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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss how quantitative and passive investing works and the potential opportunity in this environment. TD Asset Management's Julien Palardy joins us.
And in today's WebBroker education segment, Bryan Rogers is going to shows how you can test out your investing ideas using the platform.
So here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets.
We've got some green on the screen on Bay and Wall Street. We will start here at home with the TSX Composite Index, we are up just five 100 points, about half a percent.
The price of gold making some gain today, the price of oil stabilizing. Amongst most actively traded names out there, Air Canada. You're getting a lot of buzz out of the US airlines think they are expecting a strong summer travel season, seems to be lifting all boats including our major air carrier here in this country.
At $19.73 per share, it's up a little more than 2%.
Let's check in on Suncor Energy.
Pulling back from recent highs. A firmness in energy names including Suncor.
It is up a little shy 1%.
South of the border, it's been day after day of green on the screen in the early part of the session on Wall Street and then it just sort of fades through the day.
So far today during the lunch hour trade, we are up 22 points on the S&P 500, a little shy of half a percent.
Let's check in on the tech heavy NASDAQ. How is it touring against the broader market? Pretty much right in line percentagewise, a little shy of half a percent.
Las Vegas Sands Corporation is down almost 7%. And that's your market update.
From geopolitical risks to concerns about the future path of interest rates, there are no shortage of issues for investors to weigh. Given that backdrop, what role can strategies like quantitative and passive investing play in this environment? Joining us now to discuss, Julien Palardy, Managing Director and head of quantitative and passive investing at TD Asset Management. Welcome.
>> Thanks for the invitation.
>> Since it is your first time on the program, let's give the viewers a bit of an overview of some of the strategy that your team overseas.
>> We have quite a few strategies.
Typically, the strategies are between quantitative and passive and within the quantitative space, you can think of strategies that fit different types of objectives for investors. On one hand, you would have strategies to beat the markets. You would also have risk reduce strategies that focus on reducing risk relative to the market.
Then he would have other I'm not going to say alternative strategies, they are very common, but the objective could be slightly different than just returns or risk, it could be dividend strategies, the goal could be to achieve a strong dividend yield compared to the market or maintain the dividends through time by avoiding… Or growing dividends as well. That's a bit different than pure returns or risk. But it still fits objectives that investors would have.
>> Let's start breaking some of them down. The mission quantitative, passive, dividend strategies. Let's start with the quant side of it.
For some investors, they say they have heard the term quantitative investing, I don't really get what it means.
>> Typically, quantitative strategies are all about and objective using mathematical models. Working with statistics, massaging data and trying to extract from data as much information as possible about future risk of stocks or correlation with stock for the future returns of stocks as well.
It comes down to turning that data into usable information into forecasted returns and then building portfolios around this, that's also an important part of quant strategies.
You want to build portfolios that will allow you to generate either returns as systematically as possible through time or reduce risk in the most possible, robust manner through time as well.
>> That's interesting on the quantitative front.
The passive stuff, how does that differ from quantitative?
>> It's quite different but some of the tools are gonna be fairly similar.
When it comes to passive investing, typically though strategies are going to be tracking a specific index in the goal here is to be as close as possible to the index as time, we try to match this as perfectly as we can.
The outcome that you're going to get is going to be entirely a function of what the index is going to do.
Most of those indices would be cap-weighted but there are indices that are not cap-weighted and they follow specific strategies or recipes. They are kind of quant strategies but on the light side of things.
Typically, a bit simpler than the strategies we have on our team.
There are an increasing number of those indices and passive strategies can be tracking those indices as well. This differs from quant where you have complex models that seek to either outperform the markets or reduce risk.
That's the difference. The tools can be similar, so we have a fairly systematic approach on the entire team across pulp quant and passive, we use optimizes for example, but what comes to passive with the objective of matching specific indices like the S&P 500, for example.
>> Let's talk dividend investing.
I think people will understand how that works. At the same time, I think the question for a while now has been, is this a favourable environment for dividend investing?
>> I would think so. In fact, it could be always a favourable environment for dividend strategies in the long run at the very least. But right now what we face is at least in Canada a situation where it's very likely that the Bank of Canada is going to cut rates this year. We have seen a spread building up between Canadian bond yields and US bond yields so this is a clear indication that the markets expect that there is going to be some divergence to some degree in terms of monetary policies north and south of the border. In this type of environment, the remaining value when going out to find sources of perpetual yield that you can lock in, and this could be given by dividend yielding stocks and the key here is to focus on quantity. He want to make sure that your buying stocks that are not going to cut there dividend in the near future.
If there is a recession, for example, you want those dividends to remain as robust as possible in a downturn so right now is a great opportunity to lock in a yield that is going to be higher than what you could get with government bonds in Canada. The yield could be in the range of 1% above that and hopefully it could be higher for the foreseeable future, let's see if bond yields go down, those dividends will keep getting paid and hopefully can even grow in the future.
>> That's the key point to you I think when it comes to dividend investing, you talk about quality names that will continue to support the dividend. People talk about the space as in here's the dividend now, do they have the history of growing it and will he continue to grow it?
>> Ultimately, there are some key factors when it comes to quality and we do want to head to ETFs that focus on quality. We weeded out from our investment universe the companies that are most likely to cut there dividend or where the dividends are not sustainable and then we have an optimization process where we focus on maximizing the quality of the stocks that we hold subject to a constraint on the yield.
We aren't trying to maximize yield first and then looking for good quality stocks, we really look for the best quality stocks we can get subject to a certain dividend yield that they can allow investors to achieve.
>> Another strategy that hasn't gotten a lot of attention lately considering how the market has performed over the last year, but in 2022, low volatility was in the headlines. That was a tumultuous year. What's happening in the space right now?
>> I would say that low volatility lost the favour of investors quite a bit recently because people tend to forget risk in stronger markets.
We saw last year and it's continuing this year as well a fairly concentrated market rally.
The market rally has brought it down a bit in cyclical sectors but the overall stocks being left out of the rally are like defence stocks.
Investors are shying away from low volatility strategies.
This is a good time to buy low volatility. If we went back to the 90s, we would have seen in similar conditions in the late 90s, 98 and 99, this probably would have been the best time to get into low volatility or the worst time to get out of it but unfortunately most of the market is quite often thinking about what has done well recently and they focus on this. So I think low volatility is going to be our favourite market additions like these but they are going to come back in favour if there is a market correction at some point.
>> A lot of interesting stuff there, a big mix of strategies. How do you build a team to run all of these kinds of strategies? What kind of backgrounds do you have?
>> So when I joined the team, 17 years ago, 18 years ago, most of the people on the team had backgrounds in financial economics and finance. We'll have Masters degrees and in some cases PhD's.
We had one PhD in physics that was an exception because the person was working on bond models and fixed income models in general and nowadays, I would say that we have diversified the kind of backgrounds quite a bit.
The type of hires that we do on the team tend to have technical backgrounds but in different fields. We have people in computer science, we have an individual who did his PhD in math, we have someone who did a PhD in cognitive sciences so quite an interesting background but spent a few years in finance so they are all familiar with finance quite a bit but unlike our backgrounds from back in the days, we don't necessarily hire people in finance anymore. Sometimes we are joking that I'm not sure that today I would be hiring myself on the team, even though I lead the team, I was lucky to join 17, 18 years ago but today, we look for people who can do a lot of first of all they need to know how to code, that's a mandatory requirement, but the second thing that we are looking at is bringing a diverse set of backgrounds so that we can complete each other when it comes to doing research projects, for example.
So we look for diversity of knowledge and skill sets.
>> That's fascinating stuff and a great start the program. You will get your questions about quantitative and passive investing for Julien Palardy in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We were talking airlines earlier in the show. Let's take a look at Alaska Airlines in the spotlight today.
Right now we are up a little shy of 6%. The air carrier is forecasting annual earnings above Wall Street's forecast pointing to strong travel demand. This optimistic outlook follows a loss for the first quarter, remember Alaska Airlines had that mid air bloat of a panel from its Boeing aircraft during a flight in January and it did costed some money.
Competitors Delta and United airlines are also forecasting a strong summer travel season. Taiwan Semiconductor says it's chip making facilities escape any structural damage from the massive earthquake earlier this month but it adds a did have describe some of the wafers used in the process. Apart from the earthquake, TSMC says a strong AI demand for chips helped it beat estimates on the top and bottom line for its most recent quarter. The stock is down 4%.
US homebuilder DR Horton is handing in and earning speed and raising his full-year sales forecast. US homeowners who have secured long-term interest rates have been reluctant to sell in this market and that has led to a pretty tight market in resale homes and greater demand four new builds from companies such as DR Horton. The stock is up 2.5%.
Quick check on the markets. We will start on Bay Street with the TSX Composite Index.
We got green on the screen today. We are up a little shy of 100 points, 97 points on the board, about half a percent. South of the border, the S&P 500, lots of fits and starts this week. Early part of the session in positive territory and then we fade through the day.
At this lunch our moment, we are up about one third of a percent.
We are back with Julien Palardy, taking your questions about quantitative and passive investing.
First one here for you. What sectors would be considered a low volatility right now?
>> So there are the usual suspects, consumer staples, they are still qualifying. We have had, what we have noticed is that there has been a steady increase in the healthcare sectors in the last couple of years. If you remember there was lots of concerns around drug pricing that increase the volatility of the healthcare sector and those concerns are long gone after COVID. Most of the large pharmaceutical companies have been saviours with their COVID vaccines and since then we have seen a quite significant change in the risk profile of those companies.
Healthcare is definitely one of the low volatility sectors that we have today. Telecommunication services are still part of the low volatility space.
And then I would say even within sectors that are typically more cyclical like financials, you would have insurance companies in there that are, I often call them the consumer staples of financials.
They are much less cyclical than banks or Capital Market exposed banks. Insurance companies are a significant part of low volatility portfolios.
And within those, you will find less cyclical industrials like public service companies or utilities like basic transportation companies, not freight transport but public transit.
These type of companies would still be typical and low volatility portfolios.
Even in tech, you will find some tech companies that are old-school tech as I call them that find their way into low volatility portfolios.
These are typically not going to be large sector exposures. But you will find someone there.
Energy in Canada, pipelines, there's going to be a vast difference between the risk profile of pipelines versus other energy companies that are going to be much more volatile. Pipelines will also quite often make their way into low volatility funds.
>> An interesting basket of sectors. Dimensional to help the show about how in this kind of market environment, given the gains we have seen last year and into this year, low volatility is not exactly in favour.
If somebody is interested in the in the space and doing their homework, what are they looking for?
>> The first thing I would be looking out in the current market conditions is market concentration.
So when it comes to risk it, I know a lot of people talk about the weight of stuff in the market, so the S&P 500 getting or the top five stocks of the S&P 500 capturing a larger and larger portion of the total weight of the S&P 500.
I think the biggest one is the contribution of those stocks due to the risk of the index because risk at the end of the day still matters. I know a lot of people forget about this because the markets are rallying but when the markets come crashing down, the riskier stocks do much worse than the rest of the pack so when hedging your risk and your diversification, it still is important as it always has been in the one thing people should be looking at is how concentrated the risk is in a specific index on a small number of stocks. For example, the top five names in the S&P 500, the account for about 35% of the risk right now, so that's a very high level of concentration. If you outside of the S&P 500, you will see that risk is much more diversified than this.
If you look at MSCI, the US is a big piece of that.
Now the US is about 70% of that.
It means that the concentration that we see on the S&P 500, when it comes to risk, and it's quite close to what we see in MSCI.
The risk for the top five stocks would be 25 to 30%, so it's getting much higher. This would be by far the biggest red flag. The second thing is probably valuations as well.
When we see the type of valuations in the US large cap space, and most importantly the mega-cap space, this is certainly a red flag. This can be sustained for a very long time.
I think this is important. The people of the risk continuously. They don't feel it as much in the markets right now.
>> That's a nice segue into the next viewer question.
Someone wants to know how you are viewing artificial intelligence and the impact it could have on investing.
>> Well, AI is quite interesting is a story because we have done AI, I wouldn't say for a very long time. We have done it for a few years but 25 years ago when we started we used this same statistical techniques that are used today in most neural network models. We have been using regressions, robust regressions as well.
Nowadays, the toolset is a bit more diverse and a bit more complicated as well.
We still use it in our models. One place where we use let's call it AI, certainly largely which models, is in summarizing data and labelling data as well. We use AI or more specifically natural language processing and processing textural data which is something that we started doing recently. For 25 years, we have been using large numerical data but increasingly we are using textual information to add to the insight that we have both in terms of risk and expected returns of stocks. So this is really the space where we use AI the most and then our colleagues would be using AI more for data summaries. So you can imagine that researchers are going to be limited in their capacity to cover a large number of socks so they can use AI to cover a broader range of names than they could typically be able to do.
>> Talked about large language models there. We actually had a question from the audience wondering if those largely which models like ChatGPT could be used for investing in the future?
I guess beyond just giving me the information that's out there, could it start giving us investing suggestions?
>> Before using them to get investing suggestions, I would say the first step is at the very least from our perspective, it is in better understanding, having a better understanding of the data.
So large language models are very good at processing textual information and as a consequence, you can ask large language models like ChatGPT or other models to summarize information or compress it into a smaller set of information that can then be used to assess what's being discussed. You can use this also to turn it into numerical information.
Part of large language models would be analytical which is essentially extracting insight from the language in turning this into a neural format. Then the other part is generative which is coming up with textual answers to questions that people may ask.
The first part, the analytical part, is extremely valuable right now today given the data that's available to us. The generative part is a bit trickier but when it comes to answering questions of analysts that are used to build, that would be a very clear use of generative AI. The other pretty good use would also be in building models as opposed to answering textual questions.
So think about having analysts on our quant team, they want to test specific investment theories. They can ask a largely which model to generate information to test the theory and then improve on that by going into the findings of the test will give. So this is something a bit newer that we are looking into right now. It's really to extend the capacity and abilities of our research team.
>> Fascinating stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to questions for Julien Palardy on quantitative and pass investing at any time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day. If you are looking to test out your trading ideas, what progress tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> Today, we wanted to take our audience through a really useful tool in the web broker platform, specifically in the watchlist. So many of you have probably heard of the watchlist before and know how to create a basic watchlist. We will take a quick look at that but there is also a feature in there that I find really handy for being able to track a paper trading or mock portfolio. Let's jump over to a broker and I will show everyone how that's done.
We go over here and to web broker animal the research tab right now but remember he can go over to the top right and you will see these buttons on there, you can go directly to watchlist from here or you can go to the research tab right here and see under tools you will see watchlist. Weber has the ability to house roughly about 100 particular positions or symbols so you can create basically 10 different lists with 10 different stocks on each list. I've got quite a few created, you can see here.
I have a few that haven't been created. Normally you will notice that they are just called list one nor list five, six, whatever it may be. That typically indicates you have not added symbols there.
If we go to this other list here and start adding symbols, all you have to do is click on the list and then start adding names.
We can add TD, Toronto Dominion, we can add some US stocks as well. If you want to combine them, that's okay also.
Then Apple, Microsoft. Just some random stocks here, no type of recommendation.
Let's say you want to test a strategy. You're not ready to buy a stock but you want to see what might happen if you were to buy the stock. Then go to this far tab on the right that says tracker and now you can enter as if you were buying these stocks today. You can enter whatever price, if you had a previous price you were looking at. To make it more realistic, what you want to do is click on the quantity. Let's say you were thinking of buying 100 shares, you enter in that quantity and then you tab over and put in the average costs.
If you want to make it realistic based on today's price, we can see there is $80.20 Sophia into that in and I put that in here is the price I want to go with.
We you can do the same step for all of the other positions in your watchlist.
It puts in the market value, current market value or book cost which are the same right now. What's going to happen as they were in the start to change and you will see if it was a good decision or bad decision over several days or weeks and it will continue to formulate or calculate the profit and loss on the smoke portfolio.
So that's basically it. It's a great way to use the watchlist tool. Almost like fake trading, you can test out your theories.
>> Our thanks to Bryan Rogers, Senior client education instructor with TD Direct Investing.
For more educational resources, you can check at the learning centre on web broker or you can use this QR code to navigate to the TD Direct Investing YouTube page where you can find some more informative videos.
Before you park your questions about quantitative and passive investing for Julien Palardy, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Julien Palardy and taking questions about quantitative and passive investing. This one just came in.
What is your average target for dividend yield?
>> We don't have a specific target in terms of yield and the reason for this is that it's going to vary through time. Markets move and the dividend yields of the stocks and each one of our investment universe is going to move as well and what we don't want is to target a specific level but then, we don't want the optimizer to do crazy things to achieve it so this comes back down to focusing on quality first. What we do instead is we target in Canada we are going to be targeting the 70th percentile of dividend yield in our space.
In the global market there is more room, more stocks in the space we can achieve a bit more while also achieving our quality objectives and we are going to try to focus on these percentiles which tend to be much more stable through time. So right now this would give us about 1% of our dividend yield in the market and the TSX is a bit higher than this and the global space if I'm not mistaken.
>> Interesting stuff. Another question from the audience.
The viewer says the S&P 500 has been hard to be lately.
What are your thoughts about the future of active investing in large-cap US stocks?
>> Without saying that we are facing exactly the same market conditions, what we are seeing right now is very similar to what we had in the 90s. I'm not sure if Greg you remember, the 90s were the golden age of passive investing. This is really where we saw a massive increase in popularity and passive investing because markets were strong, we had low volatility in the markets as well, we saw a massive increase in inflows and passive investing in passive funds back then.
Unfortunately, all of this culminated in the tech bubble in the early 2000 so and after that we saw were a period of roughly 10 years the losses in the S&P 500.
During the late 90s, we saw a massive increase in market concentration in the following years we saw a period of study D concentration of the index. We are seeing some similarities today and this so even though we are managing a lot of passive funds, I would say that we still have to be careful as to what the index that we are investing in looks like. The S&P 500 has striking similarities to he had back in the late 90s where there was a massive increase in concentration followed by a long period of D concentration.
So during the early 2000's, that came back to the golden age of active investing between 2000 until the crisis. Not impossible that we would face another. Like this where active managers will be able to beat the market much more easily over the last 10 years when the market was extremely difficult to beat and had a very strong risk-adjusted returns.
>> Another question. Some investors like David Einhorn have warned about passive investing's impact on the markets. Your thoughts?
I think this is referring to dislocated impact.
>> I think that's kind of an exaggerated impact. It's important to understand what the impact of passive investing is. Essentially the impact is… The point is by a cross-section of the market, you by outstanding shares issued by companies or floating shares of each company which means that you minimize your impact when you buy into a passive fund. You should have more impact… Now the one thing that is important to you is that has more more money moves to passive investing, as institutional money moves to passive investing, it means there is less money going into active funds and funds that are there to figure out what is the right price for a stock. A member the passive investing, passive funds don't really have an impact on prices but it means that they are not gonna contribute a whole lot to market efficiency.
By having more money move into passive funds and away from active funds, it also means that you leave more room for market inefficiencies to happen and you may be leaving less sophisticated investors also with the job of figuring out was the right price for each stock in the market which might not be helpful for market efficiency. That could be a long-term impact.
Now, it's all about striking the right balance between passive and active because passive has a clear role for institutional investors in the market. It's a low-cost way to get market exposure as well but at the end of the day, you still need some degree of active investing to bring the markets back to where they should be in terms of efficiency.
>> Interesting stuff. Another question here from the audience. The viewer says they've been reading about sector rotation in the markets. When you seeing out there?
>> We have been seeing, there are multiple definitions of sector rotation. First of all, there could be the long-term definition where we have seen the biggest trends actually. So if you think about what we had in 2022 with all the defensive sectors doing extremely well and technology and more cyclical sectors suffered, this shifted when we saw the Fed talking about reaching peak and their monetary policy and seeing inflation reach a peak as well. And then in the tech sector, it started rallying again and then in a fairly concentrated manner. It's not just the sector but some names in consumer discretionary's and communication services as well that rallied, so these were the large-cap names, the Magnificent Seven, that captured a big portion of the market rally in the early 2023 and then we started seeing the rally broadening up a bit more with cyclical stocks capturing part of the momentum in the market and this year we are starting to see the energy sector and materials recapturing also part of the, they are in fact leading the rally in contrast with what we had late last year where they were down slightly.
This means that now we have pretty much everything that's risky out there is participating in the rally but the less risky is stocks are participating less. As we see things turn this month, unfortunately the entire market is down including defensive stocks, let's see if he keeps going this way or if we see that defensive stocks are going to take back their role in protecting against the downside of the market.
We haven't seen this all that much so far. Energy and materials are still ahead of the pack, generally speaking, so let's see if things change. Rotation can be, it's not necessarily only long-term friends, there's gonna be short-term reversals that we may see in the future.
>> Interesting things to watch and the path ahead. We are going to get back to your questions for Julien Palardy on quantitative and passive investing in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And now let's get you updated on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's jump into the heat map function here, a nice picture of the market movers.
We will start with the TSX 60, we are going to look at it by Price and volume. Far and away, you can see the brightest bit of green on the screen is First Quantum, up about 8.5%.
It's been a bumpy ride for this name, with the Cobre Panama mine that has been an overhang but they are getting a bid today.
Across the rest of the space, we have green in the materials, gold on the move higher today, Barrick up about 1.6%, Kinross a little more than a full present and even though the rally in oil has come off a couple of bucks in the last couple days, our big energy names are holding in, whether it's Enbridge, Suncor, Cenovus, TransCanada, TC Energy, about 1% across the board if not more so.
Let's take a look south of the border and hone in on the S&P 100 and see what's happening here. Just want to check my computer here and make sure we still a topline green on the S&P 500.
Indeed, we are still up about 20 points on the S&P 500, if we drill down to the 100 names, we can see that Nvidia, AMD, some tech names outside of the chip space including Meta and Google are making gains but Tesla, this is been a stock to watch for the past well, it was one of the Magnificent Seven but hasn't been so magnificent this year, down 3.5% today.
We are back with Julien Palardy from TD Asset Management. Let's get back to the audience questions.
Someone says, it's not much in the news anymore, but does high-frequency trading still pose a risk to the markets?
>> Well, high-frequency traders are still in the news but people talk about how much money they make.
Interestingly, they make a lot more money now than a few years ago and yet nobody seems to be thinking that it's a risk anymore. A few years ago, there might've been too much hype around it. High-frequency traders are bringing essential services to markets. They allow the efficient transfer of information from one market to another and transfer of liquidity from one market to another. It's an essential role to make sure that markets stay efficient. I know a lot of people back in the days were surprised to see that they could trade in a specific market. They were seeing the changes in another market but that's actually markets being more efficient. So the fact that quotes move around is actually information being integrated faster across markets and this is one of the key objectives of high-frequency traders and this is why they are good at it. This is why they make a lot of money doing that.
>> Interesting stuff there. Before he let you go, I want to hear final thoughts on your mandate, passive, quantitive investment, the kind of environment we are in and where he might be headed.
>> There going to be multiple views around this. I talked about market concentration, so I know low volatility has been out-of-favour but people should never forget about risk and the importance of managing their risk and bonds can sit partly in satisfying subjective but bonds are not always able to protect you against the downside. We saw that in 2022.
Low volatility did externally well, bonds on so much.
It was the opposite in 2020. On the return side of the equation, the systematic approach shouldn't be ignored.
I know a lot of people… The truth is that there is more more data available out there that can and should be used for making decisions and the only way to do it is at some point using systematic models to present this information because there's so much more data available today then there was a few years ago.
You need systematic models and quantitative models to process this information to make investment decisions.
Whether that relies on investment managers that use models to make decisions or if it means using quantitative strategies to make the call on which stocks will outperform and building your portfolios as well while taking risk into account.
I think these things will only rise in importance through time.
On the risk side of the equation, people probably remember that again if we see a significant market correction like what we saw in 2022.
>> Fascinating discussion. Really appreciated you dropping by and joining us on the show. I hope you join us again sometime.
>> It was a pleasure. Anytime you want.
>> We will hold him to his word on that. Julien Palardy, managing Dir. and head of quantitative and passive investing at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
we will be back tomorrow with an update on the markets, highlights of our best interviews of the week.
It's been a busy week. And then stay tuned for Monday's show, Michael Craig, Managing Director and head of asset allocation at TD Asset Management will be our guest, he wants to take your questions about asset allocation. That's all the time we have the show today, thanks for watching and will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss how quantitative and passive investing works and the potential opportunity in this environment. TD Asset Management's Julien Palardy joins us.
And in today's WebBroker education segment, Bryan Rogers is going to shows how you can test out your investing ideas using the platform.
So here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets.
We've got some green on the screen on Bay and Wall Street. We will start here at home with the TSX Composite Index, we are up just five 100 points, about half a percent.
The price of gold making some gain today, the price of oil stabilizing. Amongst most actively traded names out there, Air Canada. You're getting a lot of buzz out of the US airlines think they are expecting a strong summer travel season, seems to be lifting all boats including our major air carrier here in this country.
At $19.73 per share, it's up a little more than 2%.
Let's check in on Suncor Energy.
Pulling back from recent highs. A firmness in energy names including Suncor.
It is up a little shy 1%.
South of the border, it's been day after day of green on the screen in the early part of the session on Wall Street and then it just sort of fades through the day.
So far today during the lunch hour trade, we are up 22 points on the S&P 500, a little shy of half a percent.
Let's check in on the tech heavy NASDAQ. How is it touring against the broader market? Pretty much right in line percentagewise, a little shy of half a percent.
Las Vegas Sands Corporation is down almost 7%. And that's your market update.
From geopolitical risks to concerns about the future path of interest rates, there are no shortage of issues for investors to weigh. Given that backdrop, what role can strategies like quantitative and passive investing play in this environment? Joining us now to discuss, Julien Palardy, Managing Director and head of quantitative and passive investing at TD Asset Management. Welcome.
>> Thanks for the invitation.
>> Since it is your first time on the program, let's give the viewers a bit of an overview of some of the strategy that your team overseas.
>> We have quite a few strategies.
Typically, the strategies are between quantitative and passive and within the quantitative space, you can think of strategies that fit different types of objectives for investors. On one hand, you would have strategies to beat the markets. You would also have risk reduce strategies that focus on reducing risk relative to the market.
Then he would have other I'm not going to say alternative strategies, they are very common, but the objective could be slightly different than just returns or risk, it could be dividend strategies, the goal could be to achieve a strong dividend yield compared to the market or maintain the dividends through time by avoiding… Or growing dividends as well. That's a bit different than pure returns or risk. But it still fits objectives that investors would have.
>> Let's start breaking some of them down. The mission quantitative, passive, dividend strategies. Let's start with the quant side of it.
For some investors, they say they have heard the term quantitative investing, I don't really get what it means.
>> Typically, quantitative strategies are all about and objective using mathematical models. Working with statistics, massaging data and trying to extract from data as much information as possible about future risk of stocks or correlation with stock for the future returns of stocks as well.
It comes down to turning that data into usable information into forecasted returns and then building portfolios around this, that's also an important part of quant strategies.
You want to build portfolios that will allow you to generate either returns as systematically as possible through time or reduce risk in the most possible, robust manner through time as well.
>> That's interesting on the quantitative front.
The passive stuff, how does that differ from quantitative?
>> It's quite different but some of the tools are gonna be fairly similar.
When it comes to passive investing, typically though strategies are going to be tracking a specific index in the goal here is to be as close as possible to the index as time, we try to match this as perfectly as we can.
The outcome that you're going to get is going to be entirely a function of what the index is going to do.
Most of those indices would be cap-weighted but there are indices that are not cap-weighted and they follow specific strategies or recipes. They are kind of quant strategies but on the light side of things.
Typically, a bit simpler than the strategies we have on our team.
There are an increasing number of those indices and passive strategies can be tracking those indices as well. This differs from quant where you have complex models that seek to either outperform the markets or reduce risk.
That's the difference. The tools can be similar, so we have a fairly systematic approach on the entire team across pulp quant and passive, we use optimizes for example, but what comes to passive with the objective of matching specific indices like the S&P 500, for example.
>> Let's talk dividend investing.
I think people will understand how that works. At the same time, I think the question for a while now has been, is this a favourable environment for dividend investing?
>> I would think so. In fact, it could be always a favourable environment for dividend strategies in the long run at the very least. But right now what we face is at least in Canada a situation where it's very likely that the Bank of Canada is going to cut rates this year. We have seen a spread building up between Canadian bond yields and US bond yields so this is a clear indication that the markets expect that there is going to be some divergence to some degree in terms of monetary policies north and south of the border. In this type of environment, the remaining value when going out to find sources of perpetual yield that you can lock in, and this could be given by dividend yielding stocks and the key here is to focus on quantity. He want to make sure that your buying stocks that are not going to cut there dividend in the near future.
If there is a recession, for example, you want those dividends to remain as robust as possible in a downturn so right now is a great opportunity to lock in a yield that is going to be higher than what you could get with government bonds in Canada. The yield could be in the range of 1% above that and hopefully it could be higher for the foreseeable future, let's see if bond yields go down, those dividends will keep getting paid and hopefully can even grow in the future.
>> That's the key point to you I think when it comes to dividend investing, you talk about quality names that will continue to support the dividend. People talk about the space as in here's the dividend now, do they have the history of growing it and will he continue to grow it?
>> Ultimately, there are some key factors when it comes to quality and we do want to head to ETFs that focus on quality. We weeded out from our investment universe the companies that are most likely to cut there dividend or where the dividends are not sustainable and then we have an optimization process where we focus on maximizing the quality of the stocks that we hold subject to a constraint on the yield.
We aren't trying to maximize yield first and then looking for good quality stocks, we really look for the best quality stocks we can get subject to a certain dividend yield that they can allow investors to achieve.
>> Another strategy that hasn't gotten a lot of attention lately considering how the market has performed over the last year, but in 2022, low volatility was in the headlines. That was a tumultuous year. What's happening in the space right now?
>> I would say that low volatility lost the favour of investors quite a bit recently because people tend to forget risk in stronger markets.
We saw last year and it's continuing this year as well a fairly concentrated market rally.
The market rally has brought it down a bit in cyclical sectors but the overall stocks being left out of the rally are like defence stocks.
Investors are shying away from low volatility strategies.
This is a good time to buy low volatility. If we went back to the 90s, we would have seen in similar conditions in the late 90s, 98 and 99, this probably would have been the best time to get into low volatility or the worst time to get out of it but unfortunately most of the market is quite often thinking about what has done well recently and they focus on this. So I think low volatility is going to be our favourite market additions like these but they are going to come back in favour if there is a market correction at some point.
>> A lot of interesting stuff there, a big mix of strategies. How do you build a team to run all of these kinds of strategies? What kind of backgrounds do you have?
>> So when I joined the team, 17 years ago, 18 years ago, most of the people on the team had backgrounds in financial economics and finance. We'll have Masters degrees and in some cases PhD's.
We had one PhD in physics that was an exception because the person was working on bond models and fixed income models in general and nowadays, I would say that we have diversified the kind of backgrounds quite a bit.
The type of hires that we do on the team tend to have technical backgrounds but in different fields. We have people in computer science, we have an individual who did his PhD in math, we have someone who did a PhD in cognitive sciences so quite an interesting background but spent a few years in finance so they are all familiar with finance quite a bit but unlike our backgrounds from back in the days, we don't necessarily hire people in finance anymore. Sometimes we are joking that I'm not sure that today I would be hiring myself on the team, even though I lead the team, I was lucky to join 17, 18 years ago but today, we look for people who can do a lot of first of all they need to know how to code, that's a mandatory requirement, but the second thing that we are looking at is bringing a diverse set of backgrounds so that we can complete each other when it comes to doing research projects, for example.
So we look for diversity of knowledge and skill sets.
>> That's fascinating stuff and a great start the program. You will get your questions about quantitative and passive investing for Julien Palardy in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We were talking airlines earlier in the show. Let's take a look at Alaska Airlines in the spotlight today.
Right now we are up a little shy of 6%. The air carrier is forecasting annual earnings above Wall Street's forecast pointing to strong travel demand. This optimistic outlook follows a loss for the first quarter, remember Alaska Airlines had that mid air bloat of a panel from its Boeing aircraft during a flight in January and it did costed some money.
Competitors Delta and United airlines are also forecasting a strong summer travel season. Taiwan Semiconductor says it's chip making facilities escape any structural damage from the massive earthquake earlier this month but it adds a did have describe some of the wafers used in the process. Apart from the earthquake, TSMC says a strong AI demand for chips helped it beat estimates on the top and bottom line for its most recent quarter. The stock is down 4%.
US homebuilder DR Horton is handing in and earning speed and raising his full-year sales forecast. US homeowners who have secured long-term interest rates have been reluctant to sell in this market and that has led to a pretty tight market in resale homes and greater demand four new builds from companies such as DR Horton. The stock is up 2.5%.
Quick check on the markets. We will start on Bay Street with the TSX Composite Index.
We got green on the screen today. We are up a little shy of 100 points, 97 points on the board, about half a percent. South of the border, the S&P 500, lots of fits and starts this week. Early part of the session in positive territory and then we fade through the day.
At this lunch our moment, we are up about one third of a percent.
We are back with Julien Palardy, taking your questions about quantitative and passive investing.
First one here for you. What sectors would be considered a low volatility right now?
>> So there are the usual suspects, consumer staples, they are still qualifying. We have had, what we have noticed is that there has been a steady increase in the healthcare sectors in the last couple of years. If you remember there was lots of concerns around drug pricing that increase the volatility of the healthcare sector and those concerns are long gone after COVID. Most of the large pharmaceutical companies have been saviours with their COVID vaccines and since then we have seen a quite significant change in the risk profile of those companies.
Healthcare is definitely one of the low volatility sectors that we have today. Telecommunication services are still part of the low volatility space.
And then I would say even within sectors that are typically more cyclical like financials, you would have insurance companies in there that are, I often call them the consumer staples of financials.
They are much less cyclical than banks or Capital Market exposed banks. Insurance companies are a significant part of low volatility portfolios.
And within those, you will find less cyclical industrials like public service companies or utilities like basic transportation companies, not freight transport but public transit.
These type of companies would still be typical and low volatility portfolios.
Even in tech, you will find some tech companies that are old-school tech as I call them that find their way into low volatility portfolios.
These are typically not going to be large sector exposures. But you will find someone there.
Energy in Canada, pipelines, there's going to be a vast difference between the risk profile of pipelines versus other energy companies that are going to be much more volatile. Pipelines will also quite often make their way into low volatility funds.
>> An interesting basket of sectors. Dimensional to help the show about how in this kind of market environment, given the gains we have seen last year and into this year, low volatility is not exactly in favour.
If somebody is interested in the in the space and doing their homework, what are they looking for?
>> The first thing I would be looking out in the current market conditions is market concentration.
So when it comes to risk it, I know a lot of people talk about the weight of stuff in the market, so the S&P 500 getting or the top five stocks of the S&P 500 capturing a larger and larger portion of the total weight of the S&P 500.
I think the biggest one is the contribution of those stocks due to the risk of the index because risk at the end of the day still matters. I know a lot of people forget about this because the markets are rallying but when the markets come crashing down, the riskier stocks do much worse than the rest of the pack so when hedging your risk and your diversification, it still is important as it always has been in the one thing people should be looking at is how concentrated the risk is in a specific index on a small number of stocks. For example, the top five names in the S&P 500, the account for about 35% of the risk right now, so that's a very high level of concentration. If you outside of the S&P 500, you will see that risk is much more diversified than this.
If you look at MSCI, the US is a big piece of that.
Now the US is about 70% of that.
It means that the concentration that we see on the S&P 500, when it comes to risk, and it's quite close to what we see in MSCI.
The risk for the top five stocks would be 25 to 30%, so it's getting much higher. This would be by far the biggest red flag. The second thing is probably valuations as well.
When we see the type of valuations in the US large cap space, and most importantly the mega-cap space, this is certainly a red flag. This can be sustained for a very long time.
I think this is important. The people of the risk continuously. They don't feel it as much in the markets right now.
>> That's a nice segue into the next viewer question.
Someone wants to know how you are viewing artificial intelligence and the impact it could have on investing.
>> Well, AI is quite interesting is a story because we have done AI, I wouldn't say for a very long time. We have done it for a few years but 25 years ago when we started we used this same statistical techniques that are used today in most neural network models. We have been using regressions, robust regressions as well.
Nowadays, the toolset is a bit more diverse and a bit more complicated as well.
We still use it in our models. One place where we use let's call it AI, certainly largely which models, is in summarizing data and labelling data as well. We use AI or more specifically natural language processing and processing textural data which is something that we started doing recently. For 25 years, we have been using large numerical data but increasingly we are using textual information to add to the insight that we have both in terms of risk and expected returns of stocks. So this is really the space where we use AI the most and then our colleagues would be using AI more for data summaries. So you can imagine that researchers are going to be limited in their capacity to cover a large number of socks so they can use AI to cover a broader range of names than they could typically be able to do.
>> Talked about large language models there. We actually had a question from the audience wondering if those largely which models like ChatGPT could be used for investing in the future?
I guess beyond just giving me the information that's out there, could it start giving us investing suggestions?
>> Before using them to get investing suggestions, I would say the first step is at the very least from our perspective, it is in better understanding, having a better understanding of the data.
So large language models are very good at processing textual information and as a consequence, you can ask large language models like ChatGPT or other models to summarize information or compress it into a smaller set of information that can then be used to assess what's being discussed. You can use this also to turn it into numerical information.
Part of large language models would be analytical which is essentially extracting insight from the language in turning this into a neural format. Then the other part is generative which is coming up with textual answers to questions that people may ask.
The first part, the analytical part, is extremely valuable right now today given the data that's available to us. The generative part is a bit trickier but when it comes to answering questions of analysts that are used to build, that would be a very clear use of generative AI. The other pretty good use would also be in building models as opposed to answering textual questions.
So think about having analysts on our quant team, they want to test specific investment theories. They can ask a largely which model to generate information to test the theory and then improve on that by going into the findings of the test will give. So this is something a bit newer that we are looking into right now. It's really to extend the capacity and abilities of our research team.
>> Fascinating stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to questions for Julien Palardy on quantitative and pass investing at any time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day. If you are looking to test out your trading ideas, what progress tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> Today, we wanted to take our audience through a really useful tool in the web broker platform, specifically in the watchlist. So many of you have probably heard of the watchlist before and know how to create a basic watchlist. We will take a quick look at that but there is also a feature in there that I find really handy for being able to track a paper trading or mock portfolio. Let's jump over to a broker and I will show everyone how that's done.
We go over here and to web broker animal the research tab right now but remember he can go over to the top right and you will see these buttons on there, you can go directly to watchlist from here or you can go to the research tab right here and see under tools you will see watchlist. Weber has the ability to house roughly about 100 particular positions or symbols so you can create basically 10 different lists with 10 different stocks on each list. I've got quite a few created, you can see here.
I have a few that haven't been created. Normally you will notice that they are just called list one nor list five, six, whatever it may be. That typically indicates you have not added symbols there.
If we go to this other list here and start adding symbols, all you have to do is click on the list and then start adding names.
We can add TD, Toronto Dominion, we can add some US stocks as well. If you want to combine them, that's okay also.
Then Apple, Microsoft. Just some random stocks here, no type of recommendation.
Let's say you want to test a strategy. You're not ready to buy a stock but you want to see what might happen if you were to buy the stock. Then go to this far tab on the right that says tracker and now you can enter as if you were buying these stocks today. You can enter whatever price, if you had a previous price you were looking at. To make it more realistic, what you want to do is click on the quantity. Let's say you were thinking of buying 100 shares, you enter in that quantity and then you tab over and put in the average costs.
If you want to make it realistic based on today's price, we can see there is $80.20 Sophia into that in and I put that in here is the price I want to go with.
We you can do the same step for all of the other positions in your watchlist.
It puts in the market value, current market value or book cost which are the same right now. What's going to happen as they were in the start to change and you will see if it was a good decision or bad decision over several days or weeks and it will continue to formulate or calculate the profit and loss on the smoke portfolio.
So that's basically it. It's a great way to use the watchlist tool. Almost like fake trading, you can test out your theories.
>> Our thanks to Bryan Rogers, Senior client education instructor with TD Direct Investing.
For more educational resources, you can check at the learning centre on web broker or you can use this QR code to navigate to the TD Direct Investing YouTube page where you can find some more informative videos.
Before you park your questions about quantitative and passive investing for Julien Palardy, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Julien Palardy and taking questions about quantitative and passive investing. This one just came in.
What is your average target for dividend yield?
>> We don't have a specific target in terms of yield and the reason for this is that it's going to vary through time. Markets move and the dividend yields of the stocks and each one of our investment universe is going to move as well and what we don't want is to target a specific level but then, we don't want the optimizer to do crazy things to achieve it so this comes back down to focusing on quality first. What we do instead is we target in Canada we are going to be targeting the 70th percentile of dividend yield in our space.
In the global market there is more room, more stocks in the space we can achieve a bit more while also achieving our quality objectives and we are going to try to focus on these percentiles which tend to be much more stable through time. So right now this would give us about 1% of our dividend yield in the market and the TSX is a bit higher than this and the global space if I'm not mistaken.
>> Interesting stuff. Another question from the audience.
The viewer says the S&P 500 has been hard to be lately.
What are your thoughts about the future of active investing in large-cap US stocks?
>> Without saying that we are facing exactly the same market conditions, what we are seeing right now is very similar to what we had in the 90s. I'm not sure if Greg you remember, the 90s were the golden age of passive investing. This is really where we saw a massive increase in popularity and passive investing because markets were strong, we had low volatility in the markets as well, we saw a massive increase in inflows and passive investing in passive funds back then.
Unfortunately, all of this culminated in the tech bubble in the early 2000 so and after that we saw were a period of roughly 10 years the losses in the S&P 500.
During the late 90s, we saw a massive increase in market concentration in the following years we saw a period of study D concentration of the index. We are seeing some similarities today and this so even though we are managing a lot of passive funds, I would say that we still have to be careful as to what the index that we are investing in looks like. The S&P 500 has striking similarities to he had back in the late 90s where there was a massive increase in concentration followed by a long period of D concentration.
So during the early 2000's, that came back to the golden age of active investing between 2000 until the crisis. Not impossible that we would face another. Like this where active managers will be able to beat the market much more easily over the last 10 years when the market was extremely difficult to beat and had a very strong risk-adjusted returns.
>> Another question. Some investors like David Einhorn have warned about passive investing's impact on the markets. Your thoughts?
I think this is referring to dislocated impact.
>> I think that's kind of an exaggerated impact. It's important to understand what the impact of passive investing is. Essentially the impact is… The point is by a cross-section of the market, you by outstanding shares issued by companies or floating shares of each company which means that you minimize your impact when you buy into a passive fund. You should have more impact… Now the one thing that is important to you is that has more more money moves to passive investing, as institutional money moves to passive investing, it means there is less money going into active funds and funds that are there to figure out what is the right price for a stock. A member the passive investing, passive funds don't really have an impact on prices but it means that they are not gonna contribute a whole lot to market efficiency.
By having more money move into passive funds and away from active funds, it also means that you leave more room for market inefficiencies to happen and you may be leaving less sophisticated investors also with the job of figuring out was the right price for each stock in the market which might not be helpful for market efficiency. That could be a long-term impact.
Now, it's all about striking the right balance between passive and active because passive has a clear role for institutional investors in the market. It's a low-cost way to get market exposure as well but at the end of the day, you still need some degree of active investing to bring the markets back to where they should be in terms of efficiency.
>> Interesting stuff. Another question here from the audience. The viewer says they've been reading about sector rotation in the markets. When you seeing out there?
>> We have been seeing, there are multiple definitions of sector rotation. First of all, there could be the long-term definition where we have seen the biggest trends actually. So if you think about what we had in 2022 with all the defensive sectors doing extremely well and technology and more cyclical sectors suffered, this shifted when we saw the Fed talking about reaching peak and their monetary policy and seeing inflation reach a peak as well. And then in the tech sector, it started rallying again and then in a fairly concentrated manner. It's not just the sector but some names in consumer discretionary's and communication services as well that rallied, so these were the large-cap names, the Magnificent Seven, that captured a big portion of the market rally in the early 2023 and then we started seeing the rally broadening up a bit more with cyclical stocks capturing part of the momentum in the market and this year we are starting to see the energy sector and materials recapturing also part of the, they are in fact leading the rally in contrast with what we had late last year where they were down slightly.
This means that now we have pretty much everything that's risky out there is participating in the rally but the less risky is stocks are participating less. As we see things turn this month, unfortunately the entire market is down including defensive stocks, let's see if he keeps going this way or if we see that defensive stocks are going to take back their role in protecting against the downside of the market.
We haven't seen this all that much so far. Energy and materials are still ahead of the pack, generally speaking, so let's see if things change. Rotation can be, it's not necessarily only long-term friends, there's gonna be short-term reversals that we may see in the future.
>> Interesting things to watch and the path ahead. We are going to get back to your questions for Julien Palardy on quantitative and passive investing in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And now let's get you updated on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's jump into the heat map function here, a nice picture of the market movers.
We will start with the TSX 60, we are going to look at it by Price and volume. Far and away, you can see the brightest bit of green on the screen is First Quantum, up about 8.5%.
It's been a bumpy ride for this name, with the Cobre Panama mine that has been an overhang but they are getting a bid today.
Across the rest of the space, we have green in the materials, gold on the move higher today, Barrick up about 1.6%, Kinross a little more than a full present and even though the rally in oil has come off a couple of bucks in the last couple days, our big energy names are holding in, whether it's Enbridge, Suncor, Cenovus, TransCanada, TC Energy, about 1% across the board if not more so.
Let's take a look south of the border and hone in on the S&P 100 and see what's happening here. Just want to check my computer here and make sure we still a topline green on the S&P 500.
Indeed, we are still up about 20 points on the S&P 500, if we drill down to the 100 names, we can see that Nvidia, AMD, some tech names outside of the chip space including Meta and Google are making gains but Tesla, this is been a stock to watch for the past well, it was one of the Magnificent Seven but hasn't been so magnificent this year, down 3.5% today.
We are back with Julien Palardy from TD Asset Management. Let's get back to the audience questions.
Someone says, it's not much in the news anymore, but does high-frequency trading still pose a risk to the markets?
>> Well, high-frequency traders are still in the news but people talk about how much money they make.
Interestingly, they make a lot more money now than a few years ago and yet nobody seems to be thinking that it's a risk anymore. A few years ago, there might've been too much hype around it. High-frequency traders are bringing essential services to markets. They allow the efficient transfer of information from one market to another and transfer of liquidity from one market to another. It's an essential role to make sure that markets stay efficient. I know a lot of people back in the days were surprised to see that they could trade in a specific market. They were seeing the changes in another market but that's actually markets being more efficient. So the fact that quotes move around is actually information being integrated faster across markets and this is one of the key objectives of high-frequency traders and this is why they are good at it. This is why they make a lot of money doing that.
>> Interesting stuff there. Before he let you go, I want to hear final thoughts on your mandate, passive, quantitive investment, the kind of environment we are in and where he might be headed.
>> There going to be multiple views around this. I talked about market concentration, so I know low volatility has been out-of-favour but people should never forget about risk and the importance of managing their risk and bonds can sit partly in satisfying subjective but bonds are not always able to protect you against the downside. We saw that in 2022.
Low volatility did externally well, bonds on so much.
It was the opposite in 2020. On the return side of the equation, the systematic approach shouldn't be ignored.
I know a lot of people… The truth is that there is more more data available out there that can and should be used for making decisions and the only way to do it is at some point using systematic models to present this information because there's so much more data available today then there was a few years ago.
You need systematic models and quantitative models to process this information to make investment decisions.
Whether that relies on investment managers that use models to make decisions or if it means using quantitative strategies to make the call on which stocks will outperform and building your portfolios as well while taking risk into account.
I think these things will only rise in importance through time.
On the risk side of the equation, people probably remember that again if we see a significant market correction like what we saw in 2022.
>> Fascinating discussion. Really appreciated you dropping by and joining us on the show. I hope you join us again sometime.
>> It was a pleasure. Anytime you want.
>> We will hold him to his word on that. Julien Palardy, managing Dir. and head of quantitative and passive investing at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
we will be back tomorrow with an update on the markets, highlights of our best interviews of the week.
It's been a busy week. And then stay tuned for Monday's show, Michael Craig, Managing Director and head of asset allocation at TD Asset Management will be our guest, he wants to take your questions about asset allocation. That's all the time we have the show today, thanks for watching and will see you tomorrow.
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