On the storm as I'm calling it how bad is the storm do you think economically.
The storm is choppy but it hasn't really changed much in our view right.
I've been going into now the latter half of the year.
We still see volatility ahead. But you know the fundamentals are strong
in that you're seeing consumer household balance sheets are really good.
The labor market. So we're not really forecasting a
prolonged downturn or recession. That being said I think our view is the
same. It was back in 2019.
All right. We we've been telling our clients be
prepared for lower returns in the previous decade.
Be prepared for more volatility. And by the way inflation while you
haven't seen it for a long time it may show up in here.
It is in our shores. Right.
So for us it's about staying invested staying disciplined maybe more defensive
today but always diversification. Right.
It's not just about stocks and bonds now.
It's about alternatives. How do you get more outcomes and
solutions. Because there's really nowhere to hide
in a world where all correlations go to one.
Well let's talk about that exactly. As we have a Federal Reserve and other
central banks raising rates it looks like they're going to continue doing it
for a while. It necessarily takes asset values down
whether it's stocks or its bonds. And we're seeing that goodness knows in
the markets overall right now. What do you do if you're an investor in
that world. Are there some assets that are better
than other assets. Well one I would say this is where
active management I think comes back into the fold.
Right. So there's going to be winners and
losers. Clearly in today's environment we see
buying opportunities. You have to be careful and value traps
as well. But anything about inflation rising
rates. Well you look at middle market bank
loans senior loans well they have floating rate paper.
You think about getting more exposure to commodities things that have a higher
correlation to inflation as well real estate.
These are all the different mixes. That's why when I talk about
diversification it's like there's active management.
But there's also you can be more explicit and intent full to ride the
wave with you know benefit from rising rates to actually be highly correlated
to inflation in an inflationary environment in active management.
You're gonna have exceptions to any rule.
She had to be careful but as a rule is it that's hard to stay away from
equities because that discount rate is going up and that automatically just
reduces the value of the equities. I would never say it's time to stay away
from equities obviously. You know we believe in staying invested.
That being said today I'm on the margins.
We see more value in the fixed income side versus credit.
We see more value actually in high yield.
Right. You've got a high you market almost
topping 8 percent in yields. You know maybe getting more active
management they're picking the better better credit stronger credits.
So yeah on average we see a tilt more towards fixed income are tilt more
towards private markets. But I would never say completely stay
away from equities. So talk about high yield because I've
heard others suggest that sort of almost a subsidy for equities in a way.
And obviously we're getting some bigger returns now but we're getting bigger
returns for a reason as we're worried about a recession.
A downturn. You're worried about some of these
companies not being able to pay back the money.
And by the way we acknowledge it actually spreads can continue to widen
from here. That being said when you look at a risk
return perspective you look at some of the most attractive pricing we've seen
you know in quite a long time. These are still the areas where again
active management picking the right credits maybe still being more defensive
picking the stronger credits. But the yield versus the risk that we're
taking in the pricing you seeing in equities versus the high yield in the
fixed income market today we see more opportunities there.
But look this is you know we're in year three of this kind of quote unquote
interesting and challenging year. Guess what.
I think 2023 is going to be more of the same or that you're going to have
volatility. Now is it time to again stick to your
discipline you know stick to to a diversified portfolio.
But then again actively you can find these pockets where you can do well in a
diversified portfolio. You think it's time to take another look
at municipal bonds. Oh I do.
I mean munis if you think about it. Right they've had a pretty rough year in
terms of redemptions out there yet from a credit profile.
They're stronger than they were last year.
They're better from a your perspective. I think that's a market that's kind of
looking at Fed policy and where rates are going to settle.
But today munis are looking very attractive and I think you're going to
see a lot more flows going into the muni market.
But even within Muni so do you have to be have some discretion of active
management which means you're buying. Absolutely.
We've shown that over the years where there is decisions to be in Puerto Rico
not Puerto Rico not all municipalities are created like.
And again that goes back to in an environment like this again active
management is going to be a a bigger trend than it's been in the last decade.
You mentioned alternatives particularly real estate.
What are you looking at right now in real estate.
Well the markets that are extremely strong and estate for us today would be
the industrial industrial market. Things like warehousing logistics
multifamily housing is very strong retail.
Amazingly it's come back significantly. We've seen more openings and closings
here in the U.S. office market is again still a little
bit lagging there. But again there's an example of we focus
around diversifying our own real estate portfolio and you can you're able to
pivot quicker into these different themes.
Last time you were on Wall Street week we were talking with.
Agricultural real estate is that picture changed since we last talked.
Well imagine this right. It's just become so much more attractive
when we look at an asset class like farmland and there's others that we look
at it that way. We talked about an 8 percent return.
You're clipping a 4 percent coupon. It's pretty boring.
Or in this environment and by the way a hedge are highly correlated to
inflation. These are the asset classes where I
think historically people understood it academically.
But hey you know what. The S&P is going up 15 20 percent.
It's kind of a hard tradeoff today. I think these are the asset classes that
make a lot of sense whether it's the real estate sub asset classes.
I talk about whether it's timber whether it's renewable infrastructure.
Now that Alpha is real because you're smoothing out your returns and you're
having a higher yield component and one that's highly correlated to inflation.
Put all this discussion over against demographics for a minute.
We're in National Hispanic Heritage Month.
I'm very mindful of that. How does this work differently if it had
perhaps for some Hispanics. Well it works very differently in a lot
of it is about inclusion. What's amazing to me is you look at the
Hispanic population is the largest minority population in the U.S.
It is the fastest growing population in the U.S..
If you think about the GDP that it generates.
If it was a standalone country it would be the seventh largest GDP in the world.
So one tremendous buying power by this population.
Right. So I think there's a business
opportunity here. But what's amazing within that
demographic less than a third of the Hispanic population has access to
retirement services or advice. And again in times like this I think
that approach that community even more. So again I think we have to kind of
reach out from an inclusive city perspective.
But I also I often tell my peers in my firm is it's also a massive opportunity.
Again a lot of buying power highly under penetrated and advice and in retirement
products. I think it's just a huge opportunity.
So what lies behind that great disparity about access to retirement advice
investment advice. Is it the nature of the jobs you will
have. So they're working in positions that
they don't naturally come to it. Is it because we don't have the
financial institutions in their areas and their communities.
There is these two things. One is financial literacy right.
And then just kind of really kind of engaging that community and driving
higher financial literacy. The other one is just pure diversity and
inclusion. And I I remember starting up my career
looking at marketing materials that were all driven in Spanish because there was
more clients and customers that just spoke Spanish.
And I read it. I'm like well this translates really
well but my mom would be pretty insulted by this.
And you're like how does that happen at a large company with they probably put a
lot of money to an agency. Well there's no one in there.
Sure there were people in the room that can translate to Spanish but there was
no one in the room that really kind of understood that journey.
Understood that culture. And I think to me that's also what's
missing as we get more inclusion in diversity.
We're able to better access these markets.
And that's why I've always said this is a bottom line issue at the end of the
day. There's a lot of money front.
Firms are leaving at the table by not engaging that community better than it's
helps to have somebody at the table understands that community.
Exactly.