YouSaid · the spoken record

Sébastien Page

lines on the record: 77
first: 2021-01-08
most recent: 2021-01-08
sittings or episodes: 1
sources: podcast

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“So that's one way to think about this is that let's just look forward when we try to answer that question as opposed to backwards. And if we look forward, history says the likelihood of mean reversion given where we are could be fairly high. Second, there's just more breath. There's more opportunities for Alpha in global portfolios compared to portfolios that are concentrated in the US, especially with the current environment with the fangs dominating the US market. There are more than 14,000 companies that are included in the MSCI all-country world index.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“But let's think about the usual disclaimer. I'm sure you tell that to all your clients, Barry. Past returns aren't indicative of future returns. That's a generic statement that I talk a lot about in my book, but I show that over, say, five or ten year horizons, relative returns and valuations tend to mean reverts. It's possible that going forward, non-U.S. markets could outperform. I believe that from a long-term perspective, emerging markets in particular are positioned for higher growth than the rest of the world, given where there are in their business cycles and given their demographics. And if you want to get a little bit more tactical in an economic recovery, economies that are more levered like Europe, for example, that have more cyclical exposures could outperform.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's a really good question because non-U.S. stocks have underperformed for a long time. And this is an example of where relative valuation has not worked in terms of reversion towards demean because other factors have not lined up.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“He said the secret to happiness in life is to lower your expectations. So with rates at the zero bound, the bottom line is that investors have to lower their expectations for forward returns on both stocks and bonds and for how much treasuries can rally when stocks are selling off.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Risk managed equity solutions, for example. Barry, when I, this question, Brings to mind a story I have in my book. When I work at State Street, I had a really great mentor and I talk about him in the book. He had a fairly dry sense of humor. And one day I was in his office complaining about my career. No, I was saying my career was not going the way I wanted it to go. And he looked at me and he was getting impatient. And he asked Sebastian, do you know the secret to happiness in life? I got to the edge of my seat. Do you know what he said, Barry?”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of those strategies can pick up the slack from treasuries going forward. You can consider absolute return strategies, adding those to your portfolio because they allow for short positions, which can be very effective hedges or look at other diversifiers. This is usually the answer people will give you. Very treasuries don't diversify as much. Look at gold. I don't know. Gold can trade like a risk asset in the short run at least. Look at investment-grade bonds. They still have the fault risk. Low interest rate currencies like the Japanese yen may help. They tend to rally when stocks sell off, but you have to ask, what's the expected return on currencies? It can be quite low. So when all else fails, you can either accept higher exposure to loss going forward or reduce or reoptimize your equity exposure given your risk tolerance. And I mentioned allocating to”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look at the long treasuries index during Q one of twenty twenty, it was up twenty percent. But again, as yield approached zero, even in the long end, gains of that magnitude become unlikely. My view is you have about one more good big crisis in long treasuries, if you will. Then you have to start thinking, okay, if I can't diversify, if I can't get the hedging from treasuries where am I going to get it the simplest way of doing that is to buy put options on stocks. But that can be really expensive. You have to pay for it. With treasuries in a normal environment, at least you get a positive yield. I mentioned earlier the possibility of dynamically managing your risk. I think this is becoming more important for asset allocators and for our industry, for example, with so-called managed volatility strategies or Macro strategies”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“The amount by which rates can go down, duration times the change in rates. And look at German boons during COVID, right? They only went up 2% in Q1, 2020. Meanwhile, the Germany stock index was down 25%. So maybe treasuries can dampen volatility, but they don't really hedge your risk in a sense of rallying when you're incurring really large losses on stocks. So you have to look for alternatives. You can extend duration.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Bonds and treasuries in particular can still dampen volatility in your portfolio. But I have to say that these days, if you ask asset allocators what keeps them up at night, a number of them will say, and I'll include myself, the worry that treasuries, with the exception of the very long data treasuries, have lost most of their diversification benefits. And I'll give you an example. The U.S. equity market had a drawdown of 9% in September of 2020. During that drawdown, the Treasury's index actually lost 15 basis points over that time period. The zero bound limits upside for treasuries, and this very is simple math, right? You can't go up during a shock when stocks are selling off a lot more than your duration.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Long bond allocation of 3% to 4%. The other thing we did in that model portfolio is that within equities, you can swap 5 to 10% of your stocks, traditional long-on lease stocks, to risk manage or defensive equities. There are different ways of doing that. A lot of those are now available on advisor platforms, for example, and some of them integrate dynamic risk management. As I said, Barry, if you want to get an asset allocation, ask them about the 60-40 and whether it's dead. The bottom line is that it's fairly generic advice. You have to calibrate this for risk. You have to account for changing risk over time. Capital markets have changed. So your expectations from the 60-40 change. And ultimately, I think you can reoptimize it with these different solutions that just mentioned.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Worse, bonds no longer diversify stocks as much as they did in the past. So maybe the answer to the question, how much stocks should I hold? Again, as I mentioned earlier, it's often more than you think. But I understand this spirit of the 60-40 question is more about the role of traditional asset classes, right? Stocks, bonds, beers, burgers, simple stuff. My view is that the 6040 portfolio, again, is not dead, but if that's the risk level you're shooting for, it needs to be re-optimized. In my book, I present some model portfolios, and we have shifted 12% of the allocation from bonds to low volatility alternatives. We have a 5% allocation to a risk premium or factor strategy, if you will, the volatility premium. And there's also a dedicated”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“At the beginning of the year. So this means that for the same expected return, people need to take more risk. But let me phrase it this way. In order to hope to achieve the same expected return, people need to take more risk. So it's not just the search for yield anymore. It's the search for returns. The Barclays Ag has a yield of, say, 1.2%, which essentially is zero after inflation. And our solutions team has done a study, and they found that in order to reach a 6% expected return. Now, there are lots of assumptions here. It depends which asset classes you pick. It depends how you model forward returns. But roughly speaking, given current rate levels, you actually need about 80% in stocks if you want to reach for a 6% expected return going forward. And to make...”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“over time. Think about it this way. On a rolling one-year basis, if I calculate the volatility of a 60-40 portfolio, depending on the environment, I can get as much as 20% volatility or as little as 5% volatility. So that's for the same asset mix. 60-40 can look very aggressive when markets are volatile and it can look very conservative in quiet times. Our industry is evolving towards more dynamic risk management to stabilize risk. Think target risk rather than target allocation. And third issue at the 64 to your question, Barry, capital markets have changed. Interest rates are now post-COVID, 100 basis points lower than they were before COVID. And that's about a 50% drop relative to their level.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Stocks should I own is often, especially these days, probably more than you think. I talk about this in my book, but if you look at target-based strategies, someone who's 15 years from retirement, say 50 years old, we think should hold about 80% of their portfolios in stock. And at retirement, the equity weight is still about 55%. And this is because, you know, longevity says or longevity risk is an important factor and it says even at retirement, you can expect to live for another 20, 25, 30 years. So you want your money to last. So that's kind of the first thing to say about the 60-40. Let's just all realize that it's very generic advice in terms of the stock bond mix. Second, really important, risk is not stable.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“These days, that's the perfect question to ask an asset allocator if you want a long answer. It's a really important and well-discussed question. Let me start with the conclusion. The 60-40 portfolio is not there, but it needs to be improved. I have three main concerns with the 60-40, and the first one is really obvious is that the 60-40 provides a specific risk profile, and not everybody should have that risk profile. So it is too generic if you think about it as blanket advice, depending on how far you are from retirement. For example, earlier we're talking about target date funds, you should probably have a different mix between stocks and bonds. People need to account for their risk tolerance. You know, the question how much”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“And add other capabilities like the ones I was mentioning earlier on tactical asset allocation. So it's meant to be an easy solution for investors inside of DC plans. So if you take that lens, it's not that surprising that they've become the default option of choice.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Mapping people to the most important decision based on how far they are away from retirement. And if you read my book, Barry, you'll find that there's a lot of science and research and practice and judgment involved in calibrating those target date funds to meet the needs of the different populations inside these different plans. So people who are putting money aside for retirement. And the calibration takes into account your risk tolerance. And it is, I agree with you, it is, in a sense, an autopilot solution because it'll change your stock bond mix automatically as you age. You'll have to target that fund manager, select the underlying building blocks, monitor them.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“It's very hard for non investment professionals to determine their own asset allocation, right? And with the DC defined contribution system in the United States, that's essentially what we've asked people to do. We've asked them to take control of their investments and their asset allocation decisions. He put it that way. He said asking non-investment professionals to manage their investment is a big ask. Do we ask people to perform their own surgeries? No, we ask a surgeon. So the target date fund has the advantage of”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“To Elon Musk PowerPoints in order to align people inside large organizations and move large organizations. And I'm still working on getting better at this. But to me, the advantages of working at successful large organizations outweigh the disadvantages for me. So working at a large company is a high risk adjusted return proposition, a high sharp ratio, if you will, to use an investment term. But the trade-off is I'll never be a billionaire founder, but that's okay. That's okay with me.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Usually in the form of headcount and brand and marketing support. And second, better career support that I would have gotten at a startup, for example. Now, I don't want to diminish the role of startups in our economy, but sometimes people think of big companies versus startups in black and white terms. And it really is not like that in terms of innovation. But that being said, the main disadvantage is what you would expect, right? No matter how agile large companies are, no matter how successful, you'll always face frictions involved with managing change inside large organizations. There's this tired analogy that it's harder to turn a super tanker than a jet ski. It takes a tremendous amount of leadership and political savvy and with apologies.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, good question. You know, I can't speak a lot to small firms because as you said, I spent most of my career at very large firms. But let's start with what I would say is one of the most underestimated advantages of being at a large firm. Large company, those that are successful over time that know how to innovate and take risks have some advantages over startups. It's not like startups they call the risks and large companies or sleepy giants waiting to get disrupted. That's a cliche to me that it ignores how successful large companies really operate. So I've been lucky enough to work at Fantastic Companies where I've been put in positions to essentially run startup initiatives but with two very big advantages. Number one resource.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“So, tactical asset allocation, the way we define it is about taking advantage of primarily relative valuation opportunities. So, those are the differences in the way we define tactical and strategic.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“By our CEO, and it's responsible for managing the entire firm of 7,000 plus employees across 16 countries, you know, the entire $1 trillion in AUM, if you will. There on that committee, I need to take my multi-asset hat off and put the T-Ro price hat on. And we meet for at least two hours every week. We interact with our board. We set the strategic direction for the firm and we manage execution. That part of my job, Barry, has been a fantastic learning opportunity for me.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, our asset allocation committee is responsible for tactical ass allocation decisions. That's all we do on that committee. We bring together some of our most senior investors from equities, fixed income, and multi-asset. And as I mentioned, Barry, we take a six to 18 month horizon. We typically meet once a month. And we're very much focused on relative valuation opportunities. Fundamental. Think earnings projections and the like, as well as technical, think flows, momentum, sentiment. So evaluations are main driver of decisions, but ideally we want to take positions where all these factors align. So that's for the asset allocation committee. As you mentioned, I'm also a member of the management committee. That committee is chair.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“It's all about putting all the capabilities of the firm together in one neat package or vehicle for different clients. So we've put together capabilities across tactical asset allocation. Think about decisions to tilt the portfolios with a six to 18 month horizon to take advantage of relative valuation opportunities, but also strategic asset allocation, constructing the portfolio for the long run, trading off returns against risk, positioning the portfolio for structural advantages, structural alphas, and also security selection that we typically source in a funds-to-funds format. So we'll allocate to underlying T-Row price. Building blocks. So most of what we do is to put all these capabilities together and then customize them in different ways for different types of investors.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“And you're a thought leader. So I'm guessing it's a very broad set of responsibilities too. So in that sense, running an investment division in the large but agile company is probably not that different.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, it's the perfect job for me. I absolutely love it. Running a large global investment organization, in this case over $360 billion in AUM, over 200 different portfolios. It involves not only, of course, investment oversight, staying on top of capital markets, consuming vast amounts of research and so on, but also running the business, setting a strategic vision, making sure it's executed well, recruiting and developing talent, managing product development projects. And also I'm a member of Kiro's Management Committee where I'm representing our division and helping manage our entire firm. So the job is very broad and I learned something every day. Barry, I know you run your own successful company.”
2021-01-08 · Masters in Business · Sébastien Page on Smart Asset Allocation · IDENTIFIED FROM THE TRANSCRIPT · source