YouSaid · the spoken record

Adrian Helfert

lines on the record: 75
first: 2024-02-27
most recent: 2024-02-27
sittings or episodes: 1
sources: podcast

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“Because they have a high dividend yield or a high dividend coverage or a growing dividend, all those things are important when you consider a dividend. But I want to see capital appreciation. I want to see a potential for the company to do well and to create new efficiencies, to expand their margins, maybe to expand their multiple, to have new revenue generation that the market doesn't expect. Probably hear a lot of those things over again of these are the things that we're looking for to deliver good free cash flows and elevated free cash flows ideally over what the market expects.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“But we aren't forced into the highest dividend yields. We are looking at areas where if there are companies, we used Nvidia as the example they pay such a small portion of a dividend that it's not really meaningful, but they do pay a little dividend. We looked at them, we held them for a bit, and we experienced a great capital appreciation from NVIDIA in part because what we're looking for is good income generation. But if we find great opportunities for capital appreciation, then that's a second leg of our show and our third leg of the stool is, as I talked about having a downside analysis or a downside target, that's how we think about the market of, yes, income is very important for that flagship fund of what we're trying to achieve. Capital appreciation is also important. So I'm not picking companies simply.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Good question, we're not necessarily precluded from buying something like a Berkshire Hathaway, which surely one day they will pay a dividend. But you're right. They don't today even if Mr. Buffett tells us they never will. We are looking for capital appreciation. And you're right that there are different constituencies here. There are those income funds that are really pushed into just the high dividend yields, just the best places for income on their corporate bonds or high yield bonds. And it leads to a big factor bias or more allocation effect and more correlation to the overall market. And then, of course, you have those funds that don't have any paradigm at all. And so they have less of the income buffer, but they are probably more growthy because that now forms 30% of the S&P 500. That's just a large portion of the market. We are, I'd say, more income oriented.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“We see that all at the same time that leads to systematic risk and often is one of the precursors of what I'd say is a large drawdown is when credit market seat or financial conditions seize. So we watch that very closely for the sharp turns.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Other areas, but that was something that was telling us anyway that the financial conditions, as told to us by those that really are taking advantage of them for either borrowing for new projects or not, are still reasonably strong. I monitor about five different financial conditions indices because it's a really great way to try and measure when you might see systematic risk emerge, when financial conditions closure happens if we were to see bond spreads widen significantly lenders like myself in the market say, I'm going to step back and I'm not going to lend as much because I forecast that default risk is going to go much, much higher, but at the same time that interest rates are rising. And so companies are not able to roll their liabilities. And then we're seeing problems in the equity market and the IPO market, all areas that we've seen a little bit of, but maybe on a rolling basis.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“growth number one and that nominal growth is relative to the interest rates that companies are pining and saying that they're taking advantage of that to experience longer-term nominal growth for those projects. And we see a housing market that is surprisingly resilient so far. I would say I'm probably not alone when I say I'm actually surprised we didn't see more of a drop down in the housing market nationwide when mortgage rates went up to 8%. They're not there now. They've come down and the market responded, okay, maybe we could use”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Our liabilities, so we don't end up with a credit crunch in 25, 26, still a possibility, but extending out those liabilities. And two, they're financing projects. And if they are buying companies and financing projects by borrowing, they're opining directly with their feet to say forward returns on these projects are higher than where they're borrowing. And so at elevated interest rates, we're still saying we see decent nominal growth in the economy. That means financial conditions can be not just constrictive, but they can be more open. And I believe they are more open, even though we're at a higher rate than we've been over that portion before 2022 for about 10 years. I see open financial conditions right now and reasonably strong financial conditions. The interest rate is higher. That causes some consternation.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“I often think that if he'd done a Rip Van Winkle in 2020 and gone to sleep, actually beginning in 2020 and gone to sleep and then woking up today and said, well, wait a second, we've been through a global pandemic, near war in the Middle East and a war in Eurasia. And interest rates are up by 500 basis points. Our financial conditions, well, one, you go to where's the S&P? And you wouldn't say it to 5,000. And number two, if you look at financial conditions, you'd say it's probably pretty constrictive right now. Gosh, that's not the case. And that's not the case. We've got companies that are opinioning with their feet in the first month of this year, first two months of this year, really, on corporate issuance and saying we're going to come to market and borrow in one, two, for one part to extend out.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“I believe they will. The important part is they can, and they couldn't do that at zero interest rates. So they've got the potential of a volatility buffer, if you will, of reducing the negative impact of the third leg of the stool while still focusing on the long term of a balanced neutral rate that is lower than where we are now of a neutral rate that is supportive of a balanced full employment and 2% inflation mandate.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“And right now they're telling it's a neutral rate or their long-term dot is around two and a half percent. That's way lower than where we are now. So we've said, yes, the Fed is highly likely to cut rates next as their next move. Whether it happens in Archermay or June is less important to me than continuing to communicate that they are going to be headed down to a neutral rate and they can be accommodative in any communication that we see on their accommodativeness to what I used to call the third leg of the monetary policy stool, which is the wealth effect. And the wealth effect, of course, is your 401k plan or the S&P 500 and the value of your house, meaning if markets drop significantly, would the old greens ban put come back into force, would they be able to drop rates to support? Whether they will”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“We talk a lot about oh my gosh, is the Fed going to cut rates in March or May or June and or like Larry Summers recently even discussed, well, there's a 15% probability that the Fed could come back turn pale and high grades. I don't believe that. I think they've communicated pretty well. Chairman Powell going on to 60 minutes and telling the market directly the next move is we're going to cut rates. He didn't say that directly, but it was pretty close. So we've started to see that narrative shift pretty strongly that whether it's March or May or June is less important than looking at the neutral rate. The neutral rate is that longer term rate which balances their dual mandate of labor and inflation.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Sure, a credit risk is an easier one to look at. We talk about that a bit. I'm just generally finding not enough compensation for default risk, which is more systematic in nature generally, especially for high grade companies, in finding more of that potential for capital appreciation in the equity market. And then interest rate sensitivity or duration, we started to see a lot of the turn last year at the tail end of last year. As I said, it really kicked off on my birthday on when interest rates started to drop and dropped significantly for the fourth quarter of last year. Now, we had added a little bit of duration. Right now, we are, I don't know, we're sitting about neutral on our overall target for interest rate duration. The Fed itself, what I generally tell investors, and you believe for a long term environment.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“The upside, so it's a bond investor in an equity investor. Certainly, I'm thinking about those historical paradigms and where it comes out. I think it'll lead to a lot of opportunity for a student investors across the value and the growth paradigm. These aren't just growth companies that will benefit. You look at lowe's the home supply store. They've got the Lobot that you can go on and it helps you identify new projects in the areas of need. They've got another artificial intelligence piece that they've been adopting that looks like they are going through and optimizing how you might view products on aisles and where you might purchase further and how they might best serve their consumer that will help them. And it's not a new product line. It's not necessarily an efficiency. It's just improving their business.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Still on the revenue realization potential that is out there. I know it's there and our job is to go find areas where either, as I say, efficiency gains or new revenue potential is going to help companies. Or as you mentioned on the bond side, if it reduces their default risk, in some cases it may be the opposite. We see companies that get scared and overlever to adopt technology they don't know much about. Would that lead to issues on me as a bond investor of the only thing I'm really worried about is them paying back their bonds?”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Revenue potentials and efficiency gains for the utilities that may work for some and don't work for others, but just planning your vacation rather than spending all of that time going to Google and researching what cities are in Italy and where might I stay, I encourage you next time to go to Bard, or now called Gemini or ChatGPT and type in, I've got five-day vacation with two kids that are 14 and 12 and I might take my mother-in-law and I want to stay mid-range and go to Italy and it will lay it out for you and you can pretty much save about five hours of your life researching things and book your vacation. So whether it's personal or professional, this efficiency gains to be had. And I think we're in a bit that same adoption cycle. I think this is faster than we have seen before. I am uncertain.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“People really understood and they were nervous about it. We're somewhat in that same phase now still of artificial intelligence sounds cool, wild, and crazy. It's great, but really, it's pretty simple. Just go to chatgpt.com and type in your question and you're using AI. And I think a lot of people don't realize that. We're still in that phase of people aren't sure where to find the efficiencies. If they can find the efficiencies and if those efficiencies are useful and they don't trust those efficiencies or those new ideas, it's about the same on that bit. I think this is more accelerated. I think this is what's as impactful. I mean, that paradigm created visibility and access to a range of services and products which previously had much harder time coming to market. And this creates a whole new set of”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Some of the similarities I find kind of interesting are the rapidity of this AI cycle is faster to me. The potential for adoption. We just talked about last year when ChatGPT came out in March. eight weeks later we add NVIDIA. It felt like the world had changed overnight almost. We had data rooms like a source of like eight weeks data rooms were becoming overcapacity because of adoption of new technology was leading to problems in data rooms. That was a big transitional change. The actual effect, it kind of feels like back when something like Google was introduced, and I don't know if you're old enough to remember, but people used to send around these links that would say, you'd say, how do I find something? And you'd send around a link that would say, how do I Google how to find a restaurant? And it would take it to Google and it would write it in there for you. And it was before.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“rates went up then generally you might expect to see the triple Qs drop the Nasdaq drop that's just not what we've seen in part because technology has outstripped that effect”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“It's empirical. As the mathematician would hate us, the physicists love it. And it's kind of how I think about that one. But the companies now, are they worried about investing in AI? Are they going to wait in investing in AI because interest rates are relatively high to the past 10 or 15 years? No. I think the same thing in the market cycle, they're not going to wait because they can't they're forced into it. This is technological innovation that they almost have to be a participant in or at least have to have a strategy for participation or non-participation. And so we're seeing similar in the market where I think that the technological innovation outstripped the narrative of higher discounting on the further cash flows. If we hadn't had all of this, if this were just a, you know, there was nothing new happening in the technology world at large.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“When we talk about equity durations, there's an old school fixed income guy as well. That's a modified or a Macaulay duration, and it has a very specific formula. And then when we talk about equity duration, it's always equity empirical duration, meaning could be here, could be there. And you're exactly right. That's a conundrum we've seen. I was just talking to somebody about the artificial intelligence investment cycle and whether companies will be more reluctant to invest at higher rates than they were. And that's kind of the same discussion point of what's happened with growth during times of rising rates now when it's done extraordinarily well. You've seen these seven companies. And I generally think technological innovation and the potential has well outstripped the discounting effect. The discounting effect itself is empirical as it is. Less transparency and cash flow is and you're discounting cash flows that have ill transparency. It doesn't always work over full cycle.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Thanks, you're talking about the timing of cash flows and that's the concept of Tesla, most of the money they're going to make is going to be after 2040, whereas a coal company, like they might be making the most money that they'll ever make. They're probably not going to be made not even exist in 2050. But who knows? So that's a concept. I'm familiar with that concept in the equity world, but it's so much less rigorous than in the bond world where, okay, you're going to be paid a coupon semi-annually for 10 years. Remains high. So is there, you know, as you're putting your physics quant mathematical hat on, is there anything there when it comes to the concept of equity duration?”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Start to think that we're going to see times like now something like a Toll Brothers, which is much more near-term cash flow profile oriented, that's going to lead the profile of the market. But we'll see.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“I think right now it's partially because it's very growth and future oriented where this breath is, meaning this is in Google and Nvidia and IBM and Apple and Microsoft and Tesla. These are in stocks that have a much further earnings paradigm. That breadth is going to be realized more in value. So when we see an expansion, it's going to be expansion more into mirror time cash flow realization. If it were just a straight comparison of like the energy cycle of old where we saw much lower, much more narrowness in the from the energy sector, then yes, I think that you probably see stocks start to lead because we're all about the same cash flow realization timing. Now we're talking kind of cash flow differentials between growth and value because we're so growth oriented.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Normalize, and you have to only look at this earning cycle. We saw an earning cycle last year. We saw three quarters of negative earnings growth last year. That was our recession. We're coming out of that now. And if we look at just this earning cycle that we're finishing up, we're near finishing here. We are seeing considerable better earnings on a median basis. So companies are starting to project better potential and companies are starting to show better than consensus earnings. And while we are still seeing good earnings in the magnificent seven, it's not just them. It is Toll Brothers out today with home building activity. You know, that's a broadening that we're seeing in earnings. And I think that will happen sooner than we see the realization in the market.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Is the differential between value and growth stocks in some respects? I know that they form a smaller portion of the growth each stocks, but growth stocks have been a significant outperformer and it's near a two-standard deviation outperformance over value equity over the last five years. So it's a significant outperformer, but that's a cyclical factor and we will see that come back when cash flows become realized in either some of the new revenue generation potentials become more transparent or even realized in the cash flows, then that becomes a cyclical factor. The second one you addressed is earnings and whether earnings themselves on the breadth. And it goes very much hand in hand, I believe, on that. We are seeing narrowness in earnings as well that we've already started.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Great question because this is cyclical in many respects. Brett itself, or that factor is a somewhat of a cyclical factor. We see the aggregation of profits in an individual sector that then broaden out. We saw that in the energy sector that then broadened out. This one, I believe, is even more cyclical in that the potential that has been flagged by the seven stocks or in a lot of ways NVIDIA that is one of our best macro indicators right now, it almost must lead to broadening for them to realize the sales of all of the expected activity that they're signaling in their earnings. So I see the cyclicality. We are very wide right now in where that breadth is. That's a big difference or we're far out on the standard deviation spectrum. Maybe a best way to look at that.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Term innovation and lifeblood of our economy in terms of employment and new revenue generation isn't these larger companies. It is small mid-cap companies that find opportunities, take risk and find the areas of the market and the U.S. consumer that then they gain from. I believe that the innovation that has led to some of this market appreciation of those seven stocks, those seven companies, will benefit many of the companies that are in that whatever we call the 493 remaining. Going to take some time.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Now they're the magnificent one. Yes. Right now we still see a bit of that narrative. I believe very much in a long-term broadening. I think that is a cyclical component. It doesn't mean that these large companies can't continue to perform. And if we see a downturn in these companies, sorry, a downturn in the economy or a downturn in the markets, some of these companies could represent a value for somewhat of a safe haven. They have generally lower debt metrics than many peers. These are more oriented towards technology, which oftentimes is lower in borrowing or leverage because they have lesser known cash flows. That's one read on it that I have. I do see the broadbang and part that broadmang, meaning others will participate, to use that poor economic term, that that poor political term, the trickle-down effect should benefit many of those. And let's go back and remember that the long”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“There's seven stocks that comprise all that. So that's narrowness. You've got seven stocks that are driving everything. And we do have to recall those seven stocks aren't small. They are 30% of the market capitalization of the S&P 500 and a smaller amount, but still a large amount of the revenue generation when you look at the underlying of the S&P 500. So these are large companies. And there is some statement. But they were, it was an overly narrow driven rally last year, and we're still seeing some of that where we see a lot of market appreciation, more market appreciation. And well, the magnificent seven, and as we get some drop out, it becomes the super six, then the FAB 5, and maybe NEC that's going to be the, who knows, the FAB four, whatever it's next.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“We did see a lot of narrowness, are still seeing some of that narrowness. And when I say narrowness, what that means is, for example, up until Up until october twenty seventh of last year to date, The SP 500 was up significantly on the order of thirteen fifteen percent, while four hundred ninety three securities in the SP five hundred were down on the year.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“To a degree, yes, I mean, the volatility of the stock market or the risk premium of the stock market may have effects on riskiness and discounting of a stock. And so there is a change metric there that as we go through and review, it doesn't normally change the expectations of the realized cash flows, but it may change the attractiveness of those realized cash flows. So we are monitoring a risk premium of the market to help inform us. By and large, that's the rising or falling tide that lifts or drops all votes. We need to do the analysis. And when I look at apples to apples analysis of my expected returns across a whole lot, then maybe what differs is the mere term or long-termness of those cash flows. Long-term cash flows may be discounted at a higher rate, a higher risk bringing, and may become less attractive to more”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“How bad is that for the forward expectation for the price target? And then that's something we can monitor. So we're looking for an upside and we're actively looking to say what might a downside be. And me as an old physics and math guy, then I pull those two things together to an expected value. And I'm looking generally at a great expected value across my individual holdings. So back to the original question of, yes, we've got the allocation effect in the portfolio. We aim to get that right with good asset allocation, with macro awareness. And then we've got this high selectivity and this high conviction. And I want the best expected value that I can compare apples to apples with other assets, whether they be bonds or equities and deliver the best risk-pigested reward to an investor.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Talk and I spoke to him directly. And my understanding is a little bit different than what the consensus understanding is. And I believe that they have found a new path for revenue generation that is X. That is on each of those individual things. That leads to something like a discounted cash flow analysis or that allows us to establish a price target. So every individual stock that I hold would have a one year, a three-year, and a downside price target. The downside to me is a very important and underappreciated metric no pun intended on the underappreciated, on the downside. Many of the, if you look at a street side analysis, many of just the straight investment banks or the street side analysis will just show you a straight price target where I want to know what can go bump in the night. I want to know when that project, that aforementioned project that we heard the CFO talking about doesn't come through and it's highly expected that it's going to come through.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Represent a large return opportunity and the remainder are effectively the allocation effect or I just expect them to keep up with the market, if you will. I don't think like that. I think more every individual opportunity we hold, we only hold 35 and we have a range of how many we hold, but it's going to be high conviction and smaller for let's say this flagship income opportunities fund from that perspective then We want to hold each individual opportunity that represents a good upside. And the way we think about it is we have analysts that go through and do this objective analysis. We use the objective data to help inform our decisions and then in the end it's really I like those places where we feel like we can add subjective characteristics to it and say actually I heard the CFO”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Just wholly exposed to that as an allocator and as a macro aware person, then I want to either embrace those allocation effect pieces or reduce those allocation effect pieces where I either don't want to be exposed or I don't believe in a thematic and focus then as much as I can on whether IBM is going to be a great contributor. So that's part one of there's a difference in your attribution between allocation effect and selection effect. Allocation effect is large, but you can either compress that and focus on idiosyncratic or selection effect or you can embrace some of that where you feel like you have decent insight and feel like it'd be a turn in the economy, for instance, and expose further. And that's why we talk about whether my equity enclosure may be larger or smaller. The second question you ask was around really around diversification and whether it's one or two stocks.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“I spent my life and career oftentimes building allocation models and going through the structure and understanding that. And with my allocation hat on. Allocation effect that means your exposure to not the idiosyncratic, not whether IBM does extraordinarily well and is able to cut costs and realize better revenues, but the weather the market goes up or down based on what the Fed does or what oil prices do and consumer demand is generally doing and the growth of the U.S. economy, that's allocation effect. And allocation effect is generally, call it 70 to 80 percent of a stock's returns. That does not mean that the only thing you're really invested in is this allocation effect and whether stocks go up or down. We know there's a beta, which is kind of allocation effect when you've got a beta of 1.1 and to the S&P 500 and the S&P 500 rises 1%, you expect to go up 1.1%, whether or not the stock is doing better or not. That's kind of an allocation effect. That doesn't mean you're...”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“So, evaluations have increased a fair amount, as far as they say, in the magnificent seven, but you think the rest of the market, there are bargains or attract evaluations to be found, even if they're slightly above average valuation, that can be justified. Tell us about, okay, so you said you had 30 or 35 stocks in that equity portfolio. Tell us about how you think about return attribution. Do you think of, oh, it's going to be one to two stocks or maybe five to seven stocks is really going to generate the returns. And the rest of them, I'd be happy if they went nowhere. Whereas maybe in the bond portfolio, your average bond is paid off. And it's the exceptional stocks that go badly, whereas exceptional bonds that turn out bad, whereas in stocks, it's the exceptional ones that turn out good.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“That are the transistors and the wafer technology out there. The other companies are going to have a good opportunity for revenue generation and margin expansion and multiple expansion as well when we start to see those opportunities. The multiple expansion means we say that's not the fundamental necessarily that's simply the investor. I still find the valuation attractive on equities across many, but it takes more of a selector to capture those.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Opportunities for what is the life bledblood of the U.S. economy, which is the small and medium sized companies that also form the majority of our employment. NVIDIA basically back to NVIDIA. They ain't making all that money unless somebody else is buying those chips. A lot of companies are buying those chips because they see the potential for new opportunities of the future. And let's take, for example, a pharmaceutical that sees not even a large pharmaceutical, a mid-sized pharmaceutical that is using AI to its benefit to compete with the larger ones to find those new early stage drugs that might have some potential to use technology to go through protein folding techniques and find an expotential drug that they could put into phase one and phase two because you still have to go through the FDA, the artificial intelligence isn't going to approve your drug for you. That takes a couple years. So Nvidia is, I believe, in many of these larger companies are benefiting because they are the forefront of some of these capture potentials. And video is probably key on that. And that ecosystem that represents some of the other stocks.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“For a selector like ourselves that find individual opportunities that have revenue generation capability above the consensus of the market or margin expansion or new paradigms of product development that might lead to the next Ozimpic, gosh, let me know when you find that one. Those stocks are not extraordinarily expensive. What has become more expensive, we believe, is the large market cap stocks that maybe are more expensive in two parts. One is because yes, there is technological innovation and I believe, in my humble opinion, that what you saw with what we're seeing with artificial intelligence and machine learning is representative of a true change in paradigm that will lead to revenue generation potential and margin expansion and new product.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Individual stocks and ways to adjust the fundamental characteristics of your index so it's not purely driven by FO index. Maybe it comes from my past as an old physics and math major of thinking about the difference, just the difference between a mean and a median. And if you ever take your stats class, you heard a lot about knowing the difference between your mean and median. And when you're mean or your average is well higher or well lower than your median, you probably got some standout characteristics. And that's kind of where we are now is the median of the S&P P500. It's quite different from its mean. Then you should be looking at the valuation characteristics as well. And what you find is that stocks, by and large, I don't find them extraordinarily expensive right now. They're above an average, yes. But by and large,”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Very much so. And then looking across markets, you do have to, we're in a market now with some behemoths out there. Those are the much discussed, magnificent seven in the S&P 500, and that's one of the key metrics that every investor watchers come across their CNBC screen 500 times a day or wherever it is. So that's, you know, therein lies when all eyes are on it. It lies a metric evaluation. But I talked earlier about thinking about an equal weighted S&P 500, not just the average S&P 500, and just delving further into individual sectors clearly.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that is such a great point. If people say, oh, the trailing multiple of Eli Lilly is 120. And it's like, well, I think they're rolling out Ozempic. And I think, you know, a lot of people are using that. So maybe the forward PE is lower than 120, may still be overvalued. I'm not making a claim on that, but a trailing PE when earnings double, a trailing PE is probably pretty useless.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Their estimation of how much they were going to make went up more than 20%. The price only went up 20%. The stock got cheaper. So is it really that surprising that it kept rising afterwards? I didn't think so.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Kicked off the AI revolution. First, you had ChatGPT that came out in March and my son all of a sudden is doing his turnpaper on ChatGPT. And then in May, when NVIDIA came out and announced their earnings were going to be their forward expectation was going to be significantly higher than where it was expected because companies were coming in and buying new chips because they started to see the light from ChatGPT about eight weeks earlier. There was a lot of chat about, so Nvidia went up 20-odd percent. In the stock market and a lot of chat about how expensive it had gotten. That's only if you look at just the contemporaneous PISA earnings. You start to look at what NVIDIA is telling us about how much money they're going to make of future earnings, so a forward price to earnings. And they got cheaper.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“So we're looking now at forward price to earnings and price to cash flow being very meaningful metrics and just highlighting the forward cash, the price to earnings metric of it's underappreciated, I think, that when you look at a stock valuation, if that's your chosen measure of thinking just price to earnings, whether it's a cyclically adjusted, like a keep measure or keep measure or not, more often than not, I want to look at the forward price to earnings and yes, I want a good feel for that forward estimation of earnings is a good one, but take Nvidia is an example. And NVIDIA is not a stock that we hold right now in that flagship portfolio, but to NVIDIA as an example where in May of last year, when NVIDIA came out with that extraordinary earnings report that it felt like that part.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“It's a good question. Yes, we own individual stocks and the one flagship I spoke about. Where you're thinking about the valuation of equities as they play into that, even knowing that, yes, in that portfolio, we do hold IBM and that's driven by idiosyncratic or the company risk that goes up and down. On the valuation side of equities, one way to look at it is the same that others do of how much you get paid per unit of earnings on the corporate bond side often, how much do you get paid for the risk of default on the equity side, this is how much are you paying for a stock for a unit of earnings or for its book value or for its cash flow? Many measures differ by the sectors you're looking at. And cash flow, I think, is a very good measure. Price to book is an old measure that is less utilized now, in part maybe because we've become more of a technological economy that the book value of the assets is not as important as it once was.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“86% of the time high yield spreads have been wider that suggests that you're not getting the best entry point in terms of valuation for the high yield markets. How do you estimate valuations on the stock market? And I know you don't own the stock market. You own a somewhat large number of individual securities, but when determining how much stocks to own as well as stocks relative to bonds, as well as individual stocks, do you have any histograms there?”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“About 86% of the time, you get paid more. So then you go question, you put that in relativity to other economic things and say, so are we in that environment right now of we're at the top quartile of where the economy is going to improve? The forward expectation for a 2024 growth right now at 1.6%, I don't see that. I see the potential for downside risk”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“So, this is just where spreads are on a histogram. So, if you take all of the corporate bond spreads for the high yield universe and you put them into X period of time, they're in this range, in this range. And so you end up with somewhat of a skewed bell curve. And you say about 86% of the time spreads are wider than where they are right now. And about 14% of the time, they're tighter. They're providing less default compensation than where they are right now. We're at that point right now where, as I said, for your default compensation for how much you get paid for taking a risk of lending to a company, of lending the Microsoft.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT