00:00So you point out that the average yield in your strategic portfolio is now 5.6% and five years
00:06ago that was 2.3%. So that is a fascinating move. But are bond investors in any way incentivized
00:13to own duration risk or credit risk at this point?
00:20Right now from a total portfolio perspective we prefer equities over credit over government
00:28bonds because of the dynamics of insurance but also because of the risks around term premium needing
00:35to reprice. Having said that there are good income opportunities within fixed income that we do
00:42want to lean into so specifically a preference for front and belly of the curve over long end of the
00:51treasury market and also preferring quality income in credit space and we also have an overweight in
00:57emerging market debt as well. And I must also say that income is not to only come from fixed income.
01:04There are option type of strategies that extract income for equities to and income within private
01:11markets such as infrastructure debt, private credits are interesting in this whole portfolio context.
01:18Yes, you mentioned that and also that investors or select investors at least are looking at
01:23derivative strategies to hedge some of this risk so they don't have to be overexposed to something like
01:28utilities, right, or what have you. You say you still prefer US equities over everything else though
01:34and I'm curious, you know, is that just the broad index and at some point won't these rising term
01:41premium impact those indices and have stocks sell off? Well, US equities right now by recent year standards
01:52are not stretched in valuations. So S&P 500 22 times forward P just above and Magnificent 7 below 20
02:01times
02:02forward P which is a recent year low. So from a valuation perspective, yes, versus the long history average,
02:09it is stretched versus recent year average since the launch of ChadGPT, it is not stretched. So valuation
02:17is not that stretched. That's point number one. Rising rates is a concern. We talked about earlier
02:23on how higher rates ought to correspond to a lower multiple. So this is a tug of war between earnings
02:29and rates. And also as hyperscalers, they run down on their cash pile, they become more rate sensitive.
02:35There is a concern. But the reality is that earnings momentum continue to be very, very positive. And application
02:43cases for AI is broadening out. Adoption is broadening out. What we have seen over summer commoditization risk
02:51from cheaper Chinese models have not impacted valuation of these companies, including private companies looking to go
03:00public. So implicitly speaks to really significant addressable market, which is the whole bed of AI. So
03:08we still stay invested in this over overall theme.
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