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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
Speaker 1: I'm Charlie Pellot. We do have thirteen minutes to go
Speaker 1: ahead of the close. The doll the SMP NAZDAC hall declining,
Speaker 1: Energy producers tumbling along with the price of crude oil.
Speaker 1: West Texas Intermediate down three point one percent, now dropping
Speaker 1: a dollar thirty three forty one forty four on w
Speaker 1: t I Gold up six sixty the ounce the thirteen
Speaker 1: forty eight to gain there of five tenths of one percent.
Speaker 1: The ten year up twelve thirty seconds, the yield one
Speaker 1: point five percent. Equities lower across the board has P
Speaker 1: five hundred index falling seven to seventy three, a dropped
Speaker 1: there of four tenths of one percent down, Industrials down
Speaker 1: fifty two, a drop of three tenths of one percent.
Speaker 1: Nasdak is down twenty two, a drop of point five percent.
Speaker 1: I'm Charlie Pellott and a Bloomberg Business Flash. You're listening
Speaker 1: to Taking Stock with Kathleen Hayes and Pimp Box on
Speaker 1: Bloomberg Radio what to do with your money. Well, one
Speaker 1: thing to do is to ask Peter Anderson. He is
Speaker 1: the chief investment officer and vice president of Fiduciary Trust,
Speaker 1: based in Boston, home to Bloomberg twelve hundred. Peter Anderson,
Speaker 1: thank you very much for being with me. You're welcome.
Speaker 1: Tell us about the cycle. I keep hearing about this
Speaker 1: whole thing. We're in a cycle or out of a cycle,
Speaker 1: or in this market that market? Can you explain what's
Speaker 1: really going on? Well, him, you know, normally you can't.
Speaker 1: That is a very simple answer, but this time around,
Speaker 1: it's quite complicated. And I think it's because we've had
Speaker 1: these shocks to the system, uh, namely the Brexit situation
Speaker 1: and these repeated terrorist attacks in Europe. So really it's
Speaker 1: very hard. I think you've hit hit on the main issue,
Speaker 1: which is where exactly are we in a cycle or
Speaker 1: are we even in a cycle right now? And it
Speaker 1: seems extremely difficult to figure that out this August, and
Speaker 1: I think it has a lot of people very frustrated
Speaker 1: because they don't have a real clear roadmap or a
Speaker 1: compass to navigate through that. Okay, so maybe you can
Speaker 1: help us navigate this because let's say we suspend our
Speaker 1: desire to understand whether there's a cycle that's moving up
Speaker 1: or down. There's still stocks, there's still companies that people
Speaker 1: can follow and get excited about. Or is that like
Speaker 1: last century thinking? Well, very timely. I don't do not
Speaker 1: think it's last century thinking. And in fact, um, I
Speaker 1: know you and I have talked in the past about
Speaker 1: quant managers in technical analysis and how that seems to
Speaker 1: be a central stage right now. But there are certain
Speaker 1: areas that you can certainly play from a macro perspective.
Speaker 1: So let me just give you an example. So, say
Speaker 1: we're looking at Europe and okay, and we just can't
Speaker 1: figure out what's going on, which is really the common
Speaker 1: sense response. I mean, nobody really knows how this is
Speaker 1: going to play out. I was very surprised that the
Speaker 1: UK market rebounded so strongly after Brexit, and I do
Speaker 1: think that's a head fake. So let's assume that we're
Speaker 1: not going to be looking over at the UK, and
Speaker 1: let's look at the good old US of A. I
Speaker 1: think there's plenty of opportunities. Look, let's just talk a
Speaker 1: little bit about MidCap US MidCap stocks, or even US
Speaker 1: small cap stocks. It makes intuitive sense right, because these
Speaker 1: companies have most of their business concentrated in the US.
Speaker 1: They're small enough that they probably a lot of them
Speaker 1: do not have subsidiaries overseas. So if you're a strong UH,
Speaker 1: if you have a strong opinion on the US consumer,
Speaker 1: that would be a logical way to play out this
Speaker 1: absence of a cycle, if you will. So, if you're
Speaker 1: looking at those small and MidCap stocks, what are the
Speaker 1: characteristics of the companies that you want own, Well, some
Speaker 1: characteristics are first that they are small enough that they
Speaker 1: have the majority of their business based in the US,
Speaker 1: because you want to be a little bit insular right now,
Speaker 1: given that there is uncertainty overseas. UH. The other thing
Speaker 1: is they have to have strong balance sheets, the usual
Speaker 1: things that you would expect from a strong company. UH.
Speaker 1: And in sectors for instance, it is I think most
Speaker 1: people will agree with me that it is now a
Speaker 1: consumer lead, slow but steady recovery. UH. This is not
Speaker 1: This is what I would call almost a growthless recovery.
Speaker 1: But it certainly isn't a jobless recovery. We've seen that
Speaker 1: last Friday. So play into the consumer durables and consumer
Speaker 1: discretionary small and MidCap mutual funds, funds that focus on
Speaker 1: that area, or et F for example. Well, I was
Speaker 1: just looking at the Russell A two thousand index, which
Speaker 1: is composed of the smallest two thousand companies in the
Speaker 1: Russell three thousand. Right year to date, the Russell two
Speaker 1: thousand is up seven and three quarters of a percent.
Speaker 1: That's better than the S and P five which is
Speaker 1: just up six and a half percent. That's right, Yes,
Speaker 1: So does that exemplify the kinds of companies that you
Speaker 1: would be looking for. Yes, it does, and you are
Speaker 1: right in the mid caps also have done very well.
Speaker 1: Uh to say anywhere from say five to seven percent.
Speaker 1: Seven percent is probably a little bit on the high side,
Speaker 1: but you can find um strategies that would give you
Speaker 1: that return. That's exactly what I'm talking about. And it's
Speaker 1: not a bad place to be, right because the alternatives
Speaker 1: are pretty hard to convince yourself that you can have
Speaker 1: a solid thesis as to why you would be investing
Speaker 1: in the UK right now. Another area that I think
Speaker 1: is people tend to think is more risky, but from
Speaker 1: a common sense perspective, if you're looking for income and
Speaker 1: you have the stomach to um to to tolerate this
Speaker 1: kind of risk as US high yield. You know, I
Speaker 1: played in US high yield for a long time in
Speaker 1: my career, and right now is a very very attractive time.
Speaker 1: Not to load the boat up on that, of course,
Speaker 1: but have a diverse, wigh portfolio. But the default rate
Speaker 1: on US hi yield bonds, if you carve out the
Speaker 1: energy segment, it's very, very low, and I think that
Speaker 1: that also plays into our theme of the recovering, continuously
Speaker 1: recovering US consumer UH companies. Small high yield companies tend
Speaker 1: to be smaller companies, just like the small cap equity companies,
Speaker 1: and it's a nice compliment. As far as this search
Speaker 1: for yield goes, when did it become fashionable to hunt
Speaker 1: for yield in the stock market. I understand the whole
Speaker 1: relative issue of you know, treasuries and corporate bonds or
Speaker 1: just high yield as you describe, But as I think
Speaker 1: back over the course of a couple of decades, you
Speaker 1: wanted to buy a stock of a company that you
Speaker 1: thought was going to go gangbusters, that was well managed,
Speaker 1: had a market penetration of moat around it. To a
Speaker 1: certain extent, you weren't questioning really whether they were going
Speaker 1: to give you a dividend. You wanted to invest in
Speaker 1: the growth of the company. That's right, and uh, you know,
Speaker 1: some people have fallen astray from that. I couldn't agree
Speaker 1: more with your your comment there a narrative. I do
Speaker 1: think that people have kind of lost their way in
Speaker 1: the sense that income producing instruments tend to be fixed income,
Speaker 1: and if you're looking for high dividend stocks, sometimes you
Speaker 1: can be led astray because the balance sheet, etcetera. Uh,
Speaker 1: could be stressed for that company to continue paying its dividend.
Speaker 1: And some, as you know, have policies where they wanted
Speaker 1: to increase the dividend every year. And that's kind of
Speaker 1: the dividend tail wagging the dog, if you know what
Speaker 1: I mean, because you want to buy first a company
Speaker 1: of stock, it is well grounded, has excellent fundamentals, and
Speaker 1: oh yes, by the way, it pays an attractive dividend,
Speaker 1: not the opposite. Model portfolios tell us a little bit
Speaker 1: about how that whole world has changed because it used
Speaker 1: to be split, and it also used to change as
Speaker 1: the investor got older. Model portfolios. You know that also
Speaker 1: ties into this rather ironic title of modern portfolio theory.
Speaker 1: But you know that's been around since the nineteen fifties
Speaker 1: and we really haven't changed, UH the formalism by which
Speaker 1: we invest with diversification and UH an ideal outlook on
Speaker 1: the way the stocks move are related to each other.
Speaker 1: I do think that that has taken a little bit
Speaker 1: of a second UH stage now to a more formal
Speaker 1: way of looking at things where you say to yourself, well,
Speaker 1: these correlations might not be exactly historically correct going forward,
Speaker 1: and we need to tweak this a little, especially if
Speaker 1: you have a shock to the system. So right now,
Speaker 1: people still if you distill everything, most portfolios are sixty
Speaker 1: UH and it depends on what you're calling fixed income
Speaker 1: now and what you're calling equities. But one of the
Speaker 1: things that can lead people astray is if they think
Speaker 1: their portfolio is and fixed income. But if you take
Speaker 1: a peek under the hood, tim and see what kind
Speaker 1: of assets are, say in UH fixed income mutual fund,
Speaker 1: for example, you have to be very careful to realize
Speaker 1: that fixed income should be risk mitigating, we call it,
Speaker 1: and it should be high quality and not fund that
Speaker 1: has junk bonds in it, for instance, because then that
Speaker 1: takes on a different tone and it's not risk mitigating,
Speaker 1: it's actually return generating. So there is a formalism now
Speaker 1: that's kind of taking over the usual sixty UH terminology,
Speaker 1: and it's getting a little bit more subtle and irige
Speaker 1: people to really take a closer look at what their
Speaker 1: funds are invested in to get a sense of where
Speaker 1: the risk actually lies. Peter, our investors scared to take profits?
Speaker 1: M I think UH, investors are just scared of a
Speaker 1: lot of things right now, and that is probably if
Speaker 1: you ask me, you know, among the top three, if
Speaker 1: that's one of them, I'm not sure it would be.
Speaker 1: I think it's more that they're frightened to make decisions,
Speaker 1: and it might come out as uh, you know, the
Speaker 1: appearance that they're they're not taking profits. But I do
Speaker 1: think it has more to do with this unique time
Speaker 1: we're in and the indecision that a lot of people
Speaker 1: have to live through. Thanks very much. Peter Anderson is
Speaker 1: the chief investment officer also vice president of Fiduciary Trust
Speaker 1: based in Boston. You're listening to take king Stock will
Speaker 1: take you through to the clothes on Wall Street. I'm
Speaker 1: Pim Fox and this is Bloombergh