Examining Tech, Markets, And ESG Investing

let's get Dan ives On. Um, I'm sure he's, you know, somewhere, it's either skiing or on the beach somewhere, but we're here hard at work. But maybe we can get Dan ives On. He's the yes, senior tech analyst for web Bush. He's been doing us for a long time. Dan, thanks so much for taking a time here, my friend. What are your best ideas that you're talking to your clients

about right now? Yeah, And I think there's obviously some nervousness or divisiveness in terms of where tex Head and I think some of the themes, regardless what happens with the ten years said they're going to continue to I think the massive I mean one Apple and we talked about Apple glass today and we be that that comes out in two thousand twenty two, along with what's the

supercycle playing out? Despite the chip short, I think apples anywhere between the three to three and a half trillion dollar mark cap two tho, so that continues to being where the top your names in the large cap along with Microsoft is our favorite cloud play, and then we love cyber security names like z Scale or Cannibal, cyber Arc or some of our fevers. I think those are

the themes. And then just to put a bow around it, electric vehicles Tesla, followed by our supply chain play which is life Cycle and e V. There's sure top picks this week going to next year. So a lot of those are huge. Obviously, Apple is a two point eight trillion dollar company and change Microsoft is worth more than two and a half trillion dollar. Ears. Um, let me pull up Tesla or what's Tesla looking at right now? Like billion Tesla? Wow, one point zero four trillion, so

they're massive. Um, what do you think about the competitors? What do you think about ribby in and Lucid and the Bollinger and all of these you know haven't yet sold a lot of products. Competitors, Well, I think Ribby In is the one along with Ford and GM, you know which I think a reratings. I think Ribbyan is the real deal. I think now it's obviously to be coming out of the box that's been given a high evaluation, but in my opinion, and a tough climate right with

no chips. Well, but but as me and you and the team have talked about, I'm not looking at the next six twelve months. When I look at the next three four to five years, Ribby and I think a category changer in terms of pickup trucks and stvs, in terms of what are Jane the team have done in the vertically integrated front, and really it's the it's the only company that's come out on e VS vertically integrated that now you could put in the same potential breadth

as Tessa if they execute over the next years. If that happens, then we're looking at the two to three hundred billion dollar market for a name that you know today. I think it's just still in the early days of building this out. Hey, Dan, I'm sure your institutional investor clients are asking you, how does tesla Um fit into a more competitive EV market over the next several years. What's your response? So I don't view it as a zero sum game. It's not Tessa or because Tessa is

going to continue dominating evs. My view is it's a five trillion dollar greing tide away. Two and a half trillion of that is Tesla's in terms of where that market heading, especially with more and more compe pacity coming on with you look at Brewin in Austin. Those are significant protesting at two million vehicles per year, but when you look over all the v s, it's still three automobiles. That's why I think you're going to see more and

more the Fords of gm US and others benefits. All right, Dan, Hey, um, we're gonna let you go at that moment. We'll touch base with you soon. Dan, i'ves web Bush Security Senior Technology. Let's bring in Ian Lyndon. He's a managing director and head of US rate strategy at Femail Capital Markets. UM in great to get you on the program. I just want to quickly get the auction my auction questions out of the way. First, we have another auction today, thirty

year auctions that I think one o'clock. We get the headlines yesterday, we had the ten year, I think the three year the day before, and people are paying more and more attention ever since seven year auction went off the rails if months back, how do you think they're doing well? I think that's a great question. I think

we need to look at it in two ways. First, we have seen more of a concession at auction, so the auctions have been tailing more than they had previously, but the bitter composition has been more typical than the headlines would have suggested. More importantly, it's very difficult to argue that there's not sponsorship for US treasuries when ten year yields are below one fifty and thirty year yields

are below two percent. So while there might need to be greater moments of concession, particularly on the curve, to take down these incrementally um smaller than they were auction sizes, I think the fact of the matter is that there's plenty of end user demand for treasury products at this point. Alright, So, Ian, I've got a federal reserve, you know, pulling back on

the tapering, maybe even faster than initially thought. Rate increases, next year, rate increases in But then I looked down in my tenure and I'm stuck at one point four

eight percent. Should I be surprised that that shouldn't be higher? Well, if we didn't believe the FED had the tools and the willingness to combat inflation in the long run and weren't, and the FED wasn't able to keep inflation expectations anchored in that situation, one should expect that the curve would be steeper and ten and thirty year yields would be higher.

I'm certainly sympathetic to the idea that on an outright basis, ten year yields below one fifty contain a fair amount of sticker shock, and I think part of that has to do with the assumption, which has been proven to be um tricky at this point in the cycle, that longer end treasury yields tins and thirties should be a function of US growth and inflation fundamentals. The reality is that long che treasuries are a function of global growth

and inflation fundamentals. And so while the US might be recovering well from the pandemic, we're seeing high inflation numbers, we're seeing continued growth. The reality is that there are different pockets in different regions in the world who are recovering at a much slower pace, and that adds to the structural demand that we continue to see for treasures. All right, so what do you think we're gonna see

in two with all of those variables? I note that you were ranked first in the two thousand eighteen Institutional Investors survey for US rate strategists, strategists and technical analysts. Big deal. Yeah, well appreciate that one to Yale. So that's also pretty pretty smart. I think, Um, what do you think we're gonna see? I mean, is are we still going to see inflation coming back down to normal levels in the middle of next year? Are we gonna see rate increases in the second half? Are we going

to see the actual rates numbers normal? Lies? So I think that we are going to see the base effects in Q two two become relevant because the upside that we saw, the bulk of the upside in the realized inflation was in the second quarter of this year. It was driven by new and used auto prices. It was driven by airfares as well as oh we are or rents and shelter costs that materially raises the bar for Q two of next year for the pace of inflation

to accelerate. So my baseline assumption is that while there will continue to be a fair amount of inflation the system, the shock of the headline year over year figures will start to moderate. I do think we get to rate hikes in twenty two and the bigger risk, and I think that this is really important when we think about the way that the rates market plays out. The bigger risk is what does the market ultimately believe the terminal

rate for this cycle is want to be. The FETE has told us that they expected all else to be equal to be two and a half. Now, if we think about the last cycle we struggled to get We got to two and a half, but we had to quickly reduce to one seventy five. So there are two camps at the moment, the lower terminal and the higher terminal camps that are going to drive the debate and that will dictate where the five year sector goes at

the beginning of next year. So we're leaning more bearishly on the treasury market than we have in the past with the five years sector poised to underperform, and so that means that five thirties will continue to flatten. Five tins will flatten as well. But all of this within the context of a higher overall rate range. So I could easily see ten year yields touching two next year in the first half thirty year yields back above to fifty.

And this has to do with the fact that the economy is growing and that the labor market is improving and inflation is back in the system. Hey, and there was an argument, you know, over the last several months that perhaps the FED was falling behind the market, falling behind perhaps other central banks. Did they allay those concerns by that pivot we saw, you know, a week or two ago in terms of the tapering in the rate conversation, they certainly did seem to come in line with what

we're seeing with other major central banks. I will off the caveat though, that the other central banks that were a bit more hawkish were ones that had different exposures to energy prices. So the Reserve Bank of Australia, the Bank of Canada, for example, higher energy prices have decidedly different ramifications for those economies than what we see here

in the US. And then the Bank of England has a different relationship with imported inflation prices as well or imported costs, just because of the nature of their economy.

So while it made sense to see coordination in terms of central banking banking moves at the beginning of the pandemic when we were all responding to the uncertainties associated with the coronavirus, on the way out, we shouldn't actually be expecting in the same degree of coordination because each economy is performing differently and responding to some of the

pandemic dislocations in a different manner. All that said, I do think that the that that power made it very clear that the hawkish pivot is going and has come to fruition. We're going to see an acceleration of tapering next week and that will set up the FED to have more flexibility in when and how they choose to

normal normalize policy rates next year. When when you look at the economy and the economic growth as it's affected by rates, clearly monetary policy is still loose even if they're tightening um When does it start to affect When do we start to see um uh financial conditions really get tighter because of higher rates? Since I don't think, you know, two or three rate hikes from zero is

that much. So if you decompose the if you break down the financial condition index, what we actually see is over the last decade decade and a half, the biggest driver has been the has been equity volatility and to some extent, the dollar. And so if we see a run up and equity volatility, which only occurs when stock sell off, that in and of itself will tighten financial conditions. And that gets us back to the Powell put that has been talked about a great length and certainly still exists.

So I'm less concerned about the incremental rate hikes per se and how they translate through to financial conditions, and I'm more worried about whether or not record or near record high equity price is are able to absorb a FED that has gone from being, as you point out, extremely accommodative to moving forward with a slightly tighter policy stance. And but you think the power put is still there, Yes, I do think the power put is there, but it's

not an outright number. It doesn't matter. So let's put it this way. If the uh SMP five ended next year off, that wouldn't trigger a FED response. But if the SMP dropped ten or fift over the course of two days or three days, that's that's the spike of volatility that didn't gets the set involved. So it isn't an outlete number as much as it is the trajectory, and that's going to be I think an important background story for in Lyin. Thank you so much for joining us.

Really appreciate getting your thoughts in Lngin, Managing director in head of US rate Strategy at BEMO Capital Markets Fixed Income Strategy Team. Let's get back to the plane vanilla market in a way, although really I want to talk about E t F strategies. Ross Klein as the founder and chief investment officer at change Bridge Capital, he manages E t F strategy sustainable and long short UM at Ross tell us first of all about the UHUM, the

sustainable portion of that it's become. It was a fad that seems to have become now really a strategy that you can't ignore. What do you how do you? How do you execute that? Yeah, Hey, Paul, hey Matt, thanks for the time today. Um change Bridge manages uh C B s e change Bridge Capital Sustainable Equity e t F. Our approach to E s G investing is neither exclusionary nor passive. Uh. We believe E s G investing is highly nuanced and requires a lot of analysis from active

portfolio managers. We manage thirty to forty securities. It's a high conviction portfolio where we understand the holdings incredibly well. We talked to management teams. We identify companies that are making real progress, and we're finding opportunities in small cap space where the rating agencies haven't necessarily picked up coverage yet and the companies are showing a mutually beneficial relationship between their efforts to improve their relationship with all stakeholders

and their bottom line performance. And so that's a fantastic breeding ground for us to identify idiosyncratic, unique investing opportunities for clients. Hey, well share with us if you will, kind of one of your your bigger holdings, your higher conviction names that's in your sustainable E t F and why it's in there. Yeah, absolutely, Um, so you know I'll give you one that you might not suspect is an E s G type holding. UM Skyline Champion is is Takr sk Y, our largest holding in that portfolio.

Skyline Champion manufacturers manufactured housing. In the environment that we're in, where affordable housing is effectively in a crisis, they're a solution. UH. The average manufactured house is more than two hundred thousand dollars less expensive than the average stick built house for an equivalent home. UH, They're able to produce them more efficiently. They're able to produce the more environmentally friendly ways than

an outdoor stick built home. UH. We believe that this is an opportunity for investors to recognize they can buy a house that's more environmentally friendly, built more efficiently, more affordable, and find a company that actually benefits from those trends. As folks start to shift towards rural and more suburban housing. They are beneficiary of this environment. The company is in a effectively a duopoly with Clayton. There are not a

lot of other manufacturers. Demand is ramping incredibly. They've made tremendous strides in their ability to UH have a diverse workforce. UH. They made um a focused effort to diversify the range of backgrounds and opinions for years and this has really helped them manage the company through what's been a tumultuous. You know twenty four months, is it the biggest holding

in CBL as as well? It is yes. When we have high conviction and a security and we understand it well, Um, you'll see that we own it in size in both portfolios generally. Hey, Rolls, thanks so much for joining us, really appreciated. Ross Klein their founder and chief investment officer of chain Bridge Capital LLC. They're an active et F manager running two strategies again to sustainable strategy in a long short strategy as well. Want to Skyline is one

of their names. I want to plug. Also his UH nonprofit, Ross is on the advisory Advisory Council for Graceful Gears, which is a nonprofit that provides elite automobile experiences to people's serious medical conditions. So bringing joy to people who who need it, um with sweet cars and I think that's pretty awesome. Yeah, I'm glad you brought that up. Matt. Let's bring on the next guest, Matt Tammy. Hey good. She's a vice president and financial advisor at UBS and UH.

She created the Impact Investment Group at UBS. Let's talk E s G investing. It's just one of the fastest growing areas within investing and Tammy, thanks so much for joining us here. I'd love to get your thoughts on what really makes a good representative E s G stock in your mind. Him, I'm happy to be on with you today. Uh. Yes, that's the question that many of

my clients come to us and ask. And what we're looking at for E s G is um the totality of a company and what that means is that they're not only doing what they do well in terms of environmental, social, and government, but they have an intentionality of improving. So

we don't want to play goatch you with companies. We want everybody to um feel like they can participate in E s G. But we look for companies that are moving in the right direction moving whether is moving more to carbon capture or whether is um on on the social as that really go deaving into those diversity inclusions and government issues. So you created the Impact Investment Group at UBS will walk us through what impact investing is as opposed to you know, other E s G investing

or activists investing. Well, that's a great question. Uh. Ten years ago we started the Impact Investment groups, so we were a little bit ahead of the curve on this, And what we try to do is we try to advise our clients across an umbrella of um financial activities,

whether it's market rate, securities, are alternatives, or philanthropy. And our real position on this at the Impact Investment Group is that you want to target those areas that you are interested in influencing, and you want to target them with each one of those lasers, if you will, the market rate, securities, the the alternative, and also with your philanthropy and and make something of the umbrella that that at least has some targeted point of view on the

way you want to impass the world. So so that's our approach. So Temmy, when my financial advisor approaches me with an idea, you know, Mike, silly question, or maybe the only question is all right, what kind of return can I expect here? But are you when you talk to your clients, are you getting more and more of your clients saying, talk to me about the E. S G aspects of this idea you're bringing to me. Because I don't think about it that way, but I think

I'm increasingly in the mind party. Well, you know, I think that there are people that at the very forefront of their minds, have the E s G or the social investment screen that they think about. But I've yet to need a person that doesn't care about the quality of the water that they drink or the air that they breathe. And so I break it into two groups. I break it into the evangelist group of people that really UM want to talk about UM this and have

studied it right. And then I break it into more of the lay person that wants to have investments that have a positive impact on their future and their kids and choos UM and and want to do things that aligned with that. Now you mentioned return, and I think that that's an interesting question because UM, over the last let's say five to seven years, the return on E s G has been it's higher than that of the

SMP five hundreds simply by deleting UM fossil fuels. So, Tammy, we don't have enough time, but I want to get you back on because I'd love to ask you kind of an off script question. But I noticed you studied You got your j D in securities and tax law, which makes sense for your industry, But you studied physics and electrical engineering at Tuskegee and I just wonder what kind of impact that has had on your career and how you have designed um uh, you know, your program

at UBS. So I hope we can get you back on again because I think it's really fascinating to me. Hey Good there is vice president and financial advisor at UBS. She created the Impact Investment Group. 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 and on Fall Sweeney. I'm on Twitter at pt Sweeney

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