Genus Weekly In Focus – Addressing COVID-19 Concerns Week-11

Leslie Cliff: [00:00:00] Welcome to the Genus Friday video. I’m actually at Crescent Beach today. We’re thrilled to introduce more people to you. And today we’re lucky to have Justin Hahn, who is an economist at Genus. Why don’t you introduce yourself?

Justin Hahn: [00:00:16] Thanks, Leslie. As you mentioned, my name is Justin. I work with Wayne on the investment team. I usually provide the economic outlook as well as top down research on asset allocations and different asset classes. So a little bit about me is I grew up in Vancouver and I graduated UBC with a degree in economics and a minor in business. I joined Genus just after graduation in 2017.

Leslie Cliff: [00:00:43] So, Justin, what is what is it that you like about working at Genus? Assuming you like like working at a Genus?

Justin Hahn: [00:00:51] Yeah. So right after graduation at school, you only learn about his theory. So I joined Genus because of the quantitative approach and it was allowing me the ability to apply a lot of the theories that I learned in economics and in school. All the times those are difficult to show in practice, but being in this kind of market allows me to better understand and better use that knowledge and show see actual results from that. And another reason I like another reason I like Genus is more of the atmosphere at Genus. We were a very tight knit team on the investment team and we share ideas and everyone’s open to trying new things and adapting to new skills such as new machine learning techniques. So it gives me the opportunity to try a lot more new things and test out different things as well.

Leslie Cliff: [00:00:00] Welcome to the Genus Friday video. I’m actually at Crescent Beach today. We’re thrilled to introduce more people to you. And today we’re lucky to have Justin Hahn, who is an economist at Genus. Why don’t you introduce yourself?

Justin Hahn: [00:00:16] Thanks, Leslie. As you mentioned, my name is Justin. I work with Wayne on the investment team. I usually provide the economic outlook as well as top down research on asset allocations and different asset classes. So a little bit about me is I grew up in Vancouver and I graduated UBC with a degree in economics and a minor in business. I joined Genus just after graduation in 2017.

Leslie Cliff: [00:00:43] So, Justin, what is what is it that you like about working at Genus? Assuming you like like working at a Genus?

Justin Hahn: [00:00:51] Yeah. So right after graduation at school, you only learn about his theory. So I joined Genus because of the quantitative approach and it was allowing me the ability to apply a lot of the theories that I learned in economics and in school. All the times those are difficult to show in practice, but being in this kind of market allows me to better understand and better use that knowledge and show see actual results from that. And another reason I like another reason I like Genus is more of the atmosphere at Genus. We were a very tight knit team on the investment team and we share ideas and everyone’s open to trying new things and adapting to new skills such as new machine learning techniques. So it gives me the opportunity to try a lot more new things and test out different things as well.

Leslie Cliff: [00:01:41] That’s great. I think the research shows young professionals love to learn. And so you’re an environment that’s encouraging. That’s great. So I have kind of a strange question for you kind of along those lines. There’s always been a philosophy over the years, tug of war when it comes to managing money of science versus art. And certainly science has been growing in importance in managing money through the last decades, not just a Genus, but everywhere. And with artificial intelligence now being used and more to be used in the future. I just wondered, do you think that art is going to be dead or how is art going to be used in the future?

Justin Hahn: [00:02:23] Personally, I think that art is going to be used in conduct in conjunction with science. So currently, if you take our process, we do use new techniques, a new machine learning techniques, but we still have myself and the other team members to make those those big decisions. Does it actually make sense? Or is this pure data mining? Because to a computer, anything that fits well or to a machine, anything that fits well makes sense. But in reality, it could have just been a false positive where it just happened to make sense. But it doesn’t actually make logical sense.

Leslie Cliff: [00:02:56] I love that question because really there is no truth. It’s just people’s opinions. But I think what you just expressed is the express is the philosophy of all of Genus. So that’s probably why you’re happy where you are. That’s that’s the way we think. Great so Justin is a relatively new member of our investment team, but doing a great job. And over to you. Justin, we always do a review of the week. So even though your on and arm on the economics team, not really in the markets too much, but I was kind of an interesting week in terms of not just the stock market, but what’s happening behind the scenes. So so what what was it this week that was so interesting?

Justin Hahn: [00:03:39] So this week, the main interesting points were two things, the first being the ECB announcing a two trillion dollar stimulus package and the escalation between China and U.S. In terms of different political tensions. So start with that one. So looking at the past two years, the tensions between China and U.S has been rising, starting with the trade war and things look to have been resolved around the start of the year before the Corona virus hit. But due to that virus, a lot of trade deals and other promises have hit a stumbling block. This, in addition, with the tensions rising and pro democratic movements in Hong Kong and Taiwan have rallied, more conflict and tensions between the U.S. and China. So in terms of portfolio, we were underweight emerging markets heading into this year and into the coronavirus and overweight and more favoring the U.S. market. And because of this escalation in tensions, we still favor that view, although the tensions have escalated. And Trump did come out today saying that he will look into Hong Kong’s status as a special entity and maybe change that around as a result of the new law enacted in Hong Kong, which still view this as a more longer term, a very long dated on uncertain event.

Leslie Cliff: [00:05:07] Right. So, bottom of line you have, all these companies have to diversify their supply chain away from Asia. And longer term, that makes everything a little bit more expensive. So it reduces profitability for a lot of companies, but makes them safer, too.

[00:05:23] Exactly.

Leslie Cliff: [00:05:23] What is what I heard? We’re going from a just in time inventory to just in case inventory. So we have that mindset and then.

Justin Hahn: [00:05:32] That’s how we view it. Yeah.

Leslie Cliff: [00:05:34] The other big thing was Europe acting in concert together the first time that they’ve done a fiscal stimulus as as the European Union.So tell us a little bit about that.

Justin Hahn: [00:05:47] So, yeah, this is the first time that the European Union has done any sort of bill or fiscal bill like this. If it’s passed, it will be the first time the European Union actually backs bonds as a union itself and as one bloc. We view this as one of the stepping stones towards the European Union being one cohesive bloc. We saw the monetary union happen with the monetary policy, the European Central Bank being created with the effect that you’re using that with most of the participants using the euro now. And this we view as a step towards fiscal union and not closer step towards unity among the European Union.

Leslie Cliff: [00:06:26] Yeah, it’s really a good thing. So Justin is very involved in the creation of our signals every month. They’re very robust, very disciplined. They’re very quantitative. They even use a little A.I or artificial intelligence. And so I’m curious,Justin, we have about 30 of these signals, different ones. Which ones right now do you think are interesting and and that the clients are exposed to?

Justin Hahn: [00:06:58] So the past few months, especially at the start of the year, have been a very volatile period and we’ve seen it in our models as well. But some signals that really stand out towards us and myself are the bond market signals are those ones that are more heavily favoring the riskier assets, such as high yield bonds, corporate bonds and emerging market debt. So we can see that our models are favoring more of taking risks in the bond market rather than the equity market. Some of the signals that did change with the windows that caused this shift in sharp rotation would be the market recovering with the bounce back in March. We also saw the VIX, the volatility index, come down from highs as well. And we also saw all of our risk indicators, such as the spread between the higher the sorry, the lower quality junk bonds and the higher quality government bonds come down a bit. One part of this…

[00:07:55] So, they’re picking up the action of the Federal Reserve. You know, the buying junk bonds and telling the market they’re going to support the plumbing of the situation. So that’s what it’s picking up on. So and those exposures are in our report, your portfolios through your global bond position to some ETFs in that in that portfolio. I, Wayne is not here today, obviously, but I would just like to update you on something that I think is interesting that’s happening on the stock side in your portfolios. Wayne has a way of dividing the market into he calls them the shutdown winners in the shutdown, losers. And so the shutin winners like technology and health care and gold have been winning the last six weeks or so. Well, since since the end of March, really. And we’ve done we haven’t changed our total stock exposure, but we’ve changed the, we’ve done a rotation of about six percent out of those kinds of stocks. So out of I.T., out of health care, out of gold, out of consumer staples, into more economically sensitive stocks, the ones that we’re really beat up, the shut in losers, things like industrials, railroads, financials, energy. So stocks that are more exposed to economic activity and ones that didn’t do as well in April. And then I just thought I’d make sure, you know, that we’re not tempted to go to the true losers in this environment. Sadly, the airlines, the cruise ships, the hotels, we we’re still giving those those stocks a wide berth for now. So that’s a little update on the stock side.

[00:09:43] I have a question from a client who has a little portfolio on the side that Genus doesn’t manage that, has some exposure, has a lot exposure to Amazon and Apple and Facebook and those kinds of stocks. And so what should I do? Should I take my profits? And really, those are going to be long term winners and they will be volatile. But we would not be sellers of those stocks if you owned them with low book values. And so that’s the answer to that question is just full on. If one of them becomes more than 10 percent of your portfolio, then probably you should shave some, but otherwise just try to forget you own them. This would be my advice. So we try to keep this short. We’re going to do that today. Justin, thank you so much for spending some time with us, introducing yourself to our client base. We’re thrilled to have Justin working with us. LEVEL-HEADED Very smart and enjoyable to work with. I was reading about Dr. Bonnie the other day and she said, you’ll use your best judgment. And, you know, I’m all kind of focused on grandparents hugging grandchildren. But she says the most important thing is to hug your teenagers. And, you know, I was thinking about grade 12th. And they are not going to have the graduation ceremonies. That really is sad. Are you supposed to advice to somebody going after their promise to dance like nobody can see you and nobody is going to see them? So but I hope they get the dance anyway. So give your teenagers an extra big hug and we will see you next week. Sue tell it’s going to be introducing and interviewing Wayne next week.So thank you. Keep your questions coming.Thanks very much.

Justin Hahn: [00:11:22] Thank you.