00:00The big question on everyone's mind is, is this inflation surge that we've seen as of late because
00:04of energy prices, whether that's something that the market is discounting and more importantly,
00:09whether it's something the market should be discounting? Well, what has happened is interesting
00:13is it's changed real yields more than it's changed inflation and break evens. Obviously,
00:20the oil increase is inflationary and we've seen that rise. But you look at the big if you look at
00:25the decomposition of interest rate increases, it's really about changing the perspective on
00:29the path for Fed policy rates. And that tends to track the real interest rates more. And so that's
00:35really what the implication in the short run has been all about. We came into the year pricing two
00:40cuts. Now we're pricing one hike. So the shift in terms of the oil prices and the impact on the
00:46war
00:46for monetary policy has really been to take away this kind of normalization trajectory that we had
00:53started the year on. But it raises a lot of questions as to why at least the equity market is
00:57sort of looking past this. The idea that you still have a record near record rally for most of the
01:03indices here on this day, despite some of those concerns lingering out there. And I know it's a
01:07narrow rally and you don't necessarily see the same sort of song and dance coming out of the bond
01:13market. And I am curious as to whether they're singing different tunes right now. Well, I would say
01:17that the bond market and especially interest rates are really much more about the earlier conversation,
01:24monetary policy, the outlook for the Fed, inflation, and obviously the changes there.
01:29The equity market and as your earlier segment just talked about in terms of concentration
01:33around earnings momentum, this is about AI momentum. And it is about the macro story
01:40that is permeating everywhere. It's a micro story in individual companies,
01:43but it is now the macro story for the macro economy as well. And it's powering
01:48a suddenly or unexpectedly strong economic growth because we're seeing it less from the consumer
01:55side, although that's getting a benefit from the wealth effect from financial conditions.
01:59But you're seeing it on the equipment and on the investment side coming through here. So AI
02:04is everywhere. And in that sense, you're seeing kind of a consistency between the bond market and the
02:09equity markets. Interesting. And I want to talk about how that all folds into that ETF that Romain
02:15mentioned that you manage. The ticker there is IALT. And of course, when you take a look at your
02:21universe, it's equity, it's fixed income, it's commodities, it's currencies, the list goes on,
02:25liquid alternatives. And you think about those different narratives, you do see actually elements
02:31that fixed income and equity are still responding altogether to that AI theme. But it feels like there's
02:38been a lot of different cross currents. There's been a lot of different catalysts in terms of what
02:42drum, the fixed income market is drumming, I don't know what metaphor, beating, walking. Anyway,
02:49it feels like, you know, for fixed income, specifically treasuries, it's been more about
02:52the macro. It's been more about AI classically. When you take a look at just equities, how do you fit
02:58this all together into a portfolio that is multi asset in nature? So IALT, IALT, we call it, is really
03:06a solution to some of these big macro trends that we're talking about. You know, in the equity markets,
03:12it's a little bit of too much of a good thing can be a bad thing. And while we're getting
03:18great index
03:20performance, those indices are becoming more and more narrow, right? So you think about things like
03:24your momentum comment, you think about the top 10 companies, you think about the incredible rally that
03:29we've seen in semis over the past couple of months. These are powering aggregate increases, but it's
03:35also creating a lot of concentration and challenging the concept of diversification. So when we think
03:41about IALT and where it fits within the portfolio, it's about providing another form of diversification.
03:47Equity markets are more concentrated. And when we talk about that macro story of inflation and the oil
03:52impact, we saw in March the loss of typical bond diversification to equities. Equities and bonds both went
03:59down on the surprise unexpected inflation. So IALT in the liquid alternatives, it's an alternative
04:05strategy and it delivers diversification because the strategies that it pursues are market neutral.
04:11So we're taking out market direction and giving portfolios a differentiated source of alpha as a
04:18source of diversification. Well, let's talk about the last three months because we are approaching that
04:22three-month anniversary of when the war actually broke out. How active have you been in managing this
04:28portfolio in shifting your allocations, especially as you do see some of those correlations break down, as you
04:34mentioned, but then maybe come back a little bit?
04:36Yeah, well, so it's really important to understand what IALT represents for the ETF universe. Most of what you see
04:43in terms of
04:44investment opportunities are plays on markets or access. Mostly what you're getting in that sense is beta access. And so
04:53when
04:53you're managing a fund that's primarily beta, your question is relevant. Like, how are you moving your exposures?
04:59What's your stock exposure? What's your bond exposure? In this strategy, it's much less about beta and much more about
05:05alpha.
05:06And what does alpha mean? It means balancing long positions with short positions at a very highly differentiated and diversified
05:13way.
05:14So when it comes to those big shifts that you're seeing typical beta managers have to navigate, we kind of
05:20take that off the
05:21table. We're not trying to navigate around the big stock versus bond. Rather, what we're trying to do is take
05:27out the
05:27directionality through long, short market neutral investing. And so what this looks like is a lot of very small positions
05:34across the
05:34equity landscape, across the macro landscape, where we're both long and short, similar securities, different, similar enough to take out
05:42the
05:42market exposure, different enough to capture the alpha. And by doing that, we didn't have to navigate big shifts over
05:49the three
05:49months on the beta side because we really don't have that beta exposure to begin with.
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