Team Favorite At the Money: Hot & Cold Investments

Summary

Masters in Business: Episode Summary - "Team Favorite At the Money: Hot & Cold Investments"

Release Date: December 25, 2024
Host: Barry Ritholtz
Guest: Jan Van Eck, CEO of VanEck Funds

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Introduction

In the episode titled "Team Favorite At the Money: Hot & Cold Investments," Bloomberg Radio host Barry Ritholtz engages in a comprehensive discussion with Jan Van Eck, CEO of VanEck Funds. The conversation delves into the fluctuating popularity of various investment sectors, exploring the underlying reasons for these shifts and offering insights into strategic portfolio management amidst changing market dynamics.

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Understanding Sector Rotation and Market Trends

Barry Ritholtz opens the discussion by questioning the reasons behind the cyclical rise and fall of different investment sectors:

"What's the hot sector of the moment? Is it AI? The Metaverse? Gold? Oil? Why do some stocks and styles fall in and out of favor on such a regular basis?"
— Barry Ritholtz [00:59]

Jan Van Eck explains that financial markets are deeply influenced by broader political, economic, and technological trends. He emphasizes that investing is more of an art than a science, highlighting the importance of being aware of historical context:

"If you look at institutional portfolios today, now half of them are in private equity and venture capital. So just the basic what you put in your portfolio has changed a lot over the decade."
— Jan Van Eck [02:28]

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Evaluating Asset Classes: Hot and Cold

U.S. Equities as a Core Holding

Van Eck underscores the significance of U.S. equities as a foundational element of any portfolio, noting their resilience:

"U.S. equities are certainly the core. Then the question is, well, are there other things happening in the world that might favor something like commodities? Or is fixed income going to be in favor or not in favor?"
— Jan Van Eck [03:42]

The Resurgence of Money Market Funds

Barry brings up the recent surge in money market funds due to rising interest rates:

"Money market funds were barely yielding anything. Suddenly you're getting five, five and a quarter. And literally $6 trillion in cash flows into money market funds."
— Barry Ritholtz [04:13]

Van Eck advises skepticism, highlighting the importance of understanding interest rate risks:

"I'm happy to get the same yield for a lot less interest rate risk by focusing on shorter duration fixed income."
— Jan Van Eck [05:16]

Commodities and Precious Metals

The discussion shifts to commodities, where Van Eck links their performance to global economic indicators like the Purchasing Managers' Index (PMI):

"If PMI is over 50, that's driving commodity prices. With global growth now positive, that's an asset class where now the sun is shining on you."
— Jan Van Eck [05:36]

Regarding precious metals, Van Eck differentiates gold as a financial asset influenced by concerns over interest rates and fiscal stability:

"Gold would fall into that category of we're worried about interest rates and our fiscal problems in the United States."
— Jan Van Eck [06:50]

He also touches on Bitcoin, suggesting it's a favorable time to invest despite potential corrections:

"This is the time to own it. We're in a bull market for those two assets until our fiscal problems are solved."
— Jan Van Eck [07:05]

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Fiscal Concerns and Their Impact on Investments

Barry challenges the perception of fiscal deficits, noting the U.S. dollar's strength and lack of capital crowding out:

"Why should we even care about the fiscal deficit?"
— Barry Ritholtz [07:23]

Van Eck responds by highlighting the growing interest costs relative to defense spending and the potential for unprecedented measures by the Federal Reserve:

"We're ticking to levels where we've reacted before... There's all these scenarios. Just make sure you know what they are and that you're comfortable with your portfolio given those."
— Jan Van Eck [07:52]

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Geographic Shifts: Emerging Markets Focus

India's Investment Potential

Van Eck expresses strong optimism about India as a macroeconomic powerhouse:

"India is by far the best macro story. The two companies serving 800 million customers are now the Internet play in India. That's a good investable trend over the next couple of years."
— Jan Van Eck [09:10]

He points out India's impressive equity performance, matching that of U.S. equities over the past decade:

"Indian equities have matched that of U.S. equities over the last 10 years... Equity owners in India have been treated much better than in China."
— Jan Van Eck [10:21]

Japan's Market Performance

While not explicitly detailed in the transcript, Van Eck hints at Japan's favorable market conditions, aligning with his broader geographic insights.

Europe's Investment Landscape

When discussing Europe, Van Eck remains cautious, indicating a lack of compelling technology or AI-driven growth to spark significant investor interest:

"If the default is the benchmark, I don't see any tremendous Internet or AI or technology plays that are large weights in those countries in Europe."
— Jan Van Eck [11:04]

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Strategic Investment Recommendations

Concluding the discussion, Van Eck advises long-term investors to consider emerging trends and regions that show sustained potential. He highlights sectors like semiconductors and AI, alongside geographic areas such as Japan and India, as promising additions to core portfolios.

"If you're a long-term investor and looking to add to your core portfolio, you might want to consider some of these areas that have come into favor and are likely to persist in favor."
— Barry Ritholtz [11:19]

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Conclusion

The episode provides a nuanced exploration of investment trends, emphasizing the importance of adaptability and informed skepticism. Jan Van Eck offers a seasoned perspective on navigating sector rotations, evaluating asset classes, and identifying promising geographic markets. For investors, the key takeaway is to remain vigilant about macroeconomic indicators and be strategic in portfolio adjustments to harness emerging opportunities while mitigating risks.

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Notable Quotes:

• "Markets, financial markets, live within a broader world of political trends, economic trends and technology."
  — Jan Van Eck [01:57]

• "If PMI is over 50... That's driving commodity prices."
  — Jan Van Eck [05:36]

• "We're in a bull market for those two assets until our fiscal problems are solved."
  — Jan Van Eck [07:05]

• "India is by far the best macro story."
  — Jan Van Eck [09:10]

• "I'm happy to get the same yield for a lot less interest rate risk by focusing on shorter duration fixed income."
  — Jan Van Eck [05:16]

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This detailed summary encapsulates the key discussions, insights, and conclusions from the episode, providing a comprehensive overview for listeners and those interested in the evolving landscape of investments.

Transcript

[Hannah Fry]

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[Katy Perry]

You'Re hot, then you're cold. You're yes, then you're no. You're in and you're out. You're up and you're down.

[Barry Ritholtz]

What's the hot sector of the moment? Is it AI? The metaphor? Metaverse? Gold? Oil? Why do some stocks and styles fall in and out of favor on such a regular basis? The challenge for investors is whether or not to jump into or out of these changing sectors and when it's actually much harder than it looks. I'm Barry Ritholtz, and on today's edition of at the Money, we're going to discuss what to do with assets that have fallen out of favor with the markets. To help us unpack all of this and what it means for your portfolio, let's bring in jan Van Eck, CEO of VanEck Funds. The company manages about $75 billion across a variety of ETFs and mutual funds. Let's just start with the basic concept. Why do broad things tend to fall in and out of favor?

[Jan Van Eck]

Well, Barry, you know, the firm was founded in 1955, and our perspective on the markets is that markets, financial markets, live within a broader world of political trends, economic trends and technology. Also, the game of investing is really a art more than a science. If you go back 100 years, Barry, people had 100% bonds in their portfolio. That was the prudent thing to do.

[Barry Ritholtz]

Didn't some people also have widow and orphan funds? Some railroads, some banks, some telephones?

[Jan Van Eck]

Oh, yeah. Well, obviously people have been chasing disruptive technology forever and a lot of lessons to be learned if we want to go there. But I'm just saying, listen, if you look at institutional portfolios today, now half of them are in private equity and venture capital. So just the basic what you put in your portfolio has changed a lot over the decade. So I take a very skeptical view and recognize that we're a point in time in history and you want to be conscious about how you put your portfolio together.

[Barry Ritholtz]

So let's talk about some of those asset classes that have either become popular or too popular or have fallen out of favor and become so unpopular that they're becoming attractive again. Let's start with the basics. How do you identify when an asset class has fallen out of favor?

[Jan Van Eck]

These are great questions. I mean, I think the question is, what do you even feel comfortable putting in your portfolio? I'm going to be the radical skeptic. Let's start with U.S. equities. We've been a very great economy, great place to be. That's the core of your portfolio. But people will still say, oh, value investing is the way to go. And they'll show you a study of 40 years of data, Barry. And value beats growth all the time until it stops.

[Barry Ritholtz]

Right? Which it's done over the past 15 years.

[Jan Van Eck]

So what we've learned, I think, right in the industry now, is you better be very benchmark aware, like know where the market is, saying that there is value and take it at face value. That should be your starting off point. And US equities are certainly the core. Right. Then the question is, well, are there other things happening in the world that might favor something like commodities? Or is fixed income going to be in favor or not in favor? And that depends on some of the cycles that we're talking about.

[Barry Ritholtz]

Let's use money market funds as an example. For the longest time, money market funds were barely yielding anything. Rates were zero. You're getting 20 bips, 30 bips in a money market fund. Suddenly you're getting five, five and a quarter. And literally $6 trillion in cash flows into money market funds. What should an investor make of that asset class suddenly coming back into favor?

[Jan Van Eck]

Yeah, I mean, listen, my point is be skeptical about everything. So people say, oh, bonds are a normal allocation. Well, we know and have been reminded in 2022 that bonds are very subject to interest rate movements. And so we're sitting here at, let's say, four and a half on the 10 year. I'm very worried about our fiscal situation in the United States. We don't need to go into that. But that leads me to say, you know what, I'm very, very happ in t bills right now. I don't feel as the skeptic that I need to be that core position. I'm happy to get the same yield for a lot less Interest rate risk.

[Barry Ritholtz]

So, meaning you're looking at shorter duration.

[Jan Van Eck]

Duration, any kind of shorter duration, fixed income. So bother with interest rate risk.

[Barry Ritholtz]

Let's talk about sectors that have rotated into favor. How do you identify these three to five year trends that are a good place to park some capital for, you know, a couple of years?

[Jan Van Eck]

So let's take commodities. You had the industrialization of China, which was a super trend of commodities. Commodities, I would say more of a tactical asset class. But we look at global growth as measured by PMI. And if PMI is over 50, which it only became now in Q1, that's what I think is driving commodity prices. And once you have, I think sort of the China property implosion is behind us. Can't prove it, but because the global economy is now growing, that's an asset class where now the sun is shining on you.

[Barry Ritholtz]

So when you mentioned the super cycle with growth from China and commodities during the 2000s and 2010s, China was consuming all manner of raw material, cement and lumber and copper. And prices went up, but not crazy until the pandemic lockdown. Then we really saw prices spike. So what are you looking at on the commodity side? How do you look at an asset class like precious metals to decide whether or not this is not one of the many false starts we've seen over the past couple of years?

[Jan Van Eck]

Yeah, I look at gold as a financial asset more than commodities, which is driven by the real economy. Gold would fall into that category of we're worried about interest rates and our fiscal problems in the United States and.

[Barry Ritholtz]

Hence the rise of gold, and hence.

[Jan Van Eck]

Own some gold and God forbid, Bitcoin. Absolutely. If you're ever going to own it, as I've been saying over the last year, this is the time to own it. We're in a bull market for those two assets. You will have big corrections, 20% corrections, but I think you're in a bull market for those two assets until our fiscal problems are solved.

[Barry Ritholtz]

Well, there's a follow up discussion. Are we ever gonna solve our fiscal problems? You and I are not that far apart, age wise. Our entire adult lives we've been warned about the dangers of fiscal excess. None of the warnings have come to pass. There hasn't been a crowding out of capital. The dollar is still the strongest currency of the majors out there. There's been no crowding out of private investment. Why should we even care about the fiscal deficit?

[Jan Van Eck]

We're ticking to levels where we've reacted before. So under the Clinton administration, the cost of interest on our debt approached that of defense spending. It's now past that defense spending. So you're right. The big question is, will the Fed do what the Japanese central bank did in treasury, which is buy up all the debt? Right. Who, who cares if there's too much debt if there's a buyer of last resort? We've never had that in the United States. But you can't rule it out. That's why I'm like, you know what, there's all these scenarios. Just make sure you know what they are and that you're kind of comfortable with your portfolio given those. So you're absolutely right. The way to kick the can is for the government to do what they did in Japan. I don't know, I don't see that happening in the US but you never know.

[Barry Ritholtz]

What, what other asset classes have you noticed either coming into or out of favor that are worth talking about?

[Jan Van Eck]

What I like from a three to five year perspective, I think countries tend to trend because you have changes in governments that are either positive for the markets or negative.

[Barry Ritholtz]

So let's talk about two countries that have seen quite a bit over the past year. You mentioned Japan. Obviously their stock market has been doing very well lately. And India is perennially in the running to either catch up or replace China. What do you think about those two countries as asset classes coming in or.

[Jan Van Eck]

Out of favor 100%? Like, I mean India is by far the best macro story. In fact, no one really debates that. It's just what's the P E ratio? How expensive are the stocks? How much are you willing to pay? But I've got a trade within that which is the two technologies of our lifetimes have been the Internet and AI, right? Basically the MAG7. It's just one trade. It's the Internet. It's the companies that stand between us and the Internet, right? Giving us new capabilities. In India there's now two companies, so they cheapen the cost of cell phones to below 10 bucks a month. The competition beat them brains out and there's only two survivors. So it's a duopoly. Those two companies in India are serving 800 million customers and they are now the Internet play in India. So I think that is like very high confidence that that's going to be a good investable trend over the next couple of years. You know, I think it's easy to pick a couple of countries where you may be wondering about your allocation there.

[Barry Ritholtz]

What other countries are of interest? What has fallen out of favor?

[Jan Van Eck]

Well, I think, I think China's obviously falling.

[Barry Ritholtz]

I mean, if you're a US investor in China since the early 90s, you're lucky if you break even.

[Jan Van Eck]

Right. Whereas over the last 10 years, Indian equities, this will shock most people have matched that of U.S. equities over the last 10 years. Yes. And it's interesting that equity owners in India have been treated much better than in China. Obviously there's a devaluation of the PE ratio. Right. Valuation.

[Barry Ritholtz]

So Europe as an investing region has been another underperformer for a while. What will it take to get Europe to be attractive to you as an area coming into favor?

[Jan Van Eck]

If the default is the benchmark, I don't see any tremendous Internet or AI or technology plays that are large weights in those countries in Europe that would get me super excited.

[Barry Ritholtz]

So to wrap up, if you're a long term investor and looking to add to your core portfolio, you might want to consider some of these areas that have come into favor and are likely to persist in favor. We were talking geographically Japan and particular India, but you can also look at things like semiconductors and AI as asset classes that have suddenly become much more investable than they once were. I'm Barry Ritholtz, this is Bloomberg's at the Money.

[Katy Perry]

Cause you're hot, then you're cold. You're yes, then you're no. You're in and you're out. You're up and you're down. You're wrong when it's white, it's black and it's white. We fight, we break up, we kiss, we make up.

[Tractor Supply Representative]

From hobby farmers to weekend gardeners and everyone in between. Tractor supply trusts 5G solutions from T Mobile for business to make shopping more personal. Together we're connecting over 2,200 stores with 5G business Internet and powering AI so team members can match shoppers with products faster.

[Bloomberg Audio Studios Announcer]

You're all set.

[Tractor Supply Representative]

This is enriching customer experience. This is Tractor Supply with T Mobile for business. Take your business further@t mobile.com now.

[Bloomberg Audio Studios Announcer]

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