John Man gat that you've been getting yourself in a little trouble with retirees this week.
It's surprising how defensive they can be of their state pension.
Look, we can all be defensive of our stuff. No one wants stuff taking away. Everyone wants stuff, and then they want more stuff. They don't want less stuff. Why should pensioners be different?
Oh?
Absolutely, and weirdly enough, a pole have more sympathy for the pensioners than a lot of the other stuff. I things should be taken away from people.
That's because you're quite close to pensionable age.
Yeah, exactly, No, he's not, by the way.
Everybody, I am joking, here's nowhere near it.
They're talking about the UK pensions triple log, obviously, as everyone knows the way, and that the UK pensions UK state pens as are basically pegged to the highest number anyone can find anywhere. Something that used to work when the state pension was far too low. But now, of course the.
State pension is actually pretty good, and it's beginning to look a bit weird for pensioners to get a higher rise in their realtim's income than pretty much anyone else in the UK is that basically what you're thinking, John.
That's basically it. I suppose it's the main issue here is so the triple lock that was introduced in twenty ten, and that was at a time when the state pension was considered to be too low, and that was probably fair at the time. And so we've got in a situation where now pensioners and pension of households are less likely to be in poverty than other houses. And this is relative poverty, by the way, but let's not even start going into.
That on that.
Yeah, so at some point pension households were poorer or more likely be poorer, and now they're more likely be richer. And so it does seem odd that we have this triple lock, which makes sure that pension has either get two point five percent or CPI or average journings, whichever is highest, and not only whichever is highest, but whichever is highest in the specific month, because you know, just
because they want to make the decision in September. And so what ends up happening as you get it's the July figure for wages, and it's the August figure I think for CPI, and so basically it's one off numbers, so you can also get completely derailed by some quite arbitrary thing, and to an extent, that's happened this time round because average wages came in at eight point five percent, that's like including bonuses, and that bonuses bit was actually
including the pay settlements made to the NHS and other civil servants to kind of stop the strikes basically, So it's not just that's not even an annual bonus, is a kind of one off kind of payment that's distorted the figures higher. So it just seems nuts that the state pension is going to got by eight point five percent in April twenty twenty four because a we've got a distorted figure.
But being more.
Importantly, you know, is this what we're trying to affixt anymore? Given that we'll apparently have a finite amount of money which we do to spend on things, you.
Can print as much money as you like. Everyone as that it doesn't close reflection.
Either, is that the MMT people have they been, have they been? Have been handing you printed.
Money unviriginally, No one pays me for my opinions.
Moving on, but yeah, no, so yeah, is our priority as a nation at the moment to increase the state pension in real terms, being in mind that the state pension a universal benefit, so you know all of these people, you know, whenever people complain about it on Twitter, it's like they're talking about the group of pensioners who are poor.
So I'll tell you what, if you're worried about poor pensioners, how about we focus on giving them, you know, benefits or whatever kind of section of the the welfare system should be targeted, rather than just increasing that kind of universal essentially universal basic income for the over sixty eight year old is what we're talking about here. And when we don't have the money to pay.
For that, the system does already do that in that you know, it provides a raft of other benefits for people who are living in poverty or people who don't have the income to sustain themselves. And you may say that there's other benefits aren't good enough, but there is a case to be made for simply, as you say, increasing housing benefit for all the people, increasing the payouts
for energy, et cetera, et cetera. There's lots of different things that can be done to help the increase not huge group of people who don't have any other income that would be more efficient.
Well, yeah, well that is the other point, because it's not the majority, you know, it's it's definitely a minority that you know, completely dependent on the state pensions. So again, if you're qualm about reducing the triple lock to just an inflation index, and thing is that it may hit pensions, well the answers will focus on the pension. What I do think is an interesting question one I would like to ask you is the other response that comes back
a lot. Does it mean you start means testing the state pension, you know, so that you know, whatever, I'll ensure young people like that aren't getting it anymore or entitled to anymore. And I mean, I'm it's the kind of ones I'd be a lot into the open. But I can definitely see the argument for it.
Yeah, I can see the argument for it as well, but I also think it's politically impossible.
Much better to do it we just discussed and hold it at its current level in real terms, or even you know, let it slide in real terms and provide a high level of benefits to those who need it. I mean, you know, we have to work within the realms of reality. Don't we.
I mean another thing, another thing that people sometimes suggest and that I have some sympathy with, is to say, Okay, you think the state pension isn't high enough, well we can we can fix that by simply removing all relief on private pension savings outside outside the state pension, and then transfer the money saved from that tax really directly
into the state pension. That will come for about five grand an old person, making the state pension more like fourteen to fifteen grand than it's current level of knocking around ten. So, you know, that's kind of an interesting idea, although of course again it would widen the pension divide between the public sector and the private sector.
Yeah, and it kind of I'm always reluctant a bit the tax really argument for the same you know reason that you point to it before. What it is that thing if you're not, if you're not often taxually for the pension, then you're you can ordinary person if youel like through the work in life, who kind of has to get the pension at the time when they're earning lots of money. It's to or you know, the maximum outain.
You know, so when there are forty percent taxpayer is when they should be you know, contributing the getting the tax relief. Then it sort of feels like, what's the point you're saving the pension there? And I mean, actually, yeah, you can see how actually is has probably become much more popular because they don't get taxed on the way out.
So you know, you can put twenty grand a year into an ISA, so you can use that to build up a perfctly good retirement fund. Don't have to call it a pension, but it's the same thing, right, yeah, And I mean.
Maybe maybe it all comes back. I mean, I remember you wrote something a while ago about basically they know, the light time allowance sort of being gradually placed at the point where the government thinks how much money you need to level in retirement without you know, having any state help. And that's the whole point of the private pension saving set.
Absolutely, it's not designed to give you money beyond the money you need to not be dependent on the state. And as soon as any any tax reliefs or any thing like that get to a point where the system incentivizes you to sav into these products more than you required and not be dependent on the state, then it's pointlessly expensive.
That was a very long sentence, But I know you understand what I meant.
I mean, maybe maybe if we just what a little bit more up front and said, well, look, this is what we think a pension should be leving on as a minimum, and.
What should be not what they should be living on, what what the state should be providing for them to live on. We're not going to be judgmental about what people have or don't have, are we not.
I mean that means if you if that's the sort they go, look, here's the minimum have you owned by to this date? It's not going to need to worry about you anymore? Then maybe a rate. Maybe we should be just scrat tax and reason it to that minimum and then clawing back. You know that the minimum in the form attacks from the kind of wealthier pensions anyway, ye.
Might ridiculum that.
See how many people get angry about that? All the response that you've had to your column about how the UK pensions triple lot needs to go. Have there been any any responses that you've particularly compelling.
Well, it's it's more the the split. It's kind of you've obviously you've got lots of young people who are kind of you know, pro it and kind of liking it on Twitter and all that sort of stuff. And the people who object are the lastly already pensionals, and it is one of those things where you know they feel, well, I've you know, paid in or you know, I've paid my staff my national insurance all my life, so you know,
why am I not entitled to this? And most of the time it is kind of you know, I don't I hate to say, but it's kind of missing my point because you know, I'm not actually saying that we should scrap the state pension of even reducing real terms, I'm literally saying that actually the reason that we airmens every year seems a little bit excessive something real.
For misunderstanding of how national insurance national insurance actually works, isn't it.
Oh yeah, law, we're not going to get I can't blame them given that is, you know, they need me as national insurance and income tax which help perhaps with some of this.
Well I'm on all this, John, and that you know, as you know, I'm I always worry about state spending or about the deficit, where about the debt, worry about getting all the money where the money comes from et cetera. But on the other hand that I would just love to get a really great state pension money sent to me every month by the government. I don't do anything for it. I don't have to worry about my ass of allocation or think about my you know, my shares, my bonds, etcetera.
And the money just comes. Oh, that's like being a public sector employee, right.
Yeah, I mean I would love I would love that.
So I'm torn between my my feelings that it's not appropriate in this environment and my desperation to have a high rail income at myself on retirement. So you know, there you go swings and roundabouts.
At the one thing that I did spot which I thought was interesting, it was it was a separate There wasn't some respect some responding directly to what I was said, But there was a calculation that you'd need something like quarter a million and a DC pension port to actually
buy the state pension now after it goes up. And I think that just that does give some perspective on a how you know, how valuable the state pension is, and b on just how valuable a dB pension, particularly in the public sector, which is the only place you'll get one now really is as well, and maybe and yeah, that probably is the kind of this party that we really need to be looking at. But again that's so
politically talks. It can also all of the people who are in charge of that get dB pasions themselves.
So I can see that you think you got hate mail for talking about the triple locked as.
Wait what happens when you start.
Writing about public executor defined benefit pensions?
Right?
Welcome to Marin Talks Money, the podcast in which people who know the markets explain the markets.
I'm there in some set web.
This week, our guest is Matt Cole, chief executive officer and chief investment officer of Strive Asset Management.
Matt has a long.
Career behind him, at one point overseeing more than seventy billion dollars in actively managed fixed income portfolio.
Now Strive you might have heard of.
It's an anti activism fund management company co founded by Republican presidential hopeful Vivek Ramaswami, who you may have heard from on this podcast before. Drivers recently crossed one billion dollars worth of the assets. That doesn't sound much in the context of the big asset managers in the US, But given that it only launched in twenty twenty two with backing, by the way from billionaire investors including to
Feel and Bill Ackmann, it's not bad at all. Now the idea is to be the opposite of the investment giants. It's black Rock, which you will emphasize the environmental, social and governance at ESG focus investing.
Above all sorts of other things.
Hi, Matt, thank you so much for joining us today.
Hi Maren, it's a pleasure to be here.
Okay, we're going to go straight in. Matt. I'm going to ask you a very simple question that I think has a simple answer, and lots of people think has a complicated answer. So let's see which way you go on it, Matt. What should a company do?
A for profit company's primary purpose should be to maximize value? The idea that all stakeholders aren't traded equally. The shareholder is more important than other stakeholders. That too an our view is the purpose of a corporation?
Are other stakeholders important at all? Or is the shareholder the only important group when it comes to how a company operates?
All stakeholders do matter, But our view is that you can't serve two masters, and so you actually have to pick a priority.
You have to pick a purpose.
So amongst all stakeholders of which the shareholder is one, the shareholder is the most important stakeholder for a for profit company. Now, to maximize value over the long run, you have to as a company care about the stakeholders, the other stakeholders. You have to care about the customer. The customer needs good products, good services to keep coming
back to your company. You have to have employees that are motivated, that are satisfied, that want to stay and want to work hard for your company.
They matter.
You obviously have to work friendly with the areas of whence you operate, the communities in which you operate. They all matter, but they matter to maximize value. And I think that's the thing that's missing in today's world, and it's typically in the asset management industry, the idea that you can both do good and make money at the same time.
You might be able to do good, but you have to define your purpose.
And I think that's what's missing in the current stakeholder capitalism movement that is growing across America at the moment.
It's interesting and.
One of the things that we have been told, haven't we the last fifteen years or so, with the huge rise of the ESG market, is that investing with a view to ESG principles, or putting ESG principles at the top of your list of things you look for when you invest, is something that will automatically give you better returns. We've been told that consistently, companies with good ESG make more money, and I've looked at that all the way through, and I maybe you have as well, and said, well, hang.
On to take care. All that's happening here is that we're in a growth environment, and in a growth environment, growth companies tend to have better ESG metrics, and some older companies for obvious reasons. So if you have a growth bubble building, it will look like companies with better ESG scores outperform. But that's a short term thing related to very low interest rates and related to the way low interest rates encourage the asset the prices of growth acces to rise.
Absolutely, and that is why I also personally haven't done a victory lap of saying it's now proven that ESG underperforms now that energy stocks are doing better. It's purely a sector view when it comes to ESG funds outperforming or underperformed because they're sector biases in many of those funds. And I think that another thing that you said that stuck out to me is the idea that companies that do better with ESG, and that gets to a problem
that I have with the ESG movement. Since day one, we've said at Strive that we're not anti ESG, but I think it's also fair to say that we think the corporate ESG movement has been very value destructive. And I think that's important for a couple of reasons. Because one, as a portfolio manager, I've been someone that's been in the asset management industry now for over seventeen years. I believe strongly that any portfolio manager needs to look at
every single risk factor that they can. I believe in the mosaic theory when it comes to portfolio management of looking at all risk factors. That would include environmental risk factors, it would include social risk factors, it would include governance risk factors. Heck, our companies Strive its core differentiators corporate governance.
We're clearly not anti corporate governance, but what I think has happened in the corporate ESG movement is it's there's not an allowed wide range of views when it comes to E risk factors, S risk factors, or G risk factors.
It's quote unquote the ESG risk factors.
And I think that's a problem, and it's very different from other risk factors in portfolio management. If you were to ask a portfolio manage to give their view on recession risk or inflation risk, if you ask five different portfolio managers, you would get five different answers. But for some reason, when it comes to ESG, you're either pro ESG or your anti ESG. It's not just what are your views of those risk factors. And I think that's
where it's gone wrong in the corporate ESG movement. But it's also where it's gone wrong in the pushback against ESG as a whole, where many states in the United States have tried to ban considering es or G risk factors and investment decision and I think that's also an incorrect solution.
Okay, so we.
Do need to consider ESG, but only in the context of having an eye to it enhancing the long term profit making potential of a company.
I think the correct debate is actually shareholder capitalism versus stakeholder capitalism. How you started this conversation, what is the purpose of a for profit corporation? The debate that needs to be had, And what we see in the asset management industry today is every large asset manager or almost every large asset manager in America saying that they subscribe to the stakeholder capitalism mindset, that shareholder primacy is outdated.
And so then when you go downstream of that, of course the ESG movement is not being viewed from a fiduciary lens of value maximization. If the top at the top level, there was a recommitment to corporations making money, then you go downstream of that, then you're looking at E factors, S factors, and G factors to the correct
fiduciary lens. And I think if they were being looked at through those lens, they would be treated very differently, both in terms of the outcomes, what type of views are being talked about in those risk factors, but then also the materiality of those risk factors.
I don't think you would.
See d ESG as a top headline in Bloomberg News every single day if it was actually thought about in the correct order of magnitude of risk factors and portfolio management decisions.
There's legal risk for fund managers that are looking at ESG factors above returns to shareholders and they're not fulfilling their fiduciary duty to their clients.
I do think that there is legal risk factors. It kind of gets back to the where has the pushback to ESG gone wrong? And I think some of the initial legal cases that I've seen push back at considering those risk factors versus I think what you said is not trying to maximize value, and when asset managers explicitly
say that. As an example, in twenty nineteen, the Business Roundtable Statement that Redefine the Purpose of a Corporation to move American corporations away from shareholder primacy, that was signed by one hundred and eighty one CEOs, including the CEOs of Blackrock and Vanguard, that to me introduces legal risk as a fiduciary Yeah.
And particularly because at that point the majority of clients wouldn't have understood how that was going to work. And even now, I imagine the scores of retail clients in the US and in the UK who don't quite understand that shareholder returns are not absolutely at the top.
Of the list.
Absolutely, and it's a very challenging subject to understand. And even this year, as we were wrapping up the twenty twenty three proxy voting season, you're starting to see articles come out that talk about how Blackrock supported only nine percent of ESG proposals. Vanguard was even lower than that, and on the headlines might make one think, oh, they're actually changing their views because of this pushback. They say the opposite, They say no, there's redundancy in them. But
what's important to note. A couple of years ago you might remembered the Dealbook conference with Andrew Ross Sorkin where he was interviewing Larry Fink, and Larry Fink says, we are forcing behaviors and this clip goes viral right and to thirty minute conversation. But what was important was actually the context of why he said that, and that's never actually shown in the clips that go viral. What he was talking about was how do you force behaviors? What
are we trying to force behaviors to do? And he talks about how you actually force behaviors is by changing the incentive compensation structure across corporate America. And so why is this important? Because if you were to compare in twenty eleven, almost no companies had incentive compensation at the C suite tied to EOG or D and I measures. Today, over seventy five percent of the companies and the SMP five hundred directly tied part of incentive compensation to these
non pecuniary ESG and DEE and I factors. And so when you look at the proxy season today and you see that black Rock and Bank are largely voted for, I think it might be that they voted for one hundred percent of the time.
We're still confirming.
The resolutions on the proxy ballot that were suggested by management with regards to ESG and d, E and I, but they largely voted against the ones that were put forth by nonprofits. Well, they've already implemented the stakeholder capitalism and ESG agenda by changing the incentive compensation structure. That was how you force behaviors.
Okay, so they make management, they make management do it for them. They don't need the nonprofits to come up and put down new resolutions because they've already put the incentives in place to make sure that manage do it first.
Exactly.
So when we think about how do you actually restore value maximization across corporate America, you have to undo that. You have to undo that compensation system that's already been put in place. And when it comes to that, we pretty much stand alone currently as one of the to our knowledge, the only asset manager that's standing for re implementing shareholder capitalism across America. And so that's why I think this debate, this fight has a long ways to go.
I'm with you on the fight. I'm a great believer in shareholder capitalism. But let's look at it another way for a minute. Why does it matter. Why does it matter if shareholders get slightly lower returns, but along the way the world becomes a better place.
That's a decision for the government to decide, the people to decide. The people in a democracy decide. As an asset manager, we have a fiduciary duty to maximize value.
It gets into kind of the why for myself of why did I get into this Even in the first place, I was at CalPERS, the largest pension fund in California, I joined there during the middle of the Great Financial Crisis, which I know in your conversation with Vivik you talked a little bit about how that Great Financial Crisis is really what brought the uprise of stakeholder capitalism at ESG in America, which I completely agree with and for myself,
I was going to school finance major. My parents were law enforcement officers who had their pensions tied to CalPERS, and great Financial crisis happens in the funded ratios of pensions across America, across the world plummet, and I went to CalPERS to try to help fix that problem, to maximize value, to provide a secure retirement pension to my parents.
That was my why.
And I got there and literally on day one there CalPERS, the board had forced the pension to divest from tobacco stocks, and it was a decision that even almost everybody in the investment staff did not want to do, pushed back against, but the board made it happen anyways, and I think that's a lot of what happens is I didn't feel some might say, you know, CalPERS is the tip of the ESG you know movement and Blackrock State Street vanguard.
They're the they're the weight behind them. But but you know the a lot of these pensions are the tip of the movement.
Well, I didn't.
Actually, I do believe that's true, but I don't believe it's true at the investment staff level. I think there there is mostly a commitment to fiduciary duty, and that's part of what gives me hope that we actually can succeed if this is worded well, and it's not worded in a way of don't look at a risk factor but maximize value.
That is your purpose period.
Is there any sector that you would invest in that you find genuinely distasteful?
I have one.
It's the house building sector in the UK. The houses that they build us to such a pool and quality and so absolutely horrible. I always think to myself, I have a moral aversion to the housebuilding sector, which, given that I have a moral aversion to almost very little else and investing, everyone always thinks is slightly odd. But I just think there's such a distasteful group of companies. Is there any group of companies that do you feel similarly about.
I grew up with the same I grew up as a fixed income manager and the fixed income there is a saying that there's no bad bonds, there's only bad pritices, and so absolutely, when it comes to prices or an outlook on a sector or companies, yes, but when it comes to if the price is right, I believe in asset management it's kind of like a sport. Our job is to maximize risk adjusted returns and to do that, you can't exclude a sector.
And everything else is the government's responsibility.
Yeah, and I think that you can have open conversations obviously, like there's no reason that we can't have open conversations about trade offs. Right if you implement some sort of regulation that might constrain returns and it might be better for society. That is, for the citizens to decide the rules of which asset management operates in, the rules of which corporations operate in. And there's no reason that we can't have an open conversation about some of those trade offs.
But once the rules are set, our job is to maximize value.
Okay, let's talk about how you are investing now. I am very interested in your most recent ETF launch because this is what you do, right, it is maybe an ETF business the launch of a new business called Fang two point zero ETF. Now, I've written about the new Fangs before, but tell us about differently your point of view, Who are what are the new Fangs and why have you created this ETFEA.
Our first several ETFs were more about market equity beta with a corporate governance differentiator to get foot corporations focused on value maximization. But I'm an investor at heart and have have many views, and I think there's many secular changes that are happening right now are well underway, and one of them is persistently higher inflation over the next market cycle, and another one is a trend of deglobalization that I think is pretty well underway. And then I
think both of those contribute to higher geopolitical tensions. And so those are the macro secular environment that we see happening over the next five to ten years. And I think that changes which sectors have telwinds that could lead to out performance. And so if we think about the prior fifteen years, you had low interest rates, quantitative easing program that were very supportive of the growth sector, and in the growth sector, the Fang tech stocks were among
the best performing stocks. The current secular trends, I think support five different sectors, and those sectors are fossil fuels, aerospace and defense, agriculture, nuclear energy, and then gold and precious metals. So we created a new ETF. It's thematic ETF that holds those five sectors, the new FANG. We call it FANG two point zero.
From any ESG point of view, almost all of these are things that would previously have been considered to be very anti ESG and people wouldn't have been keen on it. But you look at them again now fossil fuels people are coming around to the idea that perhaps we've tried to go net zero a little bit too fast, and that fossil fuels are going to be part of our energy makeup almost indefinitely, so we mustn't be too mean
to them because we need them. Zerospace, you know, defense, until well not even eighteen months ago, was considered to be an absolute no no in any ESG portfolio. But now, of course defense is considered to be a genuine social good. Bit of a shift there. Agriculture is still working away around, aren't we, and nuclear as well, So you know, you could have advertised this not as Fang two point zero, but as the anti ESG portfolio.
You might be able to.
But it's pretty surprising to me, and it's one of the things we've talked about since day one of Strive, specifically around nuclear energy, that nuclear energy should not be something that's considered anti ESG. It actually should be considered very pro ESG as the most reliable, scalable source of clean energy that we know and obviously has been constrained
from through regulation. We see some shifting winds there and a little bit more acceptance of nuclear in the es movement, But for ourselves, we also think that nuclear represents a great solution of reliable, sustainable energy. And obviously it's a very long cycle to get new nuclear plants live, but we see the winds moving in that direction, and so
think that you know that sector can can benefit. So if you think about all the sectors combined, I think that's where it might be a little less anti EESG and on on on the gold side.
It's sorry, can.
I keep you with nuclear for a minute, because I'm absolutely with you that nuclear is a solution to the majority of our problems as long as we can get our electricity grids up to speed in order to you know, send the electricity that we create with our nuclear energy. So nuclear is the answer. So what what companies are held in the ETF that represent that theme.
So it's it's based on a market cap weighting. And what it looks at right now is is it looks.
At the bloom Berg Nuclear.
Bi Index, and so it's it's primarily energy producers that have a majority of their energy from nuclear energy.
Is mainly what it is right now.
Okay, right, moving on to gold. Was it gold you're about talking about? I mean, I'm on a long term gold but long term gold bug and always ask questions about gold on this podcast, but it rarely comes up quite so early in the conversation. So this is exciting for my gold bug listeners.
Well, historically I've been more of a over the last five years, more of a bitcoin bug than a gold bug.
But when it comes to don't we don't like that on.
This podcast, by the way, we don't really We don't really go for the biggin.
It's it's okay, we don't. We don't have to agree on everything.
But but when it comes to gold, it's it's precious
metals miners more broadly than just gold. And so when I think about just bringing it back to the ESG anti es she, well, some of those miners are actually very important to support different industries that would be very friendly in the ESG movement that need batteries, right as an example, So it is primarily gold, but I think it kind of gets to some of the inconsistencies of the ESG movement is where does these batteries, Where do some of these solutions come from that are needed to
support when solar, non reliable sources of energy, electric vehicles, those sorts of things, and that component of thing two point zero does have some of those stocks in it. And I think you're right that in one of the criticisms of some of these sources of energy, the reliable sources of energy, is that they're not as clean as they might appear. So that does support the anti ESG nature of it.
It's interesting. There is a problem, you know, I was reading a art called the other day about how difficult it is for mining, the big mining companies to get employees these days. You know, nobody's studying mining engineering the young and not interested in the industry because they consider it to be a an unpleasant, dirty and environmentally unfriendly industry, whereas, of course they genuinely believe in the importance of the
energy transition. Are young should be running towards these mines because we need the mining industry to get out the metals that are absolutely vital to make the batteries to make the transition work, if it's ever going to work. So the miners are one of the most important parts of the energy transition, but that's not how they're.
Perceived, no, exactly, and I'm sure it's a lack of understanding there. And one of this last interesting things about the g the gold section sector within the thing two point zero is how do we think about just owning
gold outright versus owning miners. Well, if you've been following gold and sounds like you have as a gold bug, you know that miners have not performed very well, have not kept up with gold itself in the gold rise, right, And and we've looked into that pretty deeply, and I think that there is an opportunity for a mean reversion trade to happen there and actually like owning the miners themselves over over gold.
Okay, So holding gold for you is not about a hedge against a long term hedgi against inflation or anything like that. It's simply an investing equation.
Holding holding the miners is, but holding but the g is will benefit I think both from the heightened inflation, but I think gold also benefits from heightened geo political tensions as well.
Let's talk briefly about agriculture them, which is another one of them, another one of the things you hold on this fangs two point zero. How does that fit in?
Well, if it's in in a couple of different areas. So we think that the ag sector will benefit from that outperform versus other sectors when it comes to sustained higher inflation. And the easy way to play that is pretty simple, and it's that the pricing power of the elasticity and price when it comes to our food supply
is pretty simple to understand. It's going to be one of the last things that people will stop eating or and so we think that it's it's more of like a value we type sort of story and value We at the at the base layer of the actual food supply itself and think that you know, when you think about growth stocks versus value stocks, that that that's a that's a sector that just grows with the need for more food and it has ability to push higher prices
directly to the consumer and and not get bogged down from higher inflation.
Interesting does one of your other ETFs I wanted to ask you about, which is that your Emerging markets CTF is X China and you've written a bit about China risk.
Can we talk about that a little bit?
So when we think about X China hy x China, we make a statement that we see China risk as investment risk. And there's a lot of reasons why that is a big one is the geopolitical tension side and deglobalization in movements away from importing in to the US from China. But there's actually a deeper reason that I think makes China completely uninvestable in America, even if you discounted the China risk that I'd said and had a bowcase on China, bullview on China.
And that gets into the securities.
That an American investor can invest in when they investing in China, and the largest companies the most critical to China's natural national security interest like Ali Baba, like Tencent. As a US investor you cannot own true equity in those corporations. You can only own what's called a VIE, a variable interest entity. And what that is is it's a shell corporation, typically incorporated in the Cayman Islands. That's a pass through entity that where the profits would be
passed through that entity and to the American investor. And the risk with that structure is because you are not a true owner of the actual equity, there's risk that even the SEC talks about that those entities could be written off for written to zero, while the actual true entity in China remains unharmed. The American investor can be wiped out. And we think that's that's classic G risk.
And if we go to ESG terms governance risk, although I think in the ESG movement, G doesn't actually typically refer to true G risk, but that is unheedgeable governance risk. And we think that as an American it just makes China uninvestable. And and so we don't think that you should have China exposure as an American investor.
At at any price. You said earlier, there's always a price, So no price for China.
There's there's always a price.
I mean, but this is really you know, zero to one risk, and I think I think that's that's really tough to head. If if they started trading at a ninety percent discount, maybe we could we could talk about it, but at that price, at that point, it's probably going to zero.
Fair enough, Let's talk a little bit about the bond market, because you are really a bond investor, aren't you. I mean that's how you started, and you got You've got a couple of bond dtfs seven you yes, the Strive Total Return and the Strive Enhanced Income Short Maturity DF. So you're still involved in the bond market. You haven't gone completely out to the dark side.
No. I I love the bond market.
And so we just launched two bond ETFs in mid August of this year, like you said, a total return bond fund and then an Ultra short Enhanced Income bond fund. And both of those are actively managed products versus all of our equity products are passive. Although the FANG two point zero one is a passive thematic product, which is obviously a pretty pretty fun one.
To talk about. On the bond side, it's completely active. So the total return.
Bond fund, we're going toe to toe with the pimcos the double lines of the world, and kind of have a very similar setup for the structure of that fund.
The top market out there there isn't it. I'm in the great bond ball market that we've will happily lived for over the last forty years is pretty much pretty much gone. Not coming back.
It is, it is gone.
And several friends and mentors spent their entire career and fixed income in a bond bull market and then retire when interest rates are at one percent. I applaud them for their their career timing.
Would they just get so rich they sort of started, I'll go as just said, look, not career timing.
Maybe maybe maybe a little bit of both.
But but it is. It is a more difficult environment, right Like you're you're seeing correlations between equities and bonds become a little bit more mixed to where you know, for the last forty years you've had negative correlations that's been great for for returns of portfolios. It's a different environment. But my belief is that most portfolios, most individuals should have exposure to fixed income as part of a core portfolio holding. And so our our view is one of
expecting for interest rates to remain elevated. Although right now we have a pretty neutral view on on duration over the rest of the year, and I think that short term there's there's some teil ones that could lead to a little bit of a bond rally, But we're actually positioned neutral when it comes to duration and or total return bond fund and positioning for an expectation eventually of yields to kind of continue to move higher.
So when you say that people should still have exposure to bonds and some credit risk in their portfolios, you're not really talking about an old fashioned sixty to forty portfolio. It sounds like you wouldn't go anywhere near that at the moment.
That really depends on that's not what we do. That depends on the individual.
I think that generally, over the next market cycle, I would probably want to own less fixed income, but not none. I would want to own less growth stocks, but not none. I would want to own more value E stocks, and obviously we have a view of what within the VALUEEE around the thing two point zero stocks energy also just generally, but you still don't want obviously you're not going to want to go all in on those. It's more of an overweight versus the standard positions.
If you had to pick one sector from all these fascinating, exciting sectors, and of course you would never have to do this and as not investment advice, but if you did have to pick one sector that you find the most interesting over the next decade or so from an investment point of view, what would it be?
Definitely the energy sector, and that was why we launched our first fund as Drill. We are incredibly bullish, We remain incredibly bullish on the energy sector and think that the ESG movement is a contributing factor to why we are so bullish on the energy sector, as well as some of those secular trends that we talked about already.
But deathitely had to choose one energy but when we think about the five of them in totality, they do have different tailwinds behind them, and when we think about portfolio diversification, that's why we like not just only owning one sector, but within them for sure, Energy O.
I have questions, but they'll have to wait for another time. Let it never be said that we're not open minded on the Merin Talks Money podcast. Okay, final question.
And I already know the answer to this, which is kind of irritating, but I'll ask it anyway. Because they ask everybody, You've got the whole one of them. As you know, we've changed the question slightly back to the beginning. We've started asking a new question, a slightly wider question.
We used to ask everybody ten years bitcoin or gold, but now that rates are quite a lot, we've refined it and we asked ten years bitcoin, gold or cash. You can only choose one.
You see, I will answer that question, but I'll say the timing of ten years makes it a little bit more challenging, as.
It does, but it's not supposed to be easy, Matt. It's not supposed to be easy.
But I would still go bitcoin. I know that you will disagree with that.
No, it's not not be disagreeing. I think this is so exciting. You are the first person to ever take bitcoin over a ten year period. On this podcast, I'm going to extend this podcast by two minutes so you can explain to us why that is, Oh yours.
Well, when it comes to the security of bitcoin, every single day, every single year that it exists without a hack in the actual code of bitcoin to me makes the riskiness of it over the next ten years decline.
And so I think that's one reason that if you were to ask me the same question in twenty sixteen, when I first started getting into bitcoin after having followed it even for multiple years before that, just thinking it was a scam, I would have answered gold for sure, even though I was investing in it at the time more from a short term horizon. But when I think of acceptance of bitcoin as an asset to hold into
the future, I think it's going nothing but up. When I think about the younger generation that are growing up that are much more digital native, I think that it's gonna change how the investors' millennials think about what they are investing in, and I think those are all going to be important tell whens to support long term investment in bitcoin. I mean, even if you look at you know, obviously we are rivals with Blackrock and talk about them
in negative manners a lot. But on that same deal book conference that I talked about with you know, forcing behaviors and that I think he talked about bitcoin is only being a tool for money laundering, and now Blackrock is leading the charge to launch the first Bitcoin ETF.
They have changed their views. Jamie Diamond has changed.
It's starting to change views take a little bit more of a friendly approach towards bitcoin. And I think you're starting to see institutional adoption of bitcoin. And I think that, you know, the the return potential of bitcoin as it obviously matures and is trading that much higher prices, is not what it once was. Where in the case for one hundred x and the price of bitcoin, that's not a scenario that we want because that would probably be the felling of the US dollar. And that's not that's
not a belief that I believe. It's something that's going to happen in the next ten years, hopefully never. But I do think that bitcoin can still outperform gold over the next ten years, and and and and and cash. I would not want to be a cash investor over the next ten years.
Well, John, I thought that was completely fascinating.
What did you think, Yeah, that's a really interesting I suppose you. I think it's I like you because it's going back to that sense that we should be worrying about, you know, the Milton Friedman thing of the thing that basically keeps a company honest is focusing on shareholder of value, and that is the one thing that you should be focusing on and the one thing.
We can properly measure, one thing we can probably know is happening, and.
Everything else should be how companies should behave and what they should do should be the responsibility of government.
I mean, it's a it's a pretty compelling argument, isn't it.
I Mean, the I mean, this was really weird thing is that we have a lost state of it in the fast place. But then that's said, that's what happens whenever you've got zero interest rates for so long and everything becomes detached from reality.
I think kind of a luxury product, isn't it. Share price is all going up anyway, so you can you can do this stuff. And one of the things you talked about that I found kind of interesting was about how CEO.
Pay is increasingly linked to ESG.
Targets, so you know, you get extra money if you if you achieve this, that or that in the ESG metrics world of metrics, which is kind of meaningless anyway. Is it just a way to pay CEOs more, because we're was looking for ways to pay cz CEOs.
More and more and more aren't we And the data shows that.
ESG pay doesn't have any impact on financial performance over that matter, but as it doesn't.
Make Yeah, I think that's a good points. There's always been that thing with chief execs that there's always ways to look for fluffyer methods and measure in the performance so it gets easy and easier for them to keep getting paid what they're getting paid. And yes, she's been kind of classic in that, and I don't I think that will continue to be the case for ever and never because it's always an incentive to find ways around that,
but you just have to keep raining it in. And that's I mean, I like this and I like that. I also like the ideas that are in the portfolio, you know, I mean obviously, I mean they've they've raised an awful lot of money off the back of this, and you can see that that's definitely got something to do with the you know, the political side of things, because it's the founder, isn't it. Vivik Ramaswami is.
The Gramaswami who we had a recording with the other day. I mean, I do think there's there's a lot of value in this and Obviously a.
Lot of PR comes from from the connection with Ramaswami, who founded this company, And obviously they're getting a lot more attention than another relatively small asset manager would, which which by the way, comes at a price, because there's much more attention paid to some former employers who have filed lawsuits against the company in the last few months, or mistreating staff and putting employees to violate securities law, that kind of thing.
And I would imagine you'd find a fairly large number of lawsuits against most big management companies fund management companies.
But that's not really mentioned elsewhere.
The company, by the way, inten vigorously defend itself from these lawsuits. But it's interesting that the PR that they're getting is not just making people look at them, but making people put money with them.
Well yeah, and because if they don't, I mean, there seems you talked about of interesting. I mean, like nuclear is a good example, that's a particularly hot theme just now. And you know, you know, weirdly, you know, given that just sort of we're talking about this in the context of not being in very eesg I mean, nuclear is actually one of the greenest things that you could get as long as you you know, will to kind of rethink the kind of was Greenham common sort of like
approach to the nuclear nuclear industry. So, I mean, you know, I could say that the themes are appealing as well, I'm not necessary I've got I mean, on the downsideide, well, it's just as a part of me that generally finds thematic ETFs a little bit unconvincing because I think that, you know, it's always the temptation to sell the story over the kind of content. But that's more just so let me ask you.
John, Yeah, let me ask you if there was a Strive in the UK, what would be a candidate for your for a moment pension.
Uh, well, that's a good question. I mean probably I would approve from Afar, but I probably wouldn't invest at the moment because I think, well there's I think there's just too many other I'd be more interested investing we had decent UK VWUME manager at the moment than invest in these themes specifically.
Almost by default value, isn't it.
Yeah, But in that case, that's where going with someone that was explicitly if you see what I know, I feel I feel kind of bad because I agree with the the the points that they'll make that he's making. It's just I've struggled to get excited about a pure sort of you know, thematic ETF provider is. It's just it's more it's more a a stale thing than anything else. Although maybe I'm just taking against them because you've always felt about instead and cool have you?
That was a fun that.
Was very much.
I know I should have kept him on longer to explain to us for a bit more about why right.
So that's a know from you on the basis that Matt Cole believes in bitcoin. Thanks John, thanks for listening to this week's Marin Talks Money.
We'll be back next week in the meantime. If you like our show, and I really hope you.
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This episode was listed by me Marren Sunset Web. It was produced by Summer Sadi. Additional editing by Blake Maples. Special thanks to Matt Cole and John Stepp at the bed time.
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