FidelityConnects: Capital Markets Playbook

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Hello, and welcome to Fidelity Connects.

 

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I'm Pamela Ritchie. With markets still climbing after Friday's monster IPO

 

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the world sets sights on the global geopolitical landscape which

 

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is unfolding at the G7 this week, and a possible end to the Iran

 

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War. There's a question mark there.

 

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Canada's economy, meanwhile, is in transition partially leading to the Bank

 

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of Canada's policy decision to stay on hold.

 

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A question for investors here at home, is the bad news

 

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clearing the way for better days ahead?

 

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How does AI CapEx in Canada lead the charge, ultimately?

 

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How will energy, industrials and financials lending into markets push

 

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this Canadian moment forward?

 

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Joining us here today to help us understand where markets broadly and ETF

 

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investments more specifically may be heading for the rest of this year is

 

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Fidelity Director of ETFs, Andrei Bruno.

 

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Great to have you here, Andrei. Thanks for joining us.

 

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Great to be here, Pamela.

 

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Let's begin with asking everyone to send questions in for Andrei over the next

 

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half hour or so and put today's market reaction

 

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to you. There's a lot in there and it's positive,

 

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it appears, for markets. What's in the markets right now?

 

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Markets are responding pretty textbook right now.

 

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We potentially have an end to the war.

 

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I feel like we've had this conversation a few times so hopefully it sticks.

 

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To Monty Python here, yes.

 

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There's talk of the Strait opening back up.

 

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What exactly that's going to look like time will tell, of course.

 

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Broadly speaking, just taking at its face, positive news for markets.

 

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We're seeing equity markets head higher, we're seeing oil prices come lower.

 

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This ties back to central banks, obviously, as

 

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well. We're in the scenario where whether you're looking at Canada or the US

 

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we've got inflation numbers hovering around 3%.

 

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For us here in Canada we're still within the 1 to 3% band, in the United States

 

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they're running hotter than their 2% target.

 

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A lot of the conversation has been around what's the Fed going to do, what's

 

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the BoC going to do going into year end.

 

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I think that's going to filter into the calculus.

 

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Again, this is all hinged on whether or not we are actually getting an end and

 

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whether or the Strait's actually opening up.

 

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I mean, we really are mid-year so it does beg the question of whatever

 

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the Fed and other central banks do perhaps later in the year some

 

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of it is hinged on exactly right now, isn't it?

 

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What is hinged on right now? We have had this huge IPO in the markets,

 

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markets liked it, there are more to come.

 

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Let's put that piece into the markets right now.

 

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What portion of the reaction is a response to that, new things

 

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coming to market, and then we'll add in oil.

 

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Yes, certainly. I think these are some of the most anticipated IPOs we've

 

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had in quite some time, obviously, all very tied to

 

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kind of this AI theme. It's certainly an

 

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exciting time from an IPO perspective.

 

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I think it kind of lends credence to this idea that AI

 

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is still largely driving this market right now whether we...

 

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It is the growth, isn't it?

 

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It is the growth right now. Everyone's looking 5 years down the road, 10 years

 

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down in the road and you're thinking of where are we getting growth.

 

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Most people are gonna agree it's coming from AI.

 

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I'm sure there's some people who disagree, think this is more of kind of

 

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a bubbly, short term, a dot-com type situation.

 

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I think, obviously, valuations are marching higher and there's

 

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certainly arguments to be made on what prices you

 

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should pay for certain securities right now but I'm optimistic on kind of AI

 

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and its effect on the overall global economy.

 

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It's secular regardless of sort of...

 

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Personally, I think it's secular. I think we're in an industrial revolution

 

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kind of 2.0 type scenario here.

 

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Me, personally, I think it is going to revolutionize how we do business and how

 

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we operate.

 

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Again, the devil's in the details about particular names, how they're priced,

 

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what their valuations are but I think right now what's still driving this

 

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market is kind of those AI names.

 

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Even if you take a look ...

 

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emerging markets has had quite a bit of a run there as well.

 

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When you kind of dig down into what's driving kind of the EM returns right

 

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now it's those names that are associated with AI.

 

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It's the AI story. If we stick with AI and

 

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think about what slightly lower oil prices ...

 

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well let's ask you first of all what you think oil does.

 

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It's dropped, it's sitting around $80 right now on renewed hopes that the

 

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Strait will open.

 

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It could fall further if that gets sort of confirmed and there's a few more

 

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parameters around that.

 

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What does a lower oil price mean probably for the global

 

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growth story but actually particularly for AI?

 

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We're going to need a lot of energy.

 

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Yes, certainly. Obviously, it's a direct input cost for all these

 

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data centres.  They need to be cooled, they need to run, takes up a lot of

 

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energy. I think broadly speaking, though, when you

 

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take a look at the use of energy for AI data centres relative to some other

 

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areas of the market, still small portion of the overall pie.

 

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In terms of kind of where energy prices go from here, again, it it's all

 

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hinging upon does the Strait open up?

 

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Do we get a ceasefire? Does this war end?

 

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What's a good range to sort of make everything else that

 

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we need to do possible?

 

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I think reasonably you're probably looking at prices closer to

 

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prior to the war is probably where we'll settle in on.

 

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Obviously, you are getting increased demand vis-a-vis these data

 

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centres as well. Theoretically, more demand could push up prices

 

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but I think you're going to get something ...

 

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kind of the sweet spot there is usually somewhere around $60 to $80 a barrel

 

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where oil companies are making their money but the consumers aren't

 

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feeling it every day when they go to the pump.

 

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That's kind of the sweet spot for where oil can historically ...

 

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once you start getting around $100 a barrel it starts choking other areas of

 

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the economy. Getting into that sweet spot is,

 

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ideally, somewhere we'll end up assuming we do get resolution of

 

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the Iran situation.

 

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The other big chunk of the geopolitical discussions right now,

 

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macro discussions right now, is trade.

 

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We have the G7 meeting in France going on right now.

 

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There are a lot of things that could come out of it, different alliances, the

 

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discussion ... well, it is an alliance, I guess the question is the strength of

 

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the alliance and what they're going to do with that alliance going forward.

 

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Broad expectations?

 

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A big question that I'm ... I don't know if it's gonna get answered but what

 

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I'm looking for clarity on is, obviously, the whole global trade

 

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has kind of been blown up since the administration took office

 

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about two years ago now.

 

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The big question for me is what is global trade gonna look like on a go-forward

 

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basis? The other question as well, at least to me,

 

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it seems we're moving away from this unipolar world into more of a multipolar

 

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type world. Obviously, that has implications for global trade as well.

 

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Something that I'm looking at over the next one, two, three years is how

 

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are those alliances going to be formed and what is the effect on global

 

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trade? We've got BRICS which is almost kind

 

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of the counterpart to the G7, if you will.

 

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The question is what is interplay between G7 and BRICs moving forward and what

 

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is that going to look like?

 

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Can we sell oil to them?

 

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Well, that'll be the question. There's been sanctions on a number of

 

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BRICS countries, particularly on Russia, certainly.

 

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There is also that war still going.

 

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That's kind of been on the back burner since Iran's come forward but that is

 

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still going on. There's still a lot of uncertainties around there, what is

 

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global trade going to look like with Russia post Russian-Ukraine war?

 

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There are a lot of questions still and it is ultimately unresolved.

 

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You come from the bond desks and bond desks look at big, chunky

 

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macro questions very carefully.

 

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What do fixed income markets tell you about resolution on

 

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that and a future after resolution?

 

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The big mover in bond markets over the last five years has been rates.

 

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We had a bit of a hiccup kind of early on where

 

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we saw credit spreads widen out for the first time in a long time but they've

 

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since come back in. Credit spreads across kind of the credit spectrum have been

 

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kind of historically tight for the last long while and they continue to not

 

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move. At least from a credit perspective there's no alarm bells that I'm

 

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seeing right now that are screaming something's coming, there's an

 

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iceberg coming. That gives us some

 

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comfort in that. We all think back to 2008, we

 

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know what happened there was a credit event.

 

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We're not seeing any of that right now.

 

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If you get down to the consumer you can start seeing some credit card

 

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receivables and autos and things like that.

 

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In terms of corporate America or corporate Canada or corporations globally

 

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we're not seeing cracks there. Balance sheets have shored up since 2008.

 

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We don't have a lot of debt that's renewing this year so it's not like there's

 

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gonna be a big wave of folks having to refinance at higher interest

 

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rates.

 

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We're not seeing that on the corporate side.

 

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From a credit event perspective we aren't seeing any massive

 

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cracks just yet.

 

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Again, as I mentioned, the rate side has been the big mover in markets.

 

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Folks have been looking at their fixed income portfolios, we've had big down

 

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years with equities as well.

 

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Think back to 2022, for example, it's been primarily a rates-driven

 

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story and that's where volatility in fixed income has come over the last few

 

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years. We can talk about central banks now because the million dollar question

 

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is...

 

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It's Warsh's big week, would you say he's been

 

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given a little bit of help on having to lower rates

 

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to appease certain voices right now?

 

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I mean, the world has maybe spoken up on the other side for him.

 

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For me personally, I think there was some sort of expectation that he would

 

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ease.

 

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Not just you personally, a lot of people thought he was gonna ease.

 

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I still find it difficult to see how you

 

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might be able to ease in this environment.

 

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I think where he's getting kind of the pressure release valve

 

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is the question of is the Fed going to have to hike.

 

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If we rewind to last week we took interest rate probabilities and what the

 

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market was pricing in. They were pricing in about one hike from the Fed going

 

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into this year. I haven't looked at it today but I assume that probability is

 

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starting to come down. I think this is providing some breathing room to the Fed

 

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to say, you know, we're going to hang out here.

 

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If we strip out energy prices which are starting to come lower we expect

 

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inflation to calm down on the back of that.

 

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You mentioned earlier that he could call it transitory again which might be

 

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comfortable.

 

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We could bring back the transitory verbiage which some folks might remember

 

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from several years ago. It was a big topic when inflation was running higher.

 

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The biggest word of the year.

 

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Theoretically energy prices do start to

 

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come in. We could see that inflation number come a little bit lower.

 

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I mean, the core number is still running a little bit hot as well which does

 

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strip out energy prices so there is still that part of the equation that needs

 

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to be worked out.

 

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But as we know as well, energy prices filter into other prices within

 

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the economy. Obviously, petrochemicals are inputs for quite a bit of anything

 

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plastic we use that typically is derived from petro chemicals so there would

 

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be theoretically a knock-on effect there as energy prices start to come in.

 

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We can talk about the Bank of Canada as well.

 

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Let's go into the central bank story.

 

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The big differential is the differential.

 

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The US did not come down as much as other banks around the world which pretty

 

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much finished out their cycles of cutting.

 

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They have room to hike, in a way.

 

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To talk about rate differential, you certainly saw that expressed within the FX

 

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rate. As we know we're kind of approaching 1.40

 

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CAD to US there

 

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so it's filtering into the FX and a lot of that is driven by that rate

 

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differential there. I think for Canada, it also gives us breathing room

 

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as well because we are entering, as we know, we were in a technical recession

 

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but also in a high inflation environment as well.

 

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That really puts the Bank of Canada between a rock and a hard place of saying

 

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do we really wanna hike interest rates into kind of a weakening or an already

 

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weakened economic situation?

 

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I think for the BoC this actually gives them a lot of breathing room now.

 

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Hopefully they can kind of take that transitory argument.

 

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Again, we're still within the 1 to 3% band so there's nothing that says they

 

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have to move, but seeing that start to march a little bit lower, come off kind

 

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of the higher 2s and come back down towards the 2 level I think gives them a

 

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lot of breathing room. Again, we do have a lot of consumers who are re-upping

 

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their mortgages this year. We've got somewhere over 20% of mortgages renewing

 

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this year. I think a lot of Canadian folks would ideally not like to

 

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see a rate hike going into that renewal season for them.

 

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We mentioned sort of trade broadly, how the conversation might change

 

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globally, let's zero down into CUSMA, Canada, the

 

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moment for Canada which we sort of mentioned as we introduced you, what this

 

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could represent.

 

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Andrew Marchese said a little while ago that two things are happening at once.

 

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There's CUSMA but there's also Canada's moment perhaps selling to other places

 

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as well. I mean, both can be true at the same time.

 

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What is this moment for trade for Canada, and then we'll get into sort of the

 

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real opportunities. How do you think some of the things look right now?

 

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Does it look like we're getting closer to any sort of resolution?

 

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I think this is actually a good opportunity for Canada from trade.

 

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I think for a long time we have relied on the US which has obviously been the

 

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economic powerhouse for a number of years, which has been great.

 

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It also kind of gives us ...

 

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the silver lining to kind of Trump's posturing towards kind of our country

 

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and trade, it's made us look outside of the US as well.

 

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My kind of personal opinion is we should continue to trade with the United

 

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States and try to maintain that relationship as best as possible.

 

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We should also open up to other markets as well.

 

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From a trade perspective I think it's a great opportunity for us to increase

 

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our trade globally.

 

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We've kind of got that kick in the butt to look elsewhere but I think we also

 

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shouldn't forget what we have done and how we have traded with the United

 

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States. I think that we can kind of eat our cake and have it too.

 

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We should open up our markets to the rest of the globe as well.

 

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Prime Minister Carney's been doing road

 

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shows across the globe trying to shore up trade and I think that's fantastic.

 

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I think we are in a very good position from a trade perspective.

 

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The devil, of course, is gonna be in the details.

 

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As you mentioned we have renegotiations with the United States and Mexico

 

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right now so we'll see kind of how that pans out.

 

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In any event, if we can get some resolution

 

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with regards to CUSMA, at least from a Canadian corporation

 

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perspective, you kind of know the rules to the game.

 

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Whether we get a really good deal, an okay deal, bad deal, at least there's

 

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some certainty on what the rules of the game are going to be moving forward.

 

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At the end of the day, if you're a corporation the one thing you really don't

 

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like is uncertainty. You don't want to do a lot of CapEx and spending into

 

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uncertainty. You want to know what the playing field is going to look like

 

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moving forward and then you can allocate capital accordingly.

 

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There are a few scenarios that are sort of bleeding through into

 

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the common discourse. It's hard to know which are true and which aren't but

 

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there's some version of keep CUSMA largely what it

 

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is with a bunch of side deals kind of bolted on that

 

15:29.295 --> 15:34.900

address either sectors or particular irritants in some way or the other.

 

15:34.900 --> 15:37.636

I guess just your thoughts. Again, you don't know what it looks like, nobody

 

15:37.636 --> 15:41.240

knows what it look like. We know what CUSMA looks like, the question is sort of

 

15:41.240 --> 15:44.076

around the margins how do you alter it?

 

15:44.076 --> 15:48.280

Does that seem like a likely setup?

 

15:48.280 --> 15:52.518

I mean, personally, I think we'll probably get a lot of the same.

 

15:52.518 --> 15:56.522

I think there'll be a couple little concessions we'll have

 

15:56.522 --> 16:01.627

to make on the margins to appease the Americans around the edges.

 

16:01.627 --> 16:05.564

I would be surprised if there's a large kind of deviation of kind of what

 

16:05.564 --> 16:09.535

the existing agreement says. Certainly not a

 

16:09.535 --> 16:13.539

policy expert but I suspect that we'll

 

16:13.539 --> 16:18.243

kind of just want to put this behind us, get something in place and move on.

 

16:18.243 --> 16:21.513

Moving on is sort of AI is the future.

 

16:21.513 --> 16:25.584

Now the question is for everything from energy, which

 

16:25.584 --> 16:29.888

you've spoken to a little bit, to the industrials to build out the

 

16:29.888 --> 16:33.392

revolution that you were discussing, the industrial revolution, to the funding

 

16:33.392 --> 16:37.429

of it all. Even just the Canadian bond story at this point.

 

16:37.429 --> 16:40.666

Let's kind of cycle through the pieces of that story.

 

16:40.666 --> 16:45.371

First of all, the AI framework that's been released by the government,

 

16:45.371 --> 16:47.139

yay, nay, what do you think?

 

16:47.139 --> 16:51.243

I'm somewhat positive on it simply because I didn't

 

16:51.243 --> 16:55.848

think it was terribly prescriptive.

 

16:55.848 --> 16:59.885

That's many people's criticism of it.

 

16:59.885 --> 17:03.322

I'm looking at it purely from a business perspective, of course.

 

17:03.322 --> 17:06.792

The last thing I would like to see is we come ...

 

17:06.792 --> 17:09.728

again, it's a framework so it's not technically legally binding but the last I

 

17:09.728 --> 17:13.832

would see is some sort of legislation that comes through that kind of

 

17:13.832 --> 17:19.438

puts a chokehold on innovation within our country.

 

17:19.438 --> 17:21.340

The detractors are going to say it was too broad, didn't address enough.

 

17:21.340 --> 17:26.045

I think it's so early on that I'm actually okay with that.

 

17:26.045 --> 17:30.282

To me personally, I would like to see innovation in this country with regards

 

17:30.282 --> 17:34.353

to AI. I think we have a position to be a big player

 

17:34.353 --> 17:38.357

within AI. We have such an educated population, a lot of

 

17:38.357 --> 17:40.059

smart folks who work here.

 

17:40.059 --> 17:44.363

For me, what I would like to see from policy is just an

 

17:44.363 --> 17:48.367

environment that fosters that innovation, that growth, that CapEx within

 

17:48.367 --> 17:52.471

our country. I think we are in a position to start retooling our economy

 

17:52.471 --> 17:56.742

towards that AI train and get on that train nice and early and

 

17:56.742 --> 17:59.578

take advantage of it. If we take a look at kind of where our productivity has

 

17:59.578 --> 18:03.482

been over the last 10, 12 years it's been relatively stagnant.

 

18:03.482 --> 18:07.519

I think this gives us an opportunity, that coupled with trade, to really jump

 

18:07.519 --> 18:11.323

start the Canadian economy here.

 

18:11.323 --> 18:14.393

Looking, perhaps you can just take data centres as the piece of it, but what we

 

18:14.393 --> 18:17.996

have that the rest of the world needs for their own buildouts as well, the

 

18:17.996 --> 18:22.000

components essentially, largely in the form of critical minerals.

 

18:22.000 --> 18:24.770

Certainly we're well positioned. There is going to be a demand for those

 

18:24.770 --> 18:28.207

critical minerals whether it's energy or critical minerals.

 

18:28.207 --> 18:32.211

I think that ties back to kind of our resource policy as

 

18:32.211 --> 18:36.381

well. Again, I feel like that's been a sector where it's kind of been

 

18:36.381 --> 18:38.750

stagnant over the last 10 years or so.

 

18:38.750 --> 18:41.753

It gives us another opportunity to revisit that, whether its talking about

 

18:41.753 --> 18:45.624

pipelines or whether it's talking about just making it easy to get the stuff

 

18:45.624 --> 18:48.494

that the world needs out the ground and shipped to global markets.

 

18:48.494 --> 18:53.765

Are we seeing that actually take

 

18:53.765 --> 18:56.001

hold or is there just a lot of talk?

 

18:56.001 --> 18:59.972

There are some really interesting pivots in the policy, which is

 

18:59.972 --> 19:04.510

what you want, but is it moving yet?

 

19:04.510 --> 19:07.312

I don't know that we've seen a ton of movement just yet.

 

19:07.312 --> 19:10.716

Again, it's still a little early.

 

19:10.716 --> 19:14.319

I think that's certainly something over the next year we'd like to see a little

 

19:14.319 --> 19:18.423

bit of pickup on, whether it's just talk or whether

 

19:18.423 --> 19:21.727

the rubber is actually meeting the road on those topics.

 

19:21.727 --> 19:25.931

Is there enough in line in terms of things like red tape

 

19:25.931 --> 19:30.102

being removed? Are those things moving enough?

 

19:30.102 --> 19:33.939

There's a lot in there. It takes a lot of conversation to get that moving and

 

19:33.939 --> 19:37.276

buy-in but do you think there's a a lot more?

 

19:37.276 --> 19:42.881

There was a lot of roadblocks over the last 10 years, Keystone

 

19:42.881 --> 19:46.885

pipeline comes to mind which was one that went back and forth for so long,

 

19:46.885 --> 19:52.558

building pipelines across the country.

 

19:52.558 --> 19:59.064

It's hard to say. The rhetoric has been more positive, whether

 

19:59.064 --> 20:02.634

or not that will come to fruition I think time will tell here.

 

20:02.634 --> 20:10.275

I mean, for the investor the question is can you invest into it yet?

 

20:10.275 --> 20:14.213

We also have to disentangle, obviously, we've seen a lot of materials

 

20:14.213 --> 20:16.982

and energy companies do quite well here in Canada.

 

20:16.982 --> 20:21.453

It's been on the back of primarily larger prices, of course.

 

20:21.453 --> 20:25.557

In theory, if we are going to

 

20:25.557 --> 20:30.262

see this change in policy and rhetoric around resource extraction

 

20:30.262 --> 20:34.499

theoretically that's longer term positive for the Canadian

 

20:34.499 --> 20:38.704

economy and, obviously, those resource intensive names.

 

20:38.704 --> 20:42.674

Again, I still want to see more kind of

 

20:42.674 --> 20:47.179

actual, practical output from the rhetoric.

 

20:47.179 --> 20:51.383

I think maybe we're starting to see a little bit of that but nothing

 

20:51.383 --> 20:54.853

headline making just yet.

 

20:54.853 --> 20:58.890

Pivot back to markets, stock markets, question coming in for you

 

20:58.890 --> 21:01.193

here.

 

21:01.193 --> 21:05.330

If the recent IPO turns out to be a fair amount of hype, the question

 

21:05.364 --> 21:09.401

is what happens ultimately to the markets and would it be

 

21:09.401 --> 21:11.637

a reason to avoid index funds?

 

21:11.637 --> 21:15.874

If we go into index and ETFs and discussions of

 

21:15.874 --> 21:19.911

this, this has actually been something that gets a lot of air

 

21:19.911 --> 21:21.713

time in your position.

 

21:21.713 --> 21:25.183

How do you answer that?

 

21:25.183 --> 21:29.154

Obviously, I'm making a bullish case, a longer secular term bullish case

 

21:29.154 --> 21:31.590

for AI.

 

21:31.590 --> 21:35.227

I think what's kind of tying in here is we can't ignore kind of the valuations

 

21:35.227 --> 21:39.231

of these companies. If we do see kind of a pullback in the market a lot of that

 

21:39.231 --> 21:42.601

pullback is theoretically going to come from those AI names that are priced

 

21:42.601 --> 21:46.705

relatively richly to some of the other names in the S&P

 

21:46.705 --> 21:48.473

500, for example.

 

21:48.473 --> 21:50.609

That essentially control the index, I mean, in terms of their weight.

 

21:50.609 --> 21:54.146

Well, that's just it. When we talk about kind of the indices, let's talk about

 

21:54.146 --> 21:58.083

the S&P 500, it's a cap-weighted index, as these AI names get bigger

 

21:58.083 --> 22:01.987

and bigger and bigger they become bigger and bigger constituents of the

 

22:01.987 --> 22:06.124

underlying index. While you think, okay, I'm going to buy an index, I'm broadly

 

22:06.124 --> 22:09.127

diversified, you are making some implicit bets under the hood.

 

22:09.127 --> 22:12.898

You are making bets, a lot of bets towards these AI names, number one, you're

 

22:12.898 --> 22:16.735

making a lot of bets towards kind of a momentum factor as well.

 

22:16.735 --> 22:20.472

If you do see pullbacks you do have some risk on just being in the index there

 

22:20.472 --> 22:24.276

because you are over indexed to those names.

 

22:24.276 --> 22:27.179

If you're thinking about kind of from a risk perspective, the best way to look

 

22:27.179 --> 22:32.451

at it too is take a factor approach as well.

 

22:32.451 --> 22:35.921

You can easily see your sector risk which you have a lot of ...

 

22:35.921 --> 22:38.423

you've got a lot of tech in there, of course, you've got lot of single name

 

22:38.423 --> 22:42.127

risks in kind of those Mag-7 AI driven names as well.

 

22:42.127 --> 22:46.164

And now, arguably, you've got risk towards companies that

 

22:46.164 --> 22:47.933

are not profitable.

 

22:47.933 --> 22:48.867

Yeah, or at least they're...

 

22:48.867 --> 22:49.701

Or more at this point.

 

22:49.701 --> 22:54.139

At least their stock price is

 

22:54.139 --> 22:56.675

relatively rich from a valuation perspective.

 

22:56.675 --> 23:01.046

You're giving a lot of weight to earnings that aren't necessarily

 

23:01.046 --> 23:03.148

there just yet.

 

23:03.148 --> 23:07.619

From a risk perspective you certainly do have a bit of risk there.

 

23:07.619 --> 23:11.056

If you think the market's getting too frothy the big question you ask yourself

 

23:11.056 --> 23:13.959

is how can I diversify away some of this risk?

 

23:13.959 --> 23:16.928

What we've seen a lot of money flowing into this year as well is value stocks.

 

23:16.928 --> 23:22.000

The two best performing factors this year are momentum and value.

 

23:22.000 --> 23:26.004

Value can potentially provide that kind of diversification

 

23:26.004 --> 23:29.908

benefit relative to some of those growthy names in your portfolio.

 

23:29.908 --> 23:34.679

What we've also seen is folks looking outside of the US as well.

 

23:34.679 --> 23:36.815

So the international trade is alive and well.

 

23:36.815 --> 23:40.852

Some have said if things get fixed on sort of the oil and

 

23:40.852 --> 23:42.621

we can take our gaze ...

 

23:42.621 --> 23:46.124

we go back to the thesis of the beginning of the year which is very much a

 

23:46.124 --> 23:49.461

continuation of the international trade.

 

23:49.461 --> 23:51.763

Flows have kind of been in line with that.

 

23:51.763 --> 23:55.867

International equity ETFs in Canada have been outpacing

 

23:55.867 --> 23:57.869

US flows this year.

 

23:57.869 --> 24:01.706

Even Canada has started to edge out the US in terms of where money's been

 

24:01.706 --> 24:04.075

flowing. I think there's a couple things at play there.

 

24:04.075 --> 24:07.112

I think in terms where they are in the economic cycle, obviously Canada, most

 

24:07.112 --> 24:10.582

thinking we're well ahead of the US.

 

24:10.582 --> 24:16.621

US most thinking we've popped back into that mid-cycle for the US.

 

24:16.621 --> 24:19.925

From a valuation perspective, from a little bit of a diversification

 

24:19.925 --> 24:22.828

perspective, people have been looking outside of the US.

 

24:22.828 --> 24:26.064

Even if you do believe in this kind of longer term AI trend you're also

 

24:26.064 --> 24:30.235

thinking about what if we do get a 10%, 15%

 

24:30.235 --> 24:34.339

pullback in those names, so some people just looking to try to diversify

 

24:34.339 --> 24:39.077

away to some degree, as best extent possible, away from that scenario as well.

 

24:39.077 --> 24:43.448

The obvious question is how can ETFs that are managed,

 

24:43.448 --> 24:45.884

that are active, help with that?

 

24:45.884 --> 24:49.988

You can get exposure to some of those things but also obviously create

 

24:49.988 --> 24:51.690

a safer environment for you.

 

24:51.690 --> 24:54.059

Just speak sort of broadly to that and then we can drill down into it a little

 

24:54.059 --> 24:54.159

bit.

 

24:54.159 --> 24:59.798

Yes, certainly. It also comes down to the mandate as well.

 

24:59.798 --> 25:04.002

If you're looking to diversify away from those names there's certain managers

 

25:04.002 --> 25:07.572

who under the hood are going to be looking for different things.

 

25:07.572 --> 25:10.742

For example, I mentioned value. You can certainly find some value managers out

 

25:10.742 --> 25:15.981

there who are most likely not going to be buying these high P/E names

 

25:15.981 --> 25:19.284

so they can potentially provide some diversification under the hood for you in

 

25:19.284 --> 25:22.954

there. They'll still own them to some degree but relative to index weightings

 

25:22.954 --> 25:25.290

they might be underweight there.

 

25:25.290 --> 25:29.194

Just from a factor perspective as well, value versus growth, you are getting a

 

25:29.194 --> 25:31.129

little bit of diversification relative ...

 

25:31.129 --> 25:35.333

historically speaking, pairing those two together has provided

 

25:35.333 --> 25:37.969

some diversification for one and another.

 

25:37.969 --> 25:41.806

That's certainly one area to diversify your risk to some degree.

 

25:41.806 --> 25:44.175

Of course, active management as well is not beholden to the index.

 

25:44.175 --> 25:49.114

If they really think things are getting frothy

 

25:49.114 --> 25:52.951

they do have the ability to pare down some of that exposure.

 

25:52.951 --> 25:57.255

Sometimes if I speak to you or Étienne or just broadly take

 

25:57.255 --> 26:01.192

a look at the ETF discussion I'm always a bit surprised

 

26:01.192 --> 26:05.330

that the transition from passive to active is still such a

 

26:05.330 --> 26:07.899

live thing going on with investors.

 

26:07.899 --> 26:12.003

Mmany are still very happy with the passive exposure they

 

26:12.003 --> 26:15.440

have. This sort of moment where you have an IPO like this and just new

 

26:15.440 --> 26:19.644

discussions around it, does it provide perhaps a new moment to

 

26:19.644 --> 26:23.882

discuss active for all of the reasons that you just laid out there?

 

26:23.882 --> 26:27.919

It's certainly interesting. As we know, certain of

 

26:27.919 --> 26:30.388

these names are getting added to indices a little quicker than they

 

26:30.388 --> 26:34.392

historically might otherwise been allowed to get in

 

26:34.392 --> 26:39.731

there. It's been interesting and as well,

 

26:39.731 --> 26:43.668

obviously, active managers can add stuff.

 

26:43.668 --> 26:46.204

Certain things might not get added to the index, active managers do have the

 

26:46.204 --> 26:50.208

opportunity to add them or not add them within their portfolio.

 

26:50.208 --> 26:54.613

They can certainly be a little bit more nimble with that regard.

 

26:54.613 --> 26:58.650

With regards to kind of this IPO and more

 

26:58.650 --> 27:02.621

broadly speaking about the active versus passive, one thing I will say about

 

27:02.621 --> 27:06.391

the Canadian marketplace is we've seen an absolute explosion in actively

 

27:06.391 --> 27:08.093

managed ETFs coming to market.

 

27:08.093 --> 27:11.963

If we take a look at the proportion of ETFs getting added every year the lion's

 

27:11.963 --> 27:13.331

share of them are active. If we take a...

 

27:13.331 --> 27:16.368

Is that a good sign for Fidelity?

 

27:16.368 --> 27:19.571

We pride ourselves on being kind of an active alpha shop, that's what we try to

 

27:19.571 --> 27:21.973

do over here.

 

27:21.973 --> 27:25.443

Everything we've brought to market has fallen into that bucket.

 

27:25.443 --> 27:29.748

It's been great for us as the market starts to adopt more active ETFs.

 

27:29.748 --> 27:33.451

Again, if we look at active or even factor, smart beta type ETFs, they've been

 

27:33.451 --> 27:37.422

growing at a faster pace, albeit coming off a smaller base relative to

 

27:37.422 --> 27:40.792

passive, but they've growing at faster clip relative to their passive

 

27:40.792 --> 27:42.794

counterparts.

 

27:42.794 --> 27:45.830

We've talked about a lot of different pieces of the market, of the geopolitical

 

27:45.830 --> 27:50.101

spectrum right now, do you come out of this moment saying

 

27:50.101 --> 27:53.638

there's still things that need to be done on an AI front, the framing front,

 

27:53.638 --> 27:58.276

there's some things that needs to get settled geopolitically but market's

 

27:58.276 --> 27:59.944

optimistic at this point?

 

27:59.944 --> 28:02.580

I think there's a lot going on.

 

28:02.580 --> 28:04.683

There's tons of geopolitical risk.

 

28:04.683 --> 28:10.121

We've got the Iran war, we've still got the Russo-Ukraine war happening,

 

28:10.121 --> 28:14.693

global trade still hasn't been ironed out, AI is coming, there's

 

28:14.693 --> 28:18.697

lot of volatility there but there's also a lot of opportunity

 

28:18.697 --> 28:22.701

there. I think it's actually a very interesting time to be an investor right

 

28:22.701 --> 28:26.938

now. Personally, I'm taking a longer-term view here but I'm personally

 

28:26.938 --> 28:30.709

quite optimistic here. I think we're at a great crossroads where we're gonna

 

28:30.709 --> 28:34.679

have this fundamental change in how we do business and how we operate

 

28:34.679 --> 28:39.150

from an economic perspective with AI.

 

28:39.150 --> 28:41.886

Tet some resolution with some of these geopolitical tensions, we get

 

28:41.886 --> 28:45.757

resolutions with global trade, I think it could be potentially a great time

 

28:45.757 --> 28:49.694

here. Again, I'm taking a very glass half-full approach here but

 

28:49.694 --> 28:51.029

I am very optimistic.

 

28:51.029 --> 28:53.031

Oh, grateful for it.

 

28:53.031 --> 28:56.334

Andrei Bruno, thank you very much for joining us here and having a nice chat

 

28:56.334 --> 28:58.770

about a whole bunch of things going on in the markets and in the world right

 

28:58.770 --> 28:59.704

now. All the best.

 

28:59.704 --> 29:00.038

Thank you.

 

29:00.038 --> 29:03.975

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