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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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“In the last two years, I've read, well, because this indicator is now at this level, like the 210 curve, that means every time that's happened, you must experience a recession, it's nice to see some of those indicators doing a little bit the opposite now and you getting that opposite narrative. One of those is CEO confidence, CEO confidence has ticked up recently. And you might say, well, at this level of rise of CEO confidence, we've never experienced a recession immediately following. So if nice to see the turn of events.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Consensus. So it's those economists that are anywhere from the finger in the ear. This is what I think to having their own model that does a bottom-up GDP analysis and everywhere in between. But it's generally more fundamental in nature of a subjective rationale from an economist. So right now, and that's a good point that you bring up around that 99%, that reflecting a lot of indicators, like the what I just talked about that we'd call the 210 curve saying this inverted US Treasury curve is telling us that we should be experiencing a recession because for the past seven times it has remained inverted for any reasonable period, we have seen a following recession and this time we haven't and we're starting to see us coming out of many of the leading indicators that have historically told us we're going to experience the recession. And gosh, I can't tell you how many times.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“That is, and I think the 99% you quote would be the implied recession probability from something like a 10-year US government yield lesser two-year government yield right now, which is an inverted, that's what we call the inverted interest rate curve. And there's an implied probability of recession because it's long been discussed that that's one of the best predictors of a potential recession. Cam Harvey, actually, that you, I think you had on your show before was one of the originators of that research that talk about that. And when that swings around, then that becomes, so we went deep into negative territory of the 10-year yield was much less than the two-year yield, meaning potential for economic activity, if that's how you read it, coming down in the future and a heightened monetary policy pushing down economic activity, let's have a heightened recession risk. That's at 99% probability. The 45% that I reference is more the every, it's all the economy.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“I find that pretty high and too high. I think a reflection part, a risk premium of recession risk or a tail risk that we're still looking at the Fed hasn't turned yet and the Fed hasn't officially gone to dropping interest rates and we still worry about the long and variable lag of interest rate policy taking hold at some point. And so economists are still hedging their bets, if you will, by keeping a recession risk heightened until we really see the Fed actively turn.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Employment is rising, consumption is considerably lower, and we have negative GDP growth. And we're going to call this a recession, is 45% right now.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Right now it's about 14% of the time. This is about how much you're compensated or less, which means the majority of the time you're earning more for that kind of default compensation. It puts that economic framework in your mind of, well, are we in an average environment? Are we in an environment right now where there's much, much lower chance of a higher default experience of financial conditions experiencing a closure? And we think that's less likely. We still look at the As the Fed would say, the long and variable lags of interest rate policy are still concerning. And it's, you know, I venture off course a little bit in talking about macro, but you look at the consensus expectations right now for the 12 month forward possibility of a recession. And I don't mean a technical two-quarters of negative duty growth recession. I mean the National Bureau of Economic Research opines and says”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“How often do we sit in this bucket right now of being compensated 3.5% extra for the default compensation and how yield bonds? And what you find is about 80% of the time, more than that actually right now, it's about 86% of the time you're compensated more.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Generally, yes, I say generally because there's always the, you know, we still own corporate bonds where we feel like we're overcompensated for the risk inherent. And so there are select opportunities. We see less and less of the select opportunities to your question. And we look at it in multiple ways. Obviously, like the equity markets, you will look at spreads over time of the high yield spread on average being around 30 basis points on unsecured bonds, so 3.5% over U.S. Treasury is about the extra compensation you receive for your high yield bond. But you also look at it. So, you know, how is that?”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Invested in equities where we see a supportive Fed pushing activity out to that spectrum. At the same time, we don't feel like we are as well compensated as we would like for the potential of financial conditions dropping and corporations having trouble meeting their liabilities.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“But we are also, when we invest in fixed income, it's not the percentages we've actually gone up a little bit as of the tail end of last year in our interest rate duration or sensitivity. And then recently reduced that a little bit further. So we actively manage our interest rate sensitivity based on the fair value of risk-free yields. And then we are separately looking and saying how much credit risk are we taking? Is this an environment where we could see defaults rising of corporate bonds or corporations having more problems of financial conditions no longer being supportive of systematic risk rising, in which case spreads will rise and our bond prices will fall as a result, all of the things being neutral. So we've started to take down our spread duration or our spread compensation as a result of we see better activity in symmetrically.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“In my field, get caught up in all the nomenclature, but it's kind of simple. And the simplicity is as a bond investor, you're just a lender and you have to think like a lender to when you buy a Microsoft bond, you're lending money to Microsoft and you want Microsoft to be prudent and become less risky and have less chance of going into default. I use Microsoft as an example because Microsoft could default while we are sitting here talking. That's extremely unlikely, as you and I know. But could happen. And because it could happen, you could get if I were to lend to Microsoft for a day or two, I should get paid just a little bit of extra over lending to the US Treasury, which is always thought of as the risk-free asset. So when we think about risk and how we deploy it, getting back to, you know, we are overweight equity.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Versus it goes down, or how much risky activity impacts you so it spreads widen or they contract. When I think about that, our actual targets aren't in percentages of fixed income holdings. They are thinking about the interest rate duration or sensitivity we have. Do we think bond yields or U.S. Treasury yields are going to rise or fall? Obviously, if U.S. Treasury yields are rising across parallel interest rate curve, across all maturities, then by the old seesaw of bond math, prices are falling. And that's bad for your investment. And then we're thinking separately about how much credit risk we hold. And the credit risk we measure or the risk for that is how much are we getting paid for the default compensation or lending to a company? And really sometimes investors.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Allow more economic growth, that is a good environment for equities generally over an investable cycle, though we are finding more opportunities in equities than we are in bonds. So we've started to overweight our bond relative to a strategic objective, overweight our equities at the cost of bonds. Now, there's a lot of subtext in there as well as a long-term multi-asset investor and growing up a little bit in fixed income as well. When we talk about a percentage of bonds, I always kind of chuckle because it doesn't make a whole lot of sense because of, you know, owning 60% of U.S. Treasury bills is a whole lot different than owning 60% of high-yield bonds or 60% of 30-year U.S. treasuries because of the effect of interest rate duration or interest rate sensitivity, how much your bond price moves when the parallel interest rate curve goes up.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Move, and then there are risk parity funds that use risk as their paradigm instead. We use a tactical orientation to say, just as you were talking about, you can find bonds more attractive than equities at different times. And so as it stands right now, we've started to find equities more attractive than bond returns whilst I just told you about bonds have become increasingly attractive at the same time just 2023 is kind of the example there. Well, they may be more attractive in a higher interest rate environment, but if we see superpositivity in, well, that was a magnificent seven, but even some in the economy, then you could see your equity still outperform, we're coming into an environment that the Fed is much, much more likely to drop rates, provide more accommodation, push investors back out into activity that will”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Even if cash is your benchmark, you have a benchmark, you've got a central objective of what you're trying to achieve and how much risk you're going to deploy for your investors. And make a mistake, risk can be a very positive term. Investors want you to deploy risk to make improved returns over a central objective. And so our central objective would be, well, we have a plethora of funds, of multi-asset funds that have different objectives, but let's take it from the standpoint of we have one flagship fund, our income opportunity fund that is a central objective of somewhere between 30 and 50 percent equity and the remainder, call it mostly fixed income, investment grade, generally fixed income. And so operating from that central objective, and I use that band because it's tactical as well, there are pure balanced funds that have that as your central objective and they don't.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the last piece is really important of every investor is I think should be required to have a central objective. And it's interesting to say as being in this business a long time, a lot of people like to say, I have no benchmark.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“With interest rates higher, bonds at least have, I mean, they may have a volatility, and we saw that in 2022. To the downside for bonds. It makes them a little bit more attractive than in a low interest rate environment.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Goes down, you're offset by a good 8% of buffer that you earn over the course of the year on that coupon yield. And so that's the buffer on the downside that you get as a sweetener on the upside as well. So your upside versus downside capture on bonds increases as rates rise just mathematically. And so it's something I think that the Fed is underappreciatedly pushed in their portfolio balance channel. When they rise rates, they take you a little bit out of a riskier activity and put you in less risky activity. And part of the way they do that is saying, gosh, I find something that is higher interest rate, a little bit more attractive than perspective risky activity. But it's also your upside versus downside capture can be better in bonds than in equities.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Where the bonds and the bonds out of the house, it's kind of an interesting thing that the Federal Reserve has pushed in some ways in a portfolio balance channel, pushing you into asset classes that have better upside versus downside by pushing interest rates up in a zero interest rate environment, they look a lot like equities in that return profile. You don't have much compounding yield to offset the downs and to enhance the ups where in today's environment, a high-level bond, for instance, it yields say 8%. Well, let's say your default compensation goes up because the company becomes a little riskier, i.e. spreads widened. Let's say rates rise and risk-free interest rates rise and the old seesaw of wind yields rise, bond prices go down. So your bond on a price basis.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“And they have different investment paradigms as well. When you might want to be in one versus the other for that asymmetric versus symmetric profile, just kind of repeating what you said nicely there is equities have generally a symmetric profile. The S&P 500 goes up 1%, it goes down 1%. You've got a little bit of a 5% and down 5%, depending on your time periods and how much volatility. And you have a smidgen of dividend yield that is offsetting that, but that's not what investors are invested there for. So it's kind of a symmetric return profile. Your upside, downside capture, as we would talk about it, is about 100.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“The average of all the companies returned last year as well. So bonds and getting that good selection right can return as much as equities. On the whole, you also get that kicker of usually more income from your bonds as well when things are going well on bonds. You get a little bit of a maybe spreads or that default compensation reduces. If your rates go down as well, your bond prices go up and you've got a kicker of a five, eight percent yield, depending on which bond you look at. The opposite is also something you get a little bit of a buffer from income when things don't do so well that you don't have inequities. Bonds and equities have both their attractive total return potentials. I don't subscribe to bonds are always just the safe haven that can't return as much as equities.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Oftentimes I tell investors that bring this up, look at the volatility and the return volatility of the 30-year U.S. Treasury. Do we think that the U.S. Treasury is going to default in 30 years? Of course not. This is what we would call a risk-free asset. Is it possible we have delivered discussions and think, yes, it's possible, but it's a risk-free asset, but it has a lot of volatility based on economic differentials. And as much volatility as many equity asset classes, bonds also on a total return basis of getting your bond return right can provide significant upside. High yield bonds, which are corporate bonds that are lower in quality, of course, than investment grade, but still many large companies that you know and have heard of and by their goods from Walmart and elsewhere return to 13% last year. That's not far off of what the equal weighted S&P 5%.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Be correlated and when they may not be correlated, or they're less correlated. As I say, you have to look at 2022 and realize that that latter party of bonds are always your safe haven. It doesn't always work that way. So we believe more in the owning across a cross section of opportunities, understanding the correlations change over time and looking for total return in each individual asset class.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Or mortgages or U.S. treasuries secured and unsecured high yield and investment grade. Of course, there's a large amount of potential there, all of which are total return opportunities. And the equity side is, of course, also very diverse in its orientation. And these are total return opportunities. We are fundamental investors. That's where I come from. So I'm looking at each of these individual investments as a potential for I'd like to see a good total return or a capital appreciation potential. Income is, of course, important as well for many investors and for us we find that an important myth and orientation in many of our funds to have that so bonds provide usually more of that. But there's both components. And the mix of that, the middle of that is are these things correlated. You can take a view on when they should be.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, great question, and that is the place to start, certainly. And there are two real houses or schools of thought here. One is where I stand, which is both of them serve as total return opportunities. Each of the categories serve as total return opportunities, and you have changing correlations over time to how those mixes fit together. The other one is that bonds will always serve as the buffer or the haven, and stocks will serve as your total return opportunity. You only have to look at 2022, where the ag was down 13-ish percent, and stocks were down almost 20%. You look at the S&P 500 and realize that your safe haven didn't work. We think more in the realm of many of these categories, our total return opportunities. We look at bonds as having good income and potential for capital depreciation. We can talk about the plethora of categories, whether it's corporate bonds.”
2024-02-27 · Forward Guidance · Adrian Helfert on Stock/Bond Allocation, Equity Broadening, and Credit Market Richness · IDENTIFIED FROM THE TRANSCRIPT