FidelityConnects: Inside Fidelity Managed Portfolios: Global Allocation in Action
Join David Wolf, portfolio manager on Fidelity’s Global Asset Allocation team, for an update on market dynamics and portfolio positioning. David will share insights into Fidelity Managed Portfolios, including recent over- and underweight exposures, and discuss how key macroeconomic themes are shaping the team’s outlook for Q2 and beyond.
Transcript
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<b>Subtitles are AI Generated</b>
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Hello, and welcome to Fidelity Connects., I'm Pamela Ritchie.
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Today we are very lucky to be speaking with someone who can comment on opening
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bell, equities, oil prices jumping 3% over
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the course of a crazy time for oil prices with the Iran
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War nearing the three-month mark.
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The surge that we've been seeing through markets is raising some
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fresh questions about Inflation, certainly, central banks and where investors
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might want to turn next.
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Our guest says that when it comes to Canada investors still have time to get in
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early with much of the long term upside not yet priced in.
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Joining us here today to take a look at how the Global Asset Allocation team is
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navigating the latest market dynamics, including the latest insights
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into Fidelity managed portfolios, is portfolio manager, right at the top here,
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David Wolf. Welcome, David, great to see you again.
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You too.
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Thanks for being here. Delighted to have you here.
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Let's begin with something that you've actually been talking ...
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we'll invite questions in, by the way, everyone send your questions in for
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David Wolf ...
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for quite a long time. This is a multi-polar world, it's a world that is more
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fractured. It came to light in COVID and I remember you said sort of the
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beginning of a deglobalized world because it had to be at that
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point. Where are we with this now?
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Let me start off with a couple of elements of that and then we can unpack
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it because there's a lot to it.
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The first thing I'd say is we think that this is a world that's more
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subject to inflation, inflationary bursts, inflationary shocks,
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and that has a myriad of implications for how we want to invest and how we want
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to asset allocate within the funds that I'm responsible for.
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There's a long list of them there, by the way. I don't know how you do all that.
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Yeah, and we'll get into that. First, maybe just give the background, right?
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Iran is kind of the thing that people are now worried about
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with respect to impact and inflation.
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We've seen that through oil prices and some other commodities.
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In our view Iran and the war there is really just the most
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recent manifestation of some deeper things that have been happening in
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the world for a long time, predating Trump, even predating COVID.
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I think there are a couple of things to mention in that context.
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One, as you said, in a sort of breaking down world, a more
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multi-polar world, that had been happening even before the pandemic.
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You had seen, for example, exports as a share of GDP, global trade start
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coming down after coming up for 4 years.
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Then in COVID you had all the supply chain shocks and people realized that
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far-flung supply chains are very efficient but they're
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fragile. When they get messed up it actually is quite costly.
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People doing more reshoring, shortening supply chains, which is more reliable
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but more expensive. Then you come to more recently
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with things like Iran and the US policy kind of breaking up the world, that
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just adds to more cost, less efficiency, et
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cetera.
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The Iran war is kind of a manifestation of that in the sense that if
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you have what we call these supply squeezes all over the place you're
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going to get an environment where inflation is more likely to break out.
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The second thing, if I may a little bit, that's the kind of deglobalization
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piece.
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So oil is a piece of that now whereas, actually, in COVID there were lots of
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other supply chains that were messed up but not so much energy in
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the way it is now.
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Yeah. The biggest part of
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oil is that Iran shock and deglobalization that's
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behind it. The other piece which actually fits in but a lot more indirectly
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is debt.
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Government debt has been rising for a long time, again, predating the
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pandemic.
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During the pandemic borrowing ramped up enormously, Canada, the US, everywhere
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else to deal with the pandemic's effects.
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Then it has ramped up substantially more recently, particularly in the US, with
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deficits 5%, 6%, 7% of GDP on top of just a mountain
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of debt that already existed.
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When you have high government debt and rising government debt
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you have an increasing temptation among governments to inflate
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it away because that's how you...
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Because how else are you going to do it?
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Are you going to grow out of it?
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Growing out of it rarely works.
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Defaulting you don't have to do if you issue your own
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currency. Inflation is kind of the time-tested way that governments
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get out of debt, or get out of the real burden of their debt because they
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pay back dollars, for example, that are worth a lot less than the ones that
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they borrowed in the first place.
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In an environment where countries are tempted to
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inflate you're going to get policies that are going to tend to lead to
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things that generate inflation so you have both things going on.
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You have the breaking up world, and Iran is a manifestation of that, and
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you have high and rising government debt which tends to foster inflationary
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type policies. You put the two together you have a world that inflation
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is likely to break out in, which it didn't for 30 years and then did in 2022
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and now we have it again.
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Sorry, that was long.
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No, no, it's great. Let's dig into all aspects of that.
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Multi-polar, supply chains, we've been sort of aware of this for now.
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One of the pieces of that that that seems to get discussed a lot is the
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energy dependency story and energy independence, which
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arguably leads you to a discussion of Canada.
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There's also other roads to Canada in this discussion as well but that's one of
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them, what we have to offer to the world and whether we
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can offer that to the world more, essentially, which seems to be
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what we're sitting at. I don't know if it's a precipice we're sitting at but
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we're sitting at something that seems to be the beginning of that taking hold
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in our economy and therefore your investments.
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Take us through how you get to this.
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Sure, so, again, a couple of things to unpack there.
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The first, I would say, is we don't know how the Iran War is going to work out,
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and we don t know what oil prices are going to do over the next week,
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month, year, what have you. Nobody does.
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But no one in the world is going to look at what's happened and say, gee, I'm
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less worried about energy security and reliability of supply.
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This is a world where those who have that reliable energy supply
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are going to increasingly be rewarded.
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Canada is one of the relatively few countries that has a lot of energy and
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can be counted on in terms of producing and selling that energy to
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others. Now, we don't really have the capacity to do that at this
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stage, or at least to ramp it up, and that's why I think it's really important
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... a lot what we're seeing not only in the market but from the government
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that basically has been quite clear, at least in my eyes, to say we
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get that unsticking energy investment in Canada
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is maybe the most important thing we can do for the broad economy over the
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long term so we're going to try to do the things that foster that.
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We're going to try to give support to private investment.
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We're going to put in public investment.
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We're going to try to give predictability in terms of climate costs around
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that. It's not going to work tomorrow, it's not going to work next year but
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it's the kind of thing that can pay real dividends down the line.
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It's an environment where it's really sort of mistrusted or
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doubted by the market because for many years
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nothing happened. There's a real skepticism in terms of can you actually
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do this, maybe we can and maybe we can't, but the upside is
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there and it is not priced, which is one of the reasons why, as you know very
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well, we were underweight Canada for 13 years and we are not underweight
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Canada anymore.
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I mean, when I met you originally I think you had a really
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low target on the Canadian dollar, and that low target stayed for
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long for lots of different reasons. The Canadian economy was dependent on
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housing, essentially, for growth for many, many years.
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That is over now, completely?
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Where would you take us in there?
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Yeah, that's over.
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The housing market, our view has been, and you and I have talked about this.
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And we haven't gone into recession over it.
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Yeah. You and have talked about this on this program for years and years,
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the Canadian economy was basically on a sort of road to nowhere where
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all that was driving growth was basically borrowing a bunch of money,
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building houses and selling them to each other, which ultimately is
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kind of how you eat your own economy because that doesn't do anything for your
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productive capacity in the long term and it just adds to debt that you're then
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going to have to pay off. Now we're seeing the other side of that with the
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housing market very weak in a lot of parts of the country
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so what you need to do is have something in the economy replace that growth.
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Right now it's not that much, which is why the overall economy is quite
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stagnant, and again, it's why the imperative exists,
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particularly at the government level, to actually drive
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higher capital investment to be able to stay in the economy short
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term but also provide for that higher productive capacity long term
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that's going to allow us not to get on the road to nowhere again.
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Picking up on your second point because you spoke about debt at the beginning
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as well, much has been made about the fact that Germany suddenly took
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away their policy and was happy to issue enough debt to get their economy going
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in lots of different ways. This is a defence story.
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Canada, by all those that have a very optimistic view say that we
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don't need to worry about debt or debt situation because it's okay.
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You agree with that? You're not worried about Canada's debt situation, we can
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afford to spend on building up the economy, essentially.
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I'm always worried about everything, that's kind of my job.
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But look, Germany has fiscal room and it's taking it because it needs
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to take it. Canada has fiscal room and is taking it because it needs to
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take it. The reason is different.
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It's not defence within Europe, which we get, but it's
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this need to invest in the economy to provide for longer term growth that we
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haven't had for a long time.
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I get asked a lot, and I think implicit in your question is, okay, well, you
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now have the federal deficit at its highest level in some time,
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isn't that a concern for you, particularly a concern for you as a holder
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of billions of dollars of Canadian bonds, which we do.
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My response to that is it doesn't really bother me,
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which may surprise some folks but the reason it doesn't bother me
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is what I care about as a bond investor is getting paid
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back and getting paid not tomorrow but the longer term what
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I would fiscal capacity of a country or a company or whatever
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we're buying the paper of.
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In Canada debt levels, at least government, consumer is another thing,
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but government debt levels are not that high, certainly compared to other
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countries, but also it really depends what you're spending
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the deficit money on.
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If you're running big deficits and just giving the money to people that doesn't
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do anything.
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For short term political gains.
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That reduces fiscal capacity over time because you end up having to pay that
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back. If you're borrowing a lot of money and using it
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to invest in the productive capacity of the economy, which
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is what the focus at the federal level has been in
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recent times, last year or so,
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what that means is if you do it right you're expanding the productive
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capacity of the economy, you're boosting longer term growth, that
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increases fiscal capacity over a long period of time because you
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have a bigger economy and a wider tax base to support your debt.
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So long as debt is not that high and deficits
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are not outrageous, if it's being spent on things
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that expand growth over time as a bondholder I'm perfectly fine
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with it.
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Okay, so let's ask one more question in there.
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The idea that there are inflationary forces in the world, some of which you
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just outlined, does that lead the Bank of Canada specifically,
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because we're talking about Canada and its buildout, to have to ...
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what's your call there on it having to raise rates to fight inflation, which
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will impact how the government pays back its debt.
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The bank hasn't done anything for a while, I don't think
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is going to do anything anytime soon.
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Recent developments will have made the bank a bit more hawkish
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and the reason is, specifically, higher energy prices obviously
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push inflation up but they also...
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The core's okay.
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Well, they push headline inflation up because of the oil prices.
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They push overall inflation up because higher energy price are a net increase
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to demand in Canada. It doesn't feel like that when you and I go and
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fill up our cars because that's obviously a drag on the consumer but
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in aggregate because oil is really important to the Canadian economy,
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particularly in Alberta, it ends up being a positive.
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The bank looks at higher energy prices and says, yes, it matters where
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they come from and how they impact but net-net that's inflationary.
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At the same time the recent inflation data we got earlier this week
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were not particularly scary.
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They were a little bit lower than market expectations
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and the bank still has underlying concerns ,as they should, about the
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weakness of the domestic economy so I think they'll be content to do
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nothing indefinitely.
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That won't be forever but...
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We'll come back to Canada because I actually think you'll probably get a couple
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questions about this as well, but just looking further afield to the rest of
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the world, how you look to allocate around the world.
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You've discussed the US and the dollar and ultimately sort of the inflation
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story there, what's that led you to do and then maybe to help you
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look elsewhere. Let's begin with sort of the US, less exposure,
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essentially.
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I'll say once again, maybe for the third time today, there's a lot to unpack
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there. We talked about the bank, we talked the Canadian situation.
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In the US you have the economy doing much better, you have
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inflation going up and going up faster than in Canada,
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so you would think that would be an environment where the Fed would be
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more likely to raise interest rates. I don't think they're going to be raising
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interest rates anytime soon. The specific reason for that is
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you have a new Fed chair, Kevin Warsh, and he
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has been quite public with having a somewhat different view of the inflationary
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process. He's talked about AI being this great
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deflationary force, he's talked inflation really being
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driven by QE and increases in the money supply, so
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he's less likely to react to higher inflation
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driven by higher energy prices even in a fairly robust economic
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environment. Now, other people on the FOMC will disagree with him.
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One of the really interesting things to watch is how
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that all comes together with Jay Powell still sitting there now, not as
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chairman but still as a member of the board, and Kevin on the other side
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and all of the people around and where they come out.
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Just how they duke it out to see whether interest rates either hold or go low,
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how they ultimately do that.
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Sorry, let me just follow on in there.
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That's a thing.
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There is also a thing going on that's related which is the underlying
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sensibility and reliability of US policy.
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If inflation is more of a risk you're supposed to raise rates.
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I you don't you risk letting that inflation run.
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Maybe to our earlier debt conversation,
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that can be good in terms of getting out from under a huge burden of debt but
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it's really bad if you are a buyer of that debt.
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Another way to put it is I think the policies in the United States are
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increasingly creditor unfriendly.
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If they're not being friendly to creditors, and that's pushing down the
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interest rates that they want to pay on the debt, that's pushing up inflation
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so you get really negative real interest rates, is pushing down US dollar, if
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they're being friendly to creditors we
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don't want to be creditors of the government of the United States.
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In the funds that I'm responsible for we have sold out
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of all of our direct holdings of US Treasury bonds.
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We did that last year as this was kind of building and we're...
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That's the lead but, yeah, anyway, yeah.
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We're happy that we did. With 30 years rising over 5% and the US dollar still
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under some pressure we're happy that we did.
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Where do you put that money? You've sold that, where do you reallocate around
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the world? Canada is obviously a place but where else?
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Right. We have bought quite a bit of Canadian bonds, and we just
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talked about that and the fiscal situation.
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We've reallocated to other fixed income markets around the world that we
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think have more sustainable fiscal situations and higher
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real interest rates on offer, and that's in Europe, that's in emerging markets
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and even places like Japan where rates on JGBs
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are not insulting the way they were for 20 years.
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We reallocated, back to the inflation conversation, to
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commodities. We've been holders of gold for quite some time as a
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diversifier and that's been helpful for performance over the last couple of
17:28.914 --> 17:33.419
years. We also have established for use in our multi-asset
17:33.419 --> 17:38.090
funds a new commodity futures capability that lets us get an
17:38.090 --> 17:42.227
exposure to a broad array of commodities, not just precious metals or
17:42.227 --> 17:44.430
oil or industrials or what have you.
17:44.430 --> 17:47.399
We've allocated some to that capability as well because...
17:47.399 --> 17:51.537
So beyond just, for instance, Canadian producers or producers around the world
17:51.537 --> 17:54.473
of various commodities, the actual commodities, the futures market for them.
17:54.473 --> 17:58.510
That's right. One of the things you worry about, and my job
17:58.510 --> 18:02.815
is ultimately a risk control and portfolio construction
18:02.815 --> 18:06.819
job, we have all the equity managers choosing the stocks and that's all
18:06.819 --> 18:10.389
very exciting and that drives return but we're the ones putting the package
18:10.389 --> 18:14.059
together, make sure that we're able to harness those returns while still
18:14.059 --> 18:17.763
managing the overall risk for the portfolios.
18:17.763 --> 18:21.867
One of the ways that you manage risk, at least historically,
18:21.867 --> 18:25.737
is you have some bonds with your stocks, bonds hedge stocks when you have
18:25.737 --> 18:27.706
equity drawdowns, and that's fine.
18:27.706 --> 18:31.110
In an inflationary world, as we talked about earlier, bonds are not going to
18:31.110 --> 18:33.445
protect you. You need other things to protect you.
18:33.445 --> 18:35.414
One of those things is commodities.
18:35.414 --> 18:39.518
If you think about it, if you're worried about an inflationary shock
18:39.518 --> 18:42.554
you kind of want the thing that's part of the inflation, right, and that's
18:42.554 --> 18:44.623
commodities so we've allocated there as well.
18:44.623 --> 18:50.262
Where the beneficial piece is being played out.
18:50.262 --> 18:54.299
Let's talk a little bit about equities broadly but I sort of
18:54.299 --> 18:56.935
want you to talk about EM. This is what I'm trying ...
18:56.935 --> 19:00.706
I want to ask about around the world because there are commodity producers
19:00.706 --> 19:04.476
around the word, of course, they're EM markets that have those, there are
19:04.476 --> 19:08.046
Canadian companies that have lots of holdings around the world, what about sort
19:08.046 --> 19:12.151
of the discussion of this fracturing, a more multi-polar world
19:12.151 --> 19:15.487
with lots of different things? There's an AI layer on top of everything.
19:15.487 --> 19:19.324
How do markets around the world look from an equity perspective?
19:19.324 --> 19:23.262
The AI thing is key. We'll get to EM in
19:23.262 --> 19:25.430
a moment but let's talk about AI generally.
19:25.430 --> 19:28.467
There's a lot of conversation, there's lot of speculation.
19:28.467 --> 19:32.771
Some of it is very long term and you have the kind of utopia, dystopia
19:32.771 --> 19:36.341
thing going on, people thinking that AI is going to be the greatest thing ever
19:36.341 --> 19:40.312
and usher us into a golden age of productivity and growth and all
19:40.312 --> 19:44.116
that. There are people that think that AI is going to take everyone's job or
19:44.116 --> 19:47.953
we're going to all end up on universal basic income with nothing to do.
19:47.953 --> 19:53.025
That's a pretty lousy world because the economy collapses
19:53.025 --> 19:55.661
because all of the customers now have no money to buy anything.
19:55.661 --> 19:59.431
How do you invest that divergence?
19:59.431 --> 20:03.502
We're not trying to in the sense that we don't know what the answer
20:03.502 --> 20:05.204
is. It's probably somewhere in between.
20:05.204 --> 20:08.941
Nobody else knows the answer either so we're trying not to make a call on that.
20:08.941 --> 20:12.778
What we've decided to do, we've talked about it on the program here, is to rely
20:12.778 --> 20:15.047
more on our bottom-up pillar.
20:15.047 --> 20:19.117
Basically, we work very closely with all of our underlying equity
20:19.117 --> 20:22.187
and fixed income fund managers, their analysts, et cetera.
20:22.187 --> 20:26.158
They know the companies involved better than anyone else, better than we would
20:26.158 --> 20:30.195
in our role. They have kept saying consistently to us
20:30.195 --> 20:34.433
in recent years that the market is underestimating the earnings power of
20:34.433 --> 20:38.403
these companies. So long as they keep telling us this we're
20:38.403 --> 20:42.441
going to keep being there in terms of the AI theme and associated equity
20:42.474 --> 20:46.445
investments. When that changes we will change but right now we want to rely on
20:46.445 --> 20:50.515
our own experts that have been right in saying earnings are
20:50.515 --> 20:53.952
growing fast and they're growing faster than the market thinks.
20:53.952 --> 20:56.588
If earnings keep growing faster than market thinks the market is not
20:56.588 --> 20:58.991
sustainably going down.
20:58.991 --> 20:59.992
Amazing.
21:00.993 --> 21:04.997
From there let's take that to sort of, I mean, how does this impact the
21:04.997 --> 21:09.067
rest of the world? In theory you could have big companies in all
21:09.067 --> 21:12.671
parts of the world have almost a levelling out of their costs because AI can be
21:12.671 --> 21:17.342
implemented. This is the exact story, deflationary.
21:17.342 --> 21:20.612
How do you lean into that story one way or the other?
21:20.612 --> 21:23.949
You mentioned EM earlier, and this is the right place to talk about that,
21:23.982 --> 21:28.086
people think, I think, generally of the AI story being a
21:28.086 --> 21:32.190
US story, and it certainly is. We know how top heavy the market is
21:32.190 --> 21:36.561
and the hyperscalers are obviously a big part of that, et cetera
21:36.561 --> 21:40.532
but AI is arguably even more of an EM story
21:40.532 --> 21:42.301
than it is a US story--
21:42.301 --> 21:42.934
Wait, wait. What, what?
21:42.934 --> 21:47.005
--but it's actually in a different way, certainly from an investment
21:47.005 --> 21:49.708
point of view.
21:49.708 --> 21:54.046
For example, in the US you have a lot of
21:54.046 --> 21:58.116
demanders of AI, the Microsofts, the Googles, et cetera, that are building
21:58.116 --> 22:02.621
data centres and investing a lot so they're
22:02.621 --> 22:06.692
demanding the stuff that allows you to do
22:06.692 --> 22:10.796
AI. A lot of the makers in emerging
22:10.796 --> 22:14.966
markets, particularly in Asia and I'm thinking Taiwan, Korea, are the makers
22:14.966 --> 22:19.338
of that stuff that enables AI. That's Taiwan Semi,
22:19.338 --> 22:21.807
Hynix, Samsung, et cetera.
22:21.807 --> 22:26.178
We don't know what the returns to all of the AI CapEx
22:26.178 --> 22:29.948
data centres, et cetera, that are going in but we do know that if there's more
22:29.948 --> 22:33.819
demand and supply for the stuff that goes into it that's going to be really
22:33.819 --> 22:35.854
good for the companies that make that stuff.
22:35.854 --> 22:37.923
A lot of those are in EM.
22:37.923 --> 22:41.660
It's one of the reasons why emerging market equity performance this year has
22:41.660 --> 22:47.165
actually doubled what you've been able to get in Canada or the US or EAFE.
22:47.165 --> 22:51.336
EM is up almost 20% year-to-date in Canadian dollar, actually, in
22:51.336 --> 22:55.507
US dollar terms as well. We've had a pretty significant overweight to EM for
22:55.507 --> 22:56.408
quite some time.
22:56.408 --> 22:58.710
I mean, all last year the story was international.
22:58.710 --> 23:02.848
It's been interrupted from the war this year but there's
23:02.848 --> 23:06.785
lots of different views on that. You've had exposure through that international
23:06.785 --> 23:07.986
trade last year, essentially.
23:07.986 --> 23:12.090
Yeah, but, I mean, EAFE, Europe, Japan, effectively, and EM are really
23:12.090 --> 23:12.257
different.
23:12.257 --> 23:14.526
They sure are.
23:14.526 --> 23:18.830
EAFE is kind of old school, value-oriented, not unlike Canada
23:18.830 --> 23:20.999
in terms of sector composition.
23:20.999 --> 23:24.970
EM actually looks a lot like the US in terms of a lot of
23:24.970 --> 23:27.572
tech exposure, a lot of AI exposure.
23:27.572 --> 23:31.510
As I mentioned, in terms of the suppliers of stuff for AI it's a different
23:31.510 --> 23:35.781
type of exposure than you get in the US so we're making sure
23:35.814 --> 23:40.018
that we have the exposure in both places and managers in both places
23:40.018 --> 23:44.022
that can, hopefully, pick the winners there because if
23:44.022 --> 23:47.993
you're trying to play AI and you're just invested in the US you're
23:47.993 --> 23:50.762
missing a lot.
23:50.762 --> 23:53.999
I'm guessing the valuation story, even though there's been a large run-up in EM
23:53.999 --> 23:57.369
stocks over the course of the last year and a half, is still pretty good.
23:57.369 --> 24:01.940
The valuation story, the aggregates, yes, EM is cheaper than the US.
24:01.940 --> 24:06.111
But the interesting thing is valuations in EM in a lot of these big companies
24:06.111 --> 24:09.314
have actually been going down.
24:09.314 --> 24:13.585
The reason for that is earnings have been so strong
24:13.585 --> 24:17.522
that people are saying, basically, they're skeptical of how long that
24:17.522 --> 24:21.159
can keep up, and that's a reasonable thing to do, but it means that the
24:21.159 --> 24:26.932
outperformance in EM hasn't made that market outright relative more expensive.
24:26.932 --> 24:29.234
We absolutely want to be there.
24:29.234 --> 24:33.004
Actually, we have now the opportunity to diversify a little bit with respect to
24:33.004 --> 24:35.707
our EM managers. We have a lot of US managers.
24:35.707 --> 24:39.678
In the managed portfolios in particular we have Sam Polyak who's a
24:39.678 --> 24:42.914
fantastic manager, has added a lot of value.
24:42.914 --> 24:47.319
There was launched earlier this week, John Dance, is he coming
24:47.319 --> 24:48.453
on to talk to you soon?
24:48.487 --> 24:50.989
We'll be speaking on this program in the next couple of weeks.
24:50.989 --> 24:55.460
John is fantastic. He's run money for us in the US for quite some time.
24:55.460 --> 24:59.664
Seasoned emerging markets guy, he actually has a somewhat different style
24:59.664 --> 25:01.733
from Sam.
25:01.733 --> 25:02.734
Sam's more GARP.
25:03.702 --> 25:07.639
We can't talk about our activities with respect to
25:07.639 --> 25:11.676
new capabilities for disclosure reasons but John is
25:11.676 --> 25:16.014
very good and somewhat diversifying so he's definitely someone in
25:16.014 --> 25:19.651
his capability that's of interest to folks like us.
25:19.651 --> 25:23.054
Plus, I'm really envious of his hair.
25:23.054 --> 25:27.893
You'll see that, you'll all see that on the on the show.
25:27.893 --> 25:31.563
We'll put you next to each other, okay, have that discussion. That's funny.
25:31.563 --> 25:35.634
Just to kind of sum up for investors the call is that the world is
25:35.634 --> 25:37.969
more inflationary because it's multi-polar.
25:37.969 --> 25:41.072
It's not something new that you've brought to us but the investment expressions
25:41.072 --> 25:44.442
that you're making over the course of the last while are really interesting,
25:44.442 --> 25:48.113
and they are new. They're Canada, they're commodities, they're different to
25:48.113 --> 25:52.884
what they were, they're less on the debt side, specifically in the US.
25:52.884 --> 25:54.986
Maybe I'll just summarize it in two ways.
25:54.986 --> 25:56.922
Please do. We've got a few minutes.
25:56.922 --> 25:58.990
I would like you to give them the takeaway.
25:59.024 --> 26:01.927
On the equity side of the ledger it really is about AI.
26:01.927 --> 26:08.333
Equities don't seem to really care that much about Iran and that's fine.
26:08.333 --> 26:12.470
The really big picture stuff on AI is kind of imponderable.
26:12.470 --> 26:17.075
Our take is we are going to rely on our equity managers
26:17.075 --> 26:21.112
and analysts to tell us what earnings are going to be doing and
26:21.112 --> 26:22.814
we're going to invest on that basis.
26:22.814 --> 26:26.451
Right now the story is still pretty positive so we're overweight equities.
26:26.484 --> 26:30.522
The Iran inflationary shock, multi-polar stuff
26:30.522 --> 26:34.993
has more to do with the 40 than the 60, which is to say it has more do with
26:34.993 --> 26:39.464
how we're playing defence and diversifying in the funds than offence with
26:39.464 --> 26:43.702
equities. It means less US dollar, much less
26:43.702 --> 26:48.039
US bond, less bonds generally, and more diversification
26:48.039 --> 26:52.143
into other areas of the world, particularly commodities, not only gold
26:52.143 --> 26:55.046
but other commodities as well.
26:55.046 --> 26:56.081
Fascinating changes.
26:57.115 --> 27:01.219
What do you want investors to sort of take away from this moment in markets?
27:01.219 --> 27:05.490
I think everyone's traversing some pretty new horizons, it feels like.
27:05.490 --> 27:09.427
I mean, probably the story is stick with the steady hand but is
27:09.427 --> 27:11.329
there something you'd like to add to that?
27:11.329 --> 27:13.098
Do we have time for a little story?
27:13.098 --> 27:14.099
We do.
27:15.033 --> 27:18.603
As you know I used to be at the Bank of Canada as advisor to Governor Carney
27:18.603 --> 27:22.507
and one of the things we used to do is before an interest rate decision all of
27:22.507 --> 27:27.012
the senior advisors and governing council, including Mark, would sit around and
27:27.012 --> 27:28.747
we would talk about our views.
27:28.747 --> 27:32.917
One of the other advisors who shall remain nameless would always
27:32.917 --> 27:36.421
say, there's so much higher uncertainty than there usually is.
27:36.454 --> 27:39.858
Does he work here?
27:39.858 --> 27:43.962
No comment. There's so much higher uncertainty than there usually is so
27:43.962 --> 27:48.266
we should wait for more information before we make a decision.
27:48.266 --> 27:52.604
My head would explode. The reason my head will explode is there can't always
27:52.604 --> 27:54.673
be more uncertainty than usual.
27:54.673 --> 27:58.810
By definition there's sometimes more than usual and less
27:58.810 --> 28:03.181
than usual. I think the reason that it always feels more uncertain is because
28:03.181 --> 28:07.285
we know how things worked out going backwards, which means
28:07.285 --> 28:11.589
that we forget how uncertain we felt at the time.
28:11.589 --> 28:15.226
I think this kind of environment is pretty similar which is, yeah, there are a
28:15.226 --> 28:19.230
ton of uncertainties and, yeah, it's kind of scary but we
28:19.230 --> 28:22.801
think we have an understanding of the underlying dynamics involved.
28:22.834 --> 28:26.805
Yeah, we can't predict Iran and we can exactly predict AI but we can
28:26.805 --> 28:30.575
have an understanding of the risks that are associated with those.
28:30.575 --> 28:34.913
So far we seem to be doing a pretty good job of navigating those risks.
28:34.913 --> 28:38.917
Fantastic. That's a great story and it's a great way to leave it all.
28:38.917 --> 28:42.020
A little bit of hindsight is comforting, I guess, on some level.
28:42.020 --> 28:44.255
When we're looking back we forget how hard it was.
28:44.255 --> 28:47.726
You know what, remember March, April, May of 2020 in the pandemic.
28:47.726 --> 28:50.395
Didn't know the world would exist.
28:50.395 --> 28:52.997
Now we look back and like, oh, that was a great buying opportunity.
28:52.997 --> 28:54.866
People didn't ... we fool ourselves.
28:54.866 --> 28:58.870
In my job you have to try to be a lot more objective than that
28:58.870 --> 28:59.471
and so--
28:59.471 --> 29:00.171
It's comforting.
29:00.171 --> 29:00.905
--that's what we try to do.
29:00.905 --> 29:04.576
David Wolf, a complete pleasure to speak with you and have us join this
29:04.576 --> 29:05.744
audience. Thank you very much.
29:05.744 --> 29:06.244
Thank you.
29:06.244 --> 29:08.880
Thanks for watching or listening to the Fidelity Connects
29:08.880 --> 29:13.184
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29:42.580 --> 29:46.417
The views and opinions expressed on this podcast are those of the participants,
29:46.417 --> 29:50.355
and do not necessarily reflect those of Fidelity Investments Canada ULC or
29:50.355 --> 29:54.359
its affiliates. This podcast is for informational purposes only, and should not
29:54.359 --> 29:56.895
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29:56.895 --> 29:59.197
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29:59.197 --> 30:03.535
Or an endorsement, recommendation, or sponsorship of any entity or securities
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30:14.245 --> 30:16.047
with fund investments.
30:16.047 --> 30:18.650
Thanks again. We'll see you next time.
