Gives a sense of where the options and let me ask you specifically, do you
think there are options in China, given we're about to go to the NBC route to
see President Xi react? I do.
I think there are opportunities and options in China specifically because
there is an event and that's what options love the most.
They love to play an event because anything that could potentially increase
your volatility can increase the value of your options.
So for folks who have been looking at the China re-opening story, that may be
a way to get back into a cha effect site.
E.M. Calls, which we've seen before in the
beginning of the year and maybe reloaded now.
So do we. Where do you see everything?
You like bonds. We think if the Fed takes aggressive
action, that you can invest in long term bonds.
We also still think there's opportunity in China amongst those companies that
benefited from the economic miracle that happened in China.
The tech stocks there. But we'll be keeping an eye on seeing if
Chinese capitalism is something that we recognize as Western investors.
But there are parts in the U.S. equity market where we see some
opportunities like these interest rates keep going up.
The jobs market keeps holding up. That's a good combination for banks and
bank profitability. But the rest of the equity markets need
to be careful. But what about that?
You talk to your clients a fair amount. What are they interested in right now?
You know, the one thing that I think is really important to remember is if you
look back five years, 10 years, the cost of tales.
So essentially a three standard deviation draw down on the market is
actually trading kind of in its lowest percentile, which I think is very
interesting because there's a lot of uncertainty around terminal rates.
We're kind of in a completely new rate regime.
And that volatility, while it's picking up, hasn't really reflected that to the
extreme that I think we may go to. Are people getting paid for taking a
risk? So you know what?
Toll is quite high. So, of course, if you're selling
volatility, you're collecting that premium.
But I think it's dangerous because essentially what's happening right now
is you're actually realizing more than the options are pricing in for the
future. What other sectors?
David mean, you mentioned banks. What about big tech, for example, that
had a hard year last year, where as of this year, it's off to a terrific start.
The proper tech, the proper tech titans, the ones that are in the technology
sector have held up really well. And I think part of that is that people
are seeking the stability of those businesses, the strength and resilience
of those businesses. And don't forget, those are strong
balance sheets with a lot of cash earning more interest income than they
did in years past. But we also try to look at the market as
to where is their upside that's worth the risk.
I see that in healthcare there's more risk, but good upside.
And banks and tech, we're underweight. Now we've moved more significantly
underweight on it, which took you more things like
communications, where we see more of a price discount and more upside worth the
risk there. I mean, what do you do with health care?
David mentioned it. Yeah, it's interesting.
We just went through an exercise essentially through our universe of
covered companies within the RTS universe and we essentially looked at
their sharp ratios. We just said given that the risk free
rate has gone so much higher, you know, where's your excess return?
Attractive level volatility and health care is actually one of the sectors that
is ranking quite well. It's interesting.
Health, healthcare, you think is a strong one.
Yes, it had a tough start, as I think there investors running into the
cyclicals or running to the defensives, or if you're leaving the asset equity
asset class to go into bonds, which is an alternative, powerful alternative at
this stage. Health care got left behind, but I think
that's the sector for the for the decade.
What we're talking about equities, obviously, we're talking in part about
earnings expectations. Where are we in earnings?
Are we bottomed out? No.
They keep drifting down almost in the painful, steady, gradual drip of
downward earnings estimates for especially the first half of this year.
I think at the best, S&P earnings will be flat at about two hundred and twenty
two dollars, which is what earnings were in last year.
So, Amy, as I understand Sharpe ratio, which is limited, it's a combination of
volatility and return. What you can really get when you look at
that, where do you see the highest volatility, highest return?
Yeah. So so essentially what the Sharpe ratio
is saying to you is, you know, for the levels hada level of risk that I'm
taking, where are you getting your most returns?
So so as I mentioned, healthcare was one of the options we looked at, which looks
attractive. And interestingly, the other is large
cap technology. And the reason is actually not related
to the excess return. It's actually because the volatility has
come in on a 12 month basis. And those stocks.