three percent?
Speaker 4: How about that?
Speaker 3: Asian indexes up, you know, mid twenties returns. Everybody's making
Speaker 3: money in the equity markets here, what do we do
Speaker 3: for twenty twenty six? Chris camp pitsis joins us here.
Speaker 3: He's a managing partner Barnum Financial Group. Chris, you know,
Speaker 3: investors had a really good three year run in equities.
Speaker 3: They made a lot of money in the bond market
Speaker 3: in twenty twenty five. What's the conversations you're having with
Speaker 3: your clients is to expectations for twenty six.
Speaker 4: Yeah, that's a great question.
Speaker 9: And expectations I think as we look to go forward
Speaker 9: into the new year.
Speaker 4: You know, the.
Speaker 9: Reality is if we look at how the last time
Speaker 9: we had four double digit up years in a row,
Speaker 9: that didn't end so well, right, that ended with the
Speaker 9: dot com bubble burst. And so if we're going to
Speaker 9: see another double digit, high momentum, high growth kind of year,
Speaker 9: we're going to need some kind of goldilocks economic and
Speaker 9: stock performance in order to do that. So what has
Speaker 9: to happen for that to be the case. Well, First,
Speaker 9: we need to see those accommodative interest rate cuts from
Speaker 9: the FED to unemployment. Obviously can't get two out of control.
Speaker 4: And third, we.
Speaker 9: Can't have any AI bubble bursts, and that means we
Speaker 9: need technology companies to really show and prove when earning
Speaker 9: season comes along. The market didn't react too positively to
Speaker 9: the last couple earning seasons, even though these big tech
Speaker 9: companies delivered great results, and so that leaves us a
Speaker 9: little cautious headed into the new year.
Speaker 6: So if you're cautious and you talked about tech, Chris,
Speaker 6: if you're widening out, I see in your note you
Speaker 6: like utilities, which makes a lot of sense because in
Speaker 6: an environment of lower rates, but also all the electricity,
Speaker 6: all the data centers right that are being built to support.
Speaker 9: AI exactly right, So we think of that as almost
Speaker 9: an AI adjacent play, if you will, what are the sectors,
Speaker 9: what are the industries? What are the companies that are
Speaker 9: going to benefit from artificial intelligence but aren't necessarily the
Speaker 9: semiconductor of companies themselves and thematically, if we can see
Speaker 9: real companies start to increase their profit margins and their
Speaker 9: earnings as a result of actually implementing artificial intelligence into
Speaker 9: their businesses. Well, that's going to change the conversation from
Speaker 9: is this a bubble? To how high can we go?
Speaker 9: You know, in a positive and healthy manner.
Speaker 3: Chris, talk to us about how you think about investing
Speaker 3: in the US versus non US, and maybe that's developing
Speaker 3: markets and merging markets.
Speaker 2: How do you think about that?
Speaker 9: So, you know, if you look at the typical investors
Speaker 9: US based investors portfolio, it's extremely S and P five
Speaker 9: hundred centric S and P five hundred almost has a
Speaker 9: monopoly on the average investor's portfolio. And twenty twenty five
Speaker 9: was a year in which the international markets, you know,
Speaker 9: waved their hands and said, hey, take a look at me,
Speaker 9: because we're here too. And meanwhile, you have governments who
Speaker 9: are evaluating their trading partners, right. We saw that with
Speaker 9: Liberation Day and the tariffs and the tariff negotiations that
Speaker 9: have taken place since then. So as countries are looking
Speaker 9: to really re establish their trading relationships, and then companies
Speaker 9: are looking to similarly diversify their supply chains. And then
Speaker 9: on top of that you have this weakening dollar. It
Speaker 9: begs investors to start to take a look at other economies.
Speaker 9: And other markets as complements to their US portfolio.
Speaker 6: Where I'm curious where you're looking in the world. I mean,
Speaker 6: I know, we say Europe, we say emerging markets, but
Speaker 6: when you sort of drill down.
Speaker 9: Sure, So one country that we find very attractive right
Speaker 9: now is Japan. In general, companies in Japan have very
Speaker 9: cash rich balance sheets. There's been a renewed focus in
Speaker 9: Japan about delivering shareholder value. You're seeing a big increase
Speaker 9: in buybacks, You're seeing a big increase in dividend hikes,
Speaker 9: and then you have a much more accommodative fiscal policy
Speaker 9: the last couple of years. And what's interesting about Japan is,
Speaker 9: you know, the knock on them for a long time
Speaker 9: has been an aging population. But an aging population also
Speaker 9: lends itself to automation and technology enhancements. So we think
Speaker 9: it's a perfect opportunity for Japanese equities. And then, of course,
Speaker 9: with the strengthening yen weakening dollar for US dollar based returns,
Speaker 9: that's a real positive for the US consumer and investor.
Speaker 3: We haven't talked about Japan for thirty years, but it's
Speaker 3: back in vogue here. I mean, is this something that's
Speaker 3: a longer term trend, and my son's about to do
Speaker 3: a semester brought in Japan, and he's all in on Japan.
Speaker 3: But I'm like, all right, that was in nineteen eighty
Speaker 3: that would have been a good call.
Speaker 2: But maybe it's coming back here. I don't know.
Speaker 9: I think it is because ultimately, well, we have the
Speaker 9: volatility of what's happening with AI and a little bit
Speaker 9: of political uncertainty in the US and of course conflict
Speaker 9: and tensions with China. People are looking for a consistent
Speaker 9: story and Japan looks to deliver that here and they've
Speaker 9: got a lot of characteristics of what could present a
Speaker 9: big opportunity. That started in twenty five, and I think
Speaker 9: the momentum will continue into twenty twenty six.
Speaker 3: Just crossing the tape here in the Bloomberg terminal, red
Speaker 3: headlines SoftBank to buy Digital Bridge for sixteen.
Speaker 2: Dollars per share in cash.
Speaker 6: So they still speaking about Monday Bank h exactly even
Speaker 6: on a holiday weeks. Back to the US for a minute,
Speaker 6: Chris and we talked about we ticked some boxes, talking
Speaker 6: about utilities, talking about tech, what about consumer staples, what's
Speaker 6: the outlook the prognosis for them in twenty twenty six.
Speaker 9: I love that question because what happens is technology has
Speaker 9: been driving the market, both in the short term and
Speaker 9: long term. I think most people would agree AI has
Speaker 9: a tremendous long term.
Speaker 4: Thesis, right.
Speaker 9: But as we see these valuations reach these highs, we
Speaker 9: want to start to look to take some profits off
Speaker 9: of the table. And then the question becomes where am
Speaker 9: I putting that portion of my portfolio if I'm trimming
Speaker 9: slightly from my technology and my growth story. And so
Speaker 9: consumer staples provides a tremendous contrarian almost allocation, one that
Speaker 9: is inflation friendly, one that provides a consistent dividend in
Speaker 9: a lowering interest rate environment, that in essence pays us
Speaker 9: to wait. And we saw this in April, right when
Speaker 9: the tariff craziness took place and the market reacted. SMP
Speaker 9: was negative fifteen percent for the year at one point.
Speaker 9: Sectors like consumer staples really really were a bright spot
Speaker 9: in a stormy stock market. And I think consumer staples
Speaker 9: will perform exceptionally well going into the new year should
Speaker 9: we see the pullback in technology.
Speaker 2: What are you doing in Chris?
Speaker 3: In the bond market here, we had some nice high
Speaker 3: single digit returns in twenty twenty five, and if you
Speaker 3: took some credit risk, you know, doing pretty well rewarded there.
Speaker 2: How about in twenty six.
Speaker 9: If I'm going to take on risk to get that
Speaker 9: risk through dividends rather through yield at the moment, especially
Speaker 9: because the biggest risk to twenty twenty six is stock
Speaker 9: market volatility and a worsening economy. Right, those are the
Speaker 9: traditional concerns around what could the end of a bull
Speaker 9: market be as we potentially go into theoretically a recession. Right,
Speaker 9: So I don't want to own the types of bonds
Speaker 9: that are going to act like stocks if the stock
Speaker 9: market's going down. So if I'm going to own bonds,
Speaker 9: I want quality. I want a little bit of a
Speaker 9: duration in a lowering interest rate environment. So I would
Speaker 9: favor obviously sovereign debt, and I would favor cash and
Speaker 9: dividend stocks.
Speaker 2: Very good, Chris, thanks so much, appreciate it.
Speaker 3: Chris Campittsis He's a managing partner for Barnum Financial Group of.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 6: I want to talk a little more fixed income because
Speaker 6: what a year it was for fixed income and can
Speaker 6: twenty twenty six continue that run. Vanessa McMichael, head of
Speaker 6: Corporate and Public Entity Strategy at Wells Fargo. Vanessa, I'm
Speaker 6: going to jump right in here with something you call
Speaker 6: cash segmentation because we are expecting, or at least the
Speaker 6: markets expecting two interest rate cuts from the Fed next year.
Speaker 6: And you said in that scenario, cash segmentation is important
Speaker 6: and will be back in style.
Speaker 8: What do you mean by that, Well, thank you for
Speaker 8: having me this morning. Yes, So, for the clients that
Speaker 8: I cover are corporate and public entity investors, they're using
Speaker 8: fixed income markets to enhance their cash management process overall,
Speaker 8: and so they're typically not chasing yield. They're more interested
Speaker 8: in liquidity and safety above all else. And why am
Speaker 8: I kind of rambling about this at the beginning of
Speaker 8: Manchester in the conversation is because for the past couple
Speaker 8: of years, it's been really easy to do very little
Speaker 8: and generate really nice income for your organization. If you've
Speaker 8: been camped out in cash instruments, and so prior to
Speaker 8: this inverted yield environment that we've been living for at
Speaker 8: least if you'r a front end investor organizations, they would
Speaker 8: bucket their cash. Right, do you have your operating cash,
Speaker 8: you have some strategic cash, maybe you have some cash
Speaker 8: set aside for a specific project, and then you're using
Speaker 8: fixed income markets to invest that cash until you need it.
Speaker 8: But again, because of the yield curve, because of the
Speaker 8: way last year or this year, we're still in twenty
Speaker 8: twenty five, I'm already trying to get into twenty twenty six.
Speaker 8: The way this year started, liquidity was the number one
Speaker 8: conversation we were having with clients, and how do you
Speaker 8: satisfy that liquidity golob Well, you camp out in a
Speaker 8: cash instrument. So it's just time for organizations to reframe
Speaker 8: how we're thinking about using fixed income markets and in
Speaker 8: this cat in their case, managing process. Because we're in
Speaker 8: an environment where the front end of the curve should
Speaker 8: no longer be inverted if expectations come to fruition by
Speaker 8: the end of this year, and so we do need
Speaker 8: to think about segmenting and putting cash on different parts
Speaker 8: of the curve.
Speaker 4: So that's what I mean.
Speaker 3: By that, Vanessa, I mean if your job now, I
Speaker 3: know you went to Chicago Business School, which means you
Speaker 3: like math. So right right off the beat, I got
Speaker 3: a problem here. How about it to your treasury? I
Speaker 3: mean three and a half percent isn't your job kind
Speaker 3: of done? You could say, put yourself in to your
Speaker 3: treasuries for three and a half percent. That seems like
Speaker 3: a nice return.
Speaker 8: Well, and you bring up a really good point because
Speaker 8: we're still in an environment and we're going to be,
Speaker 8: at least for the foreseeable future for this particular investor
Speaker 8: base that I cover that invests so short on a
Speaker 8: yield curve where you don't have to take a lot
Speaker 8: of credit risk to continue to enhance your yield and
Speaker 8: stabilize some income generation. So we are in our seats.
Speaker 8: We are encouraging those clients that can and invest out
Speaker 8: on the belly of the curve because of their investment policy.
Speaker 8: Then because they can, they have the cash that they
Speaker 8: may not need immediately right for the foreseeable future. To
Speaker 8: look at that part of the curve, because a three
Speaker 8: and a half percent yield over a couple of years
Speaker 8: is still really decent income particularly for this investor base.
Speaker 6: What's going on with money market fund assets, Vanessa? Because
Speaker 6: they reached record highs, there was all this talk about
Speaker 6: we're going to see a bunch of outflows that never
Speaker 6: really came to fruition. So what's your outlook for MMF
Speaker 6: asset growth?
Speaker 8: We think they're going to continue to grow. I mean,
Speaker 8: this year we kind of hit two new records seven
Speaker 8: trillion excuse me, and then eight trillion. We think growth
Speaker 8: going forward may be a bit more incremental. Our clients,
Speaker 8: our corporate public entity clients are using money market funds
Speaker 8: as a substitute for bank deposits, and so they're going
Speaker 8: to continue to do that. And I think even if
Speaker 8: the FED does execute two cuts, so we're fifty basis
Speaker 8: points lower on the front end at some point fifty
Speaker 8: basis points lower and money market funds, that still puts
Speaker 8: us at about a three percent yield, and that's still
Speaker 8: really attractive for these clients. Remember just a few years ago,
Speaker 8: and I'm saying a few maybe it was four where
Speaker 8: rates for zero and we were only earning call it
Speaker 8: one of two basis points and these sort of funds,
Speaker 8: So to earn three percent, to be honest, is still
Speaker 8: really decent guild, and it's going to generate decent income,
Speaker 8: and so we expect to continue to see clients heavily
Speaker 8: utilize those instruments going forward.
Speaker 3: Hi, Vanessa, thank you so much for joining us. Really
Speaker 3: appreciate it. Vanessa Michael. She is head of Corporate and
Speaker 3: Public Entity Strategy at Wells Fargo, advising her public clients
Speaker 3: on the fixed income market and word to allocate capital there.
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