YouSaid · the spoken record

Mike Swell

lines on the record: 55
first: 2020-12-11
most recent: 2020-12-11
sittings or episodes: 1
sources: podcast

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“I thought that rates at 8% or 9% when I started my career looked pretty expensive because rates two years or three years prior were 11 or 12 percent don't think that you're smarter than the market. Think about your client. Think about the type of portfolio and type of risk you want to take and be very thoughtful about asset allocation and diversification. And I think that that is the most important lesson. And I think it's true with regard to an individual and multi-asset investing. And I think it's also true as a fixed income investor.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd first maybe like to answer the question around just investing overall as giving younger people some advice around investing. I think that the most important thing, develop a plan, stick to the plan, and don't look at it. And that is true for people who are non-investors, but it's also true for people who are investors. We often get scared out of our shorts when we see events occurring and we'll go to cash because we think we can be smarter than the market. Don't do that. Develop a plan, develop a diversified plan for your investing, and don't look at it and stay very consistent in terms of investing. In terms of the fixed income portion of that, I would say probably the same thing goes. By the same token that I...”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's really important. You don't want to be in an environment where everybody thinks the same. The way you learn is by being exposed to kind of things that are very, very diverse. So I think that's most important. Don't worry about what you want to do when you grow up. Be around smart people. You'll figure it out.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would say first off, just in terms of people entering the capital markets, financial markets, any part of finance, the most important thing is not to worry about what you're doing. And it's more to worry about who you're doing it with and who you're around. And I think in the first five to ten years of your career, don't worry about what you're going to be when you grow up. That doesn't really matter. What matters more is that you're around smart people that can teach you and are willing to teach you. And you will then figure out what direction you want to take your career. So I really think that's important. And on top of that, you want to be in a diverse environment. And the word diversity obviously can mean a lot of different things. It can mean diverse, obviously racial backgrounds, gender, but it also, you want to be around diverse.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So being a contrived investor, most bond investors are, but looking at investing from a different lens than everybody else has had a pretty big impact on me.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Since, but this specific story about a gentleman in Florida had just a massive impact on me. Just Mercy is a very similar book, recent movie, and a very similar topic. One other on income inequality, hillbilly elegy, which now there's a movie out. I haven't seen the movie yet, but I did read the book. And kind of thinking about the broader issues that exist across our country, why there's a lot of political issues, racist racism issues, income inequality issues, very, very impactful, impactful book. And then on the investment side, this is going back a while, but David Dreeman's book on contrarian investing had a pretty significant impact on me and his book is a lot about behavioral science, behavioral economics, and not always following the trend.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“A bunch. So I kind of have a theme in the books that I read. Almost all are nonfiction. And I would say that the two themes are read a lot on investments and I read a lot about income inequality and historical racism in our country. And so the few books that I can think of that really kind of had an impact on me was Devil in the Grove, which is an amazing book about Thurgood Marshall and his plight into the South, particularly into Florida, to help wrongly accused black men who were accused of either murders or were put in jail for life or actually sentenced to death and to go into these places and defend them. And I think that there have obviously been a lot of books and movies.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say that two people very early in my career early Man Brothers had a pretty big impact and it was less about kind of over the course of a long period of time but single events that had a real big impact on me. And so one was this gentleman Mike McKeever who headed a lot of capital markets. I think he ended up running banking at Lehman. He put me in charge of very early in my career within the first few months of recounting what happened in the European markets from an issuance standpoint overnight so that people when they came in, they were speaking to their clients about the U.S.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, favorite on the video side, I would say was a recent movie that I think was very relevant as we were kind of in a very critical election for our country, was the trial of the Chicago 7. I'm not sure if it was Netflix or Amazon Prime, but an amazing movie about the history of the hippie movement and the protest that the hippies went to the Democratic National Convention in Chicago to protest against the Democratic Party, the war, and kind of, and then a number of them got arrested. And the reason number one, the acting was unbelievable. Sasha Varon Cohn's in it, he plays Abby Hoffman actually went to the same college with me as Brandeis. And so I just found that movie to be very telling. And it's kind of a story about if you think something's going wrong, speak up and do something about it.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Figured out that their 40 was also down because it had a lot of credit and subprime mortgages and things like that in there. So CORE is by definition core. Then you have our GS bond product, which is more of a, it's a Bloomberg aggregate product like Core, but it can do high yield and emerging market debt. So it's intended to be part of your fixed income, but have more satellite, higher return type strategies to increase the yield. And then strategic by definition is strategic. It can go kind of anywhere. So there, it's a LIBOR based product. So it doesn't have five years or seven years of duration potentially like the other products, but it is a cash-based product where it's kind of more of an absolute return product where you can go anywhere within the fixed income markets. And so that product is trying to generate a little bit higher levels of return without taking on the interest rate risk.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So government income, as stated, is a combination of government securities as well as agency mortgage securities. So super high quality, a decent amount of duration there, but not a credit oriented product. Core product is a core holding for people. So we think of 60, 40 allocation, something like a core fund is critical to balance in a portfolio relative to equity and risk assets. The idea in a core fund, investment grade only, agency mortgages, treasuries, agency debt, as well as investment grade credit. And so our view about it's really important that you have the chunk of your fixed income allocation in super high quality to avoid situations that we experience like in the 0708 shock where people had the 60-40 allocation, but when they woke up the next day and rates were down,”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Market and also extend lending and potentially buy municipals as well. So very unprecedented action because of these kind of dislocations that occurred and the lack of transparency. And what did it do? It actually caused that arbitrage between ETFs and cash bonds to eventually go away. And it also reopened the capital markets to allow companies to get back to issue debt, to be able to bridge themselves past the economic crisis.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely, absolutely accurate. And I will say that this level of dislocation that occurred between the cash market and the ETF market between the cash and the synthetic market and credit was very, very, very, I think I said that three times, concerning to the Fed. And this is one of the reasons why the Fed decided to do something extremely unprecedented. The Fed stepped in and said, we're not just going to buy 12-year treasuries because they're cheap to 10-year treasuries. We're not just going to provide funding to the money markets. We're not just going to buy agency mortgages to drive down the cost for homeowners and refinancing, but we're actually going to get into the credit market because the credit market, and particularly the cash market, is frozen. So they now have a plan to buy individual bonds, provide direct funding, buy ETFs in the credit.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think what happened was that you had a very, very quick move in the cash underliers. And then you had a lag in the equity prices of ETFs, causing, to some degree, some premiums to be very high or discounts to be very wide. That can happen for a very short period of time. I will say, though, that at that time, particularly the COVID crisis, in credit, in high yield and investment-grade credit areas that really froze up, and there was a massive lack of price transparency in the cash market, ETFs still traded. Investors, RIAs, individuals, they wanted to get out. And so what happened was they have to get”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is that there was a lot of transparency that existed in ETFs. The physical bond market was frozen, but ETFs still traded. And so as a result, when you didn't see a lot of trading in bonds, you actually saw ETFs trade and got a lot of price transparency. And so we'll use that as another source of transfer of risk. And so you're finding that a lot of investors are actually using it for that purpose. Short-term trades get exposure, and then eventually to work into single name exposure within the cash market.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“ETFs on a day when there's very little trading might be a little bit better than the underliers, but in a risk environment and in a credit risk environment when there's a risk off or a lot of risk on, liquidity ETFs are only as good as the underliers. So I think it really comes down to segmentation, the ability to be able to specify certain parts of the market as a RIA or an investor that's trying to target specific risks. And then secondly to get lower fees than what's available in the open-ended space. Now, we as an active manager, we obviously have the ability to be able to buy bonds. We try to buy bonds that we think can outperform the index. We've done a good job of that. We also will use ETFs from time to time, but really as a way to get risk on in the market very quickly or in periods of time where ETF liquidity is better than the cash market. And one thing we've seen in the credit markets and the COVID-19.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Access to different segments of the marketplace. So the good thing about ETFs is that you can carve up and you can have an industrial only or this only or double be only and so on and so on. So there's a lot of ability to be able to carve portfolios in a more customized way. And the fees are very low. Secondly is you have some institutional players that use ETFs as a way to either gain very quick exposure intraday or to basically exercise arbitrage in between kind of the cash underlying securities that exist in ETF and the ETF. I would say that those are the dominant players within the ETF market. There's no free lunch that ETFs gives an investor. People think that, well, the liquidity is so much better in ETFs and the liquidity”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we talked a little bit earlier about how fixed income ETFs have been a little bit slower to be adopted because of active managers having more success. But this year you're actually seeing more flows into Bond ETFs than you're seeing in equity ETFs for the first time. So there's no question that ETFs are being used much more actively. I would say two main holders, investors. Number one is the, and you know the world a lot better than I do, the RIA community, the wealth managers in the marketplace that have kind of converted their business model from more of an open-ended model to really one that is driven by liquidity and low fees within ETFs. Those are, I think, that the dominant players that you're seeing more model portfolios that include ETFs, mainly for the purpose of”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the answer to your question can be very different for who am I or who am I representing as an investor, as a fiduciary in terms of how I answer that question? This kind of bleeds into the topic of kind of the 60-40 dynamic and do bonds at very low yields still offer investors protection again?”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“At doing that. But there's a lot of need for, I think right now, the spending that needs to get done needs to be directly in the pockets of people that have been affected by COVID. But as we look out a couple of years longer term, there needs to be a long-term investment plan for this country and a lot of countries and infrastructure is going to be important. It's just a matter of whether or not the political will there is there to look at an investment that pays off in five, ten, 15 years versus the way we look at things right now, which is all about today and tomorrow and how does it impact my poll numbers. So hopefully we get to the point where we make more rational long-term decisions. And I think if we do, I think that infrastructure is likely to be meaningfully on the table.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, if I were at the Treasury, I would issue a thousand years at these rate levels. I mean, why not? You're locking in financing for an extended period of time at dramatically lower yields, and it's very possible that yields further out on that yield curve are not meaningfully higher than where they are today. There's still a lot of demand for very long dated cash flows from pension funds and insurance companies that are trying to match against liabilities. And as people live longer and longer, there's going to be more and more need for longer dated assets. So I could see that. To your question on infrastructure, I think it's going to rely upon assuming that we have a Republican Senate, it's going to rely upon whether or not the Biden administration is true to its word about working across the aisle, number one, and number two, if they're going to be successful.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can envision a situation where treasuries, maybe the Fed doesn't bring rates negative, but people decide that to store their wealth, they would rather be in a dollar denominated asset that they have to pay something small than being an asset that has a lot of risk. And so it is a possibility, but from a policy standpoint, the U.S. has so far made a decision to not go there.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“To make equity financing more attractive, to make debt financing more attractive, to create more jobs, and to get the economy going, but it's at a cost. And it's obviously at a cost on savers and a cost on financial institutions that rely upon a shape of a yield curve and rely upon yield. I think that there is some merit to negative yields. The Fed doesn't want to make that trade-off. They've said that. But I would say that it is a policy outcome that could get there, could get there that either they decide to bring it there or the market brings it there. Envision a world where you see significant slowdown in global growth. Equity markets trade off outside the US. And the US is viewed as the safe haven. Fed lowers rates even more, starts to buy more. And the US dollar is viewed as that only thing that's good and the safe haven currency.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, 10, 15 years ago, no, when I was taking economics classes, no, when rates were eight, nine percent, they didn't say, well, what does it take for rates to become negative? That wasn't kind of even discussed. So the answer is no. But when you think about the environment we're in, you think about economics, there is some intuition around negative rates. And now it's kind of the same discussion that we had earlier around trade-offs. So it's a trade-off. The ECB and the Bank of Japan made a decision to sacrifice savers for the benefit of industry and corporations to be able to have access to financing, to incentivize savers to move out the spectrum, to buy equity.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“For much right now given the amount of number one government intervention. And secondly is you have to keep in mind that there is massive, massive investor segmentation going on in the fixed income markets where there are a lot of investors like pension funds in the United States, pension funds in the United States buy long data fixed income to match against their liabilities. No matter what the shape of the yield curve, they were buying them when the curve was flat, they were buying them when the curve is steep. Same thing with corporations that have been sitting on enormous amounts of cash as they've issued a ton of debt and are doing nothing with it because they just want to be able to”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I kind of love how people in the financial markets look to the bond people as the smart people and say that bond people not only should know where bond prices are, but should know where equity prices are and where the economy is going. And so they think that we really can predict via what we think of 30-year bonds versus what we think of two-year bonds. And what I'll tell you is that we're not that smart. And so I think that the historical analysis of yield curves and how they predict equity as an economic growth has been way overstated, particularly in an environment as we've been discussing on this podcast around massive, massive central bank intervention, both from a policy rate perspective as well as from a QE perspective in terms of buying assets. It's hard to look at the shape of the yield curve as a production.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Timing really matters. Like, there are a lot of people in this country that need it. There are a lot of companies that need the bridge to the other side. And the bridge that was given with the fiscal policy number one is over. And again, back to my point is that good vaccine news in the lab doesn't mean everybody's getting back to work tomorrow. It's going to take one to two years until we really see the world and the economic engine purring the way that we did a couple years back. And so we need a little help to get there.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Country where people are lining up for hours to get food. That's not where our country needs to be. And so I think that the incentives are likely to be aligned to pass something. It's likely not to be as big as what we thought about last year in terms of a $3 billion package. But I think that you're likely to see something. Obviously, higher probability, depending on what happens in Georgia, if the Democrats do well there. But even if we're in a 52, 48 Senate situation, I think we're going to see something. The need is too great. And I think the incentives are too greatly, greatly aligned.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would have lost the bet as well. There were too many incentives to get a package done prior to the election, obviously two, three months ago. It didn't happen. It's really a sign, not that it wasn't needed, but it was a sign of how bad the political environment is in Washington. I think as we go into the new year, I think that the need is very material just because we've seen good news on the vaccine front, it doesn't mean that the real economy problems go away in short order. You still have individuals, a lot of people that are out of work that are furloughed. You still have people that are struggling to make house payments and any sort of significant deterioration in housing credit has its own implications. And then you have also a very significant amount of food and security in this”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Supply demand, inflation to be the bigger drivers on the long end of the curve. And over a long period of time, the Fed is going to have much more control over the short end, and the long end is going to be driven by other factors. But in a crisis, the Fed has done the right thing and has impacted rates across the entire curve.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a trade off. And so there's no kind of perfect answer. But from my perspective, they've done the right thing. Now, to answer the second part of your question is the Fed in this case and in a crisis situation, they've had an impact on interest rates across the entire curve. So not only have they, you know, their main policy tool is obviously the short-term rate. So there they have a lot of control. And typically you would see five-year rates, 10-year rates, and 30-year rates would be driven by economic supply demand factors. In this case, the Fed has become big across the entire curve. Obviously, when you introduce QE, QE not only impacts short end, but QE is buying bonds and driving yields lower. And so they've had an impact across the entire curve. That's not the long-term goal. I would expect to see the”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“They were slower. They acted to a smaller degree in terms of lowering rates. They acted to a smaller degree in terms of purchasing assets. And we're still feeling the pain of that as a result of the fact that we did not see a V shaped recovery. We saw a very, very slow recovery, and it was very, very tough for companies to start spending again, to start raising capital again. The Fed learned their lesson. And so in this COVID shock, they came in really big. They drove rates down to zero, and they bought everything. And they bought more than they ever bought in the past, and they bought different asset classes, including removing the freeze from the credit markets. Very, very important. Now, it doesn't come without a cost, but they had to do it, and we're still in this shock. We still have companies that haven't opened. We have companies on the brink of potential bankruptcy. So the need for keeping rates lower, keeping capital markets open is...”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, on your first question, there's no free lunch when it comes to policy. When it comes to policy, it's all about trade-offs. It's about what environment are we in and what risk do I want to protect against? And so when the Fed makes a decision to keep rates low for an extended period of time, it does have negative implications. It does hurt savers. It does hurt banks. But they're looking at a crisis situation. The COVID shock was a real, real crisis situation. They were concerned that you'd see capital markets completely shut, companies access to debt and equity financing pretty much gone. And that could lead to a really, really bad economic scenario. And if we look at 0708 financial crisis, the Fed was a lot slower to act.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hard for people to get direct exposure, but as they liberalize clearing and custodial issues, it's going to become a very important part of the broader capital markets.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has a pretty high percentage of China in it, and it's growing. And so as a result, it can actually be a yield enhancer for investors. But on the margin, it could have some negative implications to sovereign bond markets where yields are so low. We've actually think that the liberalization of the Chinese capital markets is net, net a good thing. It's a good thing for investors. The Chinese bond market is actually pretty attractive at those kind of yields where the central bank in the event that there is a slowdown globally or a slowdown in China, you have China in a very different policy position than the US, Europe, and Japan. And so you have a lot of ability for rates to go down in China. And now that you have more access, we think that's a big positive. We think it's been such an important change in the capital markets. We actually have issued an ETF in the non-US market to get people access to the Chinese bond market because it's very”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you asked the question earlier about the shortage of high quality bonds by seeing liberalization in China and expansion of issuance from the Chinese government, from high quality Chinese corporates into the global markets, creating more access and more liquidity clearly is going to be good for investors and savers. And it can potentially crowd out some of the investment that's been made in other high quality markets. So if you look at Europe at negative or zero rates, you look at the US at very low rates, you look at Japan. If you create more liquidity and more access to Chinese sovereign bonds that are right now yielding 3.5%, 3.5%, that may actually eventually crowd out of other investors. You also look at the Bloomberg Global Aggregate Index.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sovereign yields down to the point where you are forced to sell them and do something else with it. What are you doing else with it? You can buy equities and some people are doing that and rebalancing portfolios and buying equities. And that obviously has a stimulative effect on the economy. And secondly is what they're doing is they're forcing people out on the respect spectrum within fixed income to buy credit. So to answer your question, I don't think there's a shortage. I think in some markets there's a shortage shortage of good prices. But I do feel that this movement to the next best asset class, which is what central banks want people to do, that there's enough yield and enough attractive opportunities. I think that keeping your money in your own market when the central bank is manipulating the price, I think that that's something to kind of think about. So you have obviously U.S. rates really low, European rates really low, and Japanese rates really low because the central banks are”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't believe that there's a shortage of bonds. There's a shortage of bonds at good prices. So it sounds kind of silly, but it's actually an important difference. The ECB talked a lot about is there a shortage of bonds for them to buy to implement monetary policy in QE? And the answer is no, just raise your price. And that's what they've done. And that's why yields in Europe are negative. What they're doing is they're driving.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“what you're doing effectively is you're taking a spread for owning prepayment risk. And our view is that number one is that we feel that prepayment risk is coming down. But secondly, and this is a really interesting point, is that mortgages offer you a hedge. And one of the topics I know that we're going to talk today about a little bit is the 60-40 kind of balance and do we still feel the 60-40 makes sense and that you're getting kind of hedge benefits of being in fixed income. Agency mortgages are one of the securities where you actually are. And the reason for that is that you have a Fed that is buying the securities. And so in the event that the U.S. economy goes south, credit spreads potentially widen, you see agency mortgages are an asset class that the Fed is likely to buy and drive down that yield very significantly. So we think it's a very important policy tool. And so buying on the fringe, buying what the Fed's not buying, number one, which is double Bs.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“High yield credit. They have a feature that works for investors sometimes, but not other times. And so their floating rate in nature. A lot of investors have bought them because they were concerned about rising rates. Despite the fact that their floating rate, and I mentioned the point that rates are likely to stay low for extended period of time, they offer an extremely attractive level of carry 4 or 5 percent without taking, as you mentioned, kind of crazy, crazy risk. Another point on top of kind of having a little bit more credit exposure in your portfolio and long data munis is agency mortgages. And I kind of view them as a way to barbell your portfolio. And this is what we're doing in our core bond portfolios, our traditional Bloomberg aggregate portfolios, where barbelling double B credit bank loans along with agency mortgages. Agency mortgages either guaranteed or implicit guaranteed from the government.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Number one is there's credit. So we think that the credit market, the 2021 is setting up to be a phenomenal year for credit. Obviously credit spreads have come back a lot since the COVID shock, but we feel that the combination of low rates as well as fiscal stimulus and recovery post-COVID is going to lead to an extremely attractive market for credit. So number one is moving down a little bit in quality in credit within the unconstrained space, moving a little bit into high yield. And as I mentioned before, we think the double Bs offer a very significant yield pickup relative to owning kind of triple B's and investment grade. Secondly is leveraged loans. This is an asset class that's been in Outflow since I've been in the business. Leveraged loans are higher quality from a credit standpoint than”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think there are a few different places. I think number one, I think that individual investors still benefit significantly from owning long data municipals. So as an individual, I would own a good chunk of my fixed income allocation in high quality long-data municipals. They're trading at very comparable yields to where treasuries are, and obviously taxes are not going down. Taxes are likely to be going up. And so there's a significant benefit there. And I think we're very confident from a credit standpoint in terms of higher quality investment-grade munis that you're not talking about a significant credit risk. Secondly is within the kind of the Bloomberg aggregate world where most fixed income lies in kind of the core intermediate fixed income space, there are a lot of things to do to do better than the 1% that exists in treasuries.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our yields at 2, 3, 4 percent across different markets in the US actually look very attractive to non US investors. So we think the story for the next couple of years is going to be demand for yield because we think rates are going to stay extremely low across the globe and do not fight the Fed. That's a very important investment thesis. You're almost always right to not fight the Fed. The Fed has been very, very clear. Rates are going to stay lower for an extended period of time to get average inflation meaningfully higher. Number one. And number two, there's been a recognition that the full employment rate is not what you think it is. That there are a lot of people that have been displaced from the job market, having come back in a long period of time. You need to keep rates low to incentivize companies to actually try to go in and hire those people and to get people kind of better paying jobs than where a lot of people are right now.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Predominantly invest in fixed income. They write policies and they buy fixed income assets on the other side of that. There's also a regulatory reason why you find that insurance companies buy fixed income assets. Same thing with commercial banks, commercial banks buy fixed income. So I think that there's going to be an enormous amount of demand for yield. And you have to to some degree look outside the United States when you think about investing. You can't just rely upon what you may think investors might do in your country. We have very, very global fungible markets now. And so the fact that rates are negative in Europe, rates are negative in Japan, that creates an enormous amount of demand for yield. We think the US market, although we think the yields are very low, it's kind of like we're kind of the ugly, prettiest in an ugly contest to a certain degree.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So people would think that with rates pushing on zero, with kind of recovery in the future in 2001, 2021, 2022, that bonds would be completely out of vogue and a lot of concern around eventual inflation in the US and rising rates. I would say to that, forget about it for a number of years. There is an enormous amount of demand for yield. There's enormous amount of savings that exist. There's an enormous amount of market segmentation that exists on a global basis with investors where investors, a lot of investors do not have the option to go into alternatives or to go into equities. They are fixed income investors. Obviously, retirees, conservative, can't take the volatility of owning equities. They need to generate income to live. You have insurance companies that...”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Industry and any industry is always be flexible to reinvent yourself. And so the crisis occurred, CDO market, CLO markets shut down, but the assets became very distressed and there was a great opportunity to start investing in those areas. So I went from trying to be an issuer in that market to being a distressed investor.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, my timing was the opposite of fish in the barrel. So the mortgage market didn't start rolling over until the end of seven and mainly in twenty eight. And so my mandate when I got to Goldman was to actually look at the structured product market from an issuer standpoint. So there was enormous amount of CDO and CLO issuance. The goal was to look at those markets to become a manager. And when I got there and did a lot of the work, we said, you know what, this is not actually a good investment for investors. They're levering up an asset that has appreciated massively and there's no return here for investors and there's risk. In 2007, the CDO CLO market also at the same time kind of shut down. And I was left with kind of nothing to do. And so I had to reinvent myself. And one of the things that's very important for people in this...”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I spend a lot of years at Freddie Mac in Washington, DC in the mortgage market, securitizing mortgages, trading mortgage securities, working very closely with originators, and then transferred that risk to a firm that was getting involved in the REIT market and particularly in the subprime mortgage market. So those were kind of where the bulk of my career was prior to getting to Goldman Sachs.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where you have some investors that buy the index. They have to buy the Barclays Ag. They have to buy the long corporate index because they're a pension fund. Very, very significant market segmentation issues that creates inefficiencies. So when there's enormous amount of demand for one type of asset, you can actually buy something that is meaningfully cheaper. So if everybody has to, if everyone has a limit.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a number of different reasons. There is a lack of homogeneity in the bond market. And so if you think about something as clear as the treasury market, there's on-the-run treasuries, there's off-the-run treasuries. There's 14-year treasuries, there's 30-year treasuries. They trade at very, very different levels. You also have an index that is very, very transparent in terms of what is in the index. And there's a lot of ability to be able to purchase securities that are outside of your index, very different than what's in the equity market. Typically what's in the equity market and what's in your index is what is your investable universe. Within the bond market, there are many, many different sectors that sit outside of the universe. The other thing is that given that the indices are very transparent, there's a market segmentation issue that goes on in bonds.”
2020-12-11 · Masters in Business · Mike Swell on Global Fixed Income Investors (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source