REVIEW Q2 2019 WWW.ASSETTV.COM
THE CONTINUING GROWTH OF ETFs
American Century’s Ed Rosenberg on the most popular vehicles for investment today
PLUS INSIDE:
HOT SEAT Target Date Funds’ Preparation for the Market
IAN BREMMER Geopolitical Impacts on Markets
November 2017 | REVIEW ASSET TV | 1
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CONTENTS
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Featured Interview: Growing To New Heights in the ETF Space American Century Investments 4-5
Hot Seat: Target Date Funds’ Preparation for the Market T. Rowe Price 6
MASTERCLASS: Municipal Bonds American Century Investments Build America Mutual Mackay Municipal Managers 7 ASSET TV REVIEW IS PUBLISHED FOR INVESTMENT PROFESSIONALS. No part of this publication may be reproduced without the prior permission of Asset TV Inc. Information, views and opinions contained in the articles have been compiled from interviews conducted by or hosted on Asset TV with regulated fund managers and other investment professionals. Asset TV Inc. accepts no liability for any loss arising from the use hereof nor makes any representation as to their accuracy or completeness. Whilst every care has been taken in preparing Asset TV Review, neither Asset TV inc. nor the authorities can accept responsibility for any errors it may contain or for any losses from or in reliance upon its contents. Asset TV Inc. is part of the Think Digital Group Ltd,6-7 Waterside, Station Road, Harpenden, AL5 4US, United Kingdom.
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IAN BREMMER Geopolitical Market Insights
8-9
Q2 2019 | REVIEW ASSET TV | 3
FEATURED INTERVIEW
GROWING TO
NEW HEIGHTS
IN THE ETF SPACE
FROM THEIR INITIAL CREATION 25 YEARS AGO TO THE PRESENT, EXCHANGE TRADED FUNDS HAVE BECOME ONE OF THE MOST POPULAR VEHICLES FOR INVESTMENT. WHAT DOES THE FUTURE HOLD FOR THEM IN 2019? Ed Rosenberg: I think the choppy markets are going to continue as we go forward. You’re looking at GDP slowing just a little bit... at least, the forecast is doing that, and I think you’re going to see with all the turbulence going forward [that] markets are going to be choppy. So, as you’re investing, I think it’s more precision investing than broad market on dips. You have to know what you’re going into and what you expect those returns to be. The markets are going to keep flowing as they go forward and I think as we get towards the end of the rate raises... we expect one more […] and then [another one] next year, and I think as you see those slow, the markets might smooth out. But as we go forward, you have to know what you’re getting into. Are there actual ETFs that can capitalize? I suppose there would be specifically on the belief that perhaps trade sensitive stocks might swoon a little bit and so you could short them. You could do just about anything in ETF land.
Senior Vice President and Head of Exchange Traded Funds at American Century Investments®, sat down with Liz Claman at the Asset TV studio to discuss the continuing growth of ETFs.
There’s ETFs specific to individual countries where you can do whatever you think related to trade wars. What’s interesting about the trade wars that you’ve seen is, if they continue, the volatility continues... The outlook for 2019 is interesting, because when you see some of the things that are going on today, it feels like a very unique market space than what we’ve ever had. We have more political turmoil with trade wars and other things going on that add to the volatility and make the markets rather choppy going forward and interesting. But you can absolutely play anything you want in an ETF.
Liz Claman: Today [ETFs] are among the most popular vehicles for investment, but where are they going in 2019?
So let’s just say that ETFs have a bright outlook for 2019. How do you shift through this massive pool and find the diamonds?
ED ROSENBERG,
4 | REVIEW ASSET TV | Q2 2019
“
REVIEW IT FEELS LIKE A VERY UNIQUE MARKET SPACE THAN WHAT WE’VE EVER HAD. WE HAVE MORE POLITICAL TURMOIL THAT ADDS TO THE VOLATILITY... BUT YOU CAN ABSOLUTELY PLAY ANYTHING YOU WANT IN AN ETF.”
The first thing you have to think about is: if you’re the investor, what are you trying to accomplish? Let’s say you want to go into value investing. [W]ould you prefer a basic index? Do you want something that will beat the index—but you still want it to be passive, so the alternatively weighted strategies? Or do you really want the thoughts of an active manager in that space? And I think that is the first criteria. What you’re trying to accomplish leads you to what you need. If you look at the value space in more detail, there [are] ETFs that have a lower volatility, whether they’re in the name or not. There [are] ETFs that can have higher alpha in that area. It depends [on] what you’re trying to accomplish and that should be the first starting because when you sift, you’ve actually reduced the number dramatically to that point and you’ve gone from, let’s say, 2,500 ETFs to maybe 20, and the choices become much easier and much more clear.
I think you’re going to see is an evolution of the fixed income market. [Y]ou’re going to see more ETFs come out in that market that are taking advantage of what a portfolio manager can do. [I]f you think of just a basic index today, you can’t replicate it. Almost any fixed income index is almost impossible to replicate. So an index manager has to place active bets on what they can get their hands on. Why not just turn it over to somebody who’s active and let them put a portfolio together that makes sense... instead of trying to track something that they can’t, anyway?
What do you see for the continued growth of ETFs in 2019?
One thing we can glean from this conversation is that ETFs are only growing in choice and stature for the investor. Thank you so much.
I think the other thing you’re going to see is more active—transparent active—equity ETFs coming out. This year has been a bigger growth in the equity space for transparent active than any other year previously. I think you’re going to see more people looking for active managers in a way that they can get out.
The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice. Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value. International investing involves special risks, such as political instability and currency fluctuations. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. FOR INSTITUTIONAL USE ONLY / NOT FOR PUBLIC USE ©2019 American Century Proprietary Holdings, Inc. All rights reserved.
Q2 2019 | REVIEW ASSET TV | 5
HOT SEAT
HOT SEAT: TARGET DATE FUNDS’ PREPARATION FOR THE MARKET WYATT LEE, CFA® Portfolio Manager
Andrew Farrell
James Venerus, CFA, CAIA
PRESIDENT OF RETIREMENT ADVISOR PRACTICE BUILDER
SENIOR VICE PRESIDENT OF CALLAN LLC
Andrew: Has there been any thought, planning, or strategy around potentially adjusting the glide path or investment mix to prepare for the end of the current boom market and the inevitable turnover at whatever point that happens?
James: Where do you see the market going in the next ten years and do you foresee target date funds maintaining their dominant position as the QDIA of choice?
Wyatt: We often spend time thinking about forward looking market events but that doesn’t necessarily come into play in our strategic design of our strategies. Our approach has been typically to think about first of all the long term strategic approach that’s right to meet a portfolio’s objectives and then layering on tactical management on top of that to react to our more intermediate term outlook. We keep a reasonable amount of growth exposure in the portfolio because we prioritize the need for growth over volatility. On the other hand we also manage a series of portfolios called the target funds that put the relative weight of those objectives in a different order. There’s more priority around minimizing or reducing volatility around retirement with income orientation a secondary objective.
Wyatt: It’s probably not a fair stretch to say that target date funds might remain relatively solidly placed in terms of younger investors. Those investors who have a long time horizon relatively small asset base, a target date fund can work really really well for. But as you move forward, get closer to and into retirement, something that more personalizes to the wider range of objectives or potentially something that provides different streams of income could be a way to more personalize this. So ultimately where I could see this going is an extension from the target date space to make sure we address a wider range of goals and circumstances. Which ultimately puts the pressure on those of us who are providing target date strategies to be able to deliver their asset allocation methodology in as many ways as possible.
6 | REVIEW ASSET TV | Q2 2019
MASTERCLASS: MUNICIPAL BONDS
MASTERCLASS
Municipal bonds have been in demand and generated positive returns in 2019. Municipal bond analyst, J.R. Rieger, sat down with three experts to explore the municipal bond landscape and the opportunities and risks for these securities. Rieger honed in on the technicals driving the marketplace and compared investment grade munis to the alternatives.
Steven Permut
Grant Dewey
“The retail nature of the muni market is what gives us opportunities. Unlike other asset classes, [...] which are more institutionally driven, it’s mom-and-pop and munis are typically going in the door and out the door at the same time, and that creates inefficiencies. [...] My recommendation would be: when we’re in these periods of everyone trying to get out the door at the same time, if the advisor does the opposite, they’ll look very good long-term.”
“Generally, in this rate environment where [...] as demand for yield intensifies, you get legal structures that are maybe not quite as tight. You get confidence that they are a little bit more relaxed or maybe not as creditor-friendly. I think that you just need to... there’s still lots of opportunities, but I just think that you need to be pretty careful because there is definitely a general rally amongst all kinds of spread and high-yield type products.”
SVP AND SENIOR PORTFOLIO MANAGER AMERICAN CENTURY INVESTMENTS
HEAD OF MUNICIPAL CAPITAL MARKETS BUILD AMERICA MUTUAL
David Dowden
MANAGING DIRECTOR, PORTFOLIO MANAGER MACKAY MUNICIPAL MANAGERS “We think that the last number of years we’ve been strong proponents of being invested in the revenue bond sectors more than general obligation bonds (GOs). [...] We’re at a point now where we think that if we are an economy that’s moving sideways or even starts to slip a bit, investors will look once again at the solid foundation especially at the local level of property taxes as a supporting security for those bonds.” Q2 2019 | REVIEW ASSET TV | 7
IAN BREMMER
IAN BREMMER GEOPOLITICAL IMPACTS ON MARKETS Ian Bremmer, Eurasia Group’s Founder and President, joined investment experts to discuss geopolitics and their impact on the financial markets. Bremmer emphasized his belief that we are in the midst of a geopolitical recession that he refers to as the G-Zero World. Topics discussed include Brexit, U.S. polarization, Venezuela, China and an outlook for the global economy.
Outlook 2019: Diversifying into Real Assets
2019 Economic Outlook with Ian Bremmer and David Lafferty
“Multi-families are likely to outperform [...] as we’ve seen this tremendous growth, for example in office market and industrial market, some are for technology reasons in the industrial space, [...] and in the office market there hasn’t been much of supply since the downturn.”
“We see a natural slowdown […] the global economy is decelerating but it isn’t the end of the world yet. China is not the largest economy in the world […] but is the biggest contributor to global growth […] watch for how they manage the slowdown.”
DR. RANDY ANDERSON - PRESIDENT AND CHIEF ECONOMIST GRIFFIN CAPITAL ASSET MANAGEMENT
8 | REVIEW ASSET TV | Q2 2019
DAVID LAFFERTY - SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST NATIXIS INVESTMENT MANAGERS
REVIEW
Why Investors Should Care About Global Debt
Financial Wellness and the Impact of Technology
“It might get to a point where [global] debt is not paid, where you see defaults in sovereigns at the developed country level and that’s not really something we’ve had a lot of experience with. [...] What impact does it have on pension plans? What kind of panic does it cause in another bond market?”
“Technologies today […] allow you to look at your overall financial wellness. That is really the glue that can bring the various segments of the industry together and look at things more holistically for that individual […] and enable them to meet their goals.”
MARC ODO - CLIENT PORTFOLIO MANAGER SWAN GLOBAL INVESTMENTS
BABU SIVADASAN - GROUP PRESIDENT ENVESTNET RETIREMENT SOLUTIONS
Outlook 2019: Geopolitics Experts Discuss Today’s Global Threats and Opportunities
NATHAN SHEETS - CHIEF ECONOMIST AND HEAD OF GLOBAL MACROECONOMIC RESEARCH PGIM FIXED INCOME “This whole overlay of these kinds of uncertainties including this kind of existential uncertainty about the future of capitalism in the West is a source of restrain I would say. When I look at the future I expect growth to be slower than it was before the financial crisis due to demographics [...] but also because of this uncertainty about the nature of the system.”
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Exchange Traded Funds (ETF) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results. Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline. The lower rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk. KORP is an actively managed ETF that does not seek to replicate the performance of a specified index. To determine whether to buy or sell a security, the portfolio managers consider, among other things, various fund requirements and standards, along with economic conditions, alternative investments, interest rates and various credit metrics. If the portfolio manager considerations are inaccurate or misapplied, the fund’s performance may suffer.
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