Ariel's Take on the Markets

Connor Young: Hello. I'm Connor Young with Morningstar. I'm here today with Rupal Bhansali, manager of Ariel International Fund and Ariel Global Fund.

Rupal, thanks for joining me.

Rupal Bhansali: Happy to be here.

Young: So, global stocks have risen in 2019, but there's certainly issues investors are worried about. What is your take on the markets today?

Bhansali: Well, Connor, like Morningstar, we care about managing the risk-adjusted returns, not just returns. And I believe the market is simply not paying sufficient attention to risks, and many are growing. In particular, I think, the markets are disregarding balance-sheet risk. There's so much focus on earnings risk: Did a company meet earnings? Beat earnings? Miss earnings? And yet, few people think about: Did a company have difficulty repaying debt? Or will it have difficulty in repaying debt?Refinancing debt? And I think balance-sheet risk is the biggest risk facing the markets because corporates worldwide have gone on a debt binge.

In addition to that, I think we have economic risk and macro risks because the world economy is slowing down. There is a very dramatic slowdown in Europe, led by Germany, and I think that's going to cross over to the rest of the world. And I think, in that context, it would be well advised--investors would be well advised to invest in more of the defensive portions of the market and the noncyclical portions of the market. For example, our portfolios are particularly overweight sectors like telecommunications, which we think is a new consumer staple, and we are underweight cyclicals such as industrials, materials, banks, because they tend to suffer a whole lot more when the economy slows down.

Young: Rupal, thanks for your insights.

Bhansali: Thank you.

Young: For Morningstar, I'm Connor Young. Thanks for watching.