Rick Rieder, BlackRock – Rieder, Riting & Rithmetic

Welcome to the Investors First Podcast, the Service of CFA Society Orlando. We're here to educate investors, advisors, and consultants through conversations with some of the top finance and investment professionals from around the world. Learn more about us at cfacesciety.org/orlando. We're thrilled to kick off year seven of the Investors First Podcast with none other than Rick Reader, BlackRock's chief investment officer of global fixed income and head of their fundamental fixed income business, also head of the global allocation investment team. Rick manages and is responsible for roughly 2.4 trillion in assets. I believe that number is already climbed and is a member of BlackRock's Global Executive Committee. The brief background on his bio, Rick did his undergrad in finance at Emory, and then his MBA at Wharton. Rick is often on CNBC and Bloomberg is a household name for many listeners. One of the most interesting and humble thought leaders, in my opinion, after this episode, in the investment profession, I think he has a diverse set of interests, which allowed us to really go everywhere in this episode. So we cover everything from sports to gambling, to equity markets, to fixed income positioning, and much more. We were so grateful to have him and I hope you enjoy today's host, or myself, Steve Curley, co-managing principal, 55 North Private Wealth, and co-host Chris Cannon, CIO principal at First Trust, both of us former presidents of CFA Orlando currently serving on the advisory council. Please enjoy the episode. You can follow us on Twitter, and LinkedIn, or at investorsfirstpodcast.com. Rick, welcome to the show. Thanks for having me. Appreciate it. Well, we just heard you were evading a fire alarm, so where can we find you today? I am working from home today. Sometimes those fire drills can last for a long time, so I figured I'd better not have the blasting as some in the middle of this. We could say that this podcast is based really anywhere, because Chris is on the coast and Central Florida, but Orlando was really where this was born. I understand you were just driving through Orlando. I was not how you know that. We actually had our national sales meeting. That was there, and I figured our national sales meeting, but I also have a daughter who is 30 years old, who is a crazy Disney fan. So I know I was just in Disney as well, to go for my, what literally is my 49th time to Disney in my life. But how about that club 33 membership, huh? Wink, wink. Yes, sir. I will say it's made a little easier, but I could tell you every single route in Disney in every park at this point in my life. I would say that Disney pushes you between Lightning Lane and their old fast past to the highest end of your logistical abilities that you probably employ on a daily basis. 100%. You know what I found actually? There's a little special technique that where the churro card is is where the crowds tend to be. So I tend to wherever they see the churro cards, I go in the opposite direction. There's a bunch of little techniques that I figured out to get my way through crowds there. Well, I think the most magical place on earth is a good segue to ask where it all started for you going back, maybe to where the spark and finance began. We were talking about your love for sports, and if the statistics, that's kind of what did it for me. And that led to finance. When was the trigger where you said, okay, this is where I want to be, I want to be an investor? Where did you grow up? Were you a Georgia guy? No, I grew up in Scar's Hill, New York, Hartstale, Yonkers, New York, Scar's Hill. I love sports. I played sports not well, so athletics was not part of the equation, but I loved falling everything. And I literally started. I was falling football by every sport. I used to bet my lunch money. Who was taking that bet from a kid? He was all my classmates, so there was no big. No, no, exactly. Learned that the online, that's not a good idea, but the big doesn't work. Just counter-party risk. Exactly. It was quite a bit of actually. I used to study as a team play and turf for how they play in the road. I was pretty maniacal about it. And then literally you're laugh, but there was a company called AMF. I started one and they out to school things and there was a bowling thing, wow, this is you can actually invest in a company like this, it makes bowling balls, and literally I follow that stock. I literally, to this day, I remember buying it at $12 a share and watching it go to $14.5. And I followed every day and I remember my parents were in finance. My dad had an office products company, I remember being on the train and like dad kind of look at the paper and look at where AMF, but I probably put $5, $10 at the time. Anyway, that got me going. I started doing financial analysis for a bank, over the sundress at the time. Anyway, I wasn't going to do this, nobody in the world would ever remember that. But anyway, somebody was running the training program, I was going to go back into financial analysis and they said if you thought about trading, you love sports, you love competition and whatnot, they call my dad, I know that's all the story a couple of times, let's go my dad and my dad said the trading is not a career, so I don't know why I've been doing it now almost 40 years. Were you in the centrist management training program? Is that how you got started at centrist? No, I actually graduated at Emory University and I have to tell you, I didn't know anything about finance, I had a hard time getting a job, I didn't know anything about finance, I didn't know the question was asked, I had taken finance classes, but I didn't really know how to interview and I didn't grow up in an area where there are a lot of people who follow the lane of finance and investing and I didn't have that background. I found somebody who was a treasurer or he was actually assistant treasurer, I know why I yard made a deal, I did a lot of peer group analysis, M&A analysis, so I got super lucky to get any job. I worked for him for a while. What did you major in? So I majored in finance, I didn't know anything about technique and what do you say and how do the firms interview of an introverted person, a very, very introverted person, I was shy and I never interviewed well, I got lucky that somebody gave me a chance and so I did that. So the CFA community is good about recruiting the introverted people in their 20s, apparently we didn't snag you back in your 20s. So you were a son trust for two years then you went to Warden and then right out of Warden you were at Lehman Brothers. I went to EF Hutton first and only training program in EF Hutton and there were 43 of us and then by the way I didn't even finish the program because the company went out or Lehman bought it in the stock market crash. I got lucky and that Lehman took a couple of us into the training program so I went there to trade mortgages which I never ended up doing and I ended up doing credit. I led to a two decade run at Lehman. Yes sir. We can time stamp years all we want, we can't hide that year. So it's interesting we were talking about it before we went live. We saw our three capital partners pop up from '08 to '09, it can only make a wild guess that your middle initials and are but curious where our three came from. My middle initials and I'm a big believer, I have that's the expression that's all over my house, the signs that say work hard, play hard, give back, reboot and like my work hard, play hard, give back, reboot, like crazy simple life but I am, I give back thing that I'm really passionate about is German education in schools, and I chaired the board of the last 20 years charter schools in Newark, we have 14 schools and I do a bunch of programs in Atlanta and otherwise. But anyway, so it stands for reading, writing and arithmetic. The original premise of our three was to do credit, also to structured finance and then give 20% of our revenues to urban education. That was what our three was. Who ended up recruiting you for BlackRock? How did that come about? I knew Larry Fink and Rob Capito for a long time, I almost went to work there years before that. I stayed in touch with him and I'll never forget obviously starting a credit hedge fund in May of '08 was an exactly ideal timing. So I remember Mr. Capito calling me and saying we talked about doing this, what do we do this? I talked for a long time, I brought 42 people with me and they were kind enough to allow me to bring a big team with me. So I knew I came to BlackRock, May of '09. You did a lot of betting on the side early and that was interesting to you and it sounds like you started doing some trading. How did those inform each other? Did you find Ed Thorpe very early in life figuring out the magic of position sizing and that sort of thing? You realize betting on sports, particularly doing it with no big with friends. It's a pretty tough business to make any money out. It taught me a lot. I bought it and I'll never forget we had somebody who came in from on the casinos until the story about how we make money at a casino and I've told the story before about I raised my hand so I don't think we make money while the odds are in your favor but the odds aren't that much in their favor but the way they make money you go up and down, you vibrate around the mean but when anybody hits the down you bring $200 into the casino and when you hit the down 200 you leave. But invariably somebody's going to hit the down 200. Anyway, when I've learned about a taking risk early on but then I also learned you'd better never hit the down 200 so the way I always manage my risk and it really taught me my philosophy particularly in fixed income. I call it make a little bit of money a lot of times what a casino is really good at is if you tilt the odds in your favor let the odds work for you and do it a billion times. Part of how I run my business is I'll have teams around the world and I'd rather instead make a big bet as it were on deretion interest rates or emerging markets I'd rather make a million bets then accumulate those until the odds in your favor. Still to this day I love taking risk I love trading I trade a ton in the markets. I love the excitement over the dynamism but I've also learned if you keep paying transaction costs that is the equivalent of going to the casino when you're paying a big spend what market you're in how wide those transaction costs are but if you're using quality research and analytics and increasingly technology you can bend the curve a little bit in your favor and just let those odds work for you literally from grown up it definitely helped me think through that. So your time on machine ends up being having a bunch of positions? Yes sir. I am a crazy workaholic and we spend an immense amount of time thinking through regime if we can get the big rock right taking a couple weeks or a week and a half off over the holidays and I just told my team who I get to take time off so that I can really get some work done. But it's edificiously but now I can actually work and think through going into next year what's the big rocks that we need to get right around regime what's happening with AI what's happening with this is if we get the big rocks right and then underneath it okay now we got a sector allocate now we got a name allocate get the individual security selection and sector right underneath it. We were talking about the resources you have now I know you brought a huge team with you back when you joined black rock over time I would assume you've accumulated all the resources of the firm and then you have a direct team so curious how many people are directly on your team and then how many people are indirectly involved in you sourcing data and things that support your thesis. Since 400 people on our fixed income business it's all obviously layered in their areas of grain terms but at the firm the trading expertise we have analytics research AI probably tap into another 4 to 500 tangentially the day to day is probably 40 or 50 of us who are day to day looking at portfolio positioning our interest rate exposure or equity beta or dispersion and it sort of waterfalls that way. So for example today oil prices are down we have energy equity analysts at the firm where people come out of these and I call them up and get that insight it's really helpful as well as obviously counter parties on the sales side and consultants etc. Do you have any outside subscriptions and if so can you talk about those I really believe in data. I think the markets is so much anecdotal follow everybody follows the same path the ones that are really intense around data are really helpful to me and that and quite frankly differentiated thinkers we tend to get a lot of the same stuff we get enough information on shape of the yield curve and what the Fed may do or not do but I really like to go out there and look at particularly in equities there's a lot of intense work in equities and corporate performance there's some really good firms that do work on that. Does that result in you doing a lot of hiring of data analysts coming out of school here recently? Yes sir and some AI expertise it's pretty incredible how much data you can get we're still learning and building agents that help us do text mining as soon as the data comes out to help us assimilate that data and how do we think about regime where the markets are going etc. But economic trends I am very much a bottoms up person terms of I don't understand now you can start from the top down doesn't make any sense to me I like reading and now with AI we can get incredible data on corporate inventories hiring trends receivables and that stuff to me is an important also having the teams as we talk about what's going on in logistics why is it happening what are the trucking surveys telling you I'm a big believer in looking at the data. Thinking about data and how important it is to the investment profession but also to the technology sector and your role on alphabet Google the investment advisory committee I know you're a big tech geek it sounds like you get a lot of ideas from outside the business but I feel like the intersection of tech and what you do in an investing is heavily relying on data what ideas have you pulled from the technology space I would assume that role that you had alphabet Google has given you some interesting insights you could implement with Peter Lynch or a little ago so you said like try out stuff I literally have to be the first in line what a new piece of technology come about so I live in New Jersey in a short hill small I never get when the Apple store went in and I'm like trying everything out like this is unbelievable it was much of the genesis behind getting involved in understanding Apple why it's a differentiated product etc then they open a Tesla store I didn't know it was I drove this Tesla I thought like this is an incredible product and then they put it peloton bike so now I just hang out at the mall it's the only way I can figure out new trends but anyway I had to be the first in line of new glasses these medical glasses bought all the different ones I had I'm a crazy tech geek I learned a ton about what works what doesn't work it's been pretty revealing when you actually go through and think about if you find this really utility there's probably a good chance that others have and so I try and be early in that I'm pretty immersed in the space today I think space is gonna change the world I think there's some amazing technologies I love reading about it I love thinking about I don't read as much about like investment philosophy but I liked a big thinkers in tech I want to know what they're thinking we've had in our generation some pretty incredible people today the Zuckerbergs and the Bezos and the Elon Musk and it's pretty unbelievable investing you got to think at step ahead and where's the pot going or what out of you most guys are in a different game I like learning from those guys Rick one of the inspirations for this podcast was the Patrick O'Shaughnessy and best like the best podcast he was the first guest because of that and I think about his journey he was a factor quant investor working with his dad Jim they've later sold to Franklin Templeton but if you look at the early days of his podcast it was usually investment luminaries like yourself thought leaders and it's just completely evolved to the big thinker tech space over time and I think he gets so many of his ideas similar line of thinking from that today if you follow the technology trends why isn't it for my view on jobs inflation productivity health care technology was a mean for aging of the population what does it mean for fertility rates etc I think it all comes from what's happening in terms of technology DNA deconstruction and health care I think that's what informs much of what you're thinking today and best thing you mentioned both going to the Apple store and the Tesla dealership I guess one of the things that always struck me about this and I know we're probably on shaky ground talking about individual companies but the strategy that Apple used of hey you bring something in it's broken and basically they just give you a new one and the good will that that created but then I think of Tesla nobody can get anything fixed so I've always thought about that really is a software company maybe that's too costly at that price point I don't know Rick I was going to go the opposite direction on the more positive view it's where where I was and really I've been hearing a lot of good things about those metaglasses even in the last few weeks I've been hearing a lot of good things about the self-driving tech actually working in Florida I think you can text as long as the auto mode is engaged I know you can't do that in California and other states but you can finally have a driver at least were really close seven eight years ago I didn't think it was being told to me at the dealership that it was close and it wasn't but it sounds like it's really close I literally got off the plane the other day I got in the car and I said well we have an ad dinner like I'll great let's just get in the car and have dinner because we can what somebody else drives it has been a step change I was pretty skeptical originally I was beta testing a bunch of the automated and it wasn't ready and I was actually filmed for some because people know I was early in Tesla and I was filmed for something and literally the guns in the back of the car filming it and the car must have saw peace of ice or something and literally beard off and I'm like okay we're going to turn that off but now it is extraordinary although I don't think you can actually look down at your phone in Florida because I've done it and it actually beeps at you and it turns off I think you get three warnings and it turns off I don't actually rise but it does well three strikes is what I use with my kids so I think that's fair I've had this thought lately I was asking some of our fund managers because I know tech is a big sector you like at least on the equity side healthcare tech and I think you've mentioned financials as another one but I've been trying to figure out there's this whole small cap thesis that small cap is dead everybody likes to kick around the Russell 2000 poor index I feel like it's the whipping boy out there and I was thinking about large tech and how many companies they've acquired over the last 1015 years and how many of those small cap companies are sitting inside and I've even joked about if I phone was its own company be top 25 company I'm wondering how much exposure these top 10 companies we think that they're not diversified they're taking up this massive swath of the index and they're controlling a big portion of the US stock market but all of these little companies that have been acquired over the years there's a lot of diversification within there so I have these conflicting thoughts on this concentration in indexes is there more diversification that meets the eye sitting inside these companies because of all the companies they've acquired and all these different lines of businesses because they're compounding just this massive amount of free cash flow we spent a bunch of time talking about setting up for 26 and some of the you know where are you in the mega cap and I think ultimately we're going to come out as exactly as you described it the free cash flow generation is tremendous the stock buy back that they're doing is immense and I've learned is when my years of credit free cash flow is your life blood if you throw in a free cash flow allows you to reinvest in M&A and R&D and buy back your stock I still think those big companies like you say I have so many different drivers of revenue and cash flow that I still think you want to be in this place I was the one thing that I've changed my view on there's a one commentator on TV always laughs because I use comes on and he says can we talk about small caps any laughs because I always say no I don't really think there's worth but I have to say we are going to come in the next year with more balance so we've had in the past because I think M&A is going to be real and you're seeing it pick up and I'm convinced there's going to be more M&A one two it's interesting around new technologies are now democratizing companies ability to compete and I do think that now for the first time in years there's some small caps I think the business is you can't compete because you're on the data we're going to run more of a balance portfolio next year we like to look at not necessarily value stocks because I always think value means that there's no reason to own it because it's trading cheap for a reason but I can we call it value with a pulse so my work with Randy Berkowitz goes a value with a pulse and I actually think a lot of those companies that haven't necessarily grown significantly but they have some you could see the window and there's some M&A and they could fit synergistically with other companies we're going to run a bit more balance than we have the last couple years to circle back a little bit something in that we jumped over when we were talking in terms of things we wanted to hit is your general impression about the way that our asset management wealth management money management and advice is all heading in the same direction at the moment or at least it seems to be we talked about sports gambling we talked about what's interesting to you and what influenced you how do you feel about brokerage firms getting into gambling essentially if the future is not we just try to create Dutch books and let everything go crazy and I bring this up also because one of the things that I think is a bit concerning from a bottoms up type framework is that a lot of the tricks and nudges that were learned by casinos are now all being employed on people whether it's ongoing gambling or even investing interested in and you're kind of general thinking around where that's going because a lot of these firms are coming out of tech people they don't know anything about investing now this at a presentation called the difference between investing and gambling and I'll send it to you we're actually going to turn it into a blog I do these multi page with graphs and so the thing that will blow you away is what's happened in the last few years now some of this is immense monetary and fiscal stimulus comes in and then AI tech and so what's happened is everything goes up and so because because of massive monetary fiscal stimulus and because you had a technology trend everything went up stocks go up credits rates tighten and so what's happened is it's created this ability to gamble when you see this through the zero data expert options immense and I put this in prison immense growth margin double levered levered ETFs a part of why I think volatility is going to be higher next year is you have so many more players that are now coming in because it's been pretty hard to lose because everything's gone up I think the difference between 2025 and 26 is going to be all about being careful because of all is going to be higher taking advantage of that I think it's going to be key it's an interesting thing and I show the gamification of the country that is pretty incredible and I show the percent consumption that is increased in terms of gambling young males 25 to 35 40 the numbers staggering when the investments I think a lot of players are going to get taken out because it's leverage margin zero data expert options that's a pretty tough business to make money on unless you're selling them but it's a pretty remarkable thing we're literally putting this blog out on it it's a curiosity for me what are the social implications of that we're already dealing with the K-shaped economy I mean is this going to be something that exacerbates that spread like in Singapore if you're a local they don't let you in the casino for good reason funny because I made a point in that presentation which I agree with because we said I think what's happened is because you have an economy to die it's particularly interest rates have to come down still as young people low income small business but young people low income are having a hard time you'd see this in unemployment rate of young people housing part of I think you got a housing policy moving people can't buy a house they can't build wealth but you can see and I'm convinced that a big portion of that gambling is because people are having a harder time I would argue that's the case with lottery systems et cetera I'm a very strong believer today that we need to do a bunch of things that get housing moving reduce interest rates get small businesses and we need to do a number of things to create what is more equilibrium in the economy I've loved your points and some of your commentary on thawing out housing getting the 10 year down the Fed can't really control that unless they do it with the open market committee and housing does thought out because it seems like that age group that you just mentioned because of the bump from 20 to 25 and then the bump before that from 2012 to 2020 seem to put a lot of their savings into housing and then for those that kind of felt left behind in the economy maybe gambling was a way to catch up a lot of times people they played the lot of when lower income to just say hey I want to level up and this is a quick way to do it instead of the old tried and true way which is compounding your stock and your bond portfolio so I think about the implications that Chris brought up I mean it's so easy to place a bet now and we see no inventory in the housing market we're seeing this locally and we're one of the hottest housing markets over the last 15 years after we were ground zero one of the worst housing markets in 2006 through 2010 the housing markets in issue there's no portability if banks were allowed you to let you take your mortgage with you if the loan to value is right that could be one solution mortgage rates having to come down is the only solution right now so then you barbell so then it leads to all sorts of speculation or catching up these two and three x ETFs so as we think through all of this I'm wondering what's going to be the catalyst to stop the gambling in the equity markets I've always saw like markets every four years you have to go down 90 94 90 802 and that didn't go down 06 because policy was too easy and then it just blew up and away but I think there's a rhythm to markets where people get comfortable you go through displacement and then people get very relaxed leverage builds and then you get some catalyzing a van that shocks it down by the way it's impossible to predict what does that all I found that it's always leverage to your point about what's happening young people so I did this in this presentation I showed that first time home buyers the average age now it's 40 years old or first time home buyer a repeat buyer meaning the second time you trade up is 62 years old 62 15 years goes 40 so what's happened is like you can buy a house you have an affordability problem you're not seeing people getting married fertility rates coming down it's a nominal GDP problem when nobody enough people to work in housing if we get housing moving it doesn't fix all these problems but it definitely helps it was a reliable force savings mechanism for so many families for so many years totally and that's how you built wealth now you can't take money out of your house because you'll never get approved for a healer so young person is actually accumulated well now it can't get it out because they won't get approved it's a really tricky thing that I think we're working towards some things that'll smooth that out I hope it is an incredible multiplier effect and the path to get to a lot of these places can be very messy you mentioned your excitement about space and you talked about logistics and I was starting to have flashbacks because I do a lot of work with Emory Reddle University and Daytona Beach it's interesting there is a lot of excitement about the changes that are coming and the things that are on the horizon a lot of the students focused on data analysis and doing work in logistics and space flight on and on but there's also a good chunk of them that seem to be walking around with this really almost existential anxiety threat of what is my future going to be because of AI what would you tell the students who are worried about the path and the landscape of something not being there I can remember just walking my dog two years ago maybe and talking to an attorney in the neighborhood who said that they hired half of the associates that they did in previous times now I didn't get into it and say how are you going to get out of your partnership shares that seem a little short-sighted but there are some things and almost without exception what I'm hearing that C-sweets are asking of their consulting firms is how do we use AI to reduce headcount that seems like part of that path to get to some kind of better place could be pretty painful for a lot of people would you tell the students who are sitting with their entire future in front of them and getting ready to hopefully enter the workforce and feel like the opportunities are going to be less at least initially. So I think it's the hardest question and I think it's the hardest decision anybody coming on school or going in the school or thinking about major has ever made the historic analogy was what happens is when you have new technologies it moves people to higher value add roles but this technology is designed specifically to replace human labor and cognitive decision making and I think it is very very hard by the way I know that it solves all problems but part of my housing thing is you put 3.1 people to work for every home built in this country and it's pretty hard day I building a house at least at this point there are some things but I think it's a really really hard to think through exactly what you're saying. I think education is the key to liberty and freedom and nobody really knows what the future will be but I remember I went back to business school and people said why'd you go back to business school and the thing I learned more was a mess like capital asset pricing model or weighted average cost of capital or whatever it was so they were helpful it was actually to think at a higher level and I think to the extent that you think at a higher level and you're learning what have you and allows you to adapt when I first saw looking at companies I always looked at the credit side the best CEOs I've learned the best stocks I've invested in are the thinkers who have adapted and changed and adjusted these companies they never start the way they ultimately progressed to and I just think for somebody going to school I don't think you really know if you've learned to think at a higher level and interpret and adjust I think that's the only answer because otherwise I really struggle with that we have 6,000 kids in our schools we're teaching AI now I keep asking how are we changing the curriculum it's very tricky that makes me think you're a friend Vikram in his book learning to think for yourself I think AI people are going to be able to leverage it throughout society personally professionally however they want to use it these large language models are going to be pretty similar in terms of their output learning how to think for yourself is going to be more important than ever and we're not picking on young people because I think every group between 25 and 35 made some poor decisions including myself but that greed and excess sort of stop at the end of 22 spacks went away some of the froth got blown off everybody thought the long term treasury was the old hedge for equities when they saw equities and bonds fall off together that was a scary moment for bond investors I'm thinking about moving beyond the traditional assets in the act this is your day and I think we couldn't finish this interview without talking about what you're looking at right now so we have heard in some of your research in some of your commentary you're heavily tilted to European bonds right now and you're picking up yield and a lot of interesting places and spreading those positions out wide enough that you're going to be diversified enough to protect on the credit side but you're also not taking that big interest rate risk where people got hammered in 22 maybe you can go into some of your key positioning right now in areas of the world that you like I would have thought to only ask you areas of the US you like but I thought that was interesting the European position we live with negative interest rates for years in Europe now because of the cross currency we can swap European credit back in the dollars you get an extra two and a half percent that is a pretty extraordinary dynamic that if we can buy Europe at three and a half four investment grade swap it back you get five and a half six income the factor we can do that in Europe is going to grow just slow enough that it's a perfect place to invest in for credit on equities I think you got to be in the US but in Europe I love buying fixed income and I continue to clip that coupon I actually think 2026 will be the year of going international and I think emerging markets is now much more interesting than the credit markets are EM is a tricky business but there a bunch of EM countries like Mexico Indonesia South Africa that are generally stable and the yield pickup you get versus credit now is super interesting I think the great secret of investing has been if you can create income it is the whole gig what I'm trying to do in fixed income is just build stable income and stable yield for people if you invested $1000 in the S&P 1945 be worth $7.3 million if you didn't get the dividend it'd be worth $500,000 it's all about your income now obviously with some equities Amazon didn't pay you a dividend for a while and then obviously you accumulate et cetera and then they pay dividend income people underestimate my whole gig in fixing you just get you income try to do in a stable way if we can create portfolios six and a quarter six and I have I think equities will go up 10 to 15% next year I don't think they're going to have the same because we're multiple is but if you're 10 to 15 with some real volatility to which I think is coming if you can get six and a quarter six and you know maybe even six and a half now including Europe and the um helping you and getting the other if you're six and a quarter six and a half let's say we get the rate down that many you know get a 50 based ones a rate that's another two two and a half percent return on a portfolio your six six and a quarter can become eight and a half nine like this year's good enough in that zone pretty good in inflation is running two and a half to three you're winning 20 years ago if somebody told you you'd be running your own unconstrained ETF and you could just go anywhere you want and nobody's going to say anything to you you would probably pinch yourself your fund even says we don't follow sustainable impact ESG strategy we do our own thing we do our own thinking there's no conventional mandates you think about the way funds were generated in the 90s and 2000s you stay in your lane you run your IPS you're full bottom up you're going to go where the income is and you're going to try to make sure the bottom doesn't fall out as this causing issue and some of the larger institutions hiring you because they're like we don't know where you're going to be each month there's a difference between fixed income inequities there that's quite traumatic 85% of the fixed income managers outperform the index and it's because indices are pretty imprecise in fixed income the more you put on debt the more you show up in an index which is the exact same thing that you want to do plus the index has too much duration along and has a lot of spread product that's too rich has a lot of high coupon mortgages that are negatively convinced and fixed income go anywhere being unconstrained is like means take less risk but it sounds like you're hanging from the chandeliers when you're unconstrained the truth is you can just take less risk your risk is better part of what I'm proud of and our portfolios is our volatility is like half the index we've been able to outperform pretty consistently but our vol is half meaning if you own equities I'm going to take the vol and equities because prices go up in stocks but I'm just trying to get paid but I can keep that income if I can keep my volatility and equities which should create return on equity of 20% or so I know my equities are going to go up if I hold them for three or four years because of that multiplier effect your point about long and interest rate that was a thing in the past now I just think if I compound income keep my volatility stable keep my vol in appreciating equities I think you build a pretty good portfolio we can actually trust your vol versus a lot of these private funds we can't trust the vol is cliff as Ness would say it's volatility laundering just by only having a monthly or quarterly nav your day liquid ETF you have the full transparency it's just a different game so for example if you dip public private and you take your tranching there's 1.4 million unique securities 1 per 4 million I think the total number of stocks go up is like 50,000 which is also a big number it's 30 that make a difference this topic came up in our conversation Stephen I had before it now which is okay that's the universe but given your size and the liquidity needs what is your constrained universe look like in terms of what you can actually put in a fund and move the needle there's a lot to do with how we trade within our portfolio so for example if we buy a logistics real estate business it's going to be that large how much can we own but the way we run our portfolios is I trade huge amounts of treasuries agency mortgages because they're very liquid so we keep part of the portfolios we spend a bunch of time doing the analytics on liquidity and transaction costs I can trade 10-year notes five-year notes would a very tight bit ask spread and move my data around my convexity my duration and I could use of volatility markets and then I'll buy an asset like you were describing and then it will buy that one then I'll do a hospitality financing and without you and I'll buy and then I won't trade it I just want that to sit in a portfolio get yield but then I got to move my portfolios around so you brought up some that nobody ever talks about not thought I'd have it figured out but there's a real art to which portfolio can you use for trading and managing the risk and by the way for equities you can really move your beta around and the auction's market you can use huge amounts of vol to manage your risk but you're right a lot of these markets are small relatively small but that real value but you just got to do a lot of it do you ever make currency bets does that ever come into play to you decide when you're going to hedge or not how do we think about that and what sort of things might we do in order to keep sound money here in our US dollar maybe that's not consistent with there's a view that maybe the dollar weekends one thing I've learned what I'm not any good at picking currencies is the hardest business that was only one person I've ever seen that can do it consistently standdruck a Miller he's particularly good at it and the reason why is you have central bank activity you have cross border M&I you have reserve manager there's too much going on that you can't really manage and by the way everybody's an opinion on the dollar just none of them are right I do think that today we're in a structural depreciation that suggests that you should own gold and that you should have a higher allocation of gold you know we get debate crypto which I don't really think it's a great currency hedge but make something and it's going to go up it's going to go up I try and keep my currencies pretty managed but I have increased my exposure to gold and I hold the gold position I do a lot of fall around it where I sell the upside because you create income off of it so I like going in some gold and quite frankly part of why I like the EM trade is the ability to diversify I travel around the world I see a ton of managers countries investors that are diversifying into other countries like EM to get the yield and to get the currency diversification we talked about vol so much with your strategy and just the amount of vol that currency would throw in there for whatever little alpha that you could get it just doesn't seem to be worth it as we think about young investment professionals aspiring professionals that might be listening any advice for them I heard some earlier some tidbits of just invest early on your human capital learn to think for yourself any other thoughts and then maybe some folks you follow because a lot of times people listen to an episode and start following somebody new such as yourself or it could be some people that you talk about you got to bring a lot of weapons to the fight they're trying to break one and fun together and I think the reasons why quant works you're faster you're signal orientation your fact orientation is really good but it's also tends to be mean reverting fundamental gets just some sense there's probably structural change or regime change and companies evolve so I think for me it's bring as many weapons to the fight as you can fundamental quantitative I think AI is an incredible technology and the extent that we are trying to build more agents to make it better for us and then at the end of the day maybe I'm too stupid to figure it out I still think this game requires an immense amount of work if you get the technology right and it allowed to help you the smartest investors I still know today they're crazy intense around working and trying to bring all those tools to the equation I tend to follow Dr. Miller Tapper and there's some really differentiated people out there that I follow and I like to listen to but I wouldn't say a lot not because I'm over confident or think I have any wisdom at all I just need to do my own work probably because my teams are good if I really study what they're thinking and studying the data I try and do that more than following other people's opinions I've on occasion myself trained to hide and go into back rooms and things so I can go look at a chart and nobody sees me too I do these monthly calls and literally I spend the whole weekend and so thankfully it's only once a month so my wife will stay with me but like going to my back cave I spend an entire weekend almost the entire weekend and I just stare at charts and data and gives me sort of a foundation for the next four weeks and then obviously a tweak it as things evolve but I feel like you have that cleansing process I need to understand why is Dollar Yen right here where two years swaps, why is Aussie Kiwi trade at certain level I gotta step back and then just stare at a bunch of charts at least trying to assimilate with something cogent happening. At the beginning of the podcast you mentioned you were introverted and I would say Chris and I would be in that bucket too at least in our 20s were and forced to get out of our shell over time because the profession just pushes you but I was thinking of the push pull of you so many people clamoring for time with you large clients you're trying to scale yourself through various platforms get your message out but then you gotta go into the dark room because if I go to a conference with hundreds of people I want to be left alone for at least a day I gotta get away from people. I'm the same I prepare for everything I'm terrified of not having the right answer to something and I always believe in you gotta prepare anything you're doing you have to study because it's like I'm doing this almost 40 years I can go on TV or I can go under this at the end of the day I always think you just gotta prepare it's hard work that probably comes from the same place it does for me which is I have been with a spotlight on me and not known and that is the worst place to be the worst you can answer by the way 45 questions right then you get one your credibility goes out the window which it shouldn't and you're so confident. Rick and Chris we started with sports and I thought about that Michael Jordan story recently where he rented a house for the writer cup the guy who rented in the house had his kid with him and just said hey I just want you to shoot one shot and he had already paid the rental so he didn't owe the guy anything these kids had never seen him play before he thought if I missed this shot in front of this kid and he said he never felt more pressure so that's his version our version of missing a shot is we didn't put in the preparation because maybe somebody had never heard you speak before and they're like wow this guy just flubbed the question that's the equivalent of clanking the shot you're being put up against new people new investors new everything every day and you're retesting yourself for existing investors and it's a lot of pressure it's all of creating value what have you done for me lately that's the investment profession this is the most competitive sport in the world one of the coolest things of my life that I've gotten to know him Michael very well you asked the question earlier about who do you like to follow what do you like I've got to know some of those athletes Rory McAroy and some of the others and there is an intense desire to be good and not to embarrass yourself I've convinced what people say when you look at a resume you're looking at somebody's qualifications what do you look for I was always inspired by people wow they went to the school med school still you need obviously the acumen but I tell you people's desire to succeed I'll go to the next level I'll go to the next level and I don't want to lose and I don't want to be embarrassed those guys like I've learned from a particular Michael it's pretty extraordinary at anything he does he does not want to lose I think it's a big deal yeah I used to love here in the old golf stories he said again again again again and then he would just show up late to the game because he was so competitive and I've probably seen the last chance three or four times Rick thank you so much for being generous with your time our end of episode question it would be the tables reversed you're the interviewer and you could interview anybody dead or alive could be Jordan it could be a famous investor who's no longer with us anybody you'd like and why I'd be interested to hear that Steve Jobs I would love to know if you could interview him today what do you think of the say I think what do you think about work technologies going like I was so it was incredible how we can think of all it came up with with the iPod the phone I got an idea your fingers how you're gonna move the guy was unbelievable there's some incredible innovators today I pick any one of them would be in honor to sit with and talk about philosophy and think through it but that guy was pretty extraordinary obviously Gates was pretty amazing as well but Steve Jobs what he created out of nothing and you know you see parts of obviously a lot of that kneel on muskets and others but they blew me away who would have thought to do kicks on her it he could come back to die and say okay what do you think of this and what do you think about where he is going to go or productivity or his mobile telephony going to go to glasses you don't need the phone anymore you'd be a pretty neat one to learn from I love the parallels the way Jordan approached his preparation I think is the way Steve Jobs was just ferocious about every detail that we can't lose and I'm sitting in front of my Mac my iPhone my AirPods is such an influence over my life his legacy continues I heard the story of the Michael he lost the Detroit pistons and the playoffs the next morning woke up because I kept forcing them to the left and they woke up the next morning it was just struggling with his left I feel like I think it was a week or two weeks the only drivel is left and then for the next week or two weeks the only shot that was left and then the next week or two then he just driving and doing layups and then the whole offseason he uses just his left hand and then that is here he's ready to go the thing that I remember from the documentary he said I never asked anybody to do anything I wouldn't do myself he'd lead he may not have been the easiest coworker to deal with sometimes Steve Jobs also but they'd led by example and they were just ferociously competitive about their dream and what they were going to acquire so Rick thank you again and thank you Paige for putting this together this was a pleasure thank you thanks for having you've been listening to the investors first podcast a service of cfa society Orlando if you haven't yet go ahead and subscribe to this podcast so you never miss an episode you can also learn more about each episode and the society itself at cfasociety.org/arlando/podcast thank you and we'll see you next time on the investors first podcast all opinions expressed by podcast participants are solely their own and do not reflect the opinion of their firm this podcast is not intended to provide expert advice on topics covered and should not be relied upon as a basis for investment decisions if you need tax accounting or legal advice please consult a professional