Market Insights with Quilter Investors | October 2020

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  • 45 mins 38 secs

With the US Presidential elections looming and markets still reeling from the covid pandemic, Quilter Investors take a look at the current economic environment in the US, the ongoing debate of growth vs value, and the role US equities play in a globally diversified portfolio. On the panel are:

  • Stuart Clark, Portfolio Manager, Quilter Investors
  • John Bailer, Manager of the Quilter Investors US Equity Income Fund
  • Bob Kaynor, Manager of the Quilter Investors US Equity Small/Mid Cap Fund

Channel

Quilter Investors


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Hello and welcome to this market. Insides US Special with quilter investors The U. S stocks have posted a sound recovery after the march. False While economic growth has collapsed, unemployment and macroeconomic uncertainty have risen. What to expect from the U. S. Equities going forward to discuss this? I'm joined today by Stuart Clark Portfolio manager, Quilter Investors John Baylor Off Melon Manager Off the Quilter Investors US Equity Income Fund on Bob Caner, Off Shoulders Manager Off the Culture Investors US Equity Small and Midcap Fund So the big elephant in the room, of course, is the U. S presidential elections. What are the market's pricing in Stuart? Hi ago. Thanks. Um, yeah. I think we can say that the market is reflecting the polls at the moment on bond moving to favor Biden victory. Obviously the polls aren't ah 100% accurate necessarily. But the significant margin which we see in those polls and the consistency we are starting to see some of the some of that be reflected in the prices in the market Onda favoring some of those names which could benefit from a Biden victory. I think where we're there's a bit of a nuance is it's going to come down Thio not just where the Bidens in in the White House, but whether he can take the Senate at the same time. And we get that blue wave which people are talking about and then how much off victory they get in the Senate, which will which could really lead to some significant changes in in the leadership effectively. Mm. Andi, John, Um, what would Biden's victory potentially mean for different sectors of the economy and for the markets for the U. S. Equities? Yeah, thanks, Olga. And thanks for having me here. So I agree with Stuart really meaningful election outcome would be if there was a Blue wave and both Vice President Biden gets elected and the Senate goes heavily Democratic. And in that environment, our belief is that utilities would do well, especially the the names that are associated with renewables. That is a platform that the Democrats here in the United States has, and it is very important, I think, in either outcome of the election infrastructure is going to do quite well because both President Trump and Vice President Biden has talked about big infrastructure plans, and I was just on a call recently with with President Trump, and, he said, even wanted to go bigger than his big infrastructure plan that he's talked about. So I think that's something that would be, um, you know, something that you wanna have exposure to in your portfolio? What about the financials under Biden? Would you think, Do you think we're going to see some reforms? Says he was outlining it. Yeah, that's a great question. So if you look back at the Obama administration, which Vice President Biden was part of, there was a lot of regulatory constraints that were put on early on in the global financial crisis with the Dodd Frank Bill. Um, I would say, by the time Obama left office, they were reducing a lot of those restrictions on the financials. The C car test, which is something that the biggest banks go through every year in the U. S. Here, Um, they all passed in the US, the C car process, the regulations, um, and that air coming out of that seek our process have been reduced over over the years, and that was happening even before President Trump came into office. The benefit that the banks really got as well was the tax reform bill of 2017 where their corporate tax rates really came down. That's the one area where I would say those financials eso From a regulatory perspective, I don't think it be a big issue. But from a tax perspective, you could see corporate tax rates go up. We've done a lot of analysis on Biden's tax proposal. Our belief is the financials taxes will go up about, um, in line with the rest of the market. And what's the big surprise would be the technology tax rates go up a lot because there would be foreign tax rates that would go up even Mawr, then the corporate domestic tax rates. So the financials actually work out, you know, in line with the rest of the market. If Biden passes all his tax proposals, Hmm, Interesting. Bob, let's bring you into this discussion. So what's your view on? You know, regardless of the outcome, which themes do you think will continue? So I do agree that infrastructure is gonna be a critical kind of part of the fiscal plan going forward. I think that that has inflationary impacts um, the U. S. And I think one of the things that you've seen with rising rates, the long end of the curves really been moving up as we've had increasing odds of a Biden administration. I think that's very good for financials. To John's point in our space and small mid cap space. You have hundreds of regional banks that are big beneficiaries from a steepening curve. So I think that's I think the infrastructure is critical. It's the key part, kind of. Regardless of the outcome, I also think alternative energy, as was mentioned before. I mean, that's the rial. What I would say litmus test If you look at kind of what alternative energy stocks have done since the first presidential debate, that's what we want to call it and increasing odds of a Biden win. It's really been an explosive move in a new alternative energy and traditional oil and gas has just been an absolute disaster. Eso that's kind of that's kind of the expectations that we have to continue to play out. And I think one important point of the potential for a Biden victory and higher corporate taxes is really a redistribution down to the lower income, um, Americans. And that tends to be that has potential inflationary effects, because really, you're increasing the velocity of money. That is the group that tends to spend on dare, not the sabers. We've had strong monetary growth, but we haven't had increasing velocity, and that's ultimately what we really need to see in increasing inflation on. And Stewart, how concerned are you about the potentially increased inflationary pressures? Yeah, I think it's It's obviously something we have to be aware of, and especially as we go through the early stages of next year, the comparisons a year on year numbers are going thio see a spike which we can look through in the short term on, then may again see that start to roll off later in the year, particularly around something like the the energy prices. The oil price, which we we all know got decimated at the beginning of this year on that rolls out. But in the longer run, we have to be aware of it, and particularly if the Democrats come in with a big stimulus package which, as as Bob's mentioning, leads thio high velocity, then that's that's a really relevant point. I think with the moves the Fed had to there average inflation policy. That was disgusting. Was it a month or so ago? Now, um then that has changed. Changed the the need to be too concerned about them stepping in early on by starting to raise rates and therefore potentially choking off any recovery that that that increased stimulus package might bring bring to the table. But certainly when we're thinking about the portfolios, we are looking at ways to bring some inflation hedges into the port for like, I mean not necessarily related thio us equity or US politics. But we still have that exposure. Thio Gold Equities within the portfolio gold as as one way thio hedge against some of that inflation risk, which which might come through. John, what's your view on this issue? Yeah, So I agree, uh, with Bob that I think inflation is an underappreciated risk currently in the market. And, um, there is real opportunities in the U. S. Market, uh, to buy cheap inflation protection and the way you buy cheap inflation protection are equities. Specifically, I focus on those companies that generate good dividend income and you want to find those companies that can grow those dividends over time. It's very unique versus, um you know, a bond, a 10 year bond where you know we're up Thio, you know, on Lee 87 basis points on the 10 year that coupon doesn't grow. So that's gonna be 80 basis points for the next 10 years that you're going to get that coupon for where you can buy high quality blue chip companies that we own in the portfolio that will grow those coupons, those dividend payments. And I think that's gonna be a riel offset to higher inflation. And, um and I would expect that that happened. You're seeing a lot of under investment in the market right now. Eso there's gonna be a grilled supply constraints. We're gonna have a 30% GDP number reported for the third quarter. Expectations for economic growth are increasing, and and I think that will lead toa higher inflation expectations. On what about the question with China? If you're talking about Biden's potential presidency, what you expect will change Stewart I It's the one area, I suppose actually, at the headline policy level, you might not expect much change. Realistically, this is bipartisan issue, I think, is the corrector us terminology. Now, um, the approach, however, may change. It may be slightly more traditional. You know, Biden spent a lot of his career on these international issues, so I think you could see a slightly more traditional approach to trying to address some of these issues between us China trade. But the concerns around, um, moving from friend Thio phone might be going too far, but very much more competitive nature between the two nations. It's not going away on bond, I think. In fact, if anything, it will be one area where you could see a common ground, even if there there's only a small victory for the For the Democrats in the Senate, this is one area where they can probably agree. Thio Thio, continuing to focus on increased pressure on China Onda the Rio, ensuring effectively off industry back back to the U. S. I think also we have to think about it with European and the UK obviously as well, where you might see slightly more traditional approach between across the geopolitical landscape under a Biden presidency. So the what you're saying is that the US China tensions are there to stay, no matter who takes the presidency. But what's your opinion? And also what effect have we seen so far on small and midcap companies off the US China tensions? Yeah, So I think that what I agree generally with the statement that that I'm not it is The stance towards China is mostly bipartisan. I think Biden would have a different perspective on Tariffs. Trump has been very aggressive on the from a tariff standpoint, um, in terms of what we see in the in the US and smaller mid cap space just to follow on to something that Stewart we're seeing, we've already begun begun to see a significant on shoring. Um, in the US, we were tracking the number of foreign companies that air building facilities and Capex projects in the U. S. And its approaching 200 already this year. Um, so I think you know, the supply chain disruption that we experience in the beginning part of the year with the onset of the coronavirus has really led to a reallocation of capital to shore up supply chains. That tends to be very good for this small cap market in the US. Given our domestic focus, we often say that the S and P is is the headline of the U. S economy. But the small cap stocks are really the heartbeat of the U. S. Economy. Eso what we're seeing, you know, the restoring of supply chains is something that's that's really powerful for the US small cap stocks you mentioned. The SNP will definitely discuss that. But before we go there, let's just talk about generally. If we have consensus here, we're in the cycle. Are we? Bob? If we can stay with you, I'm afraid you weren't gonna ask me first E guess I was afraid you were gonna ask me first. We're certainly at the recovery stage of the cycle. The market is discounting. Um, you know, a significant economic recovery. Looking looking out into next year, it's kind of a classic cycle that we're in when we got there in a very different way. But the multiple of the market is expanded as the market is discounting. What the future recovery earnings growth looks like next year. And right now, the markets anticipating, you know, mid twenties type earnings growth, I think for both small and large cap space. So I think we're We've had significant fiscal and monetary stimulus that's expected to continue to fuel growth. And as we have a broadening of growth, economic growth, that tends to be a very good backdrop for small caps. And the broader market in general is supposed to the narrow, secular growth leadership that we've experienced over the last number of years. And Stewart, would you agree with that? Yeah, yes, I mean, generally, I think the real risk with the markets to Bob's point completely. Ah, the market is pricing in that recovery stage now, obviously, the big risk on probably even the factor which could supersede the outcome off the election is around the vaccine development. So everyone's really working now on the assumption that Q four we get some kind of vaccine approval or third stage trial results, which mean it's it's ready and starting to be distributed Q. One next year. If we see some disappointment there, a delay to that process or an inability toe roll it out on a mass sort of wide scale across nations, then that could lead to, ah, slow, a sort of a second slow down effectively a bit. We're seeing that in Europe again at the moment, with the additional lockdowns that we're having toe put in place and curfews in France and what not. So I think that's the real risk to listen nascent recovery that we're seeing at the moment. But generally, uh, if we could get that vaccine delivered, then I think Bob's absolutely right. We're in that early stage of the recovery, and hopefully what that means is a broadening off this technology led rally that we've had into other parts of the market. Mm. Andi John, what about you? You know, where are we in the cycle? In your opinion? And also, you know, the confident you slow down will cost the economy $7.9 trillion over the next decade. And this is according to the Congressional Budget Office. What? What would it mean for the equities? Yeah, it's It's been a very strange cycle that we had one of the longest increases in GDP in the U. S. History. You know, we were going on 10 years going into the end of 2019 and then I would say, you know, this was nothing like a typical Ah, downturn. It was more like a natural disaster. And if you go back and look at previous natural disasters, you tend to have these shaped recoveries off of those. And I thought the economy was doing quite well going into 2020 until we had this unexpected pandemic. Eso You know, I think this is very much like a natural disaster. We get a V shaped recovery off the bottom on. Then we have toe have you know, good policies. We need tohave increased small business confidence, which you're seeing in the data in the U. S. Small business confidence has started to move up. You need strong CEO confidence, which you're seeing, and I think it could be a sustainable recovery. And I totally agree with Bob and Stewart that what we're going to see is a broadening out on and you're already seeing in the bank. Stocks peaked in in July, uh, the beginning of August, and you're starting to see a real broadening out of of stocks in the US on bond. And that's even with some of the the lockdowns that we're seeing in the U. S. And in Europe. So I think the market is sniffing out a global recovery here that is going to continue. And when we get a vaccine, it's just going to accelerate. You will sound very optimistic going forward on duh. You know, the vaccine that may come. But what if it doesn't work? You know what? If the worst is not over, um, the rights is all over. The world are rising. The cases of the covert 19 rising all over the world. You know, unemployment is increasing all of that from journalistic point of view, it doesn't look all rosy at all. While you sound optimistic with us equities, So do you think there might be some nasty surprises going forward and how you're protecting your portfolios from those nasty surprises on Maybe John, we stay with you. Yeah. So, you know, I do think you need balance. The portfolio One of the things we've been doing is is buying more utilities that you know really do Well, irrespective of the economic environment and what the vaccine is doing, they also benefit from a abiding administration that's gonna focus more on renewables. And, you know, the growth rates we think of the utilities air starting to accelerate. They have good dividend yields. They're stable and secure. So, you know, we are adding a little bit to that area of the market. Thio balance the portfolio, you know, just in case. And I think that's important. But But at the end of the day, you know, you've got so many companies spending so much money on this vaccine. Um, I really feel strongly that we're gonna have one of them have a real vaccine that's gonna work. I'm not a conspiracy theorist. I don't think President Trump is causing the FDA toe approve all these drugs Just because he wants to get reelected actually think that the FDA is doing a good job. They're going through phase three. Uh, the numbers that we've seen in our health care team has reported on are very positive on what's going to happen with the vaccine. You're gonna need a booster shot as well. But I think people after this election, you're going to feel good about taking a vaccine and and And we're gonna move on, and we're gonna get back to normal, you know, within our two year time, Verizon. Mm. That's very optimistic, Stewart. What about you How you protecting? You know, how do you think how much protection should want take in the portfolio against the unknown? Yeah. I mean, so we're running a multi asset fund of funds managed portfolio service within quilter Investors. Uh, we do try to retain a good balance within those portfolios of volatility targeted. So it is up to us to decide where we want to sit within our risk band at a given moment in time. Having seen the strength of the recovery, we have more recently I have taken some profit and specifically out of some of these growth areas on leaving the exposure where we do want thio way don't wanna be underweight equity risk compared to our long run model for the exact points that we've been discussing. Uh, but we also don't want to be overexposed necessarily to those parts of the markets which have have done so substantially. Well, um, since March this year and that's where we're trying toe maintain a balance effectively between both a risk on environment but also having some hedges in place through alternatives exposure on also starting to school the portfolios towards mawr, more of the value names which I think if you did move into a full on second wave Yes, of course there is a risk on. We can't be blind to that on did in that environment. Some of these quality growth names could continue to push higher, but the valuation gap between those those names to us, it looks like you want to start biasing the portfolio towards some of some parts of the market which have being left behind. I think with the with the general portfolio mix. By also skewing towards those value names, you've been able thio reduce the overall weight to equity by taking that profit that I was talking about we made from from earlier in the year without necessarily, um, taking out all the upside potential from from the portfolio. So I think there are definitely tools we can take you. We can use Thio to try and capture more of the upside. If the economic recovery does take hold on, the vaccines delivered without having toe have excessive risk on the table. If things are to start slipping backwards, of course, I think one of the other points to make here is it should be an environment, and we've seen some good performance from active managers this year. We've got John and Bob here both very much on the active side, off investment management asset management, that this is an environment where opportunities are were presented earlier in the year and we saw managers take advantage of black. And as we as we continue to see some rotation, I think there's more opportunities for active managers to come in and really add value through the fundamental work they're doing on the stocks. MM, on Bond, Bob. The small companies were the hardest hit by Cove it this year. The proportion of companies in the Russell 2000 index off small caps that were either breaking even or operating at a loss has risen to 42% in May. That's quite significant. How did your front perform on did which, UM, sectors I would say off the small caps within the small caps would be safer options for now. So it's an interesting to statistic because the irony in that is, companies with negative earnings have been dramatically outperforming companies with positive earnings. If you held the portfolio of companies with negative earnings in the Russell 2000 and you were short a portfolio of companies with positive earnings, you would be up over 35% this year, which is just staggering. When you think about protecting capital in down markets, you tend not to gravitate towards money losing biotech companies that need to raise capital in the next three quarters. And yet that was the safest part of the market. And at the absolute bottom of the market in March, that was the best performing, um, industry in the market. So to John's point, this is a very different cycle than we've. We've traditionally seen Onda. When I think about how to protect capital in the future, you know, our our philosophy kind of revolves around cash flow, profitability and quality. Um, in the market that we've seen, that's not exactly what's been rewarded. What's been rewarded is clinical risk and biotechnology around the potential of a vaccine. Andi really kind of secular growth in consumer Internet type companies. Um, the opportunity set that we see going forward really tense. I think of the market in three ways. There's there's three different markets. There's the fang market. There is the Robin Hood market, which has been a growing part of the market over the past six months. And then there's everything else, Um, we're less concerned with the direction, really of the index and more concerned, kind of with leadership. And we think the set up is really phenomenal for that kind of for gotten part of the market, as we've seen some changes and trends around broadening growth, increasing long end of the curve, perhaps inflation. So that's the part that really gets us excited about the outcome. Well, you've mentioned the facts and that they are performed this year, and S and P, you know, performed really well so far. But if you will take away the fan companies from the S and P, actually, it would have fallen 4%. So how did the rest off the tech stocks in smaller mid cap space perform? Um, well, software and Internet performed very well. Semiconductor tends to be mawr cyclical, although we have ah, secular growth view around around the semiconductor industry. Um, S O that tended to do better within technology, kind of as we got through the bottoming of the market in the spring. But, you know, it's been a growth leadership market up until very recently on, Do you would expect the companies with the software companies with the fastest growth have been kind of the leadership within technology software And our mind used to be expensive when you were trading and kind of six times enterprise value to revenues. Today, you're lucky if you can find something trading at 10 to 12 times s. So that just gives a sense of how explosive the revaluation has been in companies that are growing. As growth became more scarce in the economy, the market gravitated towards those companies that were growing irrespective of Christ on and John, What's what's your view on the S and P 500 words before this year and are you concerned about You know how much weight the fan companies have on it? Yeah, So I am concerned with, you know, the S and P 500 the composition of the S and P 500 currently, um, if you include some of the other fence stocks that air in consumer discretionary and communication services, Europe to 40% of the weight of the S and P 500 is in technology stocks and If you just add up energy and materials to entire sectors, you're only at 5%. And that's indicative of how overweight growth and technology is in our index, currently the S and P 500 how underweight cyclicals are in the in the index. And, you know, this is the first time that that's happened. You had the nifty 50 back in the sixties, the same thing happened, and you have the tech bubble in the nineties. And so you know what happens the 10 years after that? Um, the growth rate of earnings for the Nifty 50 was higher than the overall market. The growth rate of those technology stocks that everybody loved in the 19 nineties, um, you know, were higher than the overall market. But the multiples were so high you were paying so much for that growth that they contracted mawr than the earnings growth. So they underperformed for 10 years. And I think there's a good chance that some of those bank stocks, some of the technology, very high growth technology stocks, the multiple differential between the cheap stocks in the S and P 500 the expensive stocks are at all time highs. And I think there's a good chance that that narrows over the next 10 years and you're gonna wanna be, you know, on the cheaper. And if the market, Even with companies that might not grow, it's fast a some of those technology companies that everybody loves right now that's quite interesting. Stewart, would you agree with that? Yeah, I think it reflects on the comments I was making earlier about some of the change from doing in the portfolio recently. Trying toe rotate, Um, first of all, to maybe a balanced position between growth where we had a small overweight before toe a balanced view between the two and and then carry on, moving down, uh, towards those more value, the cheaper part of the market A Z we get confirmation that the recovery and spread off returns is going into the rest of the market. E think it's not just Fangyu Noah's. Well, there are. There are other, uh, people look at them off to a very large part of the S and P. Um, but you can look at other growth names like Bob was mentioning where valuations are really quite stretched and you know maybe. Maybe it's just that we've all been around long enough. Thio, remember the the dot com her bubble onda the subsequent bust. Um, but it has to make you nervous about the long run potential for making money. When you are investing at those levels now, obviously, in the short run, they can continue to push higher. Um, but if you have ah, client with um, or medium long term investment horizon is hopefully most of what lines do, then then you have to think about the price you're paying for some of these names today. Definitely eso. You do agree that the valuations they're over stretched on the fan companies. But what about the political risks associated with them as well? It seems to be that both Trump and Biden have their own views for different reasons about the fan companies. A. Stewart. Yeah, completely. I think technology is in the firing line, as I think John mentioned earlier on in the call. The taxation rates for those technology names likely toe go up quite substantially under Biden administration on Trump, obviously, as his own personal issues with some of the the large cap technology names on do they want to include increase the regulatory pressure on that part of the market. As a result, eso so the right is on top of evaluation argument. There is also the potential for I think break up might be going a bit too far. But increased pressure around some of these social media and the monopolistic type structures which are existing in space, which could lead Thio again. It could lead to extra pressure on the prices effectively. So I think that would be a another risk, which you should be considering at this point in time. Mm, on Bob. What's your opinion? You will sort of started mentioning growth versus value. Do you think we're going to see a rotation anytime soon towards value? So I think that to the extent that frankly, fiscal and monetary stimulus is successful in achieving the desired outcome, you're going to see that broadening of growth that's going to be better for value. That growth, certainly to the extent it's brought on by higher rates. Let's not lose sight of what happens toe high multiple stocks as rates increase, which can certainly be a driver for the narrowing of that spread. Eso I would argue that, you know, to the extent that the Fed and and the government is successful in achieving the outcome, that's going to be a very favorable backdrop. We've talked a couple times a reference that the late nineties, early two, thousands dot dot bomb, if you will, that tended. That was a significant catalyst for small cap value. You had tremendous amounts of out performance in value in small cap after the NASDAQ kind of reset through that mid 2000, period. So I think that Zaveri it's an exciting time for us. Onder staying with you, Bob, can you just tell us a bit more? You've mentioned it before, but maybe a bit more about the way you're positioned, Um, in your portfolio, which sectors do you like? You don't like on going forward? Where do you see the opportunities? So the way that we think about this this has certainly been a bifurcation in the market where we've had a really an acceleration of the adoption curve for many industries where we had we were experiencing this inevitable kind of shift. Um, online, you know, when we think about the companies that have been impacted we put them in kind of three buckets, you know? Is this a business that was deferred? Was it displaced, or was it completely dis intermediary disinter mediated. If you think about disintermediation retail, probably not coming back. We think about displaced that meal you were gonna have in a restaurant on Tuesday night. You didn't wait till the restaurant reopen. You got that somewhere else. And then you think about deferred, which, you know, maybe a dental office visit, or are doctors visit? That will happen? That's kind of where the pent up demand is. And that's tends to be where that is, where we're focusing, as we look out for next year. So we look a kind of earnings comparisons for the first half of of next year versus last year in the second half on DWI. See that area where those businesses were deferred? Um, really impacted through the shutdown, But that business is going to come back. So that's 10. That tends to be where we focus where we think we're gonna have really favorable earnings compares eso We are exposed in the dental industry, there are parts, um, of travel that we think will come back. Housing has been very strong in the U. S. We actually think we have a very low inventory of housing in the US We've under built for a number of years. We think that continues tohave some tail winds in the areas that were tending to avoid. Right now, biotechnology in our mind, is a bubble. It looks a lot like tech. Um, in in the late nineties, early 2000 on dso some of the more expensive software companies. We don't believe we have valuation support, especially in potentially a rising rate environment. John, what about you? How you positioned? You know, would you like you don't like what you're trying to avoid? Yeah, So, you know, our philosophy is this combination of companies with great intrinsic value and sustainable dividend and we look at fundamentals. We look at balance sheets, we look at cash flow, sustainability. And so the companies that we continue to own or those companies that we feel like that can pay those consistent dividend payments. And Andi, I think that's very important for our clients who are looking for that. That income consistent income every, um, every quarter or every year. So you know where that brings us to is a fairly over a fairly big overweight and financials and give you a couple of statistics here, uh, the financial sector. Um, you know, a lot of those earnings were already reported discerning season, and they beat expectations. About 85% of the company's beat expectations. They beat it by an average of 26%. So what you're seeing now in financials is very large. Estimate beats, and that's usually a pre court precursor for future out performance. Um, whereas if you look at the technology sector that's just reported, um, they only beat expectations by 6%. So at this point, expectations have been reset so low in the financial sector that they're easily getting over that low bar and started to beat expectations. So we really like that and that that's a group that's very inexpensive. The other thing we like about financials is they took huge reserves and assumed very high unemployment for the next couple of years. Our unemployment rate now is under 8% and they're assuming 9 10% unemployment rates. So they're gonna have to release some of those reserves, and they're gonna have really easy camps next year in the first quarter, second quarter eso they're gonna their growth rates are gonna look very good compared to the rest of the market. And they're gonna look very good. Compared thio those pandemic beneficiaries which gonna have incredibly difficult camps. And I don't think investors are gonna wanna own a lot of these companies looking at those camps in front of them. So, you know, we're still exposed to those areas that are going to benefit. And we're looking for the companies that, you know, like Bob was saying that our secular growers, you know, that aren't going to be secular losers Onda. And we think financial specifically is a great area to be in right now on that one area we have mentioned yet, Stewart and I'm gonna address it to you is the U. S. Dollar. What's your outlook? Short and long term on bond. What effect will it have on U. S companies? Yeah, currency is always difficult. I think in, um, if we work on the basis that the vaccine is delivered on, do you get the Biden victory? There's a lot of providers already in the sentence. I guess but you get the Biden victory, You maybe even get the blue wave and you get the vaccine delivered. Then it's reasonable to expect a little bit of dollar weakness going forward. Andi, obviously, for our poor fellows, were sterling based investors. That does have an impact on the returns that will be getting from the translation effect back in Sterling on possibly also acts as a benefit to some of those something like the emerging markets, other regions which could benefit from a bit of that dollar weakness. Um, so that would be, I suppose, my base case scenario at the moment. But of course, till the point that if you were not to see ah vaccine delivered on in the timescale or a escalation to your point earlier around covert risks, then the dollar is still one of the ultimate safe havens. Andi, I think in that in that instance, then, um, it would be easily stay where it is today, possibly a strength and a bit further. Um, even though if you look at it historically, it does look reasonably strong. E think also, Sterling. Obviously we're here to talk about US equity and an outlook, but sterling dollars a cable. We have our own issues around Brexit, which can't be ignored. So I don't think necessarily where as calm, we we would have a stronger view for cable as we might for dollar versus other currency pairs. At this point in time, I must say, We don't look to really we incorporate that when we're thinking about our overall tactical asset allocation within the portfolios. We're not. We're not really trying to make short term currency calls. It's more trying to influence the tactical views, the tilts, that we want to have a portfolio, that that would be my base case scenario at this point in time on and Stuart very shortly, if you may, since we're running out of time, how did the U. S equities look compared to the European equities? And compared to US bonds, E guess Europe is not as expensive relative to its relative thio US equities or or even relative to its history. If you look at Europe relative thio European history, US relative to U. S history evaluations, the US looks more stretched, um, everything, which we've been talking about this clearly being skewed by certain parts of the market at the moment. So again, going back to that point about active management on the opportunity to our value by tilting portfolios towards the parts of the market, which potentially not as overvalue but Europe does look cheaper. It's not cheap per se. Um, there are other market UK again does look, um, compared to its history, its, um, right about bang on its average evaluation, which is cheaper than than the European market. When you compare equity markets, though really anywhere in the world to their local bond markets, it still looks more attractive. I think John made a really valid points, and if you looked at the yield gap dividend yield versus bond yield in the U. S, that's now positive. Um, Andi, uh, that would traditionally make you look more towards the equity market and that it would in the bond space on again within our portfolios. That's really a view that we have. We haven't underweight Thio bonds, whereas we're we're neutral equity. Andi, we're taking the bond traditional bond allocation look king cavity alternatives, which which is not as reliant on the yield compression or spread compression, and lower government bond yields from here Unfortunately, we're running out of time. I could talk for you two for hours, but it's not for a final thought. If you could summarize and say it would probably is the most important take away from from what you were saying, maybe what? We'll start with you. Sure, So I would say, Really, irrespective of the outcome of the election, the fiscal monetary stimulus that has been put in place is really going to change the complexion of the cycle that we've seen on. But we're going to continue to see kind of inflationary policies that we're gonna take rates higher, broaden out economic growth, and that tends to be a very good backdrop with small cap in space. And I think we're going to see a rotation from growth from the growth leadership we've seen. And that should set up the US small cap market extremely well. Looking out, John, what about you? Yeah, I would say that you know, income is very difficult to get in this market. Yields are very low on the bond side on DSO. One of the best ways to get that is through equities and U. S equities have shown very stable dividends and dividend growth prospects. So I think it's one of the best ways to get income. And what's nice about it is you also protect against higher inflation, which I think is coming because those dividends can grow over time. And so, having this risk protection in the portfolio insurance protection, that's very cheap. If you know where to look in the U. S. Market, I think is a great hedge toe have in your portfolio. And Stewart Yeah, I think we've seen following a very tough start to the year and an incredible recovery. But it's a to Bob's point. It's being very focused in certain areas, and I like to think that that can spread out there rather risks, as you mentioned earlier of covert. Still that were not necessarily over it. And so we have to be cognizant of black, be able, ready and willing to react. Um, periods of volatility, like we've seen, tend to present opportunities. Onda, Let's be ready. Thio, exploit those Um, if we get the opportunity. Unfortunately, that's all. We have time for now, But stay with us as well tell you how you could use these markets inside towards your structured learning on all that remains for me to thank our Panelists today, let me remind you, we've had Stuart Clark, portfolio manager quilter Investors John Baylor Off Melon, manager of Quilter Investors US Equity Income Fund on Bob Caner Off Shorter's Manager Off the Quilter Investors US Equity Small on Mid Cap Fund Bye bye for now, By the end of this video, you'll be able to understand on describe what risks are associated with US equities going forward. Which sectors off the U. S. Market present better opportunities for investors on Is it time for a rotation into value stocks, please? Now complete the reflective statement to validate your CBD, Yeah.