WEBVTT - Fiduciary's Andersen: Attractive Time for US High Yield (Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellot. We do have thirteen minutes to go

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<v Speaker 1>ahead of the close. The doll the SMP NAZDAC hall declining,

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<v Speaker 1>Energy producers tumbling along with the price of crude oil.

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<v Speaker 1>West Texas Intermediate down three point one percent, now dropping

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<v Speaker 1>a dollar thirty three forty one forty four on w

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<v Speaker 1>t I Gold up six sixty the ounce the thirteen

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<v Speaker 1>forty eight to gain there of five tenths of one percent.

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<v Speaker 1>The ten year up twelve thirty seconds, the yield one

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<v Speaker 1>point five percent. Equities lower across the board has P

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<v Speaker 1>five hundred index falling seven to seventy three, a dropped

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<v Speaker 1>there of four tenths of one percent down, Industrials down

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<v Speaker 1>fifty two, a drop of three tenths of one percent.

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<v Speaker 1>Nasdak is down twenty two, a drop of point five percent.

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

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<v Speaker 1>to Taking Stock with Kathleen Hayes and Pimp Box on

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<v Speaker 1>Bloomberg Radio what to do with your money. Well, one

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<v Speaker 1>thing to do is to ask Peter Anderson. He is

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<v Speaker 1>the chief investment officer and vice president of Fiduciary Trust,

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<v Speaker 1>based in Boston, home to Bloomberg twelve hundred. Peter Anderson,

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<v Speaker 1>thank you very much for being with me. You're welcome.

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<v Speaker 1>Tell us about the cycle. I keep hearing about this

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<v Speaker 1>whole thing. We're in a cycle or out of a cycle,

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<v Speaker 1>or in this market that market? Can you explain what's

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

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<v Speaker 1>That is a very simple answer, but this time around,

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<v Speaker 1>it's quite complicated. And I think it's because we've had

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<v Speaker 1>these shocks to the system, uh, namely the Brexit situation

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<v Speaker 1>and these repeated terrorist attacks in Europe. So really it's

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

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<v Speaker 1>which is where exactly are we in a cycle or

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<v Speaker 1>are we even in a cycle right now? And it

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<v Speaker 1>seems extremely difficult to figure that out this August, and

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<v Speaker 1>I think it has a lot of people very frustrated

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<v Speaker 1>because they don't have a real clear roadmap or a

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<v Speaker 1>compass to navigate through that. Okay, so maybe you can

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<v Speaker 1>help us navigate this because let's say we suspend our

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<v Speaker 1>desire to understand whether there's a cycle that's moving up

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<v Speaker 1>or down. There's still stocks, there's still companies that people

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<v Speaker 1>can follow and get excited about. Or is that like

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

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

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<v Speaker 1>know you and I have talked in the past about

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<v Speaker 1>quant managers in technical analysis and how that seems to

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<v Speaker 1>be a central stage right now. But there are certain

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<v Speaker 1>areas that you can certainly play from a macro perspective.

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<v Speaker 1>So let me just give you an example. So, say

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<v Speaker 1>we're looking at Europe and okay, and we just can't

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<v Speaker 1>figure out what's going on, which is really the common

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<v Speaker 1>sense response. I mean, nobody really knows how this is

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<v Speaker 1>going to play out. I was very surprised that the

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<v Speaker 1>UK market rebounded so strongly after Brexit, and I do

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<v Speaker 1>think that's a head fake. So let's assume that we're

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<v Speaker 1>not going to be looking over at the UK, and

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<v Speaker 1>let's look at the good old US of A. I

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

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<v Speaker 1>little bit about MidCap US MidCap stocks, or even US

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<v Speaker 1>small cap stocks. It makes intuitive sense right, because these

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<v Speaker 1>companies have most of their business concentrated in the US.

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<v Speaker 1>They're small enough that they probably a lot of them

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

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<v Speaker 1>if you have a strong opinion on the US consumer,

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<v Speaker 1>that would be a logical way to play out this

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<v Speaker 1>absence of a cycle, if you will. So, if you're

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<v Speaker 1>looking at those small and MidCap stocks, what are the

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<v Speaker 1>characteristics of the companies that you want own, Well, some

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<v Speaker 1>characteristics are first that they are small enough that they

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<v Speaker 1>have the majority of their business based in the US,

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<v Speaker 1>because you want to be a little bit insular right now,

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<v Speaker 1>given that there is uncertainty overseas. UH. The other thing

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<v Speaker 1>is they have to have strong balance sheets, the usual

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<v Speaker 1>things that you would expect from a strong company. UH.

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<v Speaker 1>And in sectors for instance, it is I think most

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<v Speaker 1>people will agree with me that it is now a

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<v Speaker 1>consumer lead, slow but steady recovery. UH. This is not

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<v Speaker 1>This is what I would call almost a growthless recovery.

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

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<v Speaker 1>last Friday. So play into the consumer durables and consumer

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<v Speaker 1>discretionary small and MidCap mutual funds, funds that focus on

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<v Speaker 1>that area, or et F for example. Well, I was

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<v Speaker 1>just looking at the Russell A two thousand index, which

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<v Speaker 1>is composed of the smallest two thousand companies in the

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<v Speaker 1>Russell three thousand. Right year to date, the Russell two

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<v Speaker 1>thousand is up seven and three quarters of a percent.

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<v Speaker 1>That's better than the S and P five which is

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

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<v Speaker 1>So does that exemplify the kinds of companies that you

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<v Speaker 1>would be looking for. Yes, it does, and you are

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<v Speaker 1>right in the mid caps also have done very well.

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<v Speaker 1>Uh to say anywhere from say five to seven percent.

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<v Speaker 1>Seven percent is probably a little bit on the high side,

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<v Speaker 1>but you can find um strategies that would give you

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

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<v Speaker 1>not a bad place to be, right because the alternatives

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<v Speaker 1>are pretty hard to convince yourself that you can have

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<v Speaker 1>a solid thesis as to why you would be investing

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<v Speaker 1>in the UK right now. Another area that I think

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<v Speaker 1>is people tend to think is more risky, but from

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<v Speaker 1>a common sense perspective, if you're looking for income and

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<v Speaker 1>you have the stomach to um to to tolerate this

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<v Speaker 1>kind of risk as US high yield. You know, I

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<v Speaker 1>played in US high yield for a long time in

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<v Speaker 1>my career, and right now is a very very attractive time.

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<v Speaker 1>Not to load the boat up on that, of course,

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<v Speaker 1>but have a diverse, wigh portfolio. But the default rate

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<v Speaker 1>on US hi yield bonds, if you carve out the

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<v Speaker 1>energy segment, it's very, very low, and I think that

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<v Speaker 1>that also plays into our theme of the recovering, continuously

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<v Speaker 1>recovering US consumer UH companies. Small high yield companies tend

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<v Speaker 1>to be smaller companies, just like the small cap equity companies,

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<v Speaker 1>and it's a nice compliment. As far as this search

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<v Speaker 1>for yield goes, when did it become fashionable to hunt

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<v Speaker 1>for yield in the stock market. I understand the whole

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<v Speaker 1>relative issue of you know, treasuries and corporate bonds or

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<v Speaker 1>just high yield as you describe, But as I think

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<v Speaker 1>back over the course of a couple of decades, you

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<v Speaker 1>wanted to buy a stock of a company that you

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<v Speaker 1>thought was going to go gangbusters, that was well managed,

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<v Speaker 1>had a market penetration of moat around it. To a

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<v Speaker 1>certain extent, you weren't questioning really whether they were going

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<v Speaker 1>to give you a dividend. You wanted to invest in

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

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<v Speaker 1>some people have fallen astray from that. I couldn't agree

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<v Speaker 1>more with your your comment there a narrative. I do

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<v Speaker 1>think that people have kind of lost their way in

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<v Speaker 1>the sense that income producing instruments tend to be fixed income,

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<v Speaker 1>and if you're looking for high dividend stocks, sometimes you

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<v Speaker 1>can be led astray because the balance sheet, etcetera. Uh,

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<v Speaker 1>could be stressed for that company to continue paying its dividend.

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<v Speaker 1>And some, as you know, have policies where they wanted

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<v Speaker 1>to increase the dividend every year. And that's kind of

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<v Speaker 1>the dividend tail wagging the dog, if you know what

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<v Speaker 1>I mean, because you want to buy first a company

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<v Speaker 1>of stock, it is well grounded, has excellent fundamentals, and

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<v Speaker 1>oh yes, by the way, it pays an attractive dividend,

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<v Speaker 1>not the opposite. Model portfolios tell us a little bit

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<v Speaker 1>about how that whole world has changed because it used

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<v Speaker 1>to be split, and it also used to change as

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<v Speaker 1>the investor got older. Model portfolios. You know that also

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<v Speaker 1>ties into this rather ironic title of modern portfolio theory.

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<v Speaker 1>But you know that's been around since the nineteen fifties

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<v Speaker 1>and we really haven't changed, UH the formalism by which

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<v Speaker 1>we invest with diversification and UH an ideal outlook on

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<v Speaker 1>the way the stocks move are related to each other.

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<v Speaker 1>I do think that that has taken a little bit

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<v Speaker 1>of a second UH stage now to a more formal

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<v Speaker 1>way of looking at things where you say to yourself, well,

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<v Speaker 1>these correlations might not be exactly historically correct going forward,

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<v Speaker 1>and we need to tweak this a little, especially if

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<v Speaker 1>you have a shock to the system. So right now,

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<v Speaker 1>people still if you distill everything, most portfolios are sixty

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<v Speaker 1>UH and it depends on what you're calling fixed income

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<v Speaker 1>now and what you're calling equities. But one of the

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<v Speaker 1>things that can lead people astray is if they think

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<v Speaker 1>their portfolio is and fixed income. But if you take

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<v Speaker 1>a peek under the hood, tim and see what kind

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<v Speaker 1>of assets are, say in UH fixed income mutual fund,

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<v Speaker 1>for example, you have to be very careful to realize

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<v Speaker 1>that fixed income should be risk mitigating, we call it,

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<v Speaker 1>and it should be high quality and not fund that

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<v Speaker 1>has junk bonds in it, for instance, because then that

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<v Speaker 1>takes on a different tone and it's not risk mitigating,

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<v Speaker 1>it's actually return generating. So there is a formalism now

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<v Speaker 1>that's kind of taking over the usual sixty UH terminology,

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<v Speaker 1>and it's getting a little bit more subtle and irige

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<v Speaker 1>people to really take a closer look at what their

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<v Speaker 1>funds are invested in to get a sense of where

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

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<v Speaker 1>M I think UH, investors are just scared of a

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<v Speaker 1>lot of things right now, and that is probably if

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<v Speaker 1>you ask me, you know, among the top three, if

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

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

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<v Speaker 1>and it might come out as uh, you know, the

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<v Speaker 1>appearance that they're they're not taking profits. But I do

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<v Speaker 1>think it has more to do with this unique time

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<v Speaker 1>we're in and the indecision that a lot of people

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<v Speaker 1>have to live through. Thanks very much. Peter Anderson is

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<v Speaker 1>the chief investment officer also vice president of Fiduciary Trust

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<v Speaker 1>based in Boston. You're listening to take king Stock will

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<v Speaker 1>take you through to the clothes on Wall Street. I'm

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<v Speaker 1>Pim Fox and this is Bloombergh