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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot Com, the radio plus mobile apt and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Charlie Pellot. We do have thirteen minutes to go

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Speaker 1: ahead of the close. The doll the SMP NAZDAC hall declining,

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Speaker 1: Energy producers tumbling along with the price of crude oil.

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Speaker 1: West Texas Intermediate down three point one percent, now dropping

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Speaker 1: a dollar thirty three forty one forty four on w

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Speaker 1: t I Gold up six sixty the ounce the thirteen

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Speaker 1: forty eight to gain there of five tenths of one percent.

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Speaker 1: The ten year up twelve thirty seconds, the yield one

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Speaker 1: point five percent. Equities lower across the board has P

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Speaker 1: five hundred index falling seven to seventy three, a dropped

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Speaker 1: there of four tenths of one percent down, Industrials down

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Speaker 1: fifty two, a drop of three tenths of one percent.

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Speaker 1: Nasdak is down twenty two, a drop of point five percent.

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Speaker 1: I'm Charlie Pellott and a Bloomberg Business Flash. You're listening

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Speaker 1: to Taking Stock with Kathleen Hayes and Pimp Box on

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Speaker 1: Bloomberg Radio what to do with your money. Well, one

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Speaker 1: thing to do is to ask Peter Anderson. He is

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Speaker 1: the chief investment officer and vice president of Fiduciary Trust,

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Speaker 1: based in Boston, home to Bloomberg twelve hundred. Peter Anderson,

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Speaker 1: thank you very much for being with me. You're welcome.

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Speaker 1: Tell us about the cycle. I keep hearing about this

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Speaker 1: whole thing. We're in a cycle or out of a cycle,

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Speaker 1: or in this market that market? Can you explain what's

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Speaker 1: really going on? Well, him, you know, normally you can't.

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Speaker 1: That is a very simple answer, but this time around,

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Speaker 1: it's quite complicated. And I think it's because we've had

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Speaker 1: these shocks to the system, uh, namely the Brexit situation

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Speaker 1: and these repeated terrorist attacks in Europe. So really it's

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Speaker 1: very hard. I think you've hit hit on the main issue,

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Speaker 1: which is where exactly are we in a cycle or

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Speaker 1: are we even in a cycle right now? And it

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Speaker 1: seems extremely difficult to figure that out this August, and

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Speaker 1: I think it has a lot of people very frustrated

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Speaker 1: because they don't have a real clear roadmap or a

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Speaker 1: compass to navigate through that. Okay, so maybe you can

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Speaker 1: help us navigate this because let's say we suspend our

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Speaker 1: desire to understand whether there's a cycle that's moving up

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Speaker 1: or down. There's still stocks, there's still companies that people

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Speaker 1: can follow and get excited about. Or is that like

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Speaker 1: last century thinking? Well, very timely. I don't do not

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Speaker 1: think it's last century thinking. And in fact, um, I

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Speaker 1: know you and I have talked in the past about

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Speaker 1: quant managers in technical analysis and how that seems to

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Speaker 1: be a central stage right now. But there are certain

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Speaker 1: areas that you can certainly play from a macro perspective.

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Speaker 1: So let me just give you an example. So, say

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Speaker 1: we're looking at Europe and okay, and we just can't

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Speaker 1: figure out what's going on, which is really the common

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Speaker 1: sense response. I mean, nobody really knows how this is

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Speaker 1: going to play out. I was very surprised that the

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Speaker 1: UK market rebounded so strongly after Brexit, and I do

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Speaker 1: think that's a head fake. So let's assume that we're

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Speaker 1: not going to be looking over at the UK, and

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Speaker 1: let's look at the good old US of A. I

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Speaker 1: think there's plenty of opportunities. Look, let's just talk a

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Speaker 1: little bit about MidCap US MidCap stocks, or even US

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Speaker 1: small cap stocks. It makes intuitive sense right, because these

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Speaker 1: companies have most of their business concentrated in the US.

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Speaker 1: They're small enough that they probably a lot of them

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Speaker 1: do not have subsidiaries overseas. So if you're a strong UH,

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Speaker 1: if you have a strong opinion on the US consumer,

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Speaker 1: that would be a logical way to play out this

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Speaker 1: absence of a cycle, if you will. So, if you're

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Speaker 1: looking at those small and MidCap stocks, what are the

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Speaker 1: characteristics of the companies that you want own, Well, some

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Speaker 1: characteristics are first that they are small enough that they

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Speaker 1: have the majority of their business based in the US,

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Speaker 1: because you want to be a little bit insular right now,

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Speaker 1: given that there is uncertainty overseas. UH. The other thing

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Speaker 1: is they have to have strong balance sheets, the usual

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Speaker 1: things that you would expect from a strong company. UH.

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Speaker 1: And in sectors for instance, it is I think most

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Speaker 1: people will agree with me that it is now a

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Speaker 1: consumer lead, slow but steady recovery. UH. This is not

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Speaker 1: This is what I would call almost a growthless recovery.

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Speaker 1: But it certainly isn't a jobless recovery. We've seen that

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Speaker 1: last Friday. So play into the consumer durables and consumer

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Speaker 1: discretionary small and MidCap mutual funds, funds that focus on

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Speaker 1: that area, or et F for example. Well, I was

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Speaker 1: just looking at the Russell A two thousand index, which

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Speaker 1: is composed of the smallest two thousand companies in the

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Speaker 1: Russell three thousand. Right year to date, the Russell two

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Speaker 1: thousand is up seven and three quarters of a percent.

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Speaker 1: That's better than the S and P five which is

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Speaker 1: just up six and a half percent. That's right, Yes,

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Speaker 1: So does that exemplify the kinds of companies that you

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Speaker 1: would be looking for. Yes, it does, and you are

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Speaker 1: right in the mid caps also have done very well.

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Speaker 1: Uh to say anywhere from say five to seven percent.

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Speaker 1: Seven percent is probably a little bit on the high side,

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Speaker 1: but you can find um strategies that would give you

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Speaker 1: that return. That's exactly what I'm talking about. And it's

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Speaker 1: not a bad place to be, right because the alternatives

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Speaker 1: are pretty hard to convince yourself that you can have

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Speaker 1: a solid thesis as to why you would be investing

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Speaker 1: in the UK right now. Another area that I think

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Speaker 1: is people tend to think is more risky, but from

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Speaker 1: a common sense perspective, if you're looking for income and

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Speaker 1: you have the stomach to um to to tolerate this

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Speaker 1: kind of risk as US high yield. You know, I

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Speaker 1: played in US high yield for a long time in

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Speaker 1: my career, and right now is a very very attractive time.

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Speaker 1: Not to load the boat up on that, of course,

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Speaker 1: but have a diverse, wigh portfolio. But the default rate

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Speaker 1: on US hi yield bonds, if you carve out the

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Speaker 1: energy segment, it's very, very low, and I think that

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Speaker 1: that also plays into our theme of the recovering, continuously

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Speaker 1: recovering US consumer UH companies. Small high yield companies tend

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Speaker 1: to be smaller companies, just like the small cap equity companies,

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Speaker 1: and it's a nice compliment. As far as this search

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Speaker 1: for yield goes, when did it become fashionable to hunt

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Speaker 1: for yield in the stock market. I understand the whole

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Speaker 1: relative issue of you know, treasuries and corporate bonds or

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Speaker 1: just high yield as you describe, But as I think

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Speaker 1: back over the course of a couple of decades, you

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Speaker 1: wanted to buy a stock of a company that you

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Speaker 1: thought was going to go gangbusters, that was well managed,

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Speaker 1: had a market penetration of moat around it. To a

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Speaker 1: certain extent, you weren't questioning really whether they were going

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Speaker 1: to give you a dividend. You wanted to invest in

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Speaker 1: the growth of the company. That's right, and uh, you know,

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Speaker 1: some people have fallen astray from that. I couldn't agree

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Speaker 1: more with your your comment there a narrative. I do

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Speaker 1: think that people have kind of lost their way in

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Speaker 1: the sense that income producing instruments tend to be fixed income,

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Speaker 1: and if you're looking for high dividend stocks, sometimes you

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Speaker 1: can be led astray because the balance sheet, etcetera. Uh,

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Speaker 1: could be stressed for that company to continue paying its dividend.

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Speaker 1: And some, as you know, have policies where they wanted

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Speaker 1: to increase the dividend every year. And that's kind of

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Speaker 1: the dividend tail wagging the dog, if you know what

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Speaker 1: I mean, because you want to buy first a company

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Speaker 1: of stock, it is well grounded, has excellent fundamentals, and

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Speaker 1: oh yes, by the way, it pays an attractive dividend,

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Speaker 1: not the opposite. Model portfolios tell us a little bit

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Speaker 1: about how that whole world has changed because it used

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Speaker 1: to be split, and it also used to change as

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Speaker 1: the investor got older. Model portfolios. You know that also

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Speaker 1: ties into this rather ironic title of modern portfolio theory.

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Speaker 1: But you know that's been around since the nineteen fifties

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Speaker 1: and we really haven't changed, UH the formalism by which

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Speaker 1: we invest with diversification and UH an ideal outlook on

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Speaker 1: the way the stocks move are related to each other.

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Speaker 1: I do think that that has taken a little bit

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Speaker 1: of a second UH stage now to a more formal

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Speaker 1: way of looking at things where you say to yourself, well,

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Speaker 1: these correlations might not be exactly historically correct going forward,

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Speaker 1: and we need to tweak this a little, especially if

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Speaker 1: you have a shock to the system. So right now,

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Speaker 1: people still if you distill everything, most portfolios are sixty

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Speaker 1: UH and it depends on what you're calling fixed income

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Speaker 1: now and what you're calling equities. But one of the

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Speaker 1: things that can lead people astray is if they think

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Speaker 1: their portfolio is and fixed income. But if you take

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Speaker 1: a peek under the hood, tim and see what kind

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Speaker 1: of assets are, say in UH fixed income mutual fund,

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Speaker 1: for example, you have to be very careful to realize

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Speaker 1: that fixed income should be risk mitigating, we call it,

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Speaker 1: and it should be high quality and not fund that

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Speaker 1: has junk bonds in it, for instance, because then that

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Speaker 1: takes on a different tone and it's not risk mitigating,

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Speaker 1: it's actually return generating. So there is a formalism now

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Speaker 1: that's kind of taking over the usual sixty UH terminology,

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Speaker 1: and it's getting a little bit more subtle and irige

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Speaker 1: people to really take a closer look at what their

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Speaker 1: funds are invested in to get a sense of where

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Speaker 1: the risk actually lies. Peter, our investors scared to take profits?

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Speaker 1: M I think UH, investors are just scared of a

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Speaker 1: lot of things right now, and that is probably if

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Speaker 1: you ask me, you know, among the top three, if

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Speaker 1: that's one of them, I'm not sure it would be.

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Speaker 1: I think it's more that they're frightened to make decisions,

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Speaker 1: and it might come out as uh, you know, the

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Speaker 1: appearance that they're they're not taking profits. But I do

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Speaker 1: think it has more to do with this unique time

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Speaker 1: we're in and the indecision that a lot of people

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Speaker 1: have to live through. Thanks very much. Peter Anderson is

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Speaker 1: the chief investment officer also vice president of Fiduciary Trust

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Speaker 1: based in Boston. You're listening to take king Stock will

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Speaker 1: take you through to the clothes on Wall Street. I'm

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Speaker 1: Pim Fox and this is Bloombergh