Mid-Year Market GPS Panel: Key Trends Shaping the Investment Landscape

 In Market and Investment Insights, Market Insights, Podcast

Which themes are shaping the 2019 investment landscape? Read our investment teams’ thinking in the Janus Henderson Mid-Year Market GPS.

In this podcast – a complement to the Janus Henderson Mid-Year Market GPS – Co-Head of Equities Alex Crooke, Global Head of Fixed Income Jim Cielinski and Global Head of Multi-Asset and Alternatives Michael Ho explore the key themes shaping the investment landscape for the second half of 2019.

Investment Themes that Matter – Market GPS Discussion
Alex Crooke, Michael Ho, Jim Cielinski

The discussion covers four megatrends:

  • Disruption: As unprecedented innovation disrupts virtually all companies and industries, staying at the forefront of these changes is critical to understanding key risks and uncovering opportunities.
  • Divergence: Rather than be overly concerned about complex changes in monetary policy and macro-level uncertainty, we believe investors should focus on fundamentals as they pursue their long-term goals.
  • Geopolitics: In our view, the key to navigating geopolitical risk is to filter meaningful signals from the noise. Because we cannot predict the future, it is better to focus on balanced risk management and diversification.
  • Tapping the Income Stream: We expect yields to remain low and the search for income to continue. In this late-cycle environment, we think active management is a critical component of generating higher yields while maintaining the relative safety investors expect in fixed income.

Tim Brown: Thank you for joining us for our midyear check in on investment themes that we believe should be top of mind for our investors. Our discussion today aligns with our Mid-Year GPS Outlooks that are available through the Janus Henderson website. Today I’m delighted to be joined by Co-Head of Global Equities, Alex Crooke, Global Head of Fixed Income, Jim Cielinski, and our Head of Multi-Asset and Alternatives, Michael Ho.

We’ve had several questions in advance to shape today’s discussion, but please feel free to submit further questions through the BrightTALK platform, which we’ll follow up with after this session. So, to get things started, it’d be great to have the panel’s views on disruption and the need to keep up with the pace of change. Alex, how important is keeping at the forefront of disruption within the equity space, and where do you see these key risks and opportunities?

Alex Crooke: Well, I think one thing to remember is that disruption is not new. If we go back through history, we’ve seen many, many periods of disruption for industries, separate industries. You think of brand products, food products, within a branded world in the ’60s and ’70s, so it’s nothing new. As you said, the pace seems to have definitely picked up, and I think what also is new is the pool of capital that is deployed into disrupting industries and disrupting companies is unprecedented. So, the ability to be unprofitable for a number of years, as you build momentum and build product, is quite unprecedented. So, that’s something we’re dealing with and having to understand.

And I think, again, the key there for us as investors is sharing knowledge between our different teams, different industries that have seen disruption at different paces, and trying to share that with financial services, with retail, with industrials. Again, where can we see this and learn from our experiences? So, as a group, opportunities is clear. There are businesses that didn’t exist that in three years’ time can be dominating some sectors. So, there’s clearly opportunities for gains to be made, for investors to be rewarded.

It’s the challenges and the risks, I think, that really, as investors, we need to get to grips with, and they’re challenging, because often, as I said, we’re trained as economists, as people to follow profitability, follow assets. Sometimes this disruption is not following those trends, and so trying to understand that and share knowledge, I think, is the best way that we can try and understand those risks and see where the opportunities lie.

Brown: Okay, and Jim, how do you see disruption playing out from a fixed incomer’s perspective, but also, how should investors filter the hype as well from genuine long-term game changers?

Jim Cielinski: Well, we see it every day, and we see it of course at the company level, just like all of us will, right? So, does ecommerce, for example, kill traditional retailing? That’s important to us. But I’m always most fascinated by the macro elements of disruption. So, that event of ecommerce, for example, is deflationary. That then leads to lower rates, and then you get a slowdown, and how do central banks respond?

Right, if you look back 10 years ago, how many people thought it was possible to get negative interest rates, trillions of dollars of quantitative easing? We’re looking at central banks buying huge portions of the corporate bond market. You wouldn’t have predicted this, right, and that’s disruptive behavior. So, if you’re thinking of what really drives markets, in my opinion, it’s that kind of monetary policy regime shift. So, for me it’s always a micro element and a macro element. We literally live with this every day.

Brown: And Michael, from an alternatives or a multi-asset perspective, do you see disruption within our own industry, and will the types of products people are likely to allocate to in future, will this change, do you think?

Michael Ho: Yes, actually, I’d like to second what Jim was saying, because one of the things that’s actually driving a great deal of this is not only technology disruption but also the fact that we have a global population that’s aging, and primarily in the developed market countries. And this is driven, obviously, in conjunction with decreasing cost of delivery of production and so on. It’s also driven … the changes in savings and consumption patterns. People who are increasingly retiring are going to be investing in less-risky assets, obviously, because they’re trying to secure retirement income. And so, this will mean that there’s lower and lower yield over time, less inflation.

So, again, second a lot of what Jim was saying, in terms of the macro backdrop for what we’re seeing. So, what’s happening for the last 10 years, actually, it’s been quite a long time that this is happening, is that lacking inflation, lower real yield, low growth, has driven the real asset owners to actually try to think about what they need to do with their portfolios. Increasingly, we have seen people interested in outcome orientation, so outcome-oriented funds, because while they’re trying to hedge their liabilities, they’re trying to achieve a particular goal.

And the reason for doing that is the fact that there is actually less differentiation between assets today, given that rates have been going one way, as opposed to more differentiated across the world. And so that all makes sense, and to answer your question at the end there, will people be changing their… what they invest in and what they’re looking for? Obviously, this has been happening, I just don’t see a stop to it, because again, this is driven by the very large macro movements of the baby boomers retiring, and it’s not going to change for another ten years.

Brown: And I guess this, both to Alex and Jim here, given Michael’s assessment versus the traditional managers that both teams manage, do you broadly agree with what Michael’s saying?

Crooke: I find often the question that leads from that is are these opportunities in the private market or the public market? And as I said, the levels of capital being deployed in private market is, we’re off funding new companies outside the listed market, is huge, the opportunities are there, but the risks as well that these businesses fail and don’t come to fruition, and liquidity is also a challenge.

I think there’s still plenty of opportunities in public markets, though. A lot of… if you think of banks and financial institutions, the ability to harness new technologies in the financial world actually will improve their operating model, improve their profitability, the deployment of their capital. So, there’s lots of industries which will benefit, that are publicly quoted as well. So, I think there’s opportunity for all.

Cielinski: I would echo a lot of this, because we see in our client base the baby boomer generation is getting closer and closer to retirement, and any prospect of losing a lot of their nest egg really causes them to look for solutions. They want income, but they also want safety, right? They want growth, but don’t lose me money, and this balancing act I think is what is forcing us all to really think in a solutions mindset.

It’s probably what has driven a lot of the multi-asset business, right, Michael, but it, I think, faces us all every day. And delivering those outcomes now, I think, is much more important, and that’s what clients are looking for. And I think these trends like demographics, that slow productivity, low rates, these are not likely to go away, right? We all argue each time rates go up, Is it a bear market or not? And I often say, “Does it matter?” Because even if rates go up a bit, rates will still stay very low. And historically, that’s not sufficient income, I think, for a lot of our clients. So, we need to do more, and we need to make people’s money work harder, frankly.

Brown: Thank you. So, on to the second theme that we identified at the start of the year, which was divergence or divergence of returns. This was largely based on the view that the U.S. would engage in more aggressive monetary policy compared to other markets. In reality, the pivot in Q1 by the Federal Reserve towards a more dovish stance largely dampened these expectations, and a rally follows in both riskier and more safe haven-type assets.

Now, where there was divergence, however, was in the asset class flows, with significant outflows from equities and inflows to fixed income, conversely. So, where does that leave us, and are we likely to see greater divergence of returns in the months ahead? And where will flows most likely go? Michael, from your multi-asset perspective, do you see particularly attractive opportunities in certain asset classes at the moment?

Ho: It’s interesting. You’re talking about what we’ve seen for the last 10 years, it’s been risk on, risk off. This type of behavior has been quite prevalent and much more frequent than in the past prior to the GFC. And so, I think that one of the most important things is actually not to overreact. This is what we see from some of the investors, for example, around the world or even real asset owners is in the persistent worry about the tail risk.

Now, tail risk is really important to manage, obviously, because if you lose 50%, you need 100% to come back to the same wealth level that you had. So, it’s important to manage sale risk, but it’s also important to know that in this kind of environment that we’re in today, where we have very low inflation, the central bank can essentially just extend their balance sheet whenever they want. Because there’s no inflationary issues because there’s so little growth that the optimal policy probably is one that’s actually buying on the dip and selling on the top.

So, for example, going into the fairly bad market crash in the last year, we had essentially, at the beginning, starting point of the volatility index was about 12. It’s very, very low, and so I think that a lot of people just become too euphoric and then too pessimistic. So, it’s much better to actually be more diligent and be more prudent with the assets.

In terms of the opportunities that we see today, obviously, I think that there are a couple of things that you can point to, and it’s also a phenomenon of what’s been happening. One is, if you look across the world, the whole value style has been completely discounted. This is at a 30-year low in terms of valuation relative to growth, and so this is extreme, right? Now, obviously the value style, the value stocks have become a bit different in terms of the cashflow correlations and so on to the broad market. But if you look at these really extreme positioning, you can say that, well, there could be some rebound, right? Now, when will it rebound?

So, the rebound will happen, let’s say in Europe. So, in Europe value’s actually a terrible performer for the last 10 years. Value is highly correlated to broad economic growth, because the cash flows for value stocks are essentially geared to economic growth. So, if we have a recovery of the PMI, for example, in Europe, then actually values should recover in the short term. That’s not to say that it’s going to recover in the very long term, because again, we’re in the environment of technology disruption where essentially you don’t have the mean reversion of return on equity. So, high technology companies which have high return equity doesn’t seem to, in the next year, have lower return equity, because there’s just not as much competition. There’s just too much efficiency gains in these companies.

So, in the long term it’s not that value will do well, but in the short term there could be a correction. Why is that? Because if you look at the Chinese PMI, that’s actually recovering quite dramatically over the last couple of months, and so that could affect Europe. So, that’s one possible place where it might be of interest, but if you look at, for example, in areas like fixed income credit, we believe that it’s relatively well priced compared to other areas that might be actually too expensive. And so in areas such as high yield, you can still get reasonable yield. So, those are the things that I would tend to focus on.

Brown: And Jim, do you feel that’s a fair assessment of fixed income generally within the asset classes that Michael specifically mentioned as well or in terms of credit? Do you think pockets of value can be found?

Cielinski: Yes, we do, and the way I look at fixed income, there will always be flows into fixed income. When things are not doing well in risky assets, money flows in as a safe haven. When they are doing well, I think you often get rebalancing out of things like equities and into bonds, but we make a lot of debt is the point, and so flows into fixed, I think, are regular. When I look for value, I look at a number of things.

One, what does the client need or want? I actually still see value in long-dated bonds for a client who has a diversified portfolio and needs to protect against downside. Long-dated bonds, to me, would still be attractive, I think, credit, both corporate credit and mortgage credit. Mortgage credit’s an area that has not seen the big debt build-up like corporate credit. It looks particularly attractive to us, but even corporate credit requires a fairly significant growth slowdown to actually trigger a default cycle.

And so with central banks elongating the cycle, we don’t yet see that catalyst for, say, high real rates or a policy mistake, which was a bit of a fear last year, right, and I think that’s why you saw a lot of these assets do so poorly. The odds of a policy mistake were going up significantly. We’ve reversed that in a hurry, right, so we’re back, I think, looking at credit as a good alternative in a low real rate and low nominal rate environment. Defaults are low as long as we stabilize growth without really falling into a deeper slowdown, and it does look like parts of the economy like trade and the industrial sectors are doing poorly. But many other parts of the economy like the consumer are actually holding up fairly well.

So, you get into this low-inflation, low-growth period with easy central bank policy, and that’s a good environment for credit. It’s a good environment for searching for yield. So, I do think there’s attractive valuations there. And then for those that actually don’t want a lot of volatility, I’d look at the short end of the U.S., where you might get easing, and the yields there are not bad. So, it kind of depends on what you want, but there’s still, in my opinion, despite the fact that spreads have come down, yields are down, there’s still a lot of attractive areas.

Brown: And I guess similar question to Alex. In terms of the current status with equities, do you feel that we are coming to the end of the bull market? Are there certain signals investors should be looking out for that might indicate further strength ahead or whether now’s the time to maybe reposition their portfolios towards a more defensive position?

Crooke: So, I think in terms of the equity market, it’s difficult to argue we’ve had a boom. We’ve had a sort of recovery, clearly, and it’s a very long recovery, if you go back to the last … the great financial recession, as it were, 2008, 2009, so we’ve had a very elongated cycle of recovery, but we’re still, I would argue, still in the Goldilocks scenario of neither too hot, too cold, actually. And as Jim was saying, central banks’ monetary policy, we’ve got rates still exceptionally low, and we’re talking about nudging up, down a little bit. We’re not talking of the 6, 7% interest rates that we remember in the ’90s and previous to that.

So, I think it’s still a difficult environment to grow. There’s not a lot of spare cash around. Consumers haven’t got a lot of spare cash, and companies are being careful where they spend. So, in terms of capital employed, it is a challenging market, but actually the growth is there, in the right companies and the right sectors. So, I still think it’s a stock-picking market. I think central banks, the last 10 years, have clearly driven markets. Their policy of reducing interest rates really rapidly, refinancing banks and financial institutions, has led to assets, all assets, rising in price. From here onwards, I think you’ve got to be a stock picker. You’ve got to say, well, this industry or this company in this industry is a winner, and look to invest in those.

So, that’s what a lot of my teams, I think, are looking for, is those stocks. We talked about the disruption. You know that’s a key theme within there, and I think, to Michael’s point about value over growth is, again, something we read a lot about, is you’re better moving back to value, away from growth, which has clearly done very well. I think, again, you have to be very careful in here. Traditional measures of what is value often used to be around what we call price to book. The book value is the value of the assets in that company, but again, that’s difficult in a world of disruption.

What is the value of that car manufacturing plant, if we’re all going to electric vehicles? It may have no value, and so I think focusing on just one metric is not going to work. You need to have more wider concepts of value, and equally, you do need some growth in the companies you invest in. So, challenging, but I think there’s some interesting opportunities.

Brown: Thank you. I think we’ll take the opportunity now to move towards the third topic highlighted at the start of the year, which was geopolitical tensions. Now, at the start of the year, there was the expectation that these tensions were going to impact the markets. U.S. China trade talks, Brexit and oil-related issues, which seemingly have been going on for a long time now. While there have been pockets of turbulence elsewhere, these are the three most dominant issues that we see, even today.

So, how have tensions changed the investment landscape? Alex, is the impact of geopolitics on equities greater or lesser than years gone by? And does this change the way managers need to factor the macro backdrop into the decision making and their analysis?

Crooke: It’s undoubtedly the highest elevation of risk and challenge that I’ve ever seen in my 30 years of investing. So, you really have to go back to post-war periods, ’50s, ’60s, to see where politics have interacted with economies with such scale as we currently see. Now, some of these may be enduring and some of them may be short term, if trade discussions can conclude and we can get back to a more rational world.

But I think we do need to understand, and we do need to build them, maybe, into the framework of how we look at markets. Not necessarily stock by stock, because they’re impacting different companies in different ways, but certainly it’s leading to more volatility. So, again, as investors we need to understand there may be opportunities of managing that volatility, of investing your money, if markets have a strong run, as they have this year, maybe taking some profits and looking for other opportunities to invest that at the time.

But it is challenging, and I think, to me, the trade tariffs, as an investor in equities, is the key one. We do need frictionless trade for companies to grow outside their own counties, their own boundaries, as it were, and I think having trade around the world and being as frictionless as possible is a good thing to take those products. So again, I think seeing those conclude at some point, and the world having a more rational view of that is key, is very important, I think, to the long-term outlook.

Cielinski: And it takes some time, doesn’t it, for investors to become accustomed to geopolitical risk, because it’s often genuine uncertainty, and investors, when they see a risk that sensitive, they just analyze it a bit more. They’ll figure out what’s going to happen, and the China-U.S. trade war is a good example of where you probably can’t do that, and also, it’s an example of where the outcomes are probably bimodal. It probably is bad or good. The likelihood that it’s just an average outcome is probably fairly low, right? And so, I think that’s partly why, Michael, you talked about how things move in a broad range, but quite violently, right?

Ho: Yes.

Cielinski: So, you’re at the top one-quarter of the yield range or equities, and then the next quarter you look, and you’re suddenly at the bottom, and this is often because these geopolitical risks take people by surprise. They probably overreact in many cases. It’s hard not to see what’s directly in front of your face, but that often leads to overreaction and volatility, and I think you’re seeing that. So, it does, I think, make it important not to over trade as an investor, to keep your eye on the longer-term objective of what you’re trying to do and realize that this is probably a little bit of genuine uncertainty and higher volatility, and we’re not used to that.

Ho: Yes, that’s really the case. I agree with you. I think if you look at the reaction for all these different types of political events, there is complete attention on them, but unfortunately, very few of us can actually forecast what would happen. I think that most of us just cannot get it right, so we approach it from probably a risk management perspective to try to get a better sense, better containment of the risk, and perhaps with a view toward diversification. So, diversify your portfolios further, so that it’s less affected by some of these events that can happen.

So, that’s why, more recently, there’s more interest in, for example, the more global balanced types of strategies around the world. It’s been on the rise, in terms of global interest, primarily because people are looking for diversification. You can diversify in many different ways. You can go into less-liquid assets, more private markets, more liquid alternatives. You can do many things to actually diversify your portfolio.

The important thing, I think, as investors, is to really assess whether or not we can forecast the future, and by and large, my own belief is that very few people can forecast the future, and therefore it’s all about diversification. And that’s why it’s important to make sure that in your portfolio, in all of our portfolios, that we have really good, balanced risk taking, not just fully growth driven, not just fully defensive, but rather quite balanced. And this really goes to the heart of multi-asset investment.

Brown: So, our fourth and final megatrend is the search for yield and the importance of tapping the income streams. How has this one played out, and how important was active management in the first six months of this year?

Cielinski: Well, first of all, the low yields became lower, and so in fact there was capital appreciation on top of the yield. So, again, I think it highlights that diversifying element, and I think the search for yield is not going away. I think every respite we’ve had from that in the last 10 years has been relatively brief, when you look back. I think the idea that yields stay low and are probably insufficient to generate the income that most people need in retirement will ensure that they look for higher yields.

So, how you do that, I think, is the key. How do you get higher yields but maintaining that safety that people expect in fixed income? And I think there are many ways to do that still. Yields are clearly low, but I think the mindset is now reset to a lower-yield world, and so I think the interest in bonds will persist. I think active management is becoming more critical as a late-cycle investor. I think what we’re seeing is traditional growth trades work well. So again, being overweight, high yield, for example, but behind the scenes we’re seeing dispersion within these markets actually expand quite a bit.

So again, better quality within each rating tends to be doing better. The highly cyclical credits, for example, not doing as well. There are more problem credits that evolve each quarter, even as the aggregate market is doing well. So, I think that kind of security selection risk is here to stay as growth is low and stays low. So, active management has helped a lot as well in duration and the asset allocation. I think being nimble, for example, when the Fed switched.

I can’t recall a time where there was such an aggressive switch in monetary policy expectations for a relative shift in the underlying economic fundamentals. In Q4 we were thinking two or three more tightening. Now we’re pricing in three eases, and yes, there’s been a slowdown, but it’s been this kind of volatility, again, the wide ranges in the volatility within that, I think, does create a really good environment for an active manager. So, very important, I think.

Brown: And Michael, as we move ahead, do you see demand for passive or active fixed income strategies? Where do you expect that to fall? And do you see better opportunities for income generation in equities or fixed income at the moment?

Ho: It’s a good question. I think that in terms of fixed income, I’m not a believer in passive, for two reasons. One, you don’t want to be allocating more capital to one that’s got a larger amount of issuance. That doesn’t make a lot of sense. I think that’s one reason. The second reason is that if you look at the passive fixed income index, let’s say the Aggregate, the… sorry, I always say Barclays, but it’s Bloomberg Aggregate, Bloomberg Barclays Aggregate now, that it doesn’t represent a great deal of fixed income-type of instruments out there.

There’s a huge amount of outstanding debt not being represented in that index, and so therefore it’s not a very good index for passive, and yet everyone’s kind of using it. And so, I would say that I agree with Jim that in the late cycle, you really have to be mindful as to the switches to monetary policy. You need to be reactive, and I think that this is very, very important.

So, on the second part of your question, with respect to where does one find yield. Well, if you look at the numbers, it’s very clear equity yields are typically about, what, 3% to 4% fixed income yield, EM, high yield, you can get to five plus, six. So, it’s obvious that you get more yield in fixed income-type of instruments, but unfortunately, what’s happened is that with the central banks cutting rates, in the case of the U.S., two to three more cuts essentially will drive us to a negative real rate again in the U.S. Then that’s driving … that’s basically flattening the entire fixed income investment opportunity and pushing investors towards cyclical risk in EM, in high yield, and that’s quite dangerous, I would say.

But we have been living with that situation for a number of years, and unfortunately if we cannot change the constraint of not having leverage, then we have to go towards cyclicals, pro-cyclical risks to get yield, to get income. So, the key really is about, I think, from a diversification perspective, to lift the constraints of leverage, because you can still get yield in some single A, double A securities, that has positive yield spreads, that you can get enough yield. You can get enough income from that, if you’re willing to leverage, without going toward the pro-cyclical risks.

Brown: And Alex, back to equities, are there any, I guess, shifts in dividend trends that we should be aware of?

Crooke: Yes, the longer-term trends we’ve seen, as we’ve all been talking about, with income and the requirement for income as you hit retirement and beyond, both professionals and individuals, it’s really hard to have the concept of selling some of your capital, some of your investment to fund your lifestyle. You’d rather have your assets sweating for you and producing an annual income, a dividend, that you live on. And so, what’s happened in the equity market, I think, as those investors have gone seeking income is they’ve sorted in equities that can provide good growing dividends. And therefore, actually that’s changed the concept of the mindset, I think, of a lot of management, of thinking well, maybe our investors, ourselves, value dividends more than they have maybe historically, 10, 20 years ago.

And so, we’ve seen some good… I think there are positive trends, actually, of companies thinking a little bit more about the cash returns of a business, how a business funds itself. If you’re issuing stock, how are you going to generate a return for those dividends on those future shares? And I think these are good trends on the whole. The question for investors is not to really chase too much, that golden egg, and push it too far. So, we’ve seen some chasing of very high yields, and actually you then inherit some other risks that you maybe don’t appreciate. Those dividends could get cut and may never recover.

So, I think the secret really is in, yes, dividends, equities for good dividends, but looking for the growth over the medium term. How can these dividends grow over time? So, you might not have the highest yield, but in four, five years’ time, the yield on your initial investment will be very strong.

The other trend we’ve seen is probably dividends taking more of a share of the company’s cashflow. Again, we’re seeing higher pay-out ratios. So, of a company’s profits, how much is coming to investors? And it was traditionally about 30%, 40%. It’s up to about 50%, so half the profits on average, this is around the world. So again, that’s probably a trend you don’t want to see move too far, because again, have companies got enough left to fund their own growth or to support themselves in more challenging times? So, I think generally the trends have been very positive there with equities, for income, for dividends, and it’s still providing, as Michael’s said, a very handsome yield, I think, relative to its history and other asset classes.

Brown: Thank you. So I think this broadly recaps the themes that we drew out at the beginning of the year, but there are, of course, a number of themes that we should all be mindful of. Our investment professionals have highlighted the growing importance of ESG or sustainable investing. The path ahead for U.S. equities, hedge fund techniques moving to the mainstream and opportunities within property equity, just to name a few. Alex, which of the themes that you see as potentially instrumental in shaping markets and investor returns in the years ahead?

Crooke: I think, probably out of the list you’ve just named, if I just name one, I think it’s going to be the ESG, in particular the S and the G, which is sustainability and governance. And in terms of the investments we make, we want to be making investments in solid companies that are managed well and that are managed for the future for the medium- to long-term, not just the short-term profits. And I think, therefore, pushing companies and having much more, I suppose, policies and clear policies around how companies should be sustainable for the long term, how they should govern themselves, I think is really positive, both for credit and equities, I think, in terms of the investments we make.

Brown: Michael, same question to you. Where do you feel the investment industry goes on from here? And what do you think will be the key drivers?

Ho: Well, I think actually the change in our industry is only accelerating, and so the trends are still in the same direction, and this is driven by, again, the aging population. More and more, people are going to look for retirement income as they retire. So, it’s no longer about accumulation. DB plans are becoming smaller globally, and DC plans are becoming bigger, and so therefore, again, it’s about outcome-oriented returns, because you’re trying to serve a particular purpose.

You’re trying to hit a particular outcome or a target and the goals that you’re investing for. And those are not necessarily just capital appreciation any longer, and so I think those same trends are going to continue. Yields are unlikely to increase rapidly upwards, and I think that people are coming to terms with that, finally. The [unclear] of the? developed world is happening, and so it means that people are going to look for more value for the dollar, right? Lower yields means you need to cut your expenses. You need to get more from your investments, and that might be more customization. That might be more ease of access. So, there’s all these same trends that’s happening today that I think will just continue, but accelerate.

Brown: And finally, Jim, what should be on the radar for the months and years ahead? Will there need to be a shift in mindset to adapt?

Cielinski: Well, I think there will, and these two just took the things on my list, which is telling, though, because the income orientation, ESG, sustainability, the outcome focus, I think because you heard it from all of us, it really is what we’re hearing every day from our client base. So, it’s hard to see that going away. So, I think as you go forward, you’re going to see central banks, first of all, pull out their old bag of tricks, whether it’s negative interest rates, quantitative easing, buying corporate bonds in the case of Japan buying ETFs.

But this ammunition, I think, will matter less going forward, and so I think the markets are going to start asking, What’s next? Is it fiscal policy? The idea that monetary policy, without fiscal, can be as effective in the next downturn, I think, is really stretching credibility. Things like MMT are so appealing to politicians and populists, right, that it’s hard for me to think that you won’t see even more regressive responses going forward. These will distort markets.

They’re going to upend, I think, our traditional way of evaluating markets, and policy is often the key driver of markets. So for me, it’s important to keep an open mind as we get low yields and we age, both demographically but also age in the cycle. I think the confluence of all these things is really creating a different climate. So, don’t get anchored in your old investing mindset. Keep an open mind.

Brown: Thank you. Well, thank you to Alex, to Jim and to Michael, to our audience. We look forward to any follow up questions you may have. Thank you very much for joining us.

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