You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bluebird Radio and we're live today Danta Point, California, b m Y Melon's E t F Exchange twenty sixteen. So here we are investors are dealing with rising interest rates, an aging bullmarket in stocks, fluctuating global currencies, and more. Where do e t f s come into the equation? If you're Joshua Emmanuel, chief investment officer and managing director at will Share Funds Management, That's what we're going to
find out now, Joshua, welcome to the show. Thank you, Kathleen. It's nice to be here. So where do you start? Chief investment officer? We just spoke to another chief investment officer. It seems like it's a very tough time to navigate. You want to make money for your clients. You certainly don't want to lose their money. Where do you start? As someone who is says such as a big user
of ETFs, good question. You know what we do is we kind of uh form a macro framework for so we have uh you know, a committee that sits down and we spent a lot of time looking at a lot of different types of information to understand where risks
and opportunity are in the marketplace today. And frankly, we're in a world today where, um, you know, evaluations across the board across asset classes are you know, rich, they're healthy across the board, and we're in an environment where we're seeing you know, a lot of stimulus driving asset prices, and we're seeing signals of slower economic growth. So when we see these types of indicators, we tend to pull
back risk across the board. So if you look at our portfolios, whether you know et F related portfolios or other portfolios, we've been peeling back risk, peeling back risk and doing what putting it into cash, putting it into
alternative strategies. So we we like to stay invested. H you know, timing the market can very very challenging thing for investors, but if you if you look at expected returns across asset classes, we think expected returns are certainly going to be nothing like they've been in the past. So what we've been highlighting and investing in more so as opposed to cash, we've been looking for opportunities where we can earn some carry or some credit or income
in the portfolio. So as opposed to equities, we've been taking risk out of equities in this environment and putting those assets into income oriented investments. So either UH investment grade credit, high yield credit UH income oriented equities as an example, but taking uh, you know, less equity risk and looking for opportunities where we can get some certainty of return through income. Okay, and and there's income and
there's income. And then when you talk to try to take risk out, I guess you have to be very careful with anything that's a high yield junk bond type investment. UH. So you high quality bonds UM, and I guess you probably aren't doing too much in sovereign bonds right now unless you're looking overseas well. Let's talk about the risk that you're trading, right, So you know, if we look at high yield relative to a government bond or U S,
strategy is certainly more more risky, right. But if you're taking risk out of equities and you're putting that risk into high yield, you're actually accepting a lower degree of volatility. You're you're investing in an asset that is arguably very correlated to the equity market. But that ASCID is delivering to you some additional income relative to which you might get an equity. So actually trading out of equities into high yield is a risk reduction trade in a portfolio.
Now naturally, um, if you were to take a different position of trading that, for for investment grade corporates, that would be a risk go on trade. So it really depends on the levers that we're pulling. But in this environment, we're taking risk out of equities and putting that into credit. Putting that into credit, you don't think that that's uh, that that's gonna end up badly when when and if they actually raise interest rates. So our view, and we've had to you for some time, is that rates are
going to stay little longer. And I know there's a lot of what longer year, two years, five, We don't see any real material rate, you know, hike in interest rates until um, you know, when I say hike in interest rates, certainly the Fed could move in December. There's still a fift implied probability if you look at FED funds futures of a hike in December. But even a hike in December, we don't expect to translate into a
drum mattic rise in interest rates. Right. I mean this is this is going to be more of a measured move, And I would argue any decision to hike rates you know tomorrow, even would would likely result in the market moving towards bonds and actually pushing rates lower. So we're not as concerned about dramatic rising interest rates hurting bond
investments in our Portfolis, I'm reading your mind. I'm guessing the reason you're not too concerned about it is in this environment, you're saying, if the Fedboard just raised rates and even raise them now, people would move into bonds because they'd say, com is not that strong man, that's just gonna slow things down. So bonds are gonna do fun. Yeah.
I mean, I'll tell you if you look at you look at the economic data retail sales UM, you look at industrial production last week, you look at the services datat of I s M. Arguably third quarter economic growth
numbers are likely to be worse than expected. Even if you look at inflation related data, you know, UM, even core inflation, although it's been rising, most of that rise took place in you haven't seen much of a rise in core and the only rise that we saw in the most recent report was primarily due to medical medicare costs, So our medical costs, excuse me. So ultimately the economy is and on top of that, equity valuations are rich, so you know, but that's that. But it doesn't that
offer a contradiction. I mean, if you're telling me that all these things added together paint the kind of mediocre picture, but the SMPS trading, so the market must know something or at least think something. I will say that the market's ability to shrug off, you know, disappointing economic data. We're coming on six quarters of negative earnings growth, uncertainty
regarding elections and other global related issues. I think it technically it's encouraging, but I also think it's concerning to the degree that, you know, the market is being a little bit naive in terms of some of the risks out there. Well done, Thanks very much, Josh Manuel. He is the Chief Investment Officer and Managing Director of Wilshire Funds Management, helping to manage nearly one hundred and fifty
billion dollars of client assets. Were broadcasting live from et F Exchange B and Y Melons et F Symposium in Dana Pointe, California. This is Bloomberg