See the 360 degree version of the video below.
Russ Kinnel: Hi, I'm Russ Kinnel. I'm director of manager research for Morningstar. Today's Friday. We're wrapping up our investment conference and I have five random thoughts that I would share with you from some of the speakers we've heard.
Number one, Larry Fink, CEO of BlackRock, pointing out that with the passive management--of course BlackRock owns iShares--with passive management, you actually have to be more active in dealing with corporations. That is, a passive manager doesn't have the stick of selling the stock if they don't like what's going on. All they can do is lobby with the companies and vote their proxies. He makes an interesting point that in that realm, they actually have to be more active.
My second thought from Sonal Desai of Franklin Templeton, she thinks investors are too complacent about the risks of inflation, that we can well hit 3% inflation rate, which is significantly above what the market's expectations are.
Thought number three from Dan Ivascyn, CIO of PIMCO. He points out that he expects some Fed rate hikes, maybe three this year, but next year is a real big unknown for the Fed because we don't know if Trump will support Yellen for another term. We don't even know who's going to be running the Fed, so there's a very big unknown looming out there with the Fed.
Another point that Ivascyn made, I asked him about PIMCO Income dealing with asset bloat. It's a very big fund these days and it's always a little tricky to understand with a wide-ranging bond fund, what is it's capacity? It's not nearly as easy to understand that as with equities. Ivascyn says he feels good about where it is and he points out a couple of things: One, the fund only has one separate account. Typically, a lot of big bond funds will have separate accounts to the order of two or three times the magnitude of their fund AUM, so he points out that's not the case here. He also points out that PIMCO as a whole has had its AUM shrink substantially since Bill Gross left, so he feels like that's a little added capacity. Finally, he points out that there's some fairly liquid credit derivatives that they've long used at the fund that give them a lot of flexibility in managing flows as well.
Finally, I'll go back to BlackRock, but this time Rick Rieder, who leads their bond efforts. Rick Rieder said one of the biggest risks out there for the markets is that debt has really come back, both on a consumer and a corporate level. If the Fed really starts aggressively raising, all of a sudden a lot of people are going to be paying more on their debt and of course the U.S. government's one of those with the U.S. government deficit growing. One, that means if we really do see rates spike, you could really see the economy hit the brakes, but on the other hand, you could view it as maybe that means the Fed is not going to be that aggressive because that would hit the brakes on the economy.