Investing In Technology, ESG, And The Markets

I'm using technology even more. It's not just Zoom. I'm thinking about just kind of my personal banking for example. I'm much more uh engage with the digital offerings from my financial institution, and I can't even imagine why I would ever need to go into a branch again. But uh, and I think a lot of folks, you know, again, embracing technology across a lot of different fronts. Let's check in with Nisha Hate, chief Digital Officer for Charles Schwab.

They have a new report out Investing in Technology Study, and it's kind of looking at how the pandemic has changed tech trends. Nisha, thanks so much for joining us here. What are some of the key takeaways um your charge Schwab report Yeah, well thanks thanks for having me. Um and uh, Paul. What you shared is probably the experience that many have had, which is we saw, um, you know, in our survey, we saw a lot of investors talking about how they've used technology and more in different ways

than they ever had prior to the pandemic. UM. But what one of the interesting things is that they continue to say that they're going to use technology at an accelerated pace. And when we asked them, however, what it what it is that drives trust and technology, often they come back to the way that we used to work, which is they want to be able to have access to humans. Um, whether it's on a phone line or

even actually, as you mentioned, walking into a branch. So you know, there's this desire to use more technology but at the same time wanting to build trust through human connection. Are there demographic or generational differences in that desire for human versus technology contact? You know, there are some, um, although you know, not as much as we might think so. UM. So, for example, one of the questions we asked was, you know, do you think it's possible to have a relationship with

a financial company through technology only? And if you asked the overall population, just over half would tell you that that it is possible to have a personal relationship with a financial services institution with technology only. But if you ask what we call Generation I, so Generation Investor, which is UM folks who came into investing for the first time in one they would tell you almost three quarters of them would tell you that it is possible to

have a personal relationship through technology only. Now that Generation I does sue a little bit younger, but really it's

more about newer investors coming into the industry. So we've seen, uh nitche really since the beginning of this pandemic a spike in retail trading in the stock market, whether it's some of the meme stocks that got so much attention earlier on or just in general, and not a lot of folks, including I believe Charles Shrob, you know, low costs or no cost trading, give us a sense of kind of what you're seeing in the retail side of

the business. Yeah, I mean the engagement digital engagement, and that's you know, a lot of our trading comes through our digital channels. Of course, is just tremendous. I mean we saw over a billion and a half mobile and weblog ins last year four times the trading on the

mobile apps than we've ever seen before. So incredible engagement, especially earlier this year in one when you know, when markets were very active and we saw a lot of engage, engagement and that continues, although it has you know, stepped

back just a bit. Well on that point, obviously, there was this narrative last year, I mean even in the pandemic and earlier this year where it was all about all the liquidity was out there, you had ample stimulus coming on the monetary side, and then on the fiscal side you had stimulus checks burning a hole in people's pockets. Now that those impulses are kind of fading, how was

retail investor behavior changing? Well, what's interesting, you know, And one of the things we asked about in the survey was, you know, why are you investing and what is it that you're trying to accomplish? And while you know, I think we talked a lot about the investors who are you know, trading the meme stocks and kind of really active in the market. Um, a lot of these investors this generation, I would tell us that they're actually trying to figure out how to get to better financial outcomes.

You know, they actually had this this disruption, the pandemic disrupted their lives and they've had that moment of reflection and and trying to figure out what to do next with their financial lives so that they have a security net. So we've we've seen you know, an increase in, for example, engagement in digital financial planning. So you know, in just in the second quarter, we had twenty thousand folks do

digital financial plans through our Schwab dot com channel. And so it's this you know, it's not just about trading UM, but it's actually now about getting educated about how to actually build out your financial portfolio UM and get to the outcomes that you're looking for. We should give us a sense of kind of what a typical charge Schwab

customer looks like today versus maybe several years ago. It just feels like with all the technological changes and advancements and ease of interaction, maybe skewing a little bit younger than maybe we've seen in the past. UM, we are a little bit a little bit younger than we were a few years ago. UM. Over you know, I think over of our investors are under the age of forty one at this point. So when when they're coming in every year, so are new to firm investors UM and UH.

And they do tend to leverage digital channels much more than you know, our traditional investors. So definitely more engaged digitally. But as I mentioned at the beginning, I think what's most interesting is even so you know Generation I, as I mentioned, even when you ask them about you know, what what happens during the market downturn, what do you

want when? What kind of support do you want? You know, one of the staffs we have of them wanted to talk to a person to discuss their finances when there was a market downturn. So even though we talk about them as being different, sometimes I wonder if they're really that different because they still want that human connection to build the trust and confidence in their strategy. Yeah, really fascinating stuff, but good to see some of the younger

folks getting invested. Nisha Hati, chief Digital Officer for Charles Schwab. They have a new report out Investing in Technology study how the pandemic has kind of changed UM, maybe how some people view their investing habits and the emergence of technology to help them interact with their financial services providers. So interesting stuff coming out of Charles Schwab. E s G investing is not for the faint of heart. Just

listen to a couple of these headlines. Just in the last couple of days, Oil fouled California beaches, rekindled demands for offshore ban, Tesla racism trial juror says company failed to protect workers. Facebook's Zuckerberg denies putting profit over user safety. And I'm supposed to apply E s G investing characteristics UM in my portfolio. That's gotta be tough. James Kat's

founder and CEO of Humankind Investments. He does just that. James, I love to get your thoughts about when you see headlines like that as an investor, UM, how do you

think about investing in companies through a E s G lens? Sure? Well, first of all, thanks so much for having me, And just to answer your question, I think if there's a takeaway from the stories that we're seeing about oil spills and discrimination lawsuits, UM and all this, I think it's that a company's human impact has consequences, and when when companies hurt people, they'll have the incentive to come together to complain and ultimately either punish or reform the company

through legal action, additional regulation, etcetera. And and and then that can really hurt the bottom line for shareholders. How do you quantify that quote unquote damage a company does? Sure well, So human kind investments be trying to put a dollar value on every impact that a company has on humanity. So starting of course with the investors. Investors are people too, and they should have a good return on their investment and not be defrauded. Right. Employees are they being read

it fairly? Are they being paid well? Customers are creating a product that's useful and beneficial or is it toxic and society? Right? You could be creating a lot of value for your investors, customers, and employees, but maybe your factory viewing a lot of pollution into a into a town somewhere, and people in that town are paying millions of dollars of dollars in medical bills as a result.

So we try to put a dollar value on all these different impacts, add them up, and that's how we come up with a human kind value of what each company is providing to humanity. Super voting stock James, that's a problem here. So, I mean, take a look at a company like Facebook where Mark Zuckerberg has of the voting stock, um, super voting stock. How do you think about that in E s G? Does that just is that a screening item or you just say I'm staying

away from supervoting companies that have the supervoting structure. Sure well, the way we deal with that human kind is we preferentially invest. We work to preferentially invest in the share classes that have more voting power. Um. So, just because the company has different kinds of of of share classes with differential voting power, it doesn't mean necessarily that you

know they're an evil company right off the bat. I think it's just a question of making sure that we're investing in the in the share class that will hopefully give us the biggest voice in how the company is going to be run. When you are approaching E s G investing, how hard is it to avoid kind of greenwashing that seems to be a perennial problem in the

s G? Sure so? UM, I kind of have a simple trick for for the folks at home who are trying to figure out, you know, whether something is greenwashing or not. Um, I think the question that you have to be asking yourself is what is the nature of the asset manager that's providing the E s G product or service. Is E s G just one of many flavors of investing for them or is it the only

flavor worth having? Because think about what these kind of large traditional asset managers are saying when they have a bunch of non E s G products and then also some E s gum on the side. They're saying, look, we did the research, we figured it out. These are the good companies, these of the bad companies, and we only invest in the good companies in these few portfolios. But in all the rest of our business we ignore everything that we just learned, and its business as usual.

We invest in all the bad companies. So if they're not taking their own socially responsible investment research seriously, then why should we? James, One of the things I've heard from folks that are active in E s G investing is that the quality of the data they need in

their analysis just isn't up to par. I mean, if I'm for my financial analysis, I've got the income statement, the balance she think, you know, cash flow statement for E s G it comes down to, I don't have great data, give us a sense of where we are in terms of E s G data and its ability

to help you in your analysis. Sure, I agree, that's probably one of the biggest hurdles that people who want to invest in a socially responsible way of face UM and and out there that you know, there we identified a lack in in a lot of the data that exists. And that's why humankind we actually work to create a lot of our own data UM and and it's really it's it's definitely the biggest challenge I think that people are facing out there. We're actually working to solve it

a humankind. So, given all the data that you have, where do you see the greatest opportunities to invest UM the greatest opportunities Well, the way that we look at things, it's really a question of where there's UM the most positive human impact versus the most negative human impact. So avoiding companies that are UM, you know, involved in causing a great deal of death and harm and destruction UM and really over investing actually in companies UM that are

creating positive value by saving lives. So you know, healthcare, UM, companies that are doing a bunch of healthcare R and D that will hopefully extend and improve um, you know, human life companies that are providing water access, food access. These are things that really help people, uh, you know, thrive and and flourish. And that's that's where we think there's more opportunity from a socially responsible investing perspective. Yeah, James, just about ten seconds. Just give us a sense of

how your returns have been. Um so in terms of the return earns UM, Well, so we UM. We've been generally speaking, um, you know, tracking the market more or less, although I've actually been looking to see, you know, some some divergence because the way that we invest is actually not just tracking a general index. So um. The way that we think about these um you know, these sort

of performance metrics is actually really quite different. But I'm looking forward to seeing what that's going to look like in the future. All Right, James, thanks so much for joining us. We appreciated. James Kat's founder and CEO of Humankind Investment. The volatility continues in this market. Uh. We've had one percent moves in either direction over the last four days, and today we've got about a six tenths moved down in the SMP. Let's get a sense of

whether we need to get accustomed to this volatility. Let's check in with a professional. Rich Steinberg, chief market strategist at the Colony Group. They have seventeen billion dollars in assets under management. I think there's somewhere up in Boston or something like that, and I think they play baseball up there. I'm not sure. Rich, thanks so much for

joining us here. Talk to us about this volatility. Is it's something we should be concerned or about or is this just what you see when markets are at or near all time highs. Not only are they not only the issue around all time highs, but I think investors are struggling with the growth value dynamics in the markets, and you're seeing kind of these mini rotations from you know, small cap back to mega cap and then mega cap

being oversold and growth going one way or another. And I think we just need to embrace the volatility somewhat um and allow investors to reposition portfolios that might have gotten out of sync with either their asset allocation or sector or asset class waitings, and use the volatility as your friend and not necessarily your foe. So you think

it's not time to maybe be pulling back on risk. Here, Listen, the over the last forty years, we three quarters of the time you get twelve to four into a year draw downs with the market still finishing up. This is why equities give you a higher long term return than treasury built. So you need to be in it to win it, and you need to understand your own kind of risk profile and when those moneys are going to

be needed. If you're an endowment, if your family, if you're a foundation, So it's you know, risk is very personal, alright. So we're heading into Q three earning season. Earning is always important to these markets. What do you need to see? What do you expect to see? What do you need to see out of this earning season? Listen, I think we're going to continue to have the winners being rewarded

in the losers being spent. But you know, margin numbers are quite high, uh, and you're starting to continue to see pretty decent revenue growth. Just to kind of put numbers onto it, you know, uh, projected earnings growth for next years like nine point six percent and revenue growth is just shy of seven. We're gonna see some companies use the pandemic and kind of supply chain issues as as um excuses, So we have to really see where

their core businesses are. And I think it's important for investors not to be all in on like a value opening trade and not to be all in and megacap growth, but to kind of continue to walk that fine line of a balance between both because earnings are going to still evolve over the next couple of quarters. Well, Rich, you talk about kind of the supply chain excuse. To me, that seems pretty valid given some of those constraints that

are out there. If they prove to be more persistent, then maybe the market anticipates right now, what is the implication of that? So I actually think they are I didn't mean to minimize and I appreciate your comment. Um, the supply chain issues are real, but the question is whether or not that that pent up demand. Maybe we have a short term issue and earnings, but the outlook

for the quarters coming out starts to look better. I think it's a wait and see kind of issue that we have to uh continue to evaluate and as the feed is m alright, so, Rich, what are the sectors then given that backdrop, given your expectations. What are the sectors where you guys are you know, doing some work these days? Yeah, so, I you know, in the portfolio that I run for the firm, I'm I kind of float at thirty thousand feet. I think you need to.

I had trimmed back some some tech exposure. Um, and I'm overweight healthcare. I have a little bit of kind of like a low volatility and dividend play just because dividends did not work out last year. Um. The thing that's perplexing, especially today is just seeing a lot of weakness and mall cap. I'm really interested in adding to financials, but I'm not there yet, and you're seeing this kind of weird rotation in the last few days out of you know, out of financials and out of small cap.

And you know, if if the Yeld curve does steepen, you would think that financials should be a place to go as a small cap just because of the makeup of that index not playing out yet. No, Rich, I'm so glad you brought up the small caps because I just pulled up a chart on my Bloomberg terminal and it is up until the right through about mid March. You know, really solid and then just totally flat lines

for the next six months. Really, what do you think would be the catalyst to renew some of that excitement in the small cap kind of cyclical space. So I think it's probably a three legged stool. Right. You have kind of the the yield curve steepening, but not so much that it will kill the economy UM And I think over the last ten plush years it's been like mega cap growth UM and kind of a rotation to people being back to overweight, and I would admit cap back into that UM and those tend to be more

domestically oriented. So if we start to you know, get back to kind of normal growth rates, then I think, and you have a strong dollar based on higher UM interest rates, small MidCap could outperform. Additionally, like I said, there's a lot of financials in small cap. Rich thanks so much for joining us. Really appreciate getting your thoughts on these markets here as volatility picks up really over the last four or five trading sessions. Good to get

a little bit of a mooring here. Rich Steinberg, chief market strategist at the Colony Group. This is Bloomer Philip Plumbo, founder CEO, and chief investment officer. I'm sure he's got some thoughts these Plumbo Wealth Management joining us on the phone. So, Phil, when you see markets like this again, these kind of significant moves on a daily basis, seemingly without much direction, how are you framing this market as we go into Q three yearnings? Yeah, well for us, Hello Paul and Kayley,

thank you for having me on again. It's gould to be back. Um. So you know, we're pretty vocal that, you know, we believe that we're in a bubble with risk assets. A lot of strategists really don't want to talk much about that, and but ultimately, when you think about the speculation that's going on there and markets, whether it's Bitcoin, whether it's other cryptocurrencies, and f t s valuations with somebody's innovative businesses, Um, you know we're at

levels that are are overvalued. So you know, we're in the camp that when you're in a bubble like environment, it could go on for long enand people thinks you can't try to time when it's gonna pop. But we think what's prudent to do in this current environment today is to reduce risk with your equity portfolios, right, So for example, if you have fifty percent equities or is supposed to be in fift percent equities and it's sixty five percent equities, or you've got to rein that in

and bring you back down to or even maybe give maybe get a little bit more conservative, so pulling back on echoit exposure and then adding exposure to what. So we believe having cash right now is okay, even though it's not paying much. But if you're in a bubbly type environment where valuations are rich, having some cash available to buy in on any type of dip we think

could make sense. The way we run portfolios and I talked about this a bit last time, is we do use gold, we do use commodities, and we use intermediate and longer term treasuries and tips. So we will rebounce capital into those particular areas as well as some cash. Alright, So, Phill, as we head into this third earning season here, what are you going to be watching for UM over the

next several weeks. M Well, expectations are that we had peak earnings already, so we think that maybe more disappointments to the downside entity upside based on supply issues, inflationary pressure is a lot of these companies of facing. So ultimately we don't have high expectations for Ernie's going into the season, which could also increase volatility. I hear the word stag inflation getting thrown out more and more and more. Do you think that is an apt description for the

environment that we're in? Mhm, you know, I don't. I think that we had a big move from the bottom from March of two thousand and twenty to where we are today, and you think about what we're faced with going forward. You know, we have now a FED that probably will taper sooner than longer. They may they may raise rates in twenty two sooner than we think because

of inflationary pressures. You have the China issues that are going on that could be contagion, COVID is not over yet, and and and you have that ceiling and other that you know, high depths all around the world. So when you have a situation like that, it's really tough to

get strong growth. The only area that gives me a bit of confidence is if there is a fisculous fiscal bill that gets passed, and if they can get along and make something happen within Congress that could be one reason they could bring the leg up and give us one more leg to the upside here overall with markets, But other than that, it seems like a lot of challenges in front of us. So the h the asymmetric risk for the market, we believe it is more to

the downside than to the upside. How much downside feel A lot of folks are saying, you know, a five percent pullback in this market would be a healthy aspect to what is otherwise a bowl market. How are you thinking about the next pull back in this market? Again? We did it, you know, roughly five percent off the

SMP high. Is at it or we have more to go. Well, historically, when you get to a point where a FED starts to talk about tapering and does start the taper and move into the stimulus plan that takes money out of the economy, liquidity out of the economy, you could see a ten percent correction. You know, if you look historically, that's been the case. So we wouldn't be surprised for that. We don't really try to time markets in the short term and really try to figure that out. We really

feel that it's difficult to do. You know, that's why. We really believe if investors go back to fundamentals and portfolio management and just say to themselves, you know, I have fifty percent I'm supposed to be fifty percent of my and I'm supposed to fifty percent of my money in stocks. It's now sixty or six. Let me rein that in to bring me back to I'm not trying

to time the market. What I'm doing is I'm selling at high levels, not low levels, and we believe that's preventing to do right rather than trying to figure out is the market gonna be down ten percent from here? From here? Um, we just think that's that's very difficult to do and it doesn't make any sense from a portfolio management standpoint. Trying to time the market is tough. But we've seen time and again that dying of the

dip always seems to work. So maybe that's why you want to have a little bit of cash on hand, as Philip recommends. Paul. Yeah, absolutely, Hey, Phil, thanks so much for joining us. I really appreciate getting your thoughts. As always. Phil Palumbo he's founder, CEO, and chief investment officer of Palumbo Wealth Management. They have about three million dollars in assets under management, joining us on the phone from Great Neck, New York. Thanks for listening to the

Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller, I'm on Twitter at Matt Miller three, and I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.