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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today show, MoneyTalk's Anthony Okolie is going to take us from the latest job supports both here in Canada and in the United States. Noted hedge fund manager Cliff Asness will give us a take on whether the 60-40 portfolio still works in this environment and we will discuss whether better days are ahead for the biotech sector with TD Asset Management's Jared Ablass. Plus in today's education segment, Jason Hnatyk will shows how you can customize the Advanced Dashboard platform to see your needs.
Before we get to all that and our guest of the day, let's get you an update on the markets. The TSX Composite Index is down about 20 points.
Shopify showed a big pop earlier in the session. It is off its highs.
It is about 2%. First Quantum was showing some strength earlier.
It's been a tough ride for this name since last fall. Today it is gaining about 3.8%.
Since the the border, the S&P 500, at first we saw stocks in positive territory after the jobs report. Nvidia is pulling back today.
At 5148, the S&P 500 is down a modest nine points.
The tech heavy NASDAQ pulling back from recent highs. It is down a very modest 27 points or a little more than 1/10 of a percent.
I want to show you Royal Caribbean cruise.
It's an interesting story.
Some of the crew stocks are getting a bit today. Another interesting story about Royal Caribbean, they have the Icon of the Seas, the world's largest cruise ship, apparently it this week it was on its way from Miami to Honduras when it rescued 14 people from a small vessel adrift in the sea. These are nonmaterial developments for the name but an interesting story nonetheless. And that's your market update.
It is jobs Friday this morning. We've got fresh reads on the labour market on both sides of the border.
Joining us now to break down the details is MoneyTalk's Anthony Okolie. What we see?
>> In Canada, very strong jobs numbers.
Shows that Canada was off to a pretty good start.
We added about 41,000 jobs were created, that more than double consensus estimates.
I think you have to look under the details and you will see it is less upbeat than the headline print.
As I mentioned, 41,000 jobs created. The unemployment rate ticked up .1 percentage points month over month to 5.8%, that is the first drop in more than one year.
The participation rate was just over 65%.
When we look at the population growth, it massively outweighed the gains that we saw in jobs for the 13th straight month, causing the total number of unemployment to rise. When we dig into some of the numbers, all the jobs were geared towards full-time. That's positive.
But you skewed towards public-sector jobs and mostly volatile self-employment workers. We saw part-time jobs fall by about 30,000 positions.
Breaking it down by sector, we saw gains driven by the service sector, largely in accommodation and food services.
We saw declines in educational services.
When it comes to total hours worked, it was up .3% month over month while average hourly earnings were permanent workers slowed to 4.9%, that is down from just over 5% in January and 5.7% in December.
These numbers on the margins we positive for the Bank of Canada.
>> Let's talk about the American example.
There jobs numbers came in. We watch it carefully.
>> It was a pretty strong jobs report for the US in February.
The points we saw a easing wage gains which signals that there is a potential prospect for a soft landing in the US.
Headline print, 275,000 jobs were added versus 200,000 estimated. But we have to take this into consideration that we saw the previous months jobs numbers were down really revised in January was revised downward by 167,000 jobs.
Also the unemployment rate edged up .2% to 3.9%, that is the highest number in two years.
We saw average hourly earnings coming down to 0.1% month over month, that's down from .5% in January. On the margins, it will be positive for the Fed.
>> Let's talk about the central bank. As they look at these numbers and so do others comedy think it changes their idea about when the cuts might be coming?
>> I think the BOC and the Fed are not going to change course based on these reports alone.
The fact that the labour market is still resilient despite high interest rates means that the Bank of Canada and the Fed still have some time to wait to see what other reports show before they pull the trigger on interest rate.
The Bank of Canada has made it clear that it needs to see core inflation, which currently is stuck at the mid-3% level, they have two and see that coming down towards the 2% target before they will look to cut rates. Right now, markets are pricing in odds of a rate cut in June of this year. When it comes to the Fed, they are focused on inflation. They have been downplaying growth and I think this jobs report will play second fiddle to the inflation report that is coming out next week. I think that will take on more importance for the Fed. Right now, TD Economics things that by July, they should have enough confidence that inflation is coming down that they will look to cut interest rates.
>> That's a big one to watch for next week. I have it down for Tuesday morning.
Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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 have shares of Costco in the spotlight today. Let's take a look.
The retailer to grow sales and its e-commerce business during the all-important holiday quarter. Yet, the stock is pulling back 7%. The result, even though they showed growth, fell short of Wall Street expectations and the shares of Costco had reached a fresh 52-week high before that earnings release.
It was being priced to perfection and the street found something that I didn't think was perfect. Algonquin Power & Utilities is among the most actively traded names on the TSX Composite Index today. What's going on? The percent of the upside, the utility swung to an adjusted profit in its most recent quarter despite an 11% pullback in revenue.
Algonquin's interim CEO expects this year to be a transition year for the company.
The parent company of Old Navy, the gap and Banana Republic easily beat earnings expectations for the all-important holiday quarter.
It was actually sales at Old Navy that were stand out for those three months, they grew by 6%. Across the business gross margins improved as they saw lower input costs and fewer price marked as. Put it all together, you got Gap Inc. at $20 and change her share, up almost 4%. A quick check in on the market. On Bay Street, let's take a look at what we've got on our hands. We are down a modest 13 points, less than 1/10 of a percent.
South of the border, investors looked at jobs numbers, and videos showing weakness today, we have been told that the market breath is widening but AI has been a big driver.
It's taking a bit of a pause in pullback today, the S&P 500 down a modest five points or 1/10 of a percent.
Among the big stories this week is the Bank of Canada holding rate steady yet again. Gov. Tiff Macklem saying it's too early to discuss cuts just yet. Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management joined me earlier to discuss.
>> Where the markets have gone and what the banks have them push back against is that cuts are coming but the question is when and in what magnitude. In that perspective, what we heard from the Bank of Canada today, similar to the Fed, is that they lean more to being patient before cutting and they don't want to be in a situation where they have cut too early and are stoking another re-acceleration in inflation.
That would be the worst outcome from their perspective.
So yeah, I think they are in a situation where they can stay at this high policy rate. They have guided already to not hiking more beyond the current levels, we are staying at this 5% level, just letting it work its way through.
They need to see more evidence that inflation is sustainably turning back towards 2%.
>> They seem to be concerned with underlying inflation.
They recognize that housing inflation is a big part of this to you but there are other parts they are not comfortable with and it's going to be a choppy ride. This seems to indicate that they are pushing it out further and further but the market still feels that by June, they will probably be in a position to cut.
>> Yeah, yes, there is housing inflation, but one concern they have been highlighting his wage growth.
We have these persistently tight labour markets, unemployment not moving up much since last year, that does create these concerns that the stickiness and core inflation, the 3 to 4% area we are seeing, could persist and if wage growth stays in that 45% area, that will make it tougher for inflation to come back to 2%.
The flipside is that in June, right now, the market is pricing in an 80% chance of a cut in June, and that is based on the idea that inflation could still come down enough that these adjustment cuts can start coming into play. We are going from 5% to a little bit below 5%, that still well above their neutral level, that still restrictive monetary policy but those adjustments can start to be made.
>> Would we expect, once they do start to move and if it is June, that we start to see cuts at every meeting after that?
Perhaps not huge cuts but they start to realize, now it's time to bring it back down.
>> That's where the market got ahead of itself of the beginning of the year, they were pricey and cuts in Keewatin and cutting it every meeting after that. I think with the economic data coming in fairly resilient recently with the growth outlook still pretty strong and the employment market strong the idea that the first cut would start you cuts after that but I think there has been an acknowledgement that it might not be a very rapid rate cut cycle unless there is some big shock so the base case scenario is that growth is staying a little bit above 0% and inflation is gradually coming down, we could see some pauses here and there so that they can make sure that there's, the cuts are not causing inflation to start to rebound, especially knowing that housing has already started to rebound a little bit so I think that's going to be the main thing they are looking for.
>> It wasn't rate decision day from the Fed but we did hear from Jerome Powell in his testimony to lawmakers, preaching his mantra, give it time to work its way through.
And the market said, yeah, we know.
>> Pretty consistent with other Fed speakers that have come out recently, be patient. I think in the US is particularly more notable that growth right now is trending and more like 3% GDP growth so that's above potential GDP growth, unlike in Canada, where we are at the 0 to 1% area. So for the US, we will see where the job numbers, but it's definitely more of a risk that we could see wage growth resisting perhaps even rebounding.
So I think there is a lot more justifiable that the Fed has to be patient.
But even at a 5 1/2% policy rate, this idea that some adjustment cut started in June is reasonable because the momentum of inflation certainly has turned since November and I think that's reasonably reflected in the market prices.
>> With the US economy behaving the strongly, performing this robustly despite having rates at this level, is there an argument to be made that perhaps the neutral rate for the United States is much higher than we think it is? If the economy is doing well like this, what's the rationale to start cutting?
>> I think that's a great point.
We have seen that in some market pricing already where the terminal rate after the market cuts are done is not one to 2% anymore 2 1/2, it's really north of 3% so I think there's still some debate happening in the market without lands. The Fed themselves, we will see at the end of March. Their dog law, how they are viewing that. But there is definitely the idea that the neutral rate is three, 3 1/2%.
That would mean that bond yields in general, it's a lot more difficult to get to the pre-pandemic levels where they were sub- 2%.
I think it definitely shows that there is a lot more strength in the growth picture, a lot less interest rates evidence activity in the US. They can term out their mortgages to 30 years, corporate have been terming a debt so the amount of interest rate sensitivity and vulnerability to higher rates is not as much as it used to be. I think it's harder in Canada where people have five-year mortgage rates and there's a little more sensitivity there, so we should see this divergence in our two economies persisting.
>> Put it all together, what does it mean?
>> I think the starting point at the beginning of the year was after a really strong rally and bond yields that were perhaps in a bit more of a range of what we are starting to see in terms of Canadian bond yields is somewhere in Canadian 10 year bond yields in the 3 to 3.7% range.
And so we have seen about a 20, 25 basis point increase in yields this year, just reflecting stronger growth, and pushing rate cuts out a little bit from those aggressive levels that we were seeing. So I think at this point, we are in a bit of a range because it's hard to break down below 3% and 10 year yields for Canada unless we see a growth shock and all the flipside, it's hard to get meaningfully closer to 4% levels that we saw last year what inflation is still behaving okay. So it's kind of a range trip. What that means for fixed income investors is that you can still earn a decent level of income with some amount of volatility there but the income is really our main driver returned going forward and still pretty attractive.
>> That was Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management.
Now, let's get our educational segment of the day.
Users of TD's Advanced Dashboard can customize the platform to better suit their needs. Joining us now with more is Jason Hnatyk, Senior client education instructor at TD Direct Investing.
Always great to see you. Walk us through it all.
>> Great to be here, as always. In Advanced Dashboard, one of the key things that sets it apart is its ability to customize the experience. There is no one-size-fits-all trader and Advanced Dashboard learns from that. There is no one-size-fits-all approach to get the most out of it. Let's jump into the platform and look at some of the ways we can make it our own.
What jumps out to me first is the colour of the platform.
There is a dark and a light theme. Users can choose the settings wrench at the top of the page and there is a light theme and a dark theme that you can follow through.
One of the more visual aspects here is my watchlist on the left-hand side, it's a bit of a Griswold Christmas.
If you didn't want that to be is so loud and blinking you have the opportunity to change the display to something other than that to tone it down a little bit.
Let's start making this platform our own.
We can do that by creating our own lands at the top of the page. There is a layout manager at the top of the page.
There is a plus button that's going to get you to the same place regardless of which way you navigate to the system.
Let's do this. The custom layout tab is where we are going to start. There are three different layout opportunities that you have a chance to choose from. We get into the depth in our master classes but I'm going to go in and use our flexsheet option.
We have too quickly it's here. One that is simple and one that's maybe a bit more involved.
I'm going to name the first one news. One layout component. As I add that in, we have the blank canvas with the plus button in the middle. This is rugged to choose exactly what I want to see on the screen.
I named it news, so guess what I want to have on the screen? I will look in our news and markets category and add marketwide use.
Now I can go get that news. You can create a chapter order status or charts or maybe even the heat maps that you show on this program.
We are back on camera here.
Sorry. Okay, let's keep going.
Let's go back and make one that's a little bit more involved, something more than just needs.
I'm gonna stick with custom layout, go back into flexsheet and you will have the chance to choose between more involved layers of the bottom.
I'm going to choose this one with three columns. We will name it MT for MoneyTalk.
Once we have this layout, we have the choice of three separate components to add into our lives. Maybe you will choose something like watchlist on the left.
Click our plus button, under trading option is watchlist where we can choose between our save watchlist. Maybe in the middle we want to put a chart. And let's stick with news on the right-hand side.
I've been able to craft a layout for myself it's going to allow me to keep my eyes on a bunch of different stocks, I can get into a bit of analysis on the price history and I can see what's affecting the companies themselves.
There is one last bit of customization that we need to make. I want to get these three components talking with each other.
I can do that by selecting this channel configuration button at the top the chart.
I want to go ahead and send my watchlist information over to my chart which is going to be received there as well is received on my views if I go ahead and choose the symbol for my watchlist, let's choose Apple, my chart is updating now, I have Apple specific news all on one page.
Untold possibilities in terms of the layouts you can make your and Advanced Dashboard this going to make your trading easier and quicker to execute.
>> Lots of functionality there. A lot of options as well. If you want to learn more about customization, where do we go?
>> Yeah, good point.
You want to look at some of our resources to hit the finer points.
In the platform, we have some premade videos that are here for your use. If we jump back in we can see at the top of everybody's experience there is going to be a learned tab. Here we have a curated list of really helpful and insightful and targeted videos with regards to Advanced Dashboard, an introduction video, there is one here and customizing your experience just like we did as well as some of the key tools in the popper.
But support doesn't stop there. We jump into WebBroker here, I'm on the learned tab at the top of the page. I want to highlight the opportunity to join our interactive live master classes with instructors like myself.
Not just about Advanced Dashboard but many topics, but we teach one hour classes on key aspects of Advanced Dashboard and customization is one of them. That's interesting to you, get into the learned tab and we would love to see you at a future date.
>> Great stuff as always. We will see you Monday for the whole show.
>> You got it. Looking forward to it.
>> Looking forward to it as well. Talk you Monday.
>> Same to you.
>> Our thanks to Jason Hnatyk, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
And of course, as we were saying, Jason is going to join us for the whole show on MoneyTalk Live, he's going to answer your questions about how to get more out of my broker and Advanced Dashboard.
You want to get in on that one.
Equity markets have reached record highs recently and it's been a rough two year stretch for the biotech sector. At Jared Ablass, VP, portfolio research at TD Asset Management joined as earlier to discuss.
>> I have a chart here to demonstrate what we are seeing. If you look up until 2022, it had been a pretty strong performer.
What you are seeing here is the ex-BDI biotech Index, an equal weight composition, about 120 companies in the US all biotech's north of 500 million market cap and a very sharp drawdown. In that red, what you have is a 60% drawdown over two years which is actually the largest for this index as far back as we have data which goes back 2008, 2009. Sharp drawdown. What you have in the green line is the US 10 year interest rate inverse on the left axis there.
You see a pretty sharp correlation. As far as whether rates decrease in good health, and absolutely looks like that but I want to give you context as far as what drove that sharp downturn.
Really the same driver but you can Parsippany different ways. I would say first you had a flight to quality. The stocks are performing during this period are your large-caps like United Health, Johnson & Johnson, Merck. This is a small Tilt being equal weight on the ex-BDI so that took a toll on the total. Secondly, you had the duration impact. A lot of these are research companies that may become out of university, pre-revenue in a lot of cases, not even just not earning money but pre-revenue, so discounting a drug that is not going to make it to the market for 5+ years, that takes a toll when you put the high interest rate denominator for evaluation calculation and then the third piece I would say is you've got funding impact where these companies are negative free cash flow and uses Equity markets, whether it's equity or follow-on, to keep themselves going and that really dried up the last couple of years.
>> That chart you showed, that correlation, I was like, what is that? And I was like okay, that's the inverse 10 year bond yield.
We are in a position over the market is awaiting rate cuts. Is that something that could help turn the sector around?
>> Absolutely. I would say fingers crossed. These are choppy data points.
Funding is looking good in 2024. In January was up 200% year-over-year. That's IPOs plus follow-on funding.
Role to February and the number held, it was up to hundred percent again, up another 20% from January. If those numbers hold, we would be on track in Q1 four levels back to kind of 2021 peak as far as fundraising ability.
So certainly the decrease in rates as investors were willing to lend their money to these types of companies.
And if you want to kind of gauge sentiments and what we are seeing, you can look at market response to when companies raise money and what I would point out is Denali therapeutics, sub- $5 billion company, burning money in cash, doing a lot of interesting research in the neurological space, they announced a $500 million private investment public equity.
The stock was up 40% on the day.
Clearly you have appetite for these companies to raise cash. The other aspect we haven't talked about is M&A. It does factory and when these companies are looking for an exit to raise money, often they are selling themselves to large Pharma and the back half of 2023 really picked up with a couple of big deals that I would highly, Amgen close their acquisition of horizon, $30 billion deal for an American disease manufacturer, and the big one was Pfizer trying to get over the downturn of COVID and now they are trying to find another revenue stream to backfill the COVID vaccine, spent $40 billion on see Jen for their targeted oncology therapeutic.
>> We talk about perhaps a smaller company not on that list, get swallowed up through M&A activities, is that the story of the IPO picture, the health of it for the sector? Because there are different ways of getting out there.
>> Not only through acquisition, there's a lot of licensing that happens. There has been a lot of activity in the space of GLP-1. An example would be AstraZeneca, they have gone to China to license a GLP-1. A lot of activity, companies have been able to access funding but certainly up taking in the last six months.
>> We are going to talk with these drugs, you mentioned weight loss once, this is been an interesting space where there has been activity in the market. Fresh news today out of Novo Nordisk because not only are they saying we have one drug now that promotes weight loss, they keep testing new ones and they are saying at first glance they are more effective.
>> Super interesting day for Novo Nordisk today.
They showed data for their oral next-generation asset that showed 13% weight loss at 12 weeks. And that is in line with best in class injectables. So if you can do that in an oral format, it's very attractive.
The question is to be seen how it's going to work. You need a lot of the drug content in your system being every day rather than once weekly so manufacturing will be a question but certainly an attractive proposition. I did bring a chart there is well on the obesity companies. It's really Novo Nordisk and Eli Lilly leading the charge. You can see in the top chart that it's the total returns for these two companies.
There is multiple expansion. Eli Lilly is now just south of 60×12 month earnings which is the attack multiple, it's a bit nerve racking for a Pharma analyst but the bottom plot is what I would draw your attention to, that's the consensus 2025 estimate for sales and how that civil going back to 2019. What you are seeing is what brokers were thinking about 40 years ago, they now had to revise up their estimates by double in the case of Novo Nordisk and 70%-ish in the case of Eli Lilly.
These are real launches that are meaningful drugs and like you said, they are delivering follow one's that can lose 20% plus of body weight.
>> The clearest definition is up into the right. What's the risk here? Someone shows up with an even more effective drug?
>> Definitely the risk is other ones getting involved. You have Amgen, Pfizer is trying out orals.
All told, there is something like 40 companies working on this, over 100 candidates in the pipeline. Another thing is it's really early. We had multiple expansion on the proposition of losing weight which is very attractive. 100 million people in the US are obese.
Now we are seeing things words not only weight loss that matters but it's also in August you had Novo Nordisk show a 20% benefit to you cardiovascular risk, stroke, heart attack, 20% reduction in that risk from taking a GLP-1.
We've seen positive data on fatty liver disease, we've seen positive data on orthopedics and joint pain, positive data on osteoarthritis and sleep apnea as well.
It's very broad reaching and they are not sure whether this same mechanism will work as well so it's early and we will see what these companies come up with.
>> That was Jared Ablass, VP of portfolio research at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a PlatForm designed for active traders available through TD Direct Investing. This is the heat map function, gives us a view of the market movers. We are going to look at the TSX 60 by Price and volume. On a headline basis, we are modestly negative on the TSX at this hour, we are down about 10 points, not all that much.
You see there's not a lot of green on the screen. Shopify at 2 1/2%, it was firmer earlier in the session. I think it was five or six at the open.
You got First Quantum Algonquin to the upside but a lot of not even red just stocks that are laying there flat. CNQ down, Suncor down a little less than half a percent. Fairly substantial pullback in Cameco, uranium play that got a bid the other day, pulling back about 5% right now.
South of the border, we got jobs data on both sides of the border.
We were in positive territory now it's mixed. Let's dig into the S&P 100.
It's a mixed bag for the tech names, Nvidia, Intel, AMD, the chipmakers to the downside but Apple, Google some other tech plays getting a bit of a bid. We were just hearing from Jared Ablass on the healthcare stocks.
If we get into the healthcare sector, we have green on the screen including Pfizer, up about 1/2%.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
Aggressive central bank rate hikes, we've been talking about them for a while. Of course, they did put the traditional 60-40 portfolio strategy into question but with the prospect of lower interest rates ahead, is the 60-40 making a comeback? I'd a chance to discuss that with noted hedge fund manager Cliff Asness, managing and founding principal and Chief Investment Officer Dan Chornous AQR Capital.
>> The outlook for 60-40, my colleague, he is finished, he's been a friend for more than 30 years, he's an HR partner, he's our guru on long-term excited returns. He wrote a book on this about a low future return environment. The end of 2020 when it came out.
Sometimes lock is better than skills, not that is not skilful, a global 60-40 portfolio has made about 4 1/2% overinflation over 100 years. To some people that doesn't sound like a lot but it 40% bonds in your subtracting inflation so it's a very healthy return. He saw it at the end of 2021 it was poised to be call at 1 1/2 to 2. Nobody knows exactly what this number should be. I come from academic finance and no one there does, but one and 1/2 seemed insanely low.
Now he got very lucky because of course the worst year for 60-40 and about 50 years happened immediately after that book. Roll forward to today with the interest rate back up, his number is probably a little bit under but close to 3%. That is a reasonable return on a global 60-40. I would not try to make a big call, at 1 1/2, no one has great market timing, I wouldn't say next Thursday is going down but I would say it's not going to last. At three, we think 60-40 is not as attractive maybe as the last hundred years but probably pretty reasonable.
>> Along those lines, I was on your website in recent days, there was a research paper published a few weeks ago that some of our viewers took an interest in about the value of bonds in a portfolio.
>> It depends what you can do.
The standard logic, the logic I disagree with, is a long-term investor can tolerate volatility so they should be all in equities.
Let's go back. Academic theory can sometimes lead you astray. Sometimes the world is more complicated.
Sometimes I can help in this is a place I think it can help.
If you take a finance class, not talking about anything hard, but first your finance and an MBA program. You learn about the efficient frontier. You're supposed to invest in the best combination, if it's just stocks and bonds, let's limited to that, the best culmination of the two, meaning the highest return for the risk-taking, and if you are and an aggressive investor can tolerate risk, you're supposed to apply leverage to that. Turns out that theory actually has worked exceptionally well practically for 100+ years. I wrote a paper on it in 1996. It's held up for the last 28 years, so there are investors who can do 100% equities. The risk there is that… You need to borrow about $0.30 to lever up 60-40 for a similar risk and in my view a long-term higher expected return because you're starting with about a portfolio, portfolio with more return for the risk-taking, and particularly when bull markets have been going on for a while, you see a proliferation of the everybody should be 100% equity papers and not that it's terrible advice but I think you can do better.
>> Interesting set. A QR is known as an innovator in the hedge fund space. Let's talk about that, the rule of hedge funds in a portfolio.
>> The key to any hedge fund, and many of them don't do this, so this is what I think the cut key should be, it can you create a decently positive average return that's not very correlated in fact, in a very good case, uncorrelated to 60-40, to stocks and bonds?
Geek speak uncorrelated means you tell me what habits to stocks and bonds in your, my guess is the same for what happened to us, we made some money. Not that we will make money every year, but I don't learn about from the stock market.
It's a diversify. I think you can do that.
Now, I get a little on the one hand versus the other, I equivocate a little on this with empirical research. We wrote a paper, you will notice I start a lot of sentences with we write a lot of paper, we wrote one call do hedge funds hedge, showing the average hedge fund has a point a correlation to stocks. That is very high.
That means they are not doing what I said, trying to create something uncorrelated.
But we do think there are many things. In the quantitative world, quality, momentum, value, low risk investing, that all can go long some stocks, short some stocks and in the long term create a premium. We are not the only ones to do it by any means but we do think the hedge fund industry generally is not delivering this but we do think it is deliverable.
>> When I think about a hedge fund and longshore strategy, it's basically the fact that the market is not perfect.
If the market was perfect, he wouldn't need to go there.
You're looking at imperfections and investing around that.
>> That's absolutely true. The cochair of my dissertation committee was a Guy named Jean. Jean is justifiably the Godfather, demigod, whatever you want to call him of efficient market theory.
Jean is not an absolute is. He doesn't think markets are perfectly efficient but he's pretty far on that spectrum that I wrote her dissertation for him, maybe the scariest thing I ever had to do in a meeting was to go into Jean's office, Jean was very nice so it wasn't that that made him scary, but tell him I wanted to write a dissertation which I then did on what is called the price momentum strategy.
It's a childish strategy. You buy what's been going up at the last 6 to 12 months, he so it's been going down.
Annoyingly to fans of efficient market theory, it's also an effective strategy.
It's not all you want to do, a lot of strategies that are more call them rational help also but I had to tell Jean I want to write a dissertation on price momentum and then I mumbled the second part.
And I find it works really well. He was like, what was that? I was like, it works really well.
Not that this is about Jean but to give him a prop, he said words that sounded religious to me.
He said, if it's in the data, write the paper. Meaning I don't care if I like it, if it's true, you write the paper.
My view on efficient markets is I don't think they are perfect, I think there are some systematic ways to exploit them not being perfect. I probably think they are more perfect than the average active manager, that might be Jean's influence on me, and I think they are less perfect and probably Jean thinks.
Maybe my most controversial opinion is that I think they have gotten actually less perfect over my career, call it 30 years. Most people assume with technology getting better and data being instantaneous… >> That think she get more efficient.
>> In some ways they do. A strategy that is dependent on speed happens fast, prices react faster to new information, but even 30 years ago, we were minutes after the announcement so now we are nanoseconds.
It's not that big a difference in terms of grant efficiency.
When it comes to actually pricing things accurately, having more information can sometimes lead people astray. The most extreme example, I'm not saying this is the norm, is the US meme stock example.
That was in large part driven by people's belief that they knew would all just from a web search.
I think we have seen this probably the two biggest bubbles in the data, you can tell another perfect student because I do believe there have been bubbles, they don't like that word, the end of the 90s, the.com bubble, and then 19 and 20 culminating in COVID. So we have seen the two most extreme differentials between cheap and expensive stocks as we measure them in the past 20+ years looking at about a 70 year history so the data also supports this idea that maybe we have gone a little less efficient.
That is both good and bad news for active managers. It's good news because if you make your money from inefficiencies and they are bare, there should be more money to be made but it also makes it harder to stick with. It means those deviations can be bigger and last longer and that's it.
Where the whole world things your domineer clients kind of get mad at you.
I find this to be, not the world because what I think is fair, but a pretty fair trade-off.
It is harder to do but probably more lucrative going forward, if I'm right.
>> This is an opportunity for us to talk about value opportunity in stocks.
>> First in the quantitative world, the academic world, value is kind of misnamed.
It's almost always price compared to some fundamental, price-to-book, price to sales, price to cash flow, price-to-earnings.
To an old-school investor, that's not value.
Value is in the context of the profitability, the growth opportunities, how risky it is, a set of other things.
The funny part is this has caused all kinds of arguments between the two when they are really doing the same things.
Quantitative's and academics have just labelled this thing that I think probably should have been called the low price factor the value factor and then they have a profitability factor. So they get to the same place but huge risk mitigation. When I say value, I mean do low multiple stocks eat high multiple stocks? On average they do. You can do better than that incorporating these other things but on average they do.
One thing you can't measure which no one had, we were the first to do this back in 1999, two or three bubbles ago, was no one to my knowledge had looked at the magnitude of the difference meeting the standard academic approach was too short stocks on your favourite measure of value, go long in the low multiples in short the high multiples and see how well you did.
No one had at least publicly to our knowledge at that point asked all right, sometimes those multiples might be all similar and sometimes they might be very different and is the opportunity better when they are different? We do fine and this can be argued but we do believe the opportunity is better when there are bigger differences. Go to the opposite extreme, imagine everything is priced near the same. Not a lot of value opportunities going on.
The biggest river so that differential was March 2008, blew away prior ones and then a few months after COVID, October, November 2020 20 Blew Away in March of 2000.
It was the 100th percentile. I sometimes joke it was the 120th percentile.
You're laughing, I appreciate that because a lot of people don't get the joke because it's a math joke, there is no 120th percentile.
What I convey with that is a substantial difference. We have seen that number, it's bumpy, some months it retreat, but it has rather steadily, in over the last few years. Even last year, considered a lousy year for value, was really about the Magnificent Seven. If you do value in a systematic way, 1000 stocks you like, 1000 you don't like around the world, it's still a good year for value. The last I looked which was about three days ago, so if anything radical happened we may have to amend.
>> We are locked in this room here.
>> I don't mean to be overly precise but we are down to about the 83rd percentile verses yesterday. That's not the same. We have come way down because remember there was a new hundred, it was way up there so we've had a substantial move in in that spread but it is still certainly on the very wide side versus history.
So it could retreat, these are not short-term predictors. We don't make giant calls on this even at the maximum we did a rather small tilts more value. We still like it, we still think has a way to go.
We would still do a little more value than you would normally do because that spread matters. You're getting a better deal than normal.
The fact that we can have 3 1/2 really strong years on net, not every month, but is value factor and still be in the 83rd percentile is a testimony to how extreme it had gotten. The starting point was really just, I don't like using the word crazy too much about markets, Jean again, I'm nervous he will hear it and get mad at me, but I think it got pretty crazy by the end of 2020.
>> That was Cliff Asness, managing and founding principal and chief investment all for the of AQR Capital.
You want to stay tuned for Monday show, Jason Hnatyk, senior client education instructor with TD Direct Investing will be our guest the whole show, answering your questions what WebBroker creating a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching. Have a great weekend. We will see you on Monday.
[music]
coming up on today show, MoneyTalk's Anthony Okolie is going to take us from the latest job supports both here in Canada and in the United States. Noted hedge fund manager Cliff Asness will give us a take on whether the 60-40 portfolio still works in this environment and we will discuss whether better days are ahead for the biotech sector with TD Asset Management's Jared Ablass. Plus in today's education segment, Jason Hnatyk will shows how you can customize the Advanced Dashboard platform to see your needs.
Before we get to all that and our guest of the day, let's get you an update on the markets. The TSX Composite Index is down about 20 points.
Shopify showed a big pop earlier in the session. It is off its highs.
It is about 2%. First Quantum was showing some strength earlier.
It's been a tough ride for this name since last fall. Today it is gaining about 3.8%.
Since the the border, the S&P 500, at first we saw stocks in positive territory after the jobs report. Nvidia is pulling back today.
At 5148, the S&P 500 is down a modest nine points.
The tech heavy NASDAQ pulling back from recent highs. It is down a very modest 27 points or a little more than 1/10 of a percent.
I want to show you Royal Caribbean cruise.
It's an interesting story.
Some of the crew stocks are getting a bit today. Another interesting story about Royal Caribbean, they have the Icon of the Seas, the world's largest cruise ship, apparently it this week it was on its way from Miami to Honduras when it rescued 14 people from a small vessel adrift in the sea. These are nonmaterial developments for the name but an interesting story nonetheless. And that's your market update.
It is jobs Friday this morning. We've got fresh reads on the labour market on both sides of the border.
Joining us now to break down the details is MoneyTalk's Anthony Okolie. What we see?
>> In Canada, very strong jobs numbers.
Shows that Canada was off to a pretty good start.
We added about 41,000 jobs were created, that more than double consensus estimates.
I think you have to look under the details and you will see it is less upbeat than the headline print.
As I mentioned, 41,000 jobs created. The unemployment rate ticked up .1 percentage points month over month to 5.8%, that is the first drop in more than one year.
The participation rate was just over 65%.
When we look at the population growth, it massively outweighed the gains that we saw in jobs for the 13th straight month, causing the total number of unemployment to rise. When we dig into some of the numbers, all the jobs were geared towards full-time. That's positive.
But you skewed towards public-sector jobs and mostly volatile self-employment workers. We saw part-time jobs fall by about 30,000 positions.
Breaking it down by sector, we saw gains driven by the service sector, largely in accommodation and food services.
We saw declines in educational services.
When it comes to total hours worked, it was up .3% month over month while average hourly earnings were permanent workers slowed to 4.9%, that is down from just over 5% in January and 5.7% in December.
These numbers on the margins we positive for the Bank of Canada.
>> Let's talk about the American example.
There jobs numbers came in. We watch it carefully.
>> It was a pretty strong jobs report for the US in February.
The points we saw a easing wage gains which signals that there is a potential prospect for a soft landing in the US.
Headline print, 275,000 jobs were added versus 200,000 estimated. But we have to take this into consideration that we saw the previous months jobs numbers were down really revised in January was revised downward by 167,000 jobs.
Also the unemployment rate edged up .2% to 3.9%, that is the highest number in two years.
We saw average hourly earnings coming down to 0.1% month over month, that's down from .5% in January. On the margins, it will be positive for the Fed.
>> Let's talk about the central bank. As they look at these numbers and so do others comedy think it changes their idea about when the cuts might be coming?
>> I think the BOC and the Fed are not going to change course based on these reports alone.
The fact that the labour market is still resilient despite high interest rates means that the Bank of Canada and the Fed still have some time to wait to see what other reports show before they pull the trigger on interest rate.
The Bank of Canada has made it clear that it needs to see core inflation, which currently is stuck at the mid-3% level, they have two and see that coming down towards the 2% target before they will look to cut rates. Right now, markets are pricing in odds of a rate cut in June of this year. When it comes to the Fed, they are focused on inflation. They have been downplaying growth and I think this jobs report will play second fiddle to the inflation report that is coming out next week. I think that will take on more importance for the Fed. Right now, TD Economics things that by July, they should have enough confidence that inflation is coming down that they will look to cut interest rates.
>> That's a big one to watch for next week. I have it down for Tuesday morning.
Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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 have shares of Costco in the spotlight today. Let's take a look.
The retailer to grow sales and its e-commerce business during the all-important holiday quarter. Yet, the stock is pulling back 7%. The result, even though they showed growth, fell short of Wall Street expectations and the shares of Costco had reached a fresh 52-week high before that earnings release.
It was being priced to perfection and the street found something that I didn't think was perfect. Algonquin Power & Utilities is among the most actively traded names on the TSX Composite Index today. What's going on? The percent of the upside, the utility swung to an adjusted profit in its most recent quarter despite an 11% pullback in revenue.
Algonquin's interim CEO expects this year to be a transition year for the company.
The parent company of Old Navy, the gap and Banana Republic easily beat earnings expectations for the all-important holiday quarter.
It was actually sales at Old Navy that were stand out for those three months, they grew by 6%. Across the business gross margins improved as they saw lower input costs and fewer price marked as. Put it all together, you got Gap Inc. at $20 and change her share, up almost 4%. A quick check in on the market. On Bay Street, let's take a look at what we've got on our hands. We are down a modest 13 points, less than 1/10 of a percent.
South of the border, investors looked at jobs numbers, and videos showing weakness today, we have been told that the market breath is widening but AI has been a big driver.
It's taking a bit of a pause in pullback today, the S&P 500 down a modest five points or 1/10 of a percent.
Among the big stories this week is the Bank of Canada holding rate steady yet again. Gov. Tiff Macklem saying it's too early to discuss cuts just yet. Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management joined me earlier to discuss.
>> Where the markets have gone and what the banks have them push back against is that cuts are coming but the question is when and in what magnitude. In that perspective, what we heard from the Bank of Canada today, similar to the Fed, is that they lean more to being patient before cutting and they don't want to be in a situation where they have cut too early and are stoking another re-acceleration in inflation.
That would be the worst outcome from their perspective.
So yeah, I think they are in a situation where they can stay at this high policy rate. They have guided already to not hiking more beyond the current levels, we are staying at this 5% level, just letting it work its way through.
They need to see more evidence that inflation is sustainably turning back towards 2%.
>> They seem to be concerned with underlying inflation.
They recognize that housing inflation is a big part of this to you but there are other parts they are not comfortable with and it's going to be a choppy ride. This seems to indicate that they are pushing it out further and further but the market still feels that by June, they will probably be in a position to cut.
>> Yeah, yes, there is housing inflation, but one concern they have been highlighting his wage growth.
We have these persistently tight labour markets, unemployment not moving up much since last year, that does create these concerns that the stickiness and core inflation, the 3 to 4% area we are seeing, could persist and if wage growth stays in that 45% area, that will make it tougher for inflation to come back to 2%.
The flipside is that in June, right now, the market is pricing in an 80% chance of a cut in June, and that is based on the idea that inflation could still come down enough that these adjustment cuts can start coming into play. We are going from 5% to a little bit below 5%, that still well above their neutral level, that still restrictive monetary policy but those adjustments can start to be made.
>> Would we expect, once they do start to move and if it is June, that we start to see cuts at every meeting after that?
Perhaps not huge cuts but they start to realize, now it's time to bring it back down.
>> That's where the market got ahead of itself of the beginning of the year, they were pricey and cuts in Keewatin and cutting it every meeting after that. I think with the economic data coming in fairly resilient recently with the growth outlook still pretty strong and the employment market strong the idea that the first cut would start you cuts after that but I think there has been an acknowledgement that it might not be a very rapid rate cut cycle unless there is some big shock so the base case scenario is that growth is staying a little bit above 0% and inflation is gradually coming down, we could see some pauses here and there so that they can make sure that there's, the cuts are not causing inflation to start to rebound, especially knowing that housing has already started to rebound a little bit so I think that's going to be the main thing they are looking for.
>> It wasn't rate decision day from the Fed but we did hear from Jerome Powell in his testimony to lawmakers, preaching his mantra, give it time to work its way through.
And the market said, yeah, we know.
>> Pretty consistent with other Fed speakers that have come out recently, be patient. I think in the US is particularly more notable that growth right now is trending and more like 3% GDP growth so that's above potential GDP growth, unlike in Canada, where we are at the 0 to 1% area. So for the US, we will see where the job numbers, but it's definitely more of a risk that we could see wage growth resisting perhaps even rebounding.
So I think there is a lot more justifiable that the Fed has to be patient.
But even at a 5 1/2% policy rate, this idea that some adjustment cut started in June is reasonable because the momentum of inflation certainly has turned since November and I think that's reasonably reflected in the market prices.
>> With the US economy behaving the strongly, performing this robustly despite having rates at this level, is there an argument to be made that perhaps the neutral rate for the United States is much higher than we think it is? If the economy is doing well like this, what's the rationale to start cutting?
>> I think that's a great point.
We have seen that in some market pricing already where the terminal rate after the market cuts are done is not one to 2% anymore 2 1/2, it's really north of 3% so I think there's still some debate happening in the market without lands. The Fed themselves, we will see at the end of March. Their dog law, how they are viewing that. But there is definitely the idea that the neutral rate is three, 3 1/2%.
That would mean that bond yields in general, it's a lot more difficult to get to the pre-pandemic levels where they were sub- 2%.
I think it definitely shows that there is a lot more strength in the growth picture, a lot less interest rates evidence activity in the US. They can term out their mortgages to 30 years, corporate have been terming a debt so the amount of interest rate sensitivity and vulnerability to higher rates is not as much as it used to be. I think it's harder in Canada where people have five-year mortgage rates and there's a little more sensitivity there, so we should see this divergence in our two economies persisting.
>> Put it all together, what does it mean?
>> I think the starting point at the beginning of the year was after a really strong rally and bond yields that were perhaps in a bit more of a range of what we are starting to see in terms of Canadian bond yields is somewhere in Canadian 10 year bond yields in the 3 to 3.7% range.
And so we have seen about a 20, 25 basis point increase in yields this year, just reflecting stronger growth, and pushing rate cuts out a little bit from those aggressive levels that we were seeing. So I think at this point, we are in a bit of a range because it's hard to break down below 3% and 10 year yields for Canada unless we see a growth shock and all the flipside, it's hard to get meaningfully closer to 4% levels that we saw last year what inflation is still behaving okay. So it's kind of a range trip. What that means for fixed income investors is that you can still earn a decent level of income with some amount of volatility there but the income is really our main driver returned going forward and still pretty attractive.
>> That was Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management.
Now, let's get our educational segment of the day.
Users of TD's Advanced Dashboard can customize the platform to better suit their needs. Joining us now with more is Jason Hnatyk, Senior client education instructor at TD Direct Investing.
Always great to see you. Walk us through it all.
>> Great to be here, as always. In Advanced Dashboard, one of the key things that sets it apart is its ability to customize the experience. There is no one-size-fits-all trader and Advanced Dashboard learns from that. There is no one-size-fits-all approach to get the most out of it. Let's jump into the platform and look at some of the ways we can make it our own.
What jumps out to me first is the colour of the platform.
There is a dark and a light theme. Users can choose the settings wrench at the top of the page and there is a light theme and a dark theme that you can follow through.
One of the more visual aspects here is my watchlist on the left-hand side, it's a bit of a Griswold Christmas.
If you didn't want that to be is so loud and blinking you have the opportunity to change the display to something other than that to tone it down a little bit.
Let's start making this platform our own.
We can do that by creating our own lands at the top of the page. There is a layout manager at the top of the page.
There is a plus button that's going to get you to the same place regardless of which way you navigate to the system.
Let's do this. The custom layout tab is where we are going to start. There are three different layout opportunities that you have a chance to choose from. We get into the depth in our master classes but I'm going to go in and use our flexsheet option.
We have too quickly it's here. One that is simple and one that's maybe a bit more involved.
I'm going to name the first one news. One layout component. As I add that in, we have the blank canvas with the plus button in the middle. This is rugged to choose exactly what I want to see on the screen.
I named it news, so guess what I want to have on the screen? I will look in our news and markets category and add marketwide use.
Now I can go get that news. You can create a chapter order status or charts or maybe even the heat maps that you show on this program.
We are back on camera here.
Sorry. Okay, let's keep going.
Let's go back and make one that's a little bit more involved, something more than just needs.
I'm gonna stick with custom layout, go back into flexsheet and you will have the chance to choose between more involved layers of the bottom.
I'm going to choose this one with three columns. We will name it MT for MoneyTalk.
Once we have this layout, we have the choice of three separate components to add into our lives. Maybe you will choose something like watchlist on the left.
Click our plus button, under trading option is watchlist where we can choose between our save watchlist. Maybe in the middle we want to put a chart. And let's stick with news on the right-hand side.
I've been able to craft a layout for myself it's going to allow me to keep my eyes on a bunch of different stocks, I can get into a bit of analysis on the price history and I can see what's affecting the companies themselves.
There is one last bit of customization that we need to make. I want to get these three components talking with each other.
I can do that by selecting this channel configuration button at the top the chart.
I want to go ahead and send my watchlist information over to my chart which is going to be received there as well is received on my views if I go ahead and choose the symbol for my watchlist, let's choose Apple, my chart is updating now, I have Apple specific news all on one page.
Untold possibilities in terms of the layouts you can make your and Advanced Dashboard this going to make your trading easier and quicker to execute.
>> Lots of functionality there. A lot of options as well. If you want to learn more about customization, where do we go?
>> Yeah, good point.
You want to look at some of our resources to hit the finer points.
In the platform, we have some premade videos that are here for your use. If we jump back in we can see at the top of everybody's experience there is going to be a learned tab. Here we have a curated list of really helpful and insightful and targeted videos with regards to Advanced Dashboard, an introduction video, there is one here and customizing your experience just like we did as well as some of the key tools in the popper.
But support doesn't stop there. We jump into WebBroker here, I'm on the learned tab at the top of the page. I want to highlight the opportunity to join our interactive live master classes with instructors like myself.
Not just about Advanced Dashboard but many topics, but we teach one hour classes on key aspects of Advanced Dashboard and customization is one of them. That's interesting to you, get into the learned tab and we would love to see you at a future date.
>> Great stuff as always. We will see you Monday for the whole show.
>> You got it. Looking forward to it.
>> Looking forward to it as well. Talk you Monday.
>> Same to you.
>> Our thanks to Jason Hnatyk, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
And of course, as we were saying, Jason is going to join us for the whole show on MoneyTalk Live, he's going to answer your questions about how to get more out of my broker and Advanced Dashboard.
You want to get in on that one.
Equity markets have reached record highs recently and it's been a rough two year stretch for the biotech sector. At Jared Ablass, VP, portfolio research at TD Asset Management joined as earlier to discuss.
>> I have a chart here to demonstrate what we are seeing. If you look up until 2022, it had been a pretty strong performer.
What you are seeing here is the ex-BDI biotech Index, an equal weight composition, about 120 companies in the US all biotech's north of 500 million market cap and a very sharp drawdown. In that red, what you have is a 60% drawdown over two years which is actually the largest for this index as far back as we have data which goes back 2008, 2009. Sharp drawdown. What you have in the green line is the US 10 year interest rate inverse on the left axis there.
You see a pretty sharp correlation. As far as whether rates decrease in good health, and absolutely looks like that but I want to give you context as far as what drove that sharp downturn.
Really the same driver but you can Parsippany different ways. I would say first you had a flight to quality. The stocks are performing during this period are your large-caps like United Health, Johnson & Johnson, Merck. This is a small Tilt being equal weight on the ex-BDI so that took a toll on the total. Secondly, you had the duration impact. A lot of these are research companies that may become out of university, pre-revenue in a lot of cases, not even just not earning money but pre-revenue, so discounting a drug that is not going to make it to the market for 5+ years, that takes a toll when you put the high interest rate denominator for evaluation calculation and then the third piece I would say is you've got funding impact where these companies are negative free cash flow and uses Equity markets, whether it's equity or follow-on, to keep themselves going and that really dried up the last couple of years.
>> That chart you showed, that correlation, I was like, what is that? And I was like okay, that's the inverse 10 year bond yield.
We are in a position over the market is awaiting rate cuts. Is that something that could help turn the sector around?
>> Absolutely. I would say fingers crossed. These are choppy data points.
Funding is looking good in 2024. In January was up 200% year-over-year. That's IPOs plus follow-on funding.
Role to February and the number held, it was up to hundred percent again, up another 20% from January. If those numbers hold, we would be on track in Q1 four levels back to kind of 2021 peak as far as fundraising ability.
So certainly the decrease in rates as investors were willing to lend their money to these types of companies.
And if you want to kind of gauge sentiments and what we are seeing, you can look at market response to when companies raise money and what I would point out is Denali therapeutics, sub- $5 billion company, burning money in cash, doing a lot of interesting research in the neurological space, they announced a $500 million private investment public equity.
The stock was up 40% on the day.
Clearly you have appetite for these companies to raise cash. The other aspect we haven't talked about is M&A. It does factory and when these companies are looking for an exit to raise money, often they are selling themselves to large Pharma and the back half of 2023 really picked up with a couple of big deals that I would highly, Amgen close their acquisition of horizon, $30 billion deal for an American disease manufacturer, and the big one was Pfizer trying to get over the downturn of COVID and now they are trying to find another revenue stream to backfill the COVID vaccine, spent $40 billion on see Jen for their targeted oncology therapeutic.
>> We talk about perhaps a smaller company not on that list, get swallowed up through M&A activities, is that the story of the IPO picture, the health of it for the sector? Because there are different ways of getting out there.
>> Not only through acquisition, there's a lot of licensing that happens. There has been a lot of activity in the space of GLP-1. An example would be AstraZeneca, they have gone to China to license a GLP-1. A lot of activity, companies have been able to access funding but certainly up taking in the last six months.
>> We are going to talk with these drugs, you mentioned weight loss once, this is been an interesting space where there has been activity in the market. Fresh news today out of Novo Nordisk because not only are they saying we have one drug now that promotes weight loss, they keep testing new ones and they are saying at first glance they are more effective.
>> Super interesting day for Novo Nordisk today.
They showed data for their oral next-generation asset that showed 13% weight loss at 12 weeks. And that is in line with best in class injectables. So if you can do that in an oral format, it's very attractive.
The question is to be seen how it's going to work. You need a lot of the drug content in your system being every day rather than once weekly so manufacturing will be a question but certainly an attractive proposition. I did bring a chart there is well on the obesity companies. It's really Novo Nordisk and Eli Lilly leading the charge. You can see in the top chart that it's the total returns for these two companies.
There is multiple expansion. Eli Lilly is now just south of 60×12 month earnings which is the attack multiple, it's a bit nerve racking for a Pharma analyst but the bottom plot is what I would draw your attention to, that's the consensus 2025 estimate for sales and how that civil going back to 2019. What you are seeing is what brokers were thinking about 40 years ago, they now had to revise up their estimates by double in the case of Novo Nordisk and 70%-ish in the case of Eli Lilly.
These are real launches that are meaningful drugs and like you said, they are delivering follow one's that can lose 20% plus of body weight.
>> The clearest definition is up into the right. What's the risk here? Someone shows up with an even more effective drug?
>> Definitely the risk is other ones getting involved. You have Amgen, Pfizer is trying out orals.
All told, there is something like 40 companies working on this, over 100 candidates in the pipeline. Another thing is it's really early. We had multiple expansion on the proposition of losing weight which is very attractive. 100 million people in the US are obese.
Now we are seeing things words not only weight loss that matters but it's also in August you had Novo Nordisk show a 20% benefit to you cardiovascular risk, stroke, heart attack, 20% reduction in that risk from taking a GLP-1.
We've seen positive data on fatty liver disease, we've seen positive data on orthopedics and joint pain, positive data on osteoarthritis and sleep apnea as well.
It's very broad reaching and they are not sure whether this same mechanism will work as well so it's early and we will see what these companies come up with.
>> That was Jared Ablass, VP of portfolio research at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a PlatForm designed for active traders available through TD Direct Investing. This is the heat map function, gives us a view of the market movers. We are going to look at the TSX 60 by Price and volume. On a headline basis, we are modestly negative on the TSX at this hour, we are down about 10 points, not all that much.
You see there's not a lot of green on the screen. Shopify at 2 1/2%, it was firmer earlier in the session. I think it was five or six at the open.
You got First Quantum Algonquin to the upside but a lot of not even red just stocks that are laying there flat. CNQ down, Suncor down a little less than half a percent. Fairly substantial pullback in Cameco, uranium play that got a bid the other day, pulling back about 5% right now.
South of the border, we got jobs data on both sides of the border.
We were in positive territory now it's mixed. Let's dig into the S&P 100.
It's a mixed bag for the tech names, Nvidia, Intel, AMD, the chipmakers to the downside but Apple, Google some other tech plays getting a bit of a bid. We were just hearing from Jared Ablass on the healthcare stocks.
If we get into the healthcare sector, we have green on the screen including Pfizer, up about 1/2%.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
Aggressive central bank rate hikes, we've been talking about them for a while. Of course, they did put the traditional 60-40 portfolio strategy into question but with the prospect of lower interest rates ahead, is the 60-40 making a comeback? I'd a chance to discuss that with noted hedge fund manager Cliff Asness, managing and founding principal and Chief Investment Officer Dan Chornous AQR Capital.
>> The outlook for 60-40, my colleague, he is finished, he's been a friend for more than 30 years, he's an HR partner, he's our guru on long-term excited returns. He wrote a book on this about a low future return environment. The end of 2020 when it came out.
Sometimes lock is better than skills, not that is not skilful, a global 60-40 portfolio has made about 4 1/2% overinflation over 100 years. To some people that doesn't sound like a lot but it 40% bonds in your subtracting inflation so it's a very healthy return. He saw it at the end of 2021 it was poised to be call at 1 1/2 to 2. Nobody knows exactly what this number should be. I come from academic finance and no one there does, but one and 1/2 seemed insanely low.
Now he got very lucky because of course the worst year for 60-40 and about 50 years happened immediately after that book. Roll forward to today with the interest rate back up, his number is probably a little bit under but close to 3%. That is a reasonable return on a global 60-40. I would not try to make a big call, at 1 1/2, no one has great market timing, I wouldn't say next Thursday is going down but I would say it's not going to last. At three, we think 60-40 is not as attractive maybe as the last hundred years but probably pretty reasonable.
>> Along those lines, I was on your website in recent days, there was a research paper published a few weeks ago that some of our viewers took an interest in about the value of bonds in a portfolio.
>> It depends what you can do.
The standard logic, the logic I disagree with, is a long-term investor can tolerate volatility so they should be all in equities.
Let's go back. Academic theory can sometimes lead you astray. Sometimes the world is more complicated.
Sometimes I can help in this is a place I think it can help.
If you take a finance class, not talking about anything hard, but first your finance and an MBA program. You learn about the efficient frontier. You're supposed to invest in the best combination, if it's just stocks and bonds, let's limited to that, the best culmination of the two, meaning the highest return for the risk-taking, and if you are and an aggressive investor can tolerate risk, you're supposed to apply leverage to that. Turns out that theory actually has worked exceptionally well practically for 100+ years. I wrote a paper on it in 1996. It's held up for the last 28 years, so there are investors who can do 100% equities. The risk there is that… You need to borrow about $0.30 to lever up 60-40 for a similar risk and in my view a long-term higher expected return because you're starting with about a portfolio, portfolio with more return for the risk-taking, and particularly when bull markets have been going on for a while, you see a proliferation of the everybody should be 100% equity papers and not that it's terrible advice but I think you can do better.
>> Interesting set. A QR is known as an innovator in the hedge fund space. Let's talk about that, the rule of hedge funds in a portfolio.
>> The key to any hedge fund, and many of them don't do this, so this is what I think the cut key should be, it can you create a decently positive average return that's not very correlated in fact, in a very good case, uncorrelated to 60-40, to stocks and bonds?
Geek speak uncorrelated means you tell me what habits to stocks and bonds in your, my guess is the same for what happened to us, we made some money. Not that we will make money every year, but I don't learn about from the stock market.
It's a diversify. I think you can do that.
Now, I get a little on the one hand versus the other, I equivocate a little on this with empirical research. We wrote a paper, you will notice I start a lot of sentences with we write a lot of paper, we wrote one call do hedge funds hedge, showing the average hedge fund has a point a correlation to stocks. That is very high.
That means they are not doing what I said, trying to create something uncorrelated.
But we do think there are many things. In the quantitative world, quality, momentum, value, low risk investing, that all can go long some stocks, short some stocks and in the long term create a premium. We are not the only ones to do it by any means but we do think the hedge fund industry generally is not delivering this but we do think it is deliverable.
>> When I think about a hedge fund and longshore strategy, it's basically the fact that the market is not perfect.
If the market was perfect, he wouldn't need to go there.
You're looking at imperfections and investing around that.
>> That's absolutely true. The cochair of my dissertation committee was a Guy named Jean. Jean is justifiably the Godfather, demigod, whatever you want to call him of efficient market theory.
Jean is not an absolute is. He doesn't think markets are perfectly efficient but he's pretty far on that spectrum that I wrote her dissertation for him, maybe the scariest thing I ever had to do in a meeting was to go into Jean's office, Jean was very nice so it wasn't that that made him scary, but tell him I wanted to write a dissertation which I then did on what is called the price momentum strategy.
It's a childish strategy. You buy what's been going up at the last 6 to 12 months, he so it's been going down.
Annoyingly to fans of efficient market theory, it's also an effective strategy.
It's not all you want to do, a lot of strategies that are more call them rational help also but I had to tell Jean I want to write a dissertation on price momentum and then I mumbled the second part.
And I find it works really well. He was like, what was that? I was like, it works really well.
Not that this is about Jean but to give him a prop, he said words that sounded religious to me.
He said, if it's in the data, write the paper. Meaning I don't care if I like it, if it's true, you write the paper.
My view on efficient markets is I don't think they are perfect, I think there are some systematic ways to exploit them not being perfect. I probably think they are more perfect than the average active manager, that might be Jean's influence on me, and I think they are less perfect and probably Jean thinks.
Maybe my most controversial opinion is that I think they have gotten actually less perfect over my career, call it 30 years. Most people assume with technology getting better and data being instantaneous… >> That think she get more efficient.
>> In some ways they do. A strategy that is dependent on speed happens fast, prices react faster to new information, but even 30 years ago, we were minutes after the announcement so now we are nanoseconds.
It's not that big a difference in terms of grant efficiency.
When it comes to actually pricing things accurately, having more information can sometimes lead people astray. The most extreme example, I'm not saying this is the norm, is the US meme stock example.
That was in large part driven by people's belief that they knew would all just from a web search.
I think we have seen this probably the two biggest bubbles in the data, you can tell another perfect student because I do believe there have been bubbles, they don't like that word, the end of the 90s, the.com bubble, and then 19 and 20 culminating in COVID. So we have seen the two most extreme differentials between cheap and expensive stocks as we measure them in the past 20+ years looking at about a 70 year history so the data also supports this idea that maybe we have gone a little less efficient.
That is both good and bad news for active managers. It's good news because if you make your money from inefficiencies and they are bare, there should be more money to be made but it also makes it harder to stick with. It means those deviations can be bigger and last longer and that's it.
Where the whole world things your domineer clients kind of get mad at you.
I find this to be, not the world because what I think is fair, but a pretty fair trade-off.
It is harder to do but probably more lucrative going forward, if I'm right.
>> This is an opportunity for us to talk about value opportunity in stocks.
>> First in the quantitative world, the academic world, value is kind of misnamed.
It's almost always price compared to some fundamental, price-to-book, price to sales, price to cash flow, price-to-earnings.
To an old-school investor, that's not value.
Value is in the context of the profitability, the growth opportunities, how risky it is, a set of other things.
The funny part is this has caused all kinds of arguments between the two when they are really doing the same things.
Quantitative's and academics have just labelled this thing that I think probably should have been called the low price factor the value factor and then they have a profitability factor. So they get to the same place but huge risk mitigation. When I say value, I mean do low multiple stocks eat high multiple stocks? On average they do. You can do better than that incorporating these other things but on average they do.
One thing you can't measure which no one had, we were the first to do this back in 1999, two or three bubbles ago, was no one to my knowledge had looked at the magnitude of the difference meeting the standard academic approach was too short stocks on your favourite measure of value, go long in the low multiples in short the high multiples and see how well you did.
No one had at least publicly to our knowledge at that point asked all right, sometimes those multiples might be all similar and sometimes they might be very different and is the opportunity better when they are different? We do fine and this can be argued but we do believe the opportunity is better when there are bigger differences. Go to the opposite extreme, imagine everything is priced near the same. Not a lot of value opportunities going on.
The biggest river so that differential was March 2008, blew away prior ones and then a few months after COVID, October, November 2020 20 Blew Away in March of 2000.
It was the 100th percentile. I sometimes joke it was the 120th percentile.
You're laughing, I appreciate that because a lot of people don't get the joke because it's a math joke, there is no 120th percentile.
What I convey with that is a substantial difference. We have seen that number, it's bumpy, some months it retreat, but it has rather steadily, in over the last few years. Even last year, considered a lousy year for value, was really about the Magnificent Seven. If you do value in a systematic way, 1000 stocks you like, 1000 you don't like around the world, it's still a good year for value. The last I looked which was about three days ago, so if anything radical happened we may have to amend.
>> We are locked in this room here.
>> I don't mean to be overly precise but we are down to about the 83rd percentile verses yesterday. That's not the same. We have come way down because remember there was a new hundred, it was way up there so we've had a substantial move in in that spread but it is still certainly on the very wide side versus history.
So it could retreat, these are not short-term predictors. We don't make giant calls on this even at the maximum we did a rather small tilts more value. We still like it, we still think has a way to go.
We would still do a little more value than you would normally do because that spread matters. You're getting a better deal than normal.
The fact that we can have 3 1/2 really strong years on net, not every month, but is value factor and still be in the 83rd percentile is a testimony to how extreme it had gotten. The starting point was really just, I don't like using the word crazy too much about markets, Jean again, I'm nervous he will hear it and get mad at me, but I think it got pretty crazy by the end of 2020.
>> That was Cliff Asness, managing and founding principal and chief investment all for the of AQR Capital.
You want to stay tuned for Monday show, Jason Hnatyk, senior client education instructor with TD Direct Investing will be our guest the whole show, answering your questions what WebBroker creating a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching. Have a great weekend. We will see you on Monday.
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