ESG, TMT, Equality, And Polestar (Podcast)

from some of my institutional investor clients in Europe. First they roll into it like, is Disney is environmental, social and governance? And I said, I think Disney is okay. That was my big stock pick of the day back in the day. I think it's s d okay. I mean, it's Mickey Mouse, right, I mean, how bad could it be from the E s G perspective? But a lot of pope folks wrong. No, I think I'm okay. I think I'm okay. It's Mickey's pretty good. Mickey, Mickey, Mickey's

pretty good. But a lot of folks it's obviously issue has become a major major trend. I think it's gone two ways. It's gone. On the one hand, it's it's been a good label to use for marketing, right, and we've seen that takeoff and really sputter out over the last couple of months because E s G E t F s have now gone negative and let's look at somebody. I was gonna say, it's and the the other way it's gone, Um, people who are activists or is activists

the right term. Maybe people who actually do something with their steaks, you know, put their money where their mouth is and change the world. We have one of those people in the office in the studio right now, Yasmin Dia Bilder joins us. She's the head of E t F S and managing director at Engine Number one, which you know probably from last year's proxy battle that won them three spots on the board. So it's been great

to have you in here. Um, talk to us about the first of all, the kind of crash and burn of the marketing side of E s G investing, because, like I said, E t F flows have gone negative. Now, yeah, it's a really interesting trend. You're scene right now, So I should say off the bat, we don't see ourselves as E s G providers, but let's talk definition. What is E s G investing. You mentioned environmental, social, and governance data. Ultimately, what most of these strategies are doing

they're trying to rate companies and rank companies. So ultimately they're saying what companies look quote unquote best across environmental, social, and governance issues and what look worst? And then many strategies are built off the back of it. Um Typically what you see is strategies that exclude the worst or by the best. The challenge with the space and you're seeing it sort of play out real time is first and foremost, what is a good company and what's a

bad company? Right Like, many of these data providers actually have no correlation across what where they actually rank companies. In fact, Facebook is the best example. Some rank it is a top quartel, some rank its bottom quartel. It's a very personal discussion, insane. Now you see the performances. The other thing though, which is it? It tends to be that many of these portfolios are just overweight technology and underweight oiling gas and so what are you seeing

the last couple? Because Exon is clearly a bad company right from it. I don't know how they are in terms of the social and governance side of things. But in terms of environmental you just measure them by you know, CEO two emissions. Surely X it's one of the worst companies in the world. Right, we'll all talk about our campaign and what we were hoping to see for X

on mobiles. It's the anniversary kind of it's right around now is when we had what we were able to successfully place three people on the board of directors of Exxon, and we did that with owning just two basis points in the company. It's very fashion. I mean, if I were on that board. But but you know what was interesting is we really focused our argument on the shareholder argument for what we wanted to talk about, not the morality climate argument. And what we were really focusing on

was a few things. First, it was all about governance. It was about the fact that, whether you like it or not, whether you believe in climate change or not, energy is going through huge transformation, whether it's government regulation or shifting consumer preferences, and we felt that the board would benefit from additional folks who had real, true transformational energy experience. It was also about their capital allocation strategy.

And so I think the real interesting thing from the campaign for me was two fold one was you can own a small part of a company, but if you focus on the shareholder value argument, you can bring people along with you. Um. And the other is that you know, moving the conversation from ideology to economics, and that was where we had our success. That's key, right, that's super key, And in that sense you can easily understand why shareholders

would want you there. They've got to make this transformation anyway. The guys they know on the board are probably a all guys and be only know how to put holes in the ground and pull out the Earth's precious resources, and they need someone to show them the way. How does the C suite react, Well, we are an engagement focus. From the traditional theory of change in this space is divestment, which is if you don't like it, don't own it. And when I say this space, I mean broadly. It's

true for climate, it's true for social issues. A lot of times e s g. People just sell you know, tobacco, sell oil, sell everything that's bad, probably gunmakers, and that doesn't really help, right because someone else just buys those steaks and keeps making tobacco, oil and guns. Well, when you think about I think carbon decarbonization in general. I think there's a real strong case to make for own

and engage. I mean, energy is one place, but how about global greenhouse gas emissions comes from energy, transportation and agriculture. Like this is the heart of the transition. When we talk about the energy transition, which is, by the way, a big investment opportunity for investors. That's where it's happening. And our theory of changes um not just that it's not just that the small green technology companies are going to be the ones driving it, but that actually the

big traditional incumbents have to transform themselves. So that's the automakers, that's the big ad companies, and that's our That's where we spend our time. And I will say, um, all of our engagements post xcon have been very collaborative because we're not the first people to tell the c suite of these large companies, Hey, there's a lot of focus

on decarbonization. You need to have a strategy and so in some ways, I think the fact that we approach it from a shareholder value perspective allows us to have a really good dialogue with companies. What's real quickly thirty seconds, what's the next industry that you think is should get some of attention from an E s G perspective. I think the demand side of decarbonization is interesting. Everyone focused on oil and gas, but transportation is a really interesting one, right.

It's it's a move to all electric vehicles. A lot of the market is focused on that, but but you have to think more deeply about it. It's what are the commodity inputs like lithium and aluminum that are needed for that. So it's a really interesting investment opportunity. Good stuff, good stuff. Yasmin, thanks so much for coming into our Bloomberg Interactor Broker studio. Yasmin daya build your head of E T f s and a managing director at a really cool firms called Engine Number one. Is probably a

story behind that name as well. We'll get that, uh next time our next guest. In my notes, it says it was two point two billion assets under management his fund. He now has over nine of the firm's assets in cash, with the remaining ten in defensive fixed income. I can honestly say I've never seen that before. Let's check in with Phil Toes, CEO of Toes Asset Management. Phil, thanks so much for joining us really appreciate it. Talk to us about your portfolio here and your your cash position.

Where is it? Our our notes correct? Are our notes correct? Yeah? So we shifted slightly in the last couple of weeks and when they move up in the markets, moved us into more of a round a cash position relative to our earlier this year. But what what drives us there isn't isn't really are thinking about the markets, but rather just algorithms that are trend following, algorithms that have the ability to attempt to move us into either either fixed

income or cash instruments. And because fixed income has been doing so poorly that we've largely just been in cash. But that's been in the position that we've had primarily since January thirteenth of this year. So it's been a it's been a good thing to just not be playing. But it's like, I mean, it reminds me of Pablo Escobar. He also held most of his assets in cash, and the rats ate about ten percent every year. You have the same problem, right, don't you lose money through uh

just inflation? Yeah. So if if all you're doing is putting money in cash and didn't have a plan to come back in then then that's exactly what would happened, and inflation would eat you. But if you think about the way, so to our base cases that this will be a continuing bear market, and what we've seen in the last couple of weeks is a fair market trap. So if that, if that scenario plays out, the way the markets tend to work is they move down and

then they even pick up more volatility. UH. And And what happens across our platform, across our different funds in EATS is that we have a trend following algorithm and just as we exited in the early phase of this decline, they would be designed to attempt to re enter in the early stage of a rebound. So then via zoom out and look at let's let's say this is like a typical bear market and it bottoms and somewhere around October of this year, UH somewhere around thirty five percent lower.

At that point, having been in casual of it, it would have been a fantastic thing. But then you have the possibility for rebound, and that, frankly, is what it's all about, which is positioning yourself. You know, it's always so amusing to hear people talk about buying the dip, and the real question is what are they buying the dip with if they remain fully invest in the whole time.

So yeah, yeah, the idea is to not make a market call necessarily, but to position yourselves in a way that address was at least the contingency that this bear market will continue, and then also positions yourself to potentially capture the rebound. And that's you know, this is not something new for us. We've been doing this since nineties six. We we saw the same kind of thing happened during the Internet double burst and the financial crisis, So we're

we've got a long history of trying of navigated. By the way, speaking of bubbles, um, dot com and housing, what do you think we're look at today, especially with regards to I just bought a house for more money than I thought it'd ever spend on any one thing in my entire life, and I'm still skeptical that I can actually afford it. Yeah, So I think it's really fascinating because you get, you know, get conversations like this.

You have a decent because little rally in the stock market, and everyone just thinks, well, we're back to to life as normal. But I think we're anything but that. One

of the most compelling you know, you mentioned housing. One of the most compelling data points I've seen in the last six months is the you know, the Schiller Housing Price Index, which you know, for a hundred years, that index range between a hundred and a hundred and twenty because it's a real, real prices inflation, justin prices for houses. And then we saw that shocking increase of the index up to two hundred during the during the two thousand seven and then it came back down again. But right

now we're at two twenty. So in real terms, we're higher with these historically, and so that that, you know, compare that with the fact that we're in the top quintile in stock valuations. But here's the big one. Here's the big one, which is that the said has changed his motivations and where primarily over the last you know, the say, thirteen years, that said has actively tried to

avoid financial market declines. Now you can actually argue that because of demand pull inflation, which effectively means that people are buying so much stuff because they have so much money. You know, Now the said, you know, maybe implicitly they're not coming out and saying that, but they may have a motivation to pop the bubble. And so that's a

completely different scenario, completely different world to live in. So instead of it being like fourth quarter of two thousand and eighteen where said they're saving the day, now the said may uh, you know, have have some kind of an incentive to actually see financial asset prices, home prices come to more reasonable levels as a way of addressing inflation. Absolutely, I feel just third thirty seconds, it feels to me like your firm and your strategy tries to time the market.

Is that right, Well, so we we we do. We can't extu the markets. We also use options hedging, but we would say no, not really, because most market timers are trying to make a market call and predict what's going to happen, and that tends to not go well often.

So instead of doing that, all we're doing is just falling trend following algorithms, and so that tends to be in our history, a relatively reliable way of doing two things, which is getting out of the way of the real train wrecks, but also participating in what you know generally is just rising markets, and that's what markets do nine of the time. So the idea is is not not making a market call, which is not market timing, but

actually positioning yourself in the way address contingencies. All right, So great stuff, man, thanks for coming on and really appreciate a really interesting kind of you, even behavior and investing, which I wanted to get to. So I hope we can get you on again, Phil, because I know you were a founder of the Behavioral Investing Institute, and I think that's that sounds pretty pretty interesting as well as

released to investing. All Right, I just typed an FB equity go into my terminal for the Facebook and I got nothing. Nothing. It says it changed it's symbol today to meta, so not gonna type in meta equity go and I get Okay, there we go. I got my

ticker there, and all thats two more letters. It used to be, dude, You remember when you get smaller, Yes, to get down to that, if you had one letter that was the most coveted of all tickers, like if you were t then people stopped calling you anything else. They just called you t right ford, all that kind of good stuff. All right, So I'm blaming Matt Bloxham. He's a t M T anlost to Bloomberg Intelligence. He's based in London, runs all of our t MT stuff

over there. Uh we snagged him about five years ago, don't remember. Uh, telecoms, tech media and technology. That's right, that people still use that moniker mat is that still? I thought that was a thing from the nineties. They still do, but I still every day you get the question, what is what's what's that team and the team? That's right? So so Matt talk to us about it. Let's just start with with Facebook. This is a meta free studio, so what we can still call it Facebook is the

market buying off on this transformation. Then Mr Zuckerberg wants to take meta platforms through over the next I don't know, five to ten years. Yeah, I guess not. You know, when the share prices down over the last twelve months, I guess not. Um And I guess you know they've got bigger near term issues, you know that. I mean, obviously Instagram has been the big growth engine for them, and TikTok is adding huge amounts of pressure to the

ad revenues they can generate from that. So I think they need to kind of sort out the current business first. And you know, I think that the metaverse, if it ever becomes more than just you know, the current kind of gaming environment it really is today, UM, then there's going to be a lot of rivals for it. And I think your historically Facebook UM gained its success by

acquiring businesses and building them. I guess with the new constraints around um M and A, it's a question mark about whether they will be able to kind of follow that and whether they can successfully execute an organic struct in that area. I have questioned Facebook's ability to actually be the main player in the metaverse ten twenty years from now, And I got a lot of pushback on Twitter from people who said, you know what, they have invested a ton you know, they bought Oculus Rift, which

was the VR headset. You know, they've done stuff, and they're spending money UM to be a major player. Do you agree, UM? I mean, I agree that they've been spending a ton of money, But then yeah, a lot of other people are spending a ton of money too, and it's you know, completely open field UM. And I think we've seen with every big technology wave, it's been a new player that nobody saw coming that's ended up being the big player. I mean that that's essentially what

Facebook is. You know, it was the current the current king of the last technology cycle. I mean, I think what's going to be interesting for the metaverse as a whole is what Apple does with this kind of room with a r VR headset. And if it comes out next year, you know Apple's weight. You know, we'll create

this I think so called halo effect for everybody. So maybe that will help Facebook, but you know they're going to face a lot of UM current and non existent UM competitors, you know, even the next three to five years. Think there's also I think I think there's a conception of what the metaverse is that requires you to put on a headset and something that blocks out the rest of the world. But I feel like we've already gone

beyond dipping our toe into the pool of metaverse. Like if you spend all day working from home, you're on Zoom, you're on Slack or whatever, and then you spend your evenings, um, you know, shooting people on call of duty, and all of your frends are from forums You're watching other people shoot people on call of duty, Like aren't we already in a sense living in the metaverse. I think there

are multiple meta verses essentially in another areas dating. You know, a lot of the big dating platforms are moving into a kind of VR environment. Yeah, you don't even have to go out of your house, and neither does she or he or whatever the person identifies as. You can spend some money on virtual gifts as you know. Crazy. All right, I'm honest with you. I'm done with this whole conversation. Let's talk music. Spotify. How to Capital Markets?

Day said they got their analysts, they got their investors coming in. There's another stock. You know, you talk to these high flying technology names. It's all fifty percent this year. What's the story with Spotify? I mean, I thought the

future of music was kind of renting this stuff. Yeah, and you know, I think it's I guess one of the near term worreas that people have had is that, in the wake of the whole Netflix subscribe by growth slowing um that perhaps Spotify is a similar kind of platform where there's going to be um a challenge there. I think Spotify is a bit different because unlike video subscription services, where essential you've got exclusive, unique content and you've spent tons of months to build it. Essence, you

can get most music across all platforms. So if it's more about the user interface and the kind of platform itself, and your Spotify is a very strong, compelling platform. So I think they don't face the same kind of stagnation risks that we've seen with Netflix, and yesterday they were incredibly bullish on the mid term. They've got, you know, give or take half a billion users today and want to get that to a billion over the long term.

I think you're one of the One of the bigger issues that they've had recently is the drag on profits from there for a into podcasts. They're not even making a gross margin on that today, and they were trying to reassure people that they'll get to some kind of gross margin in the next year or two. Um. You know, I think that the shares moved a little bit possibly yesterday, but you know, I think there's still a long way

for them to go. To the podcasting business everybody in their Jack introduced a new podcast yesterday, Dak Shepherd of you Know, Armchair Expert, which is arguably one of the best podcasts that there is with his wife Kristen bell Um, the actress famous for Frozen among other things. Um, and they're going to give relationship advice and do I pay for this? Is just all that support you have to be on Spotify together, that's the idea, right, And Armchair

Expert moved to Spotify. I think Obama is. I guess he was on Armchair Expert, but he's also got a deal with Spotify and he has a lot on there beyond just music, right, yeah, exactly. But it's it's a

very different model where we can with the music. There's that they have a pay away to the music platforms, so there's kind of less risk around it, whereas you know, the podcast taken them into purchase a kind of content acquisition, if you like, so a bit more like a PATV platform, and you're kind of risking, you know, hundreds of millions of dollars essentially just to try and kind of generate

more users and keep people on the platform. So it's quite a different business model, and I guess it's spook people a bit, you know that that it's a drag on earnings podcasting in general. How big is it is that profitable business? Is it? Something that Um, well, I think it is for some of the podcasters, right, made a lot of money, and that's what pushed a lot. In fact, I think, actually, this is what I was

thinking of. Obama has a deal with Spotify, but they're ending it now because of Neil Young and all these people who are mad about Joe Rogan saying like you can feel COVID by drinking horsty Warmer. Yeah, yeah, that's what I mean. As you said, I think that the big winners, um right now, all the all the big, the big podcast is actually I think there was a story um earlier in the week that she's even some of the smaller podcast is generating you know, relatively big

bucks all advertising. Yep, yep. Interesting. All right, Matt, don't we have a podcast Bloomberg Market? We do? We should. We should get some some big ad people on there. I'll make a few phone calls. Get that going, all right, Matt Blocks, and thanks so much for joining us here in our Bloomberg Interactive Broker studio. It's in how long are you here? I'm here until tomorrow, you think, PARTI, And he flies back to London Queen Victoria Street, which

is our London office which is just so awesome. Um. It's just an amazing right in the city of London, right by the Bank of England, right smack down there. And there's a Greg right down the street, so you can always get good sausage roll. Yeah. There you go, all right at Blocks and t mt Annals Bloomberg intelligence student joining us year. We appreciate getting the latest on all things tech media and telecom. Lots to talk about. They're always June is Pride month and a month when

we're focusing on equality issues here at Bloomberg. Today we speak with Jape Rice and chief economist at Wells far going to talk about the economic influence of the LGBT community. And I must note that Jay was educated down the road from my Duke University at some school down and I think it's Chapel Hill or something. The name escapes me, but maybe we'll get to it at some point. Jay, Thanks for joining us here talk to us about Wells Fargo and how you guys or financial services in general

kind of thinks about the LGBT community. It's it's pretty big. Um. I'm just wondering growing and growing and wonder if they get you know, kind of the um, the focus for maybe the financial services business. Well, that's that's a good question, Paul. And and so, first of all, it is it has been and growing. Um. So just put just a level set here, um And and yes it's kind of vary, but you know, if you look at the Gallop data, it would uh be around seven percent or so of

the population today. Put that in perspective, and that was only three and a half percent, you know, about a decade ago. So it certainly is growing. And you know, whether or not it gets the full attention of the financial service community at this point, I think is an open question. But this is also a young population and as that um and well educated, and as that population continues to grow, uh, with the young population, they're going to be more financial services and you know, other sorts

of of goods and services as well. Well. It's also an incredibly diverse group. I mean, there are a lot of letters there, and each one person in this community is an individual human. Is it hard to market to or offer financial services to a group like this when it's made up of such unique individuals? Yeah, I think

it is. And and and part of the part of the issue I think is so not only is you know, it's very diverse in terms of different um sex, sexual orientation, but it's also the data isn't all that really um good right now, the best day that we have really would be on individuals who are lesbian, gay, and bisexual.

When it comes to you know, trans or queer or other sorts of areas, that data isn't as good and and probably because what you're looking at is you're looking at self identification, and for many reasons, many of these individuals don't really want to self identify as that. So whereas you may have really good data on say white males or or black females or et cetera, UM, the data in this community is not quite as as robust

as it is in other areas. J From I guess an economic demographic perspective, what do we know about the LGBT population in terms of you know, educations and incomes and things like that. Yeah, So so again, what we're pot we looked at here and in the data we have would be on individuals who identify as lesbian, gay, and bisexual. And I would say that that that group

of people is more educated than the overall population. So well, individuals have to be friend to get right, if you if you have more income, you know that if you feel secure enough in your environment that if you feel safe enough to identify as one of these as part of the group that's discriminated against like this from the get go, you're automatically gonna be likely to have more

wealth and more education, right, I think I think that's right. Yeah, And you know, again it's it's hard to parse all that out. But what we do know are you know, a lesbian, gay, and bisexual individuals. If you look at the people who have a bachelor's degree, that's roughly twenty

seven of that community um. The overall population that's about And then when you look at post bachelor so that would be master's, pH d. Professional degree, you're looking at more than twenty and that's five percentage points higher than the overall population. And consequently, UH, these individuals tend to have higher income UM in general than you know, the

overall population. JA any geographic diversify K should there. I mean, I think the expectation or the supposition is that maybe more on the coastal UH cities for example in New York and San Francisco, might have a higher percentage is that what your data shows. Yeah, so we didn't look at it in terms of metropolitan statistical areas per set. We looked at it in terms of states, and the

District of Columbia got it. And when you look at it there Washington, d C. You know, so the overall average again is somewhere seven eight percent outside of Washington. You see, it's you know, these individuals are going to be concentrated in you know, the West Coast, um, in the Upper Midwest, in the Northeast. But that's said every state in the in the United States, UM has individuals who who are identified with this community. Great stuff, all right, Jay,

thanks so much for joining us. They're really fascinating and that you guys have done a lot of economic research on this community. Jay Brice and Managing director and chief economist at Wells Fargo. But I think it's a community that hasn't really been addressed by the financial industry. Right, so there's a lot of money at stake there, UM for the bank that can crack this nut first or

or best right UM. And Jay is a great uh resource to have on because not only is he a managing director in chief economist at Wells Fargo, but he's also been an adjunct professor at a very regionally diverse group of University of Alabama, at North Carolina, at Johns Hopkins, and Georgetown. So great to get everything from Jay. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast

platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt on false Sweeney I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio