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State Street’s Primary Call: ‘Buy American Large Caps’

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Bloomberg Dec 4 21:37 · 13.1k Views

Lori Heinel, global CIO at State Street Global Advisors, expects markets to broaden out moving forward and says, “what worked well in 2024 is likely to persist in 2025,” as she discusses her firm’s investment strategy for the year ahead.

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Transcript

  • 00:00 Do you not think that the policy changes that we could see
  • 00:03 in the next 12 months would be potent enough to disrupt the kind of resilience that you're looking for?
  • 00:08 Well, it's too early to tell.
  • 00:10 I mean, obviously there are a number of cross currents and what the Trump administration is proposing
  • 00:15 that could be a threat to what we've seen as a soft landing so far.
  • 00:19 But until we actually have the ink
  • 00:21 dried on some of those policies, it's hard to know how those crosswinds will actually impact the real economy.
  • 00:27 The political changes elsewhere have been a threat to
  • 00:30 kids elsewhere, that's for sure.
  • 00:31 Check out the euro holding on to 105.
  • 00:33 Briefly looking at 1:04 again this morning over in South Korea.
  • 00:37 We've seen the disruption there as well.
  • 00:39 Lori, is there scope for some performance X US at a time when a lot of people on this program saying buy one thing
  • 00:45 by America?
  • 00:47 Yeah, well, right now we still are on the momentum bandwagon also.
  • 00:51 I mean, what worked well in 2024 is likely to persist in 2025.
  • 00:56 And that suggests that US large cap in particular has room to run here.
  • 01:00 But what we've also been talking about is a broadening out.
  • 01:03 So it's not just about the high flying mag seven tech names.
  • 01:07 It's about financials, it's about, you know, potentially energy.
  • 01:10 It's about other places like consumer discretionary that may benefit from an upgrading of the US economic prospects.
  • 01:16 So
  • 01:16 it's a little bit of a nuance,
  • 01:18 but yes, sadly or or not so sadly we're still buy American large cap is our primary call.
  • 01:23 I can't find one person who's not Lori.
  • 01:25 And this to me is really a key question.
  • 01:27 How do you hedge against the idea that at some point the momentum does run out?
  • 01:32 Yeah.
  • 01:32 Well, I think there are a couple of things that we're doing and first and foremost is we are trying to avoid those higher,
  • 01:38 you know
  • 01:38 the high flying names and looking at quality or companies that can be a bit more durable through this kind of cycle.
  • 01:44 The other thing is broadening out a little bit, looking at small cap US for example, which might have
  • 01:49 a little bit less vulnerability to some of these global crosswinds
  • 01:53 and they look for a diversifier.
  • 01:54 So we have had a position in gold in our portfolio because
  • 01:57 as you've seen over the last couple of years, stocks and bonds are often moving in lockstep.
  • 02:01 So getting some diversification into the portfolio so that you have something that's going to zig when the rest of the world zags is very important for us as well.
  • 02:08 This is important.
  • 02:09 Are you basically saying that 6040 and the concept behind it has been upended
  • 02:14 that essentially we are looking at bonds that no longer are the diversifier, you're looking at moving out into other types of companies and goals.
  • 02:20 You didn't mention bonds
  • 02:22 once within that.
  • 02:23 So at a certain point, does this have to fundamentally upend the way people construct their portfolios?
  • 02:30 Well, not necessarily.
  • 02:31 And in fact, I think in some ways we're in a better position than we were a few years ago when interest rates were zero.
  • 02:36 So at that point in time, we were very much in the camp that bonds just.
  • 02:40 Provided the kinds of benefits that investors typically needed to enjoy from them,
  • 02:44 but we do now have.
  • 02:45 Up some income in bonds.
  • 02:46 So despite the fact that equities have powered forward, you know S&P up 25% or so on a year to date basis
  • 02:53 with fixed incomes kind of earning a coupon, it's still earning a coupon.
  • 02:56 So
  • 02:57 it's really more about a nuanced positioning.
  • 02:59 So definitely still retain that allocation of bonds.
  • 03:02 We think that they're going to return at least coupon perhaps plus,
  • 03:06 but looking for other things especially if we have some, you know, drawdown risk to the equity markets.