00:00What's your read on the news today? Is it all right, time to look forward?
00:04Well, firstly, thank you all for having me. This is really, really good. So at Citi Wealth,
00:09under Kate Moore as our CIO, we have had, it's four months in, it's almost felt like a year,
00:14really. Like we've absorbed multiple shocks just in the last few months. Now on a week over week
00:21basis, we've seen conflict in the Middle East. Is there a ceasefire? Is there not a ceasefire?
00:26Markets are up. Markets are down. So you have a real risk of being whipsawed. And that's frankly
00:31what we've experienced just already. Part of what we do and a big part of what we have to really
00:37be
00:37focused on is looking through the noise because it's been changing so much. So overall, we've been
00:43looking at fundamentals. We've been looking at a lot of the macroeconomic data. This has been coming
00:47out. We've been looking at earnings. Throughout the war, you've been looking through the noise?
00:50From the beginning, we entered the year constructive. So we entered the year constructive
00:55and global growth. We entered the year pro-risk. We have made adjustments since the war, actually,
01:01more focused on resilience, more focused on quality, more focused a little bit on defensiveness,
01:06but then also really looking for opportunities.
01:08Do those changes that you made during the war, do you go back to what you had before the war,
01:14if this is indeed the end?
01:15So one of the changes that we made was our regional equity exposure. We trimmed a little bit
01:21in Europe, and we added to the U.S. Now, even if...
01:25Because the concerns over energy and Europe is much more reliant on that part of the world for energy.
01:30Much more reliant on that.
01:31So that's why you made the switch.
01:32We made the switch. It showed the exposure. But even if the war was to end tomorrow, officially,
01:38we're still looking at the read-through on the companies and the earnings revisions and where that growth
01:43is coming from. And the U.S. is still delivering resilient and delivering resilient earnings and more
01:51consistent earnings. And revisions and earnings revisions are coming through more strongly in
01:55the U.S. And the fundamental and macro backdrop in the U.S. is much stronger, much more insulated
02:00from a lot more of the macroeconomic environment and the shocks. And Europe is a bit more of a
02:05challenging period.
02:06So U.S. exceptionalism is back? Or did it ever go away, really?
02:10There's a bifurcation on that when you look at the asset classes. So from an equity standpoint,
02:15yes. From a fixed income standpoint, it's a little bit more nuanced there, I will say.
02:20Good point.
02:20So the credit picture, we've trimmed in credit. We actually moved to a little bit more shorter
02:26duration for a fixed income standpoint. And this is beyond the war. Spreads are at historic
02:34tights. That's the way it was. Even when we saw the shock, you didn't necessarily see that same
02:38pickup in yield to be able to compensate for that.
02:41You said you moved away from Europe a little bit to exposure to equities here in the U.S.,
02:46partly over what you think will happen as a result of a hit to earnings. Do you think
02:50the U.S. companies see a hit to earnings as a result of higher energy prices?
02:54There are some. As you start looking at raw materials and fundamentals, so input costs,
02:59how much could U.S. companies pass through? Just today, of course, it looks like we're at a little
03:06bit of a ceasefire. The strait is opening. Airline stocks are surging.
03:09I know. Cruise lines too, yeah.
03:11And cruise lines as well. But if it was persistent for longer, you'd see some areas that could be more
03:17affected. So there'll be sectoral type of dispersions as a result of this, some win or some
03:23losers, but then also opportunities.
03:25Well, you know, one thing I want to ask you, things like energy, which we've seen just on a tear,
03:31is that a longer-term theme for you guys? Defense stocks, we're going to talk later on our broadcast
03:38about the president's budget and how much looking for defense spending in the United States. We're
03:44talking about one and a half trillion that they're asking for. And we know defense around the world
03:47seems to be a sector or countries are all beefing up their presence. And just raw materials,
03:53commodities as a whole, like all of a sudden we're talking about it a lot because everybody wants to
03:57make sure they have a healthy supply chain to it. And I wonder what the costs are or the investment
04:04play off of that. So all of that, go ahead. So what you said, the critical thing that we see
04:10persisting, regardless if, again, conflict ends tomorrow, is supply chain. So the supply chain with
04:18regards to energy, supply chain for raw materials, supply chain for infrastructure, and the need for
04:24that and fortifying that, the conflict in the Middle East really just highlighted and exposed
04:31what should have been in play when we were going through the pandemic and that we needed to be able
04:37to fortify that. Now it's brought it to the forefront. We really need to focus on that. And we think
04:42that
04:42that theme will be consistent regardless. We need to be able to fortify those supply chains. Now the supply
04:47chains for commodities, for raw materials, for energy, but then also another thing that I know we're not
04:54necessarily talking about today because the conflict in the Middle East is top of mind. AI and the supply
04:59chains around that, we don't see that as reversing. So as we're looking at opportunities, and there's a
05:05lot, as you said, of noise back and forth, which could cause some short term disruptions, we're focused
05:12on what could persist and what would play out for the more medium and longer term. Would that be 30
05:18seconds?
05:19AI. But I mean like data centers and like what's the play?
05:23All, everything associated with the critical needs of AI, robotics, supply chains, energy,
05:30infrastructure. So we're doing a lot of work around that thematically and we're talking to
05:34our clients and advising them and that's where we see opportunities going forward.
05:37we're doing a lot of work around that we're talking about.
05:37So
05:37we're talking about
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