00:00Morgan private bank head of alternative investment strategy. Sitara it's been a lot of twists and turns obviously here. But
00:08I guess volatility is the name of the game since this war started. How are you advising clients to deal
00:14with this. Yeah. Look I think that right now what we and all investors are grappling with is what we
00:21know and what we don't and what the fundamentals are saying versus what volatility may be more sentiment driven or
00:26short term versus long term. So what we tell clients
00:29is stay disciplined stay diversified and ensure the risk that you're taking within your portfolio is intentional. Like we came.
00:38I think history is always a really good guide. We came into these markets right now with one of the
00:44strongest bull market rallies that we've seen in the S&P 500 in years. So when we think about what
00:50to do moving forward there's two things. The biggest thing for us is leaning in to opportunities where the fundamentals
00:58remain intact and where we have
00:59visibility from a cash flow perspective regardless of what's taking place right now whether it's geopolitical disruption or even what's
01:05happening with an artificial intelligence disruption which is kind of faded from the headlines but it's still a looming thing
01:10that's out there that we have to pay attention to. But then two probably more importantly is where investors and
01:16portfolios have kind of been offsides which is shoring up the defensive part of your portfolio. And for the longest
01:21time really over the past few years defense meant bonds and bonds alone.
01:26And now that calculus is changing. So when we think about opportunities moving forward alternatives for us is no longer
01:33optional or a nice to have it's a need to have and specifically within that leaning into inflation resilient income
01:41especially given the inflation volatility that we've seen over the past few weeks core real assets think real estate infrastructure
01:46and less correlated return streams to this idea of volatility relative value and macro hedge funds.
01:54It's something that we've been talking to our clients a lot about honestly over the past year or so but
01:58they're proving themselves out so far this year and that's where we'd be leaning in a lot of macro hedge
02:04funds.
02:04I wonder if they are how they are equipped for this moment because a lot of digital link has been
02:09spilled about this idea that they're all just degrossing and they're getting really low to the ground right now.
02:13How do you sort through for your clients which of those offer actual diversification in this moment. Look I think
02:19that's the right question. One it's you know hedge funds is an industry not an asset class meaning that there's
02:25significant dispersion underneath the hood not just within relative value and macro but the entire asset class as a whole.
02:32So what does that mean what do we look for. One whether or not the underlying returns are actually less
02:38correlated. So we always stress test versus other periods of times of market volatility to see whether or not they've
02:44actually been defensive.
02:45And then to what investment approach that they're actually taking and even within the macro landscape we're leaning more into
02:53discretionary macro where there's more of an active management approach approach versus systematic and CTAs and trend following because there's
03:01a little bit of confusion right now as we all can probably be aware and understand the trends that have
03:06been taking place in the correlations that used to be there historically over the past 12 months.
03:11It's just not playing out right now. What's your view on gold because I thought it was fascinating to see
03:15it sell off so sharply. The reversal itself is interesting but regardless of the headlines like don't you want to
03:24own gold or silver here.
03:25You do. Yes. So what's happening over the past few weeks we would say is a couple of things. One
03:31I think there's a technical aspect of it. We've seen a lot of flows go into into gold and in
03:36general we're seeing investors reposition taking
03:40profits off of the winners into some of the areas that have not been doing as well. So some of
03:45it is profit taking some of it is short term but we think dislocation and gold moving a little bit
03:52more on rates in the dollar versus long term secular demand growth that we see coming into that space.
03:57But the crux of it all is what we're seeing right now. We think it's more short term volatility. We
04:03have still been telling clients to lean into gold as a diversifier.
04:07But it is really important to know that a lot of folks have been talking about gold as a pure
04:13geopolitical hedge no matter what it is that's taking place in the environment.
04:17It's not just a pure geopolitical hedge but it can still serve as a diversifier in portfolios over the long
04:21run.
04:22But if we are starting to see that this volatility and oil prices moving higher you talked about how it's
04:27important to just remain focused on the fundamentals.
04:30I wonder what fundamentals have changed. We're talking with Peter Scheer in the last hour who basically said he likes
04:35bonds because there now is this concern about recession.
04:39There is this concern of what higher oil prices are going to do. We came in the start of the
04:42year saying it's going to be a great year for deals.
04:45You have all the stimulus coming from the fiscal government. Does the picture change at all if we are starting
04:50to contend with higher oil prices going forward.
04:52Look I think the number one question is what is the duration of the oil impact because if it's a
04:59shorter term impact to to the markets we still think think that the economy is starting off on a solid
05:05enough footing that we won't enter a recessionary environment.
05:09So we still are constructive on risk assets here. What has changed is it's going to sound so so self
05:17serving but the idea of active management and like underlying fundamentals because everyone is talking about how markets haven't moved
05:24that much.
05:25But there's been significant dispersion under the hood even within the S&P 500 S&P 500 versus Europe versus
05:31EM. So we're thinking about the opportunity set moving forward.
05:34The need to be active right now has probably never been more important because the confluence of factors that are
05:40impacting the markets right now has never been more confusing in terms of putting all those puzzle pieces together.
05:47So for us bottoms up stock selection really matters from a fundamental perspective earnings growth and visibility of those cash
05:54flows really matter. Strong balance sheets really matter primarily because if we do enter a downturn which is not our
06:01base case.
06:02But if we do enter a downturn you want to ensure that cash flow durability is going to be able
06:07to withstand market cycles versus the short term disruption that we may see.
06:11So we think that present, we have a lot of time that we have a lot of time.
06:11Thank you for joining us.
06:11So thank you.
06:11So thank you.
06:11.
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