The Fed, Markets, ETFs, and ESG (Podcast)

thanks so much for joining us here. Lots of data crossing the Bloomberg Erman over the last week. Uh. Federal, you know, central banks around the world, seemingly in a concerted effort to tame global inflation, and led by the Federal Reserve yesterday, of course. What did you take away from Fed Chairman J PAL so? Good Morning. Um, you know what he uh, the sentify basis points. Obviously, was

widely expected from most. I didn't take his comments as being too much focish than he has been already, if any. Think I think he made it even more clear. Um, I don't think he wanted to be there to be any ambiguity and, you know, to say that there's gonna be pain felt. You know, we're not there yet. Uh. He even just Um didn't he? He didn't even struck off the possibility of a recession, which was quite interesting

as well. But you know, if there is any question, and he dealt about the resolves of getting inflation back down to two percent, everyone, anyone who has had any doubt so obviously put that aside because he made it pretty crystal clear that they are continuing to raise rates and probably into so talk to us about I guess the next thing on you know, investors minds is, all right, how bad is this gonna get? I mean we're, I guess,

recessions now penciled into pretty much everybody's models. I would say, what if they go too far, except for it seemed pretty clear yesterday that they intend to go intend to go too far. So that brings up the recession scenario. So what do you, the good folks there, think about how deep it might be? Yeah, I think. I mean we've got out, we've we've actually been lowering our growth forecasts steadily like everyone else, and we've actually got zero growth now for three Um we still have only one

quarter of negative growth. I guess the big difference here, you know, in terms of recession, is, you know, the labor market, and that's the situation. Yeah, so unique. I mean if if everyone was cutting jobs right now, you know, if we were seeing negative signs in front of pay rolls,

and that would be a whole different story. But the fact that there is still strong demand out there, I mean it's it's it's still it's starting to disappear a little bit, but it's still people are still looking for work. You know, it's still hard to find truck drivers, for example, Um, and it's that's the big story. And and wage and wage pressures are still high because of that. Um. I mean, he also mentioned yesterday that the labor market has been

very strong and there's still a strong, robust economy. So because of that, you know, he's you know, I think they're very comfortable. And there there's I think everyone sort of resolves themselves with that possibility that we're going to slide into a recession or or a deeper downtown turn than a usually had been anticipated. But if that's what

it takes, too but with lower unemployment, right. I mean everyone yesterday was talking about four point four percent unemployment, which is, I think, Mike McKee had calculated, that's about another one point three million job losses. But still compared to the great recession, compared to Um, the Internet bubble burst, Um, you know, it's nothing. Four point four percent unemployment, right. I remember when five percent was like enviable in the US.

So can we really hold to an unemployment number that's that low? We have it edging up to around maybe five percent, I think, by the end of next year. But again, let's not forget that, you know, there's still over ten million job vacancies out there. So some of that will get, you know, soaked up from from that point Um, from you know, some of the or some of the job openings, and of course some of the

openings will also be taken off the table. Um. You know, as I've been saying for for a long time now, you know anyone who has multiple job offers out there, you know, take one because it's not gonna last. Um. But you know, again, this is all parted personal with what happens when there's a central bank who is aggressively tightening. You're gonna see that slower growth, you're gonna see it hit consumers bending and you're going to see the doubles

rate to hire. And on that front, Jennifer just the consumer here is another kind of variable, and the consumer seems pretty dark strong. I mean you cannot get, uh, you know, a table at a restaurant even on a Wednesday night here in New York and and in the surrounding areas. The consumer seems pretty strong. How do you think that might play out? Well, that's the that's one

of the wild cars, I guess. And and then you know again, I've always, sadly, I've never underestimate the US consumer, and that's one of the biggest things that you're mentioning about dying out. I mean, if anyone was seriously, truly, truly, truly worried about their balance, she is about their finances. You know, that's where you're gonna come back first dying out. You'RE gonna Brown bag it for for launch, YOU'RE NOT gonna go up for the drinks, for drinks after work,

and that's still happening. So that speaks, I don't think, a lot about the US consumer, about the strength of about the US consumer. Until we start seeing that fold a little bit more, you know the ray hypes will continue um and that's a different story. By the way, I just mentioned what you guys talked about earlier about what's happening overseas. You know, this is all demand riven right now, whereas where you're looking at overseas with the big of England and the U C B, it's all

energy driven. The supply chain, the supply side of the equation, we thought was getting better. We've heard recently from companies like Ford Um, you know, more concerning announcements on the supply chain. And obviously the chip situation also isn't expected to recover. A lot of companies are saying until twenty

four really, or twenty five even. Is that side, though, of the equation getting better to the point where inflation is going to come down to the level power wants to see it, even without too much demand destruction, by like the middle of next year? Probably not enough. I mean I think you know, I've I've it's all anecdotes, but you know, you hear stories about some of the

supply chains easing. Um, you know you saw the the supplier delivery delays from some of the regional fed surveys have been coming down sharply and that's because demand has cooled and that's even manufacturer's time to get through that backlog. But other areas like the computer chips, for the for the for the Automa auto sector, that's still in high demand, Um, and that's still pretty backed up. Jennifer, maybe some of our listeners don't know that BEMO is short for Bank

of Montreal. You're in Canada. How are how is the economy in Canada? How's the consumer in Canada? How different is it maybe there versus the United States? Do you

think it's actually fairly similar? We're also we've also got the heavy weight of the housing market and the housing takes of the larger share of Canadian economy here than than in the US, and there we're seeing a pretty you know, Um, we're seeing a correction right now in the housing market just given the weight of higher rates, and we actually had a one hundred basis point rate hike here from the Bank of Canada back in July, which, you know, that has yet to really filter through into

the housing market. But but you're we're seeing some of the other great hips already filtering through. So we won't see a big, real big impact until later this year. But consumers so far, you know, is to holding up again, labor market and and waste pressures, and we're going to get a July retail sales number. We're kind of behind on that, by the way. We're getting our July retail sales numbers on Friday, so we'll see how the volumes

pan up. But you know, we're looking for declines because you know, just like everywhere else, you know you're gonna get hit by higher prices and higher energy prices and

higher boring costs. So how do you see housing markets? Um, you know, obviously it's very regional, but if you look at, for example, the US housing market versus Canada, versus the UK, which I think are the three places where you saw extreme heat, Um, are we going to get any, you know, serious financial disasters in terms of housing markets or our prices just going to, you know, come off ten and Um, you know, the frenzy will unravel without, you know, causing

great financial arts, that's what you want to call it. That's Um. We already have seen prices decline and we I think we're seeing, for a toll of net pete trough decline. But there's still there's underlying demands. Like you know, there's still immigration you know, organic demand from you know, households moving out, like the millennials. Wins over is probably seeing the peak of that coming soon. So there's still that. But you're you're absolutely correct. It's very regional. Some places

are going to get harder, hit harder than others. And a lot of this also, still forget, stem from the whole work from home situation, which is starting to you know, to fade a little bit as well. So but we don't see it again. We still we're still seeing a correction. There's still some more peam to come, but the Bank of Canada is also quite causing some of it. So we don't see the bank here raising rates as quickly or as aggressively as they said. And Jennifer, just real

quickly the strong dollar. How high does it go? Is there any bear case for the U S dollar? Like goodness Um. It's interesting because I remember what at one point some people were talking about, you know peak US dollar. This is when Um at that one um good CPI report. I don't remember that in June where, you know, people started thinking that they're gonna be pivoting because of that one number. But I think you know, given that the case, that the Fed is still super aggressive. Um everyone else

as raising rates, but not everyone, um so. I think we're still there's still a case for a strong invest dollar, you know, handing into three. But it was also very interesting, by the way, that not everybody was raising rates this week. You know, we had, UM, Brazil holding off, for example. You know, Norway raising rates. I think they said that. You know, that's gonna be it for a little bit because, you know, um Um so again it's it's it's interesting.

And even the RBA, by the way, has been making noises and know how it may be time to turn it down a little bit. So that's kind of interesting. I meanwhile, the Fed is going the other way. They are, they certainly are. Jennifer Lee, senior economist, managing director at email capital markets. Thanks so much for joining us. Right now, let's check in with Greg Han. He's a C I O at winterp capital management get a sense, uh, what is he thinking about these markets? Greg thanks so much

for joining us here again. Another uh, week day in the markets. Here we had the Federal Reserve yesterday raising rates, being very clear in their message that their number one mandate is to fight inflation and they will do that with the in part with their interest rate mechanisms, and today we had some more central banks from around the world following suit. Uh. What do you do at winthrop couple management with that type of background? Well, that's a Paul,

is a great question. Uh. So these are difficult markets. We're going through a shift right now invaluation and how the markets are perceiving valuation. Um, and it's it's really that's the whole push higher and short term interest rates. Um, and then the dislocation and the equity markets. So we are, like I've said, we're kids in the candy store. In

the fixed income markets. This is a window to Um to build portfolios in fixed income that can earn five percent without a lot of risk for in a quarter on a municipal portfolio. For investors, that the tax free income. So that that part of this is that's the easy part. The hard part is the the equity Um. We're about to hit a storm on the equity side because earnings are going to become more and more difficult it as we head into the third and fourth quarter because margin compression,

increased labor costs, Um. It's it's a litany of things. And then the latest now is higher interest expense because we've got short term interest rates climbing. So what do you expect in terms of earnings this year and next year? Do you have a forecast? Well, we're, I think you know, consensus right now is what to thirty five on the S and p. The SUP is is we're looking at. Our expectation is we're sixteen and a half times earnings, which is now we're kind of kind of getting into

fair value and we've come down from twenty times. I mean this is this is the adjustment, as we were so overvalued. The pain that investors are feeling is an adjustment from an overvalued market to one that is simply fairly valued. Markets overshoot and we can't overshoot when we can't go to an undervalued market, which we haven't seen in over fifteen years. And Amazing, amazing. That is. No, yeah, yeah, no, it's and that's but there's great companies out there. We

are seeing. I mean he's got stocks that are down six are that are they're still great stocks, they're great companies. But Um, you just we just have to we're not going to pick the bottom. We just want to find we want to be able to invest in good, solid companies with solid business models. That's the pall. That's the

other thing that's happening is business models are being challenged. Auto, when auto companies can't get cars onto lots, when the airline industry is capacity constraint and they can't get passengers on the planes because they don't have, you know, the the Labor to help support the UH, you know, the the business model we've got. That's those are challenges that are structural. Raising short term interest rates and isn't going

to fix that. I just want to quickly jump in with the average analyst estimate for earnings is two fours for Um and in three I'm looking at an average of two and twenty nine dollars. It's not the median fall. The median is two thirty two. Yeah, that's what I'm looking out on my spx index e page like that. So anyway. So, Greg just real quickly, is there a sector that I should be looking at right now, given that we're likely to be going into a recession, or

if we're not already in one? So look, I just the whole Infotech space, which bleeds over into the the communications sector. Uh, there's some those. Some of those stocks are just really undervalued. That's where we like and now it's it's hard because that's the part that's gotten hit hard. But in a storm we're ones to run into the storm, that run away from it, and so when stocks are down we want to buy loads. So I that kind of learned that my my my business school, Um and

so you know the the you know Microsoft, alphabet. Those are the core holdings for us. We we love those stocks. Disneys, one that's come into our sweet spot in video, is in video has a valuation now that starts to make sense. So we're we are seeing opportunities, but it's going to get I mean we have the risk of it getting a little bit worse here and ending into the second half of the year. All right, Greg, I really appreciate it. Greg Han Cio, winthrop, but to management. He mentioned his

business school. That would be Indiana. I get his undergraduate from the University of Wisconsin. So all big ten there for Greg Hand. Well, I guess after yesterday the question isn't so much is the Fed going higher. Yes, they are. The question is how high and for how long. Let's check up with Ben Emmon's managing director of global macro

strategy at Medley Global Advisors. So, Ben, what do you take away from yesterday's statement and yesterday's comments by Fed Scherman J pal about how high are these interest rates going to go? Hi, Paul. Well, he was really explicit, I felt. You know, he said that at the very last question of the press conference, that you know, four point six percent fat funds rateing next year is likely, and then he also mentioned that one one to one and a half percent will rates is where they want

to get to, to be a restrictive policy. So with Dan in mind, as you see the reaction today in the markets right, that's being factored in now the two you could probably move towards at four point six and it will pull up the rest of the you curve too, and that's in motion. So I think that was a big takeaway for me. In addition that they surprised, of course, with that medium dots for two being higher than why

the market was price. And I think that shows too that within the inflorence see there's a real clear push of fact we must get quicker to restrictive sense, to put a little inflation or were in trouble and they wanted. Well, by the way, I was listening to this I thought it was a great press conference. UMS entertainment value. Um, yeah, I love when Steve Leesman his Mike went out or he didn't remember to ask the second question. The MIC and the PALSI I don't even want to answer your

second question, which was pretty good. Yeah, at least. What I was thinking was he's so insistent that they want to get rates Um to more restrictive level as quickly as possible. Um, for from a layman's person, why in the hell don't they just say rates are four an a percent? Boom, there you go. Yeah, exactly a meth. I mean, what are you waiting for? We agree like you, sort of one of base points. Hight, that was, you know, but you know, envisued by the market. Right, I had

an eighteen percent probability. It could have just done that yesterday, right, and the move is high and would shock it the markets, I guess, and maybe it's still holding them back. But if it comes down to inflation, you slatch hammered, right, so you would bring it up banged like that. But you know, it's a policy about seventy five is sort of the way to go, you know, touch feel still right tied in financial conditions and get to an end destination.

You know, it does bring the risk that you you're not doing enough and you have to do more right, and then that will be the such hammer. So I think you know, it looks to me they have a wall set in speech about it. We Week and half ago, when the last time I saw you, that was sort of the four book to what happened yesterday within the from sea. There's like people banging official on the table. Yes, we've got a such hammer here, but it's a consensus. So that's why you end up with that seven five

basis points. But it should move faster. I agree with it. I mean I would just do two hundred, except for I would stop. I would say inflation is peaked. Let's just see how these rate increases trickle through the country over the next six months. Is that? That seems to

be completely off the table. Bed there burns. Yes, thank you. Yeah, yeah, yeah, that that is the art of burns issue, and that's basically even though the art of Burns, by the way, in seven, three, seventy four Hyde grates up to I think.

So you did, didn't fat the tightening, but the underestimated economy being still too far above potential and too much stork on an easily economy in terms of both the pressure on inflation and so you should have actually done more at that time if you look back in history. And that's what they're struggling with right. But we're in an environment where, you know, at four percent rates, that's

we're stored glow. Right. You will have to go a lot higher than that, and that's still worry in the markets. I think facts, you may have to do just so much more because because actually will interest rates are still too negative and the economy is still too strong. Right. It's still too overheated. The claims say that this morning. It's just just I think, part of the reason why use are up to claims against shoulder right, unbelievable. So

it's just a strong economy. That's what they have to tackle. Well, for sure, judging by the labor market it still looks pretty strong. We do see some pink slips going out, we see banks starting to call the hurt a little bit, but that's just normal. Um. He mentioned a couple of times. There are a number of ways you can look at inflation. Expectations or inflation forecasts. So I want to ask you some dashboard questions. What do you look at Um for

inflation forecast? Do you like the Um, you know, five year, five year, or do you like the any surveys specifically better than the others? And also financial conditions, Um, you know, I pull up F con go on the Bloomberg. They look so they don't look so tight to me, certainly not compared to what we saw in March of so what do you look at to measure Um? To look to sort of gauge inflation expectations or a market forecast?

And what do you look at to measure financial conditions? Yeah, with inflation, what I found was that the Conference Board has the one year expectation in there and since the spring of that number has been six percent or higher and it has been a perfect predictor of where CPI actually ended up. So I find out a really strong indicator in this environment where inflations and that that one of your expectations. That I believe the last Sumer seven point six percent, so a little over than my head

finess now, but that's still really elevated right. So that's one. You know that the market break even, the ditch break even. I'm a skeptical there because it's a real yield and phenomenal yield, and they move around right, so they actually react to one another. So find that less credible indicator the long term expectations from Michigan is something that the

fact reacts. You would take that into account. And then there's this blue chip survey, which is, you know, you have to get this specific access to you know there is actually an expectation in there of what people think that real interest rates will look like. They're now rising in line where the market is. So I find those three interesting. COMFERENCE boards, Michigan Blue Chip, some more survey base.

If you look at financial conditions, you know what's interesting on that function is that there's also a tap called market details. If you coun go and it shows really nicely what what is contributed to the standard of financial conditions. And you can tell right, it's particularly real interest rates, where the standard deviations is now over to two point two or so. So that's, I think, what's really driving

at there. But not enough. Need to be even more tighter. So, as we talked earlier, real interesting actually go even higher from here, right, and settle and say one seventy five and two year and one on a quarter and antenue tip shields are still too low. Uh with safe leady are driving Frenchship conditions tight, but not tight enough. All right, Ben, good stuff as always, bringing in here. We appreciate it. Ben Emmon's, managing director of Global Macro Strategy Medley Global Advisors.

I'm looking at him. We didn't ask him about Bank of Japan. What do you want to ask about? How how serious is this that they intervened the first time since strengthen the currency? I don't think they're a big carry trade. Do you think there's a big carry trade out there? Ben, I think we lost him. We'll get them next time. Carry Trade. You want to do a Japanese yen carry trade? I've been doing it all year.

Have you nice in my head and you're okay, alright, good stuff there, Ben Emmon's we've always appreciate chatting with him. Looking at the markets here, SMP off about eight tenths of one percent, so still some selling pressure out there, given what we heard from our friender reserved. Yes, this is Wood Barker Kind O. Next guest in studio. Extra Points Gold Star, Amanda Rebello, head of passive sales us on shore. I don't know what that means at D

W S group. Dws, that's Deutsche, that's Deutsche banks, Deutsche very wait, Deutsche very poppier specialists, and I believe, yeah, you just kind of have German. So what do you got for us? Let's talk about e t S. I mean, is it still a thing? Is Money still going to e t F s like crazy? We still see the broader trend. Yeah, so you can see so many benefits to e t F s. We see, Um, the DI

diversification elements are really useful. Um, we see as well as an access vehicle, it's providing Um, good access to different markets that clients are looking to get into very quickly and I think, especially in light of the motility in the market at the moment, being able to get in and out of positions easily, quickly, efficiently cheaply is of the utmost importance. Now, first of all, step up to the mic a little bit here. Why do you think or why do you head of passive sales? What

does that mean? Passive sales? Yeah, passive sales for us at dws is anything which is linked to an index. So we have our e t f range ex trackers and then we also offer segregated mandates tracking indices, b they on the equities, fix income or commodities. So you don't do all the e t f that are actively managed. We don't know at the stage now, but it's something we've seen in the market as an emerging trend. So what are the most popular products or what are the

hardest products? When you get up in the morning and you're super pumped about a new product? What is it at the moment? Yeah, I really like hi yield. I think that there's going to be a time for it again in portfolios. I think it's been hammered. We see where spreads are at the moment, but especially in light of where the Fed action is. You know, we really need to be on the hunt for yield. Um we can get equities, but I think when we look at SMP,

for example, historical defield is only two percent. You need to look at fixed income again, but also be willing to take on some risks. So fixed income not behaving as it historically does as a dampening portfolios y s G. Yes, I'm skeptical. Okay, tell me why I shouldn't be skeptical, because I know e s g themed e t s are very popular in getting a lot were right. We're I don't know. I mean I think we're all skeptical now, right,

aren't we? Isn't the market pretty skeptical? Fair to ask questions, you know, I think that's everyone doing their job at the end of the day. Um, look, we but we're in climate week in New York at the moment, right. Um, I think all of us know and feel as well. We see record breaking summers. Um, all of us. We need to think that when we're making an investment, it's a deployment of capital. Right, so can we help the

situation with that? Right. And so from our stance at dws, when we think about E S G, when often thinking about not being exclusionary. So I think some of the cynicism has come from this in the past, that you're just outright filtering names and energy sector, for example, when in fact they're part of the solution in terms of helping US bring down climate change or at least, you know, stabilize it. Right, we all need to have electricity at the end of the day. Things like this. So we're

not really helping the problem there. Um. I think also the social components as well, now that we have more data points there as well. Um, it's not just something vague, it's something more demonstrable. So the kind of rigor that we have in investments built on the equities fixing come a community side. We can have the same rigor when we think about the e, s g Lens. That's a good point. The the S is probably Um, the easiest to quantify and deal with instantly, right, because the e

is kind of soft and mushy. The Germans, for instance, would rather burn cold and use nuclear power, Um, and you can debate whether or not nuclear is green. Um The G. let's face it, when you have companies out there that are very powerful and make a lot of money, the CEO wants to be the chairman and the G gets thrown out the window. So the s that we can really make some progress on and you can measure it and we can all agree, you know, on what

diversity looks like and how important that is. Um. So I think that's that's really fascinating. Let's talk about what you did to get into this position. You studied mathematics. I think it's interesting and and this is this is a great way to get into this kind of this kind of work, right. It is. Yeah, not go up and start a conversation with the math masters and mathematics person. You like engineers, though. You always ask people that engineers,

why are you studying engineering and getting onto wallster? What would you say is the right path to get to Wall Street in terms of a major? Well, it's all different, and now it's now it is probably math and engineering computer you know what the mathematicians say? They say that engineers that just want to be mathematicians. In any case, what? What? What? What led you to this position? And you know, what would you tell others who want to get into into

the field? Yeah, so, when I was younger, much younger, I actually was obsessed with news and probably wanted your job in fact. And well, I realized that was finance. was actually a really good way to be very engaged with news. At the end of the day, I'm talking about it as much on the daily basis as you are really Um and seeing then the implications in markets. Um, my maths background was quite useful for that. I think. I don't use any of the numeracy realistically, but I

use a lot of the logic and argument forming. So I think that's Um maybe how the two are tied together. Yeah, I mean when we're covering the news, essentially what we do is kind of follow the money to find out what's going on in your the money friends, things like this. Um, the trend of e t F, I think, has been amazing to watch. I started looking into it and talking about it in hosting conferences about et f about ten years ago and I thought this is the future, and

now we're there. I mean it is huge. So many people, not just the kids investing in ets, but so many people, because of regulations, can only invest in e TF. A lot of people have and having trouble getting into them. Now they are. You're seeing a lot of mutual funds convert over to E T S in this market. Right I P os, with the exception of Porsche, they're like dead, but people are launching new e t f s every week.

It's incredible to see the growth it is. We were speaking with contacts at the exchanges, so at Cebo and Nicey, and they're saying that nowadays most of the bell ringings it's like e t f providers rather than which is super, super interesting actually right, when you think about the coverage that used to be from you guys, from from other wires, it was always about a new company listing, but now you know, we're fighting for slots really in terms of

the bell ringings. So at dwus again, Deutsche Bank's asset management businesses. That the way to describe it? Okay, one trillion dollar global asset management manager. You guys are big. How much of that is passive? Would you say? Yeah, so, first and foremost we're actually separately listed from Deutsche Bank, but obviously they have a shareholding in us. And then about a quarter of our a U M is in passive, so in this indexed investment management piece. But do you

see Um passive? Is that right now sort of on the back foot compared to active management in this kind of market? I would say Um, people are thinking it makes sense to pay a money manager to decipher these tough markets at the moment. But also if you have a robust index and if you feel then that you can add value through Acet allocation rather than through stock picking, then passive mandates and e t f s are definitely

a very useful tool. So we do actually see this trend continuing, I think as well, just like, given how tough liquidity is at the moment, actually this has added fuel to the fire in terms of the growth of ets. Well, they're not across purposes really for you, because I could go to a money manager who uses your passive products to exectively manage my wealth. Exactly. Vanguard and black rock control the majority of the tip. Is that a good structure, do you think, for the ET F business or wrong?

I would say that both of these providers add some value. I'm actually ex black rock myself. Fantastic leaders that. I would say that competition is always healthy, right, and I think that sometimes when you have some of these newer players, it's great that they innovate so quickly, you know, and they get products and markets so quickly. So I think

there's a place for everyone. Um, I think that some of these established products from the likes of vanguard or black rock are so useful to clients we won't ever be able to compete with them. So there's still a place for them too. But you think the duopoly is

going to stay? I mean, like there are a lot of competitors up and coming you do think that vanguard and black rock are going to remain these two anchors, though I wish I had a Christian it's always I always thought about you know, Bloomberg and Reuters are the two major. When I started we wanted to beat routers, you know, and they wanted to beat us. And throughout the years we've seen other upstarts coming business insider axios, what have you, but we're still kind of the two

biggest in terms of business. I think it's basically us and then Reuter's all right, Amanda Rebello, head of passive sales us on shore for dws group, joining us here in our Bloomberg interactive broker studio. We appreciate that. Well then, guests are just kind of flowing into the studio these days that we're getting back to the old days, which is good. Getting people come in we can get in some good conversations. Amy O'Brien joins us. She's global head

of responsible investing at nouvene. Amy, it is you know, it's climate week here in New York, in addition to being the UN General Assembly. So I'm guessing this is a big, big week for you. What how do you guys at nouvine kind of describe responsible investing. What's that

mean to you? Well, responsible investing is our umbrella term for how we credibly embed E S G factors into investment decision making, how we use our influence in the market through our stewardship practices and how we measure and manage positive and negative impact. So we had a guest on here a few weeks ago, maybe a month ago, and he has an et f out calling. You might have her. I can remember his name, but he has et a D R I l drill, and he's saying basically,

companies should just maximize profit. They should influence social policy. Their job is to maximize profit and if that's buying in a oil and gas company, fine, policymakers will take care of all the other stuff. How does how do you think about that at new vine? Yeah, I think that's a debate that's been going on. I mean the field is over five decades old and I think one of the realities, though, is the client interest in e s g investing, in stewardship practices and impact strategies is

stronger than ever. There are a lot of companies themselves who have committed to tackling different types of issues like climate risk and investing in opportunity. So while we we certainly don't think that the whole world will just be E S G leaders tomorrow, we think that all the momentum around these factors and what's driving growth means that E S G is here to stay. Despite some of those some of those views. I'm old school Wall Street.

My first job, my trader would just come up to me every single day, my head trader, and say make money, don't lose money and then walk away. That was my pep talk. E S G investing. Do I make do I get superior returns? Do I sacrifice some returns to do social good? What's the data show? So E S G and responsible investing is all about making money and that has been the approach that many of us who are based at commercially oriented firms, uh, you know, have

to take. We have to be careful about what mean by e s G. is at e S G commitment, E S G outcome. You know, there are, you know, the devils in the details when we're talking about this field, but we are we're grounded in them, in the views that these factors can help us manage risk across multiple asset classes. They're uncovering very unique kinds of investment opportunities, um, that clients want and you know, based on where the policy environment is going, you know we're we're well position

to to meet the future demand from clients. So we were just talking Um with a head of E T F business at at dws and she pointed out that it's e. The E is a little squishier. Right. The S is pretty easy to identify, Um, and as well as the g. But but e is where you get a debate. Germans will say nuclear is horrendous for the environment, and the rest of Europe, I think just made nuclear green. How do you deal with this kind of taxonomy issue? Um?

That that we're still trying to figure out right. Well, it all gets down to data and taxonomy. But then it gets then you have to add on what are the client's own views, and so we have to build out a robust system for which our investment teams can have access to credible e s g information across all companies.

Use that alongside the fundamental research. But increasingly we're seeing clients come to US and ask us for you know, very specific Um you know, portfolios, separately managed accounts that do express your views. So you have to be careful about what clients get when it comes to e s g versus, you know what across the board and in terms of investment discipline, versus what they're coming and asking.

And many of us do have very customized beliefs depending on the region they're in, and we have to work with those clients accordingly. So and I guess the probably number one conundrum is something like uh, an oil company right like BP. Is that an e s g offender because they, you know, are pulling oil out of the ground and causing environmental problems, or is that a leader in E S G because they're looking at alternatives and

trying to change the way we think of and use energy? Yeah, I think we have to also be careful to not to have black and white, you know, views on here. I mean a lot of investors are working with large companies such as BP and others to map out what the transition will be to a lower and you've seen a lot of proxy votes this year shielder resolutions on this topic, and so you know we we aren't taking a stand at new being, you know, energy good or bad.

You know, it's really about a case by case working with each company, understanding what their strategy is for our views about the long term transition towards a low carbon economy and so bp Um, you know, could be used by different investors in different portfolios. But we have to be precise as asset managers about what our view is and when those companies are in a portfolio and when they're not. Cope is coming up. What is? Just tell us what copy seven is and how it impacts the

E S G investing world. Yeah, so there's been, you know, cop twenty six, of course, was last year and last night I was at at an event at the British consulate that actually uh where, Um a look. He Sharma spoke about what what was achieved in this past year and we'll remember the timing here where a cop happened. And then we've had, you know, the war in Ukraine and all of the issues around covid and President Biden left cap twenty six on the phone with the Saudis

saying please pump more oil. Right, I mean it was really, really interesting. Uh M, a time it is, but I mean I think what copies achieved for the industry is is, you know, bringing together. You know what a credible commitment could look like. I mean I think everyone understands that. You know, in terms of emissions, we are all long

term looking for a downward trend. There a significant downward trend, but we may have periods where there there are some some blips and you know, what's happening in the energy markets has to affect our plans. But last night I heard a lot of talk from large asset owners, sovereign wealth funds, you know, around the world, who are still committed to making this transition possible. Believe there's investment to be made and money to be made in the transition

to that long term. Um, you know outcome of net zero carbon. So cop twenty seven is coming up in November. I think you'll see a lot of the commitments that firms, companies and asset managers like us made last year coming out with stronger, more detailed implementation plans. I think that's really important for investors and other stakeholders. The regulators are looking at us on this very topic. Um, we are we are being regulated and have disclosure requirements being placed

on us as an asset manager. More than ever before, you know, especially on the issue of climate risk. So what are the investment opportunities that you're that you're pumped about as we head into that? Yeah, I think we. You know, one way that I'd like Um to think about this is the investment opportunities here are cross sectors.

We're placing a lot of emphasis on the energy sector, but when we look at other parts of the investable universe, there are many companies who are changing business models because of consumer preference. So we're looking across asset classes. Um. You know, Nuvine has been building out alternatives in a natural capital investment area to to kind of capitalize on

that part of the equation. So there's a lot of emphasis on how how you lower emissions, but you know, how do we create syncs to which to to remove those from from the environment? Tell us about data, like it might buy a stock or a bond or company and look at the income statement, balance sheet, cash flow statement to get a sense of evaluation. Where do I go to get good, consistent data for e s G. Paul, how much more time do we have in the show?

I mean this is certainly, you know, an area that I started my career out twenty six years ago in this space, working for one of the first firms organizations. It was a nonprofit Um. That those that's those days. That's who was producing E S G ratings Um and we were struggling with some of the same challenges we are now. But I do see, you know this, we'd have to, you know, make sure the world begins to align around e s g data needs, uh, disclosure requirements

from issuers. Then regulators have to get on board about then what do they want from the investors themselves? So there's this whole data infrastructure ecosystem that we all and I would encourage us all to take a look at that, because that is really where the rubber is going to hit the road. Is when we have good data, we're

gonna be able to make good decisions. We're gonna be able to show who's the leader, you know, in in on the S G you know who might be a laggard and then, more importantly, you know what were the real change that that happened. And you know that's still a little muddy right now. And you know, and investors to get the credibility and confidence to to further allocate Um. You know, we're gonna need to really that's one way that we could align as a as an industry. All right,

Amyo Bryant, great, great stuff. Amy Brian, global head of responsible investing at Nouvine, I'll mention you know you go to the f a function on the Bloomberg terminal, one of the most widely used terminal functions for financial analysis. We have a big tab there of all E S G data for Jillions of companies. So, Amy Brian, thanks so much. We appreciate it. 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 Leer in nineteen seventy three, and on ball sweeney. I'm on twitter at PT Sweeney. Before the podcast, you can always catch US worldwide at Bloomberg radio.