BROADCASTS.com

Published: April 27, 2023, 1:09 p.m.

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The sudden failure of Silicon Valley Bank in March jostled investors\' confidence in the market. But, the overall performance of various tech stocks in Q1, such as Tesla, Meta, Alphabet, Amazon, Salesforce, AMD, and Broadcom, served to revive optimism for the stock market\'s near future. Join Casey Dylan, CIMA\\xae, Consultant, and our host Tom Romano, Head of Strategic Relationships and Product Development, in this first half of of our Q1 recap, as we discuss both market, and factor performance, in the first few months of 2023.

If you have any questions or would like more information, reach out to us at\\xa0https://symmetrypartners.com/contact-us/

You can also find us on Facebook, YouTube, Twitter, and LinkedIn. As always, we remain invested in your goals.

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Transcript:

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Good afternoon,

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\\xa0everyone. This is Tom Romano head of strategic relationships at

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\\xa0symmetry partners and joined with me. Today is Casey Dillon

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\\xa0a long time friend of symmetry and our

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\\xa0internal communication strategist. Thank you Casey for

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\\xa0joining us today. Tom is excellent to be here with you live in

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\\xa0person. Yeah, fantastic. Fantastic So today, we\'re gonna go

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\\xa0through our q1 2023 quarter in

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\\xa0perspective. It\'s been quite the

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\\xa0interesting quarter to say the least we\'ve had

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\\xa0some volatile markets. Although

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\\xa0I\'ll be at some positive results. We\'ve seen things

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\\xa0like banking collapses in the headlines. There\'s still of

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\\xa0course the concerns about inflation. And so

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\\xa0Casey thank you for joining us to give us some perspective

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\\xa0of what\'s going on in the market. So in a

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\\xa0nutshell what happened in q1 of 2023, yeah

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\\xa0in a nutshell, I\'ll be brief if I

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\\xa0can so if you recall

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The fourth quarter of last year, right? The

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\\xa0last year was a brutal year across a number of metrics, but

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\\xa0the fourth quarter we started to see some respite

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\\xa0from that and the first two months of the fourth quarter,

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\\xa0right? We saw markets actually rebound pretty

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\\xa0significantly in October and November and much of

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\\xa0that was driven by the sense across

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\\xa0the markets Market participants that maybe

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\\xa0the Fed was done raising interest rates, maybe

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\\xa0that the inflationary pressures that

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\\xa0we had seen in the spring of 2022. We\'re

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\\xa0starting to Abate and the market is

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\\xa0a forward-looking forward pricing mechanism. And so

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In the fourth quarter, that\'s what it did. It looked forward.

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\\xa0It started to anticipate a period when the the

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\\xa0Fed was not raising interest rates and inflation would be tamed.

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\\xa0And of course what happened in December was

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\\xa0a bit of a comeuppance for

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\\xa0those Market participants who got a little bit ahead of

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\\xa0the fed and we saw a pullback in

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\\xa0December.

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And markets responding to the fact that the FED said well, no,

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\\xa0we\'re pretty set on continuing to raise rates.

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\\xa0And and we think we\'re gonna keep them higher longer.

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As we rolled into the first quarter of this year. We saw

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\\xa0a replay of a lot of those Dynamics coming into

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\\xa0January Market participants

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\\xa0again. It\'s sort of

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Determined that this was the year the Fed was

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\\xa0going to stop rate and Market participants started to

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\\xa0look forward and price as if the not only

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\\xa0with the FED stop racing rates, but they would start to pull rates

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\\xa0back by the end of the year given where people

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\\xa0reading the tea leaves assumed the

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\\xa0economy would be by mid-year.

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And so you saw a really robust Rebound in

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\\xa0January for a lot of the names that have been

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\\xa0really beat up in 2022 specifically the

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\\xa0large cab growth and Tech names and

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\\xa0so there was something of a reversion to

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\\xa0the mean in terms of those names really

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\\xa0leading the charge in January. Those are

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\\xa0the names that were most beaten up in 2022. Those are the

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\\xa0names that snap back fastest in the

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\\xa0first quarter. And so January where we

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\\xa0saw for instance the S&P down 20% for

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\\xa02022. We saw

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\\xa0a Resurgence just in the month of January the SP was up

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\\xa0like eight percent and the NASDAQ double that right just on the

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\\xa0strength of kind of those large cap Tech names and of course what happened

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\\xa0as we rolled into February the news that

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\\xa0came out on the sort of

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\\xa0economic underpinnings specifically job data for

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\\xa0January really surprised Market

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\\xa0participants because

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It was so robust. So strong it exceeded expectations. It

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\\xa0served as a really Stark reminder that we\'re

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\\xa0not out of the woods yet.

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And and it sent shock waves

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\\xa0across the market in the sense that everyone who

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\\xa0had said. Okay. Well now the FED is gonna have to wind this down all

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\\xa0the sudden the the realized maybe not

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\\xa0right not only is the fed maybe not gonna wind this

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\\xa0down because the economy is hotter than we thought it was but we potentially

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\\xa0risk sort of a flare-up of inflation

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\\xa0just as it was coming down and the FED may have

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\\xa0to get more aggressive in in tackling that and

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\\xa0so February saw sort of a revisitation of

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\\xa0those expectations that market participants

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\\xa0had and as we rolled into March then all

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\\xa0eyes were on the Senate

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\\xa0hearings with the the chairman

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\\xa0of the fed and based on his

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\\xa0comments Futures skyrocketed for an expectation

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\\xa0of a 50 basis point raise at

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\\xa0the end of March the Futures went up to like a 70% chance that

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\\xa0the Fed was gonna raise 50 basis points, and

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\\xa0of course what happened then you know days later.

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Started imploding right and that sort

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\\xa0of Royal financial markets and

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\\xa0the FED did end up raising rates. But

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\\xa0only by 25 basis points after they had worked to

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\\xa0sort of rescue. I don\'t know rescues the

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\\xa0right term but step in aggressively and calm markets

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\\xa0particularly folks who

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\\xa0had cash on deposited Banks to keep sort

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\\xa0of a contagion effect and a larger Bank Run taking place.

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\\xa0Right? So we end the first quarter with a really

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\\xa0sort of wild trip of markets shooting

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\\xa0up coming back down a lot of volatility a lot

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\\xa0of fear injected in markets in March with the

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\\xa0headlines and yet at the end of the quarter you finished up

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\\xa0pretty again pretty solidly across

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\\xa0us markets International Development markets emerging

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\\xa0markets in fixed income inequities, right?

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\\xa0We it was a it was a pretty decent first

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\\xa0quarter from a return perspective despite all of that. Yeah sure.

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\\xa0It was like it\'s a very interesting quarter.

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And I\'d like the way you put it on the things the kind of the Resurgence of

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\\xa0these tech companies that didn\'t have a great year last year, but you\'re

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\\xa0seeing asset classes such as the energy

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\\xa0sector right who had a great year last year is to

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\\xa0use your your term of aversion to the mean right? They had

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\\xa0a tough time in the first quarter, right? Yeah. Yeah and and frankly

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\\xa0prices have been coming down in oil and gas pretty

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\\xa0consistently.

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Since last fall so we did see a continuation of that. I

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\\xa0do think and likely there\'s

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\\xa0more conversation to be had

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\\xa0around this but the concern that I have or

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\\xa0or would have based on

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\\xa0how markets performed in the first quarter is that

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\\xa0it was so dominated by a

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\\xa0handful of names, right? We we\'ve seen

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\\xa0this Dynamic before where we\'re

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\\xa0sort of the top largest growth Tech

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\\xa0names sort of dominate performance

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\\xa0of the market and we and we saw that again in

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\\xa0the first quarter right? You think about Facebook alphabet

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\\xa0Apple Google Netflix, right?

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\\xa0All of those firms were

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\\xa0really been challenged in 2022 had a

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\\xa0nice Resurgence across the first quarter, but when

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\\xa0you dig deeper into the performance particularly here domestically what

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\\xa0you see is they were the lion

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Care of that return that we saw the market it was once again

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\\xa0the fact that these top handful of names represent twenty

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\\xa0plus percent of the overall

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\\xa0market, right? So think S&P 500 has got ostensibly 500

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\\xa0names in it the top 10 names

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\\xa0accounted for all at

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\\xa0least 80% of that return right the

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\\xa0top top five names half of it, right? So so

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\\xa0again, you\'re getting a lot of that return concentrated in

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\\xa0these names.

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Because they\'re so large disproportionately to

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\\xa0the other names in those indices

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\\xa0and it lit. It\'s the rising tide lifting

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\\xa0all boats, but the concern that you

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\\xa0have with that and we saw that in 2022 when the

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\\xa0air goes out of the balloon to a degree. Well that

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\\xa0can be a double-edged sword. Right if those names start

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\\xa0to pull back in valuations, you

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\\xa0could see that turn around and become an anchor pulling

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\\xa0markets down, right and that can happen very quickly just based

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\\xa0on the fact that it\'s so concentrated in a

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\\xa0handful of names that are all sort of in the

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\\xa0same kind of economic Waters right in terms of kind of

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\\xa0this large growth Tech, you know richly valued.

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\\xa0Yeah. It sounds a lot like me, you know, I\'ve

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\\xa0had these conversations over the years even going back before 2022

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\\xa0coming out of the pandemic

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\\xa0and those tech stocks. They were the story they were leading

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\\xa0the charge and what I\'m hearing you say, is that sort

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\\xa0of the casing q1, but that double-ed

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word is just going back 2022 would

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\\xa0be an example of if you\'re not well Diversified

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\\xa0that could be a painful experience it can and I\'m

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\\xa0I\'m reminded of

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The experience that we had coming out of the tech bubble,

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\\xa0right? So if you think about if in fact

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\\xa0the run-up invaluations in this sort of handful of

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\\xa0techniques is analogous to what we saw in

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\\xa0the late 90s.

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They were so richly valued that when the

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\\xa0tech Bubble Burst it took a decade the Lost

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\\xa0decade right of just you know, subpar returns

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\\xa0for the valuations to get

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\\xa0back to a place where markets could then start

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\\xa0to take off again. And so the concern that

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\\xa0that one might have is valuations are

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\\xa0still Rich, right? Even after 2022 on

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\\xa0a Price to Book basis very

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\\xa0expensive on a price to

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\\xa0forward earnings basis. It\'s expensive and

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\\xa0so it\'s not

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\\xa0as if these are our Bargains to

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\\xa0be had in a Marketplace that that\'s discounting

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\\xa0them. They are still incredibly expensive. And so

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\\xa0anything that goes wrong right if the

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\\xa0if in fact the economy runs into turbulence at

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\\xa0some point or the expectations for growth, I mean,

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\\xa0you know, we\'re in earning season and Netflix had sort

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\\xa0of positive numbers, but

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They sort of gave lackluster guidance for next quarters

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\\xa0growth. Right? So all you need is for for Market

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\\xa0participants to to a once again sour on the

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\\xa0prospects of these names and you\'re right back to it\'s

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\\xa0too too rich like I\'m paying

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\\xa0too much today for for earnings in

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\\xa0the future that may or may not materialize right? And so

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\\xa0I\'ve got to pay less and so the price has to come down. Yeah, right. And

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\\xa0again, I\'m not suggesting that we have a lost decade

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\\xa0in front of us, but this potentially room to run

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\\xa0if markets turn and I think that\'s the the concern that

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\\xa0I would share with investors. That\'s what I

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\\xa0prepare them for. Hey, we\'ll take what we get. Right? We\'re happy

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\\xa0to get those returns, but

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This could still be valve this this, you know, we\'re in the third inning potentially

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\\xa0look or fourth ending. There\'s a lot of game left and we\'re

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\\xa0just gonna buckle up and be ready for it. Yeah, and what is

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\\xa0interesting what this quarter and you detect upon that I\'d love to get your thoughts developed International

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\\xa0to having a very good quarter.

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\\xa0I mean when we saw these large Tech

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\\xa0names and in the past when they had their run prior to 2022, it

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\\xa0was a pretty much us dominated run up.

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Give us some commentary on what we\'re saying in the developed International

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\\xa0Space. Yeah, I think some of

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\\xa0it is the Resurgence of the

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strength of the sort

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\\xa0of the the companies that are there that have

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\\xa0sort of suffered through a decade of kind of sub-par performance

231
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\\xa0and they were in a much stronger financial

232
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\\xa0position. Then they

233
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\\xa0were for instance going into the global financial crisis, right and they

234
00:11:50.300 --> 00:11:53.700
\\xa0weren\'t super expensive. Right?

235
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\\xa0So from a perspective of they were kind of relatively cheaply

236
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\\xa0priced compared to

237
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\\xa0US stocks. And so if we look at just the performance

238
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\\xa0the they don\'t have to have that much right

239
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\\xa0surprise upside.

240
00:12:10.300 --> 00:12:14.300
To have nice performance right across the board or

241
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\\xa0relatively decent performs.

242
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So I think people were pleasantly surprised by

243
00:12:19.800 --> 00:12:23.500
\\xa0some of the financial resilience in

244
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\\xa0Europe particularly coming out of

245
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\\xa0the effects of the the Russian Ukraine

246
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\\xa0conflict and looking at the impact that

247
00:12:31.600 --> 00:12:34.500
\\xa0for instance the the price of gas price

248
00:12:34.500 --> 00:12:37.100
\\xa0of oil I had in places like Germany and the fact

249
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\\xa0that they sort of got through that not unscathed but

250
00:12:40.300 --> 00:12:43.700
\\xa0you know, the the avoided the apocalypse

251
00:12:43.700 --> 00:12:47.000
\\xa0right the gasoline apocalypse over the course of the

252
00:12:46.600 --> 00:12:49.300
\\xa0winter right that it was relatively mild. So

253
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\\xa0I think that from that perspective markets sort

254
00:12:52.600 --> 00:12:55.600
\\xa0of said rewarded International developed

255
00:12:55.600 --> 00:12:58.900
\\xa0businesses with valuations that

256
00:12:58.900 --> 00:13:01.400
\\xa0seemed a little more reasonable than the

257
00:13:01.400 --> 00:13:04.000
\\xa0valuations in the US. Yeah, that makes a lot of sense and thank you

258
00:13:04.200 --> 00:13:07.900
\\xa0for that. Yeah, and and I would call I would suggest that

259
00:13:07.900 --> 00:13:10.200
\\xa0Emerging Markets are in a similar but

260
00:13:10.200 --> 00:13:14.300
\\xa0different position right again a little more financially

261
00:13:13.300 --> 00:13:16.300
\\xa0robust in terms of the underpinnings.

262
00:13:17.300 --> 00:13:20.100
Of those companies relative to where we\'ve seen Cycles where people

263
00:13:20.100 --> 00:13:23.100
\\xa0are risk off and and sort of beating down

264
00:13:23.100 --> 00:13:26.200
\\xa0in price. I think anytime you have a lot of volatility people are

265
00:13:26.200 --> 00:13:29.700
\\xa0hesitant to take a bunch of risk. So Emerging Markets

266
00:13:29.700 --> 00:13:32.800
\\xa0could be a little more volatile as you would expect but

267
00:13:32.800 --> 00:13:35.100
\\xa0I think from evaluation standpoint there\'s room to run

268
00:13:35.100 --> 00:13:38.600
\\xa0as well over time relative to the US let\'s let\'s

269
00:13:38.600 --> 00:13:41.300
\\xa0look at the other side of the coin and talk a

270
00:13:41.300 --> 00:13:44.500
\\xa0little bit about bonds because that\'s been quite the Hot Topic lately. We\'ve been

271
00:13:44.500 --> 00:13:47.900
\\xa0getting a lot of inquiries from advisors and investors alike

272
00:13:47.900 --> 00:13:50.700
\\xa0about the fixed income market. So give us

273
00:13:50.700 --> 00:13:52.300
\\xa0a little perspective of what\'s happening in.

274
00:13:53.500 --> 00:13:57.300
Global fixed income right? Well, if you recall 2022

275
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\\xa0was a historically bad year

276
00:13:59.500 --> 00:14:02.900
\\xa0for Boston certainly, right as as fed as

277
00:14:02.900 --> 00:14:05.500
\\xa0the FED raised interest rates are not just the FED but central banks

278
00:14:05.500 --> 00:14:08.500
\\xa0essentially around the world except for the Asian

279
00:14:08.500 --> 00:14:11.100
\\xa0China and Japan those central banks not quite

280
00:14:11.100 --> 00:14:14.600
\\xa0as much but globally central banks at the

281
00:14:14.600 --> 00:14:17.600
\\xa0impact of course of challenging the yield right

282
00:14:17.600 --> 00:14:20.900
\\xa0and as we know yield in price or are sort of inverse Lee

283
00:14:20.900 --> 00:14:23.300
\\xa0related and so as yield was pushed up by raising

284
00:14:23.300 --> 00:14:26.900
\\xa0rates price came down and and it had a pretty dramatic

285
00:14:26.900 --> 00:14:29.900
\\xa0impact across the yield curve

286
00:14:29.900 --> 00:14:32.400
\\xa0and that was globally as well the United

287
00:14:32.400 --> 00:14:32.400
\\xa0States.

288
00:14:33.200 --> 00:14:36.400
2022 pretty much a very bad. No good year for

289
00:14:36.400 --> 00:14:39.400
\\xa0Bond holders rolling into the first quarter

290
00:14:39.400 --> 00:14:42.400
\\xa0a lot of those same sort of macro dynamics that

291
00:14:42.400 --> 00:14:45.400
\\xa0we talked about with equities was

292
00:14:45.400 --> 00:14:48.500
\\xa0true to fix income as well the expectation the bond

293
00:14:48.500 --> 00:14:51.800
\\xa0market pricing that they think the FED will essentially

294
00:14:51.800 --> 00:14:54.600
\\xa0be done at some point this year raising rates

295
00:14:54.600 --> 00:14:58.100
\\xa0had the impact of markets rallying

296
00:14:57.100 --> 00:15:01.300
\\xa0to a degree and then of course when there

297
00:15:00.300 --> 00:15:04.100
\\xa0was volatility injected because of banking issues

298
00:15:03.100 --> 00:15:07.300
\\xa0you continued to see a pullback

299
00:15:06.300 --> 00:15:09.700
\\xa0on the the yield

300
00:15:09.700 --> 00:15:13.000
\\xa0right? So at at some points we saw for instance

301
00:15:12.200 --> 00:15:15.400
\\xa0the the 10 year get up over four and we

302
00:15:15.400 --> 00:15:18.500
\\xa0saw a pullback as yields come down then of course prices go

303
00:15:18.500 --> 00:15:21.400
\\xa0up. And so you saw a nice robust kind of response over

304
00:15:21.400 --> 00:15:24.500
\\xa0the first quarter of prices coming up for bonds that had

305
00:15:24.500 --> 00:15:27.500
\\xa0the impact and that was true for treasuries and corporates

306
00:15:27.500 --> 00:15:30.400
\\xa0and international bonds, right? So across the

307
00:15:30.400 --> 00:15:32.900
\\xa0Spectrum you had sort of a nice performance.

308
00:15:33.300 --> 00:15:37.100
For bonds for the first quarter. And again, it\'s unusual

309
00:15:36.100 --> 00:15:39.400
\\xa0for fixed income and Equity to look and

310
00:15:39.400 --> 00:15:42.100
\\xa0behave very similarly. That was one of

311
00:15:42.100 --> 00:15:45.700
\\xa0the things that was so unusual about 2022, but there\'s still

312
00:15:45.700 --> 00:15:48.500
\\xa0sort of Behaving the same way based on the same Outlook

313
00:15:48.500 --> 00:15:51.500
\\xa0that at some point interest rates stop going up

314
00:15:51.500 --> 00:15:54.500
\\xa0or stop getting ratcheted up by central banks.

315
00:15:54.500 --> 00:15:57.100
\\xa0And so that Dynamic is is kind of

316
00:15:57.100 --> 00:16:00.700
\\xa0floating all the boats to this degree and so

317
00:16:00.700 --> 00:16:03.500
\\xa0fixed income has had a robust first quarter.

318
00:16:04.400 --> 00:16:07.700
Remains to be seen how the rest of the year plays

319
00:16:07.700 --> 00:16:10.400
\\xa0out and and you know, frankly we

320
00:16:10.400 --> 00:16:13.200
\\xa0continued to see the a deep

321
00:16:13.200 --> 00:16:16.200
\\xa0inversion in the yield curve, especially at the

322
00:16:16.200 --> 00:16:19.100
\\xa0very shortest end of the O curve relative to the

323
00:16:19.100 --> 00:16:22.700
\\xa010 year. And as you know that has historically sort

324
00:16:22.700 --> 00:16:25.300
\\xa0of been a warning sign of

325
00:16:25.300 --> 00:16:28.600
\\xa0potential economic stress recessions right

326
00:16:28.600 --> 00:16:32.100
\\xa0as an indicator and it has remained it

327
00:16:31.100 --> 00:16:34.100
\\xa0inverted for some time now

328
00:16:34.100 --> 00:16:37.900
\\xa0and that inversion has only gotten deeper on the shortest end. So,

329
00:16:37.900 --> 00:16:40.200
\\xa0you know again you would want to continue

330
00:16:40.200 --> 00:16:43.700
\\xa0to watch that and be cognizant of it. I think the takeaway

331
00:16:43.700 --> 00:16:46.500
\\xa0from this is much like with equities. It\'s best

332
00:16:46.500 --> 00:16:49.200
\\xa0to be sort of broad based Diversified. You never

333
00:16:49.200 --> 00:16:53.000
\\xa0know what part of the Yoke curve is gonna move relative to this and

334
00:16:52.900 --> 00:16:56.800
\\xa0it\'s good to have exposure

335
00:16:55.800 --> 00:16:58.600
\\xa0not just us treasuries, but

336
00:16:58.600 --> 00:17:01.200
\\xa0the corporates and not just us bonds, but the international

337
00:17:01.200 --> 00:17:04.300
\\xa0bonds that there are benefits built into the pricing of all

338
00:17:04.900 --> 00:17:08.400
And as we start to see a decoupling of Central

339
00:17:07.400 --> 00:17:10.400
\\xa0Bank activity, yes, they\'ve been

340
00:17:10.400 --> 00:17:13.700
\\xa0acting pretty much in concert, but at some point central banks

341
00:17:13.700 --> 00:17:16.800
\\xa0start to peel off right and they get back to focusing on

342
00:17:16.800 --> 00:17:19.100
\\xa0the handling kind of

343
00:17:19.100 --> 00:17:22.300
\\xa0their domestic concerns. And as they do that it will

344
00:17:22.300 --> 00:17:25.600
\\xa0have varying diversification impacts for bonds

345
00:17:25.600 --> 00:17:28.500
\\xa0around the globe the way stocks and bonds behaves

346
00:17:28.500 --> 00:17:31.300
\\xa0in 2022 with similar and then into this quarter. We\'re

347
00:17:31.300 --> 00:17:34.500
\\xa0seeing some decent returns globally across those two

348
00:17:34.500 --> 00:17:37.800
\\xa0macro asset classes. We\'re seeing

349
00:17:37.800 --> 00:17:40.300
\\xa0some of a mixed bag that last Factor investors

350
00:17:40.300 --> 00:17:43.400
\\xa0from a factor perspective, right? But let\'s

351
00:17:43.400 --> 00:17:46.200
\\xa0shift a little bit and talk about factors for a moment.

352
00:17:46.200 --> 00:17:49.300
\\xa0We\'re a factor investors are listeners The Avengers that

353
00:17:49.300 --> 00:17:52.300
\\xa0we work with our have clients invested in

354
00:17:52.300 --> 00:17:55.500
\\xa0these Factor portfolios. What did we see from a factor standpoint

355
00:17:55.500 --> 00:17:58.800
\\xa0in the first quarter of 2023 if

356
00:17:58.800 --> 00:18:01.400
\\xa0you think about the factor of value, it\'s just the the

357
00:18:01.400 --> 00:18:04.300
\\xa0cheaper stocks outperform the more expensive stocks over time and as

358
00:18:04.300 --> 00:18:04.500
\\xa0you know,

359
00:18:04.800 --> 00:18:07.800
We had a long run where that wasn\'t true. Right we\'re

360
00:18:07.800 --> 00:18:10.300
\\xa0growth stocks were just outperforming value to the

361
00:18:10.300 --> 00:18:13.200
\\xa0point that everybody was sort of Naval gazing wondering his value

362
00:18:13.200 --> 00:18:16.800
\\xa0dead. Does this even make sense anymore? And and what

363
00:18:16.800 --> 00:18:19.400
\\xa0we sort of looking at it determined was

364
00:18:19.400 --> 00:18:22.400
\\xa0no actually values kind of in line with what it\'s always done. It\'s

365
00:18:22.400 --> 00:18:25.300
\\xa0growth. That\'s so unusual. Yeah, right and that we\'re

366
00:18:25.300 --> 00:18:28.300
\\xa0back to the story about the large tech stocks and get over evaluation. Right?

367
00:18:28.300 --> 00:18:31.900
\\xa0And so last year was a great year for Value, right? Even

368
00:18:31.900 --> 00:18:34.500
\\xa0though it was down right value outperform growth

369
00:18:34.500 --> 00:18:37.800
\\xa0by a good 20% Oh, yeah, absolutely and it

370
00:18:37.800 --> 00:18:40.700
\\xa0was sort of that Snapback to recognition of

371
00:18:40.700 --> 00:18:43.300
\\xa0hey one of my paying for right and and these things

372
00:18:43.300 --> 00:18:46.200
\\xa0have gotten incredibly overvalued on the

373
00:18:46.200 --> 00:18:46.600
\\xa0growth side.

374
00:18:47.300 --> 00:18:50.500
And so it shouldn\'t come as a surprise then if there\'s a reversal of

375
00:18:50.500 --> 00:18:53.600
\\xa0that Dynamic that value might underperform growth

376
00:18:53.600 --> 00:18:56.500
\\xa0over the first quarter. And of course, that\'s what we observed right

377
00:18:56.500 --> 00:18:59.300
\\xa0that value underperformed growth. It was

378
00:18:59.300 --> 00:19:02.300
\\xa0those large kind of growthy names that took off and and so that

379
00:19:02.300 --> 00:19:05.700
\\xa0that factor shows up and demonstrates

380
00:19:05.700 --> 00:19:08.300
\\xa0that thighs right. So again kind of

381
00:19:08.300 --> 00:19:11.600
\\xa0the academic research that smaller cap

382
00:19:11.600 --> 00:19:14.400
\\xa0names tend to outperform larger cab

383
00:19:14.400 --> 00:19:17.800
\\xa0names over time rolling into the first quarter large

384
00:19:17.800 --> 00:19:20.500
\\xa0caps outperform small caps, right again being led

385
00:19:20.500 --> 00:19:23.500
\\xa0by that large growthy and so small caps

386
00:19:23.500 --> 00:19:26.800
\\xa0tended to underperform in general. What\'s interesting

387
00:19:26.800 --> 00:19:29.300
\\xa0is across factor is

388
00:19:29.300 --> 00:19:32.300
\\xa0one of the reasons you want to hold small caps isn\'t necessarily the size

389
00:19:32.300 --> 00:19:35.300
\\xa0Factor premium associated with that because

390
00:19:35.300 --> 00:19:38.700
\\xa0that\'s come under some scrutiny of

391
00:19:38.700 --> 00:19:41.400
\\xa0Lee as academics kind of look at that. Say what

392
00:19:41.400 --> 00:19:42.200
\\xa0do we actually getting here?

393
00:19:42.900 --> 00:19:46.000
But what really expresses itself

394
00:19:45.300 --> 00:19:48.500
\\xa0in small camp names or all the other factors, right? So

395
00:19:48.500 --> 00:19:51.100
\\xa0the reason you\'d want to hold a small cap is not just

396
00:19:51.100 --> 00:19:54.200
\\xa0because you get a benefit versus large caps, but because you get

397
00:19:54.200 --> 00:19:57.600
\\xa0a really strong value signal a really strong momentum really

398
00:19:57.600 --> 00:20:00.200
\\xa0strong quality, right all of these things. And so if we

399
00:20:00.200 --> 00:20:03.300
\\xa0look at small caps the performance of small caps for

400
00:20:03.300 --> 00:20:06.700
\\xa0the first quarter, you actually got to really strong quality signal

401
00:20:06.700 --> 00:20:09.700
\\xa0in small caps. So again a reason

402
00:20:09.700 --> 00:20:12.400
\\xa0why you want to have a multiple exposures for your

403
00:20:12.400 --> 00:20:15.400
\\xa0factors not just pick any one of these right so small

404
00:20:15.400 --> 00:20:18.400
\\xa0caps under form large caps, but quality did really well inside

405
00:20:18.400 --> 00:20:21.300
\\xa0small camps that makes up the next category is

406
00:20:21.300 --> 00:20:24.400
\\xa0momentum. And what\'s interesting about markets that are sort of

407
00:20:24.400 --> 00:20:27.500
\\xa0whipsawing one way or the other that momentum tends to

408
00:20:27.500 --> 00:20:30.400
\\xa0have a tougher time in markets where the signal is really

409
00:20:30.400 --> 00:20:33.100
\\xa0hard to pick up where there\'s a lot of whipsawing effect up and down on the

410
00:20:33.100 --> 00:20:37.000
\\xa0other way momentum tends to kind of get whipped around with that.

411
00:20:37.700 --> 00:20:40.200
Eventually when markets start to pick

412
00:20:40.200 --> 00:20:43.300
\\xa0up Trend whether that\'s down for a significant period of

413
00:20:43.300 --> 00:20:46.500
\\xa0time like in 2022 momentum does well or up right

414
00:20:46.500 --> 00:20:50.000
\\xa0for a significant period of time and so you

415
00:20:49.200 --> 00:20:52.400
\\xa0would expect momentum to kind

416
00:20:52.400 --> 00:20:55.400
\\xa0of settle down as markets kind of settle down

417
00:20:55.400 --> 00:20:59.600
\\xa0and we see less whipsawing and more directionality. However, and

418
00:20:59.600 --> 00:21:03.300
\\xa0I mentioned it earlier with small caps quality this idea

419
00:21:02.300 --> 00:21:05.000
\\xa0that there may be

420
00:21:05.200 --> 00:21:08.800
\\xa0a flight to Quality in times when the

421
00:21:08.800 --> 00:21:11.100
\\xa0there\'s a lot of volatility. Well one of the

422
00:21:11.100 --> 00:21:14.800
\\xa0reasons you see that is because higher quality earnings tend to

423
00:21:14.800 --> 00:21:17.400
\\xa0hold up better in downturns. They have a premium

424
00:21:17.400 --> 00:21:21.300
\\xa0associated with them and we saw that very clearly quality

425
00:21:20.300 --> 00:21:23.200
\\xa0was one of the areas that outperformed the market

426
00:21:23.200 --> 00:21:26.200
\\xa0over the first quarter and that was true not just in the

427
00:21:26.200 --> 00:21:30.200
\\xa0US but internationally as well interestingly in

428
00:21:29.200 --> 00:21:33.500
\\xa0Emerging Markets value quality

429
00:21:32.500 --> 00:21:35.600
\\xa0and low volatility did quite

430
00:21:35.600 --> 00:21:37.600
\\xa0well so value was still doing well in emerging.

431
00:21:37.700 --> 00:21:40.700
Markets again a reason why you\'d want to diversify

432
00:21:40.700 --> 00:21:43.400
\\xa0your Factor exposures not just in the US but

433
00:21:43.400 --> 00:21:46.900
\\xa0internationally as well and minimum volatility was

434
00:21:46.900 --> 00:21:49.800
\\xa0a contributor in us but lagged Market

435
00:21:49.800 --> 00:21:52.500
\\xa0beta on the whole a broadly

436
00:21:52.500 --> 00:21:55.900
\\xa0Diversified Factor exposure was I\'d

437
00:21:55.900 --> 00:21:58.700
\\xa0say depending on what your tilts are helpful on

438
00:21:58.700 --> 00:22:02.200
\\xa0the downside when Market was volatile, but lagged

439
00:22:01.200 --> 00:22:04.900
\\xa0Market beta to a degree for the

440
00:22:04.900 --> 00:22:07.500
\\xa0first quarter where it outperformed in

441
00:22:07.500 --> 00:22:10.400
\\xa02022. So again factors are a

442
00:22:10.400 --> 00:22:13.500
\\xa0long term investment. You wouldn\'t do it on based

443
00:22:13.500 --> 00:22:16.700
\\xa0on one quarter, but we we watch the horse race, right? Yeah.

444
00:22:16.700 --> 00:22:19.200
\\xa0Absolutely and I think a point that you

445
00:22:19.200 --> 00:22:22.400
\\xa0you said that really resonated with me is the notion of how these factors work

446
00:22:22.400 --> 00:22:25.800
\\xa0together right size and quality you mentioned

447
00:22:25.800 --> 00:22:29.200
\\xa0and so having a diverse portfolio

448
00:22:28.200 --> 00:22:30.700
\\xa0of integrated factors.

449
00:22:31.500 --> 00:22:32.800
maintaining that for the long term

450
00:22:34.200 --> 00:22:37.400
Should reward you over the long term. Yeah, and that\'s the

451
00:22:37.400 --> 00:22:40.800
\\xa0expectation. There are lots of factors out

452
00:22:40.800 --> 00:22:43.800
\\xa0there that have been identified in the academic literature when you

453
00:22:43.800 --> 00:22:46.400
\\xa0selectively go out and pick a handful of

454
00:22:46.400 --> 00:22:49.500
\\xa0those factors. The expectation is every single

455
00:22:49.500 --> 00:22:52.500
\\xa0one of those is going to be a positive contributor to

456
00:22:52.500 --> 00:22:55.400
\\xa0your portfolio over time, right you you

457
00:22:55.400 --> 00:22:58.300
\\xa0wouldn\'t necessarily pick one that you thought. Well, it\'s gonna be a loser but we\'re gonna hold on

458
00:22:58.300 --> 00:23:01.100
\\xa0to it, right you\'re picking all of these different factors of the

459
00:23:01.100 --> 00:23:04.700
\\xa0expectation that each one of those is going to be a

460
00:23:04.700 --> 00:23:07.300
\\xa0positive contributor over a period of time when you

461
00:23:07.300 --> 00:23:10.400
\\xa0weave them together you sort of iron out

462
00:23:10.400 --> 00:23:13.400
\\xa0the highs and lows of any one particular factor and

463
00:23:13.400 --> 00:23:17.100
\\xa0you get that very nice steady stream of

464
00:23:16.100 --> 00:23:19.500
\\xa0return into your

465
00:23:19.500 --> 00:23:22.300
\\xa0portfolio. That\'s generated by those Factor exposures. Yeah.

466
00:23:22.300 --> 00:23:25.400
\\xa0It\'s the old the old adage we\'re going for singles and doubles

467
00:23:25.400 --> 00:23:28.200
\\xa0not home runs, right? Yeah. Yeah exactly. So let\'s

468
00:23:28.200 --> 00:23:31.200
\\xa0talk a little bit about factors and fixed income and then

469
00:23:31.200 --> 00:23:34.100
\\xa0we can take a look at some of the the factors overseas.

470
00:23:34.100 --> 00:23:37.800
As well, but I do want to spend some time on some of

471
00:23:37.800 --> 00:23:40.100
\\xa0the headlines. So why don\'t we

472
00:23:40.100 --> 00:23:44.000
\\xa0talk a little bit about us fixed income factors? Sure. So

473
00:23:43.600 --> 00:23:46.200
\\xa0as you know, right fat factors are

474
00:23:46.200 --> 00:23:49.800
\\xa0not an equity only thing. In fact, we see factors across

475
00:23:49.800 --> 00:23:53.600
\\xa0all different kinds of assets fixed income Commodities

476
00:23:52.600 --> 00:23:55.400
\\xa0housing real

477
00:23:55.400 --> 00:23:58.400
\\xa0estate, right all these I the concept of value for

478
00:23:58.400 --> 00:24:01.500
\\xa0instance and the concept of momentum right anything that has a price associated

479
00:24:01.500 --> 00:24:04.400
\\xa0with it stores can demonstrate these sort of

480
00:24:04.400 --> 00:24:07.200
\\xa0factors. And that\'s true. In fact fixed income the way we

481
00:24:07.200 --> 00:24:10.400
\\xa0think about factors and fixed incomes specifically is is kind

482
00:24:10.400 --> 00:24:13.400
\\xa0of interest rate risk, which is time, right? So think

483
00:24:13.400 --> 00:24:17.300
\\xa0about what we talked about with the yield curve inversion

484
00:24:16.300 --> 00:24:19.400
\\xa0and what was going on on the short end versus the

485
00:24:19.400 --> 00:24:23.500
\\xa0long end what we\'ve observed in the

486
00:24:23.500 --> 00:24:26.200
\\xa0past. Let\'s call year was a really

487
00:24:26.200 --> 00:24:29.800
\\xa0strong interest rate risk lack

488
00:24:29.800 --> 00:24:32.600
\\xa0of benefit that you got for sort of being paid

489
00:24:32.600 --> 00:24:34.000
\\xa0over time, right?

490
00:24:34.100 --> 00:24:38.300
And in theory, right you should get paid to hold

491
00:24:37.300 --> 00:24:41.100
\\xa0over time because there\'s less certainty

492
00:24:40.100 --> 00:24:43.500
\\xa0about what the future holds so you demand a

493
00:24:43.500 --> 00:24:46.800
\\xa0premium to hold something over time to lend over time. And

494
00:24:46.800 --> 00:24:49.200
\\xa0so when you have the short end

495
00:24:49.200 --> 00:24:52.500
\\xa0of the curve come up that tends to impact that interest

496
00:24:52.500 --> 00:24:55.500
\\xa0rate sets that risk that sensitivity because you\'re

497
00:24:55.500 --> 00:24:58.800
\\xa0not getting paid over time. You\'re getting paid actually on the

498
00:24:58.800 --> 00:25:01.700
\\xa0the shorter end potentially. So when you

499
00:25:01.700 --> 00:25:04.800
\\xa0see a pullback of rates,

500
00:25:04.800 --> 00:25:07.700
\\xa0right and price is going up you\'re seeing

501
00:25:07.700 --> 00:25:10.800
\\xa0that benefit playing out through the first quarter as well credit risk

502
00:25:10.800 --> 00:25:13.300
\\xa0is just the difference the buildup over

503
00:25:13.300 --> 00:25:16.300
\\xa0the risk free rate treasuries to account

504
00:25:16.300 --> 00:25:19.200
\\xa0for hey, you know a corporation has more risk than a government

505
00:25:19.200 --> 00:25:22.500
\\xa0and I should be paid that difference. And so you\'re investing

506
00:25:22.500 --> 00:25:25.200
\\xa0up and down the various yield curves that

507
00:25:25.200 --> 00:25:28.900
\\xa0build up on that and in this case credit risk really as

508
00:25:28.900 --> 00:25:31.900
\\xa0a factor wasn\'t a very solid contributor

509
00:25:31.900 --> 00:25:33.200
\\xa0for the first quarter slightly positive.

510
00:25:34.100 --> 00:25:37.200
The the show really has been frankly for the

511
00:25:37.200 --> 00:25:40.500
\\xa0past 18 months were interest rate risk is in

512
00:25:40.500 --> 00:25:43.500
\\xa0terms of factor Premia in your portfolios.

513
00:25:43.500 --> 00:25:46.500
\\xa0And then Market is is again just Market

514
00:25:46.500 --> 00:25:49.800
\\xa0beta which is a buildup of all these different factors expressing themselves.

515
00:25:49.800 --> 00:25:53.200
\\xa0So on the whole positive Bond performance

516
00:25:52.200 --> 00:25:55.500
\\xa0being driven by changes to

517
00:25:55.500 --> 00:25:59.500
\\xa0the the yield curve in many cases and some

518
00:25:58.500 --> 00:26:01.400
\\xa0expectation that Bond markets are looking ahead

519
00:26:01.400 --> 00:26:04.600
\\xa0and pricing for a cessation of rate raises

520
00:26:04.600 --> 00:26:07.500
\\xa0by central banks. So so my expectation would

521
00:26:07.500 --> 00:26:10.200
\\xa0be for for fixed income investors again much like

522
00:26:10.200 --> 00:26:13.400
\\xa0Equity potentially more volatility here, right? The

523
00:26:13.400 --> 00:26:16.400
\\xa0the rodeo is not over the big bull riding

524
00:26:16.400 --> 00:26:18.200
\\xa0could yet be to come so

525
00:26:19.200 --> 00:26:22.400
You know stay patient the the benefit here is

526
00:26:22.400 --> 00:26:25.400
\\xa0there\'s return associated with fixed income

527
00:26:25.400 --> 00:26:29.500
\\xa0to a degree. We haven\'t seen in 15 years. And so

528
00:26:29.500 --> 00:26:32.700
\\xa0let this play out. And again, these Factor

529
00:26:32.700 --> 00:26:35.600
\\xa0exposures are the expectation is over time. These are

530
00:26:35.600 --> 00:26:38.100
\\xa0going to be a additive to the returns that you

531
00:26:38.100 --> 00:26:40.700
\\xa0get from the bond market you had mentioned this in some of your previous comments.

532
00:26:42.500 --> 00:26:45.400
Factors perform differently geographically too

533
00:26:45.400 --> 00:26:48.500
\\xa0right like value in the US might give you a different return

534
00:26:48.500 --> 00:26:51.300
\\xa0versus value and the international develop during the

535
00:26:51.300 --> 00:26:54.500
\\xa0Emerging Markets Arenas. So I think there\'s diversification story

536
00:26:54.500 --> 00:26:57.600
\\xa0there. Can you comment on that, please? Yeah. Well, yes, of

537
00:26:57.600 --> 00:27:00.100
\\xa0course and and I sort of made a comment

538
00:27:00.100 --> 00:27:01.300
\\xa0about as

539
00:27:02.300 --> 00:27:05.500
central banks become decoupled and start to operate a

540
00:27:05.500 --> 00:27:09.000
\\xa0little more independently that it has an impact on the

541
00:27:11.300 --> 00:27:14.600
local economies in all of these different markets as

542
00:27:14.600 --> 00:27:17.200
\\xa0an impact on their currencies. And so

543
00:27:17.200 --> 00:27:20.600
\\xa0when you think about fixed income the benefit that you get from

544
00:27:20.600 --> 00:27:23.300
\\xa0not only where you hold on

545
00:27:23.300 --> 00:27:26.500
\\xa0the curve and and the amount of credit that you\'re willing but that

546
00:27:26.500 --> 00:27:29.900
\\xa0you\'re going to diversify the various curves

547
00:27:29.900 --> 00:27:32.300
\\xa0that you hold and the where you

548
00:27:32.300 --> 00:27:35.900
\\xa0are on that across geographies and

549
00:27:35.900 --> 00:27:38.200
\\xa0then take into account the impact that

550
00:27:38.200 --> 00:27:42.200
\\xa0currencies might have right and so we know for equities

551
00:27:41.200 --> 00:27:45.100
\\xa0the the volatility signature

552
00:27:44.100 --> 00:27:47.100
\\xa0of equity is is so robust that

553
00:27:47.100 --> 00:27:50.600
\\xa0you\'re you tend to be willing to hold the volatility of

554
00:27:50.600 --> 00:27:53.900
\\xa0fluctuations and currency in in

555
00:27:53.900 --> 00:27:56.000
\\xa0fixed income. It tends not to pay you to do

556
00:27:56.200 --> 00:27:59.400
\\xa0that. And so I know for instance

557
00:27:59.400 --> 00:28:03.100
\\xa0that here at Cemetery you folks hedge back

558
00:28:03.100 --> 00:28:07.000
\\xa0to the dollar sure and that takes some of that volatility out,

559
00:28:06.600 --> 00:28:09.400
\\xa0right? And again, I think that\'s a benefit

560
00:28:09.400 --> 00:28:11.000
\\xa0for Factor investors because what you\'re

561
00:28:11.200 --> 00:28:14.300
Is less volatility associated with fluctuations currency and

562
00:28:14.300 --> 00:28:18.000
\\xa0you\'re getting maybe stronger signal from these these

563
00:28:17.200 --> 00:28:20.900
\\xa0different sources of return across

564
00:28:20.900 --> 00:28:23.400
\\xa0different markets and they\'re all going to be hitting at

565
00:28:23.400 --> 00:28:26.700
\\xa0different times. Once the sort of the global economy

566
00:28:26.700 --> 00:28:29.200
\\xa0comes unpegged to what\'s going

567
00:28:29.200 --> 00:28:33.100
\\xa0on fighting inflation. Yeah until I think it\'s a perfect diversification story

568
00:28:32.100 --> 00:28:33.300
\\xa0and

569
00:28:34.100 --> 00:28:37.600
we have a saying here that the only free lunch and investing is diversification. And

570
00:28:37.600 --> 00:28:40.900
\\xa0so we tout that investor should be embracing that Casey.

571
00:28:40.900 --> 00:28:43.400
\\xa0Thank you so much for joining us that concludes part one.

572
00:28:43.400 --> 00:28:46.600
\\xa0Please feel free to access other podcasts

573
00:28:46.600 --> 00:28:49.000
\\xa0that we have done and they can be

574
00:28:49.400 --> 00:28:52.600
\\xa0accessed anywhere you get your podcast. So please join Casey and

575
00:28:52.600 --> 00:28:56.000
\\xa0I for part two and our next series symmetry Partners

576
00:28:55.700 --> 00:28:58.800
\\xa0LLC is an investment advisor firm

577
00:28:58.800 --> 00:29:01.700
\\xa0registered with the Securities and Exchange Commission The

578
00:29:01.700 --> 00:29:04.600
\\xa0Firm only transacts business in states where it

579
00:29:04.600 --> 00:29:07.500
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580
00:29:07.500 --> 00:29:11.200
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581
00:29:10.200 --> 00:29:13.600
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582
00:29:13.600 --> 00:29:16.400
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583
00:29:16.400 --> 00:29:19.100
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584
00:29:19.100 --> 00:29:22.300
\\xa0commission. No one should assume that future performance of any

585
00:29:22.300 --> 00:29:26.300
\\xa0specific investment investment strategy product or

586
00:29:25.300 --> 00:29:28.300
\\xa0non-investment related content made

587
00:29:28.300 --> 00:29:31.800
\\xa0reference to directly or indirectly in this material will be

588
00:29:31.800 --> 00:29:32.400
\\xa0profitable.

589
00:29:33.400 --> 00:29:36.500
As with any investment strategy there is the possibility of

590
00:29:36.500 --> 00:29:39.500
\\xa0profitability as well as loss due

591
00:29:39.500 --> 00:29:42.300
\\xa0to various factors including changing market

592
00:29:42.300 --> 00:29:44.700
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593
00:29:45.300 --> 00:29:48.900
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594
00:29:48.900 --> 00:29:51.600
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595
00:29:51.600 --> 00:29:54.300
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596
00:29:54.300 --> 00:29:58.000
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597
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