Equity investing podcast episodes

The Bid episode title: Tariffs, Tech and Transition: Europe and Asia’s Evolving Equity Landscape

Episode Description:

Following our last episode on U.S. equities with Carrie King, we’re expanding the conversation globally to understand how these dynamics are playing out beyond American shores. European and Asian equity markets are navigating a complex mix of geopolitical shifts, technological disruption, and evolving investor sentiment.

Helen Jewell, Chief Investment Officer for Fundamental Equities in EMEA, and Belinda Boa, Head of Active Investments for Asia Pacific at BlackRock, will unpack how equity markets across Europe and Asia are responding to these changing dynamics, whether companies are absorbing the cost of tariffs or passing them on to consumers, and what resilience looks like for investors in markets shaped by volatility and transformation.

equity markets, European equities, asian equities, stock market, stocks, value stocks, growth stocks, investing opportunities

Sources: Bloomberg, June 3, 4 &, May 26 2025; Ferrari supercar demand in US remains ‘hot’ despite higher price, Financial Times; Ferrari says it will raise prices by 10% on some models to offset auto tariffs, CNBC; Siemens Earnings Release Q2 2025; Analysis by BlackRock Fundamental Equities, May 2025; UN Projections World Population 2015

Written disclosures in each podcast platform and each episode description:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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<<TRANSCRIPT>>

Oscar Pulido: Equity markets across Europe and Asia are changing. The regions are navigating a complex mix of geopolitical shifts, technological disruption, and evolving investor sentiment. Following our last episode on US Equities with Carrie King, we're expanding the conversation globally to understand how these dynamics are playing out beyond American shores.

Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

Coming up, I'm joined by Helen Jewel, chief Investment Officer for fundamental equities in EMEA. Belinda Boa, head of Active Investments for Asia Pacific at BlackRock. Together they'll unpack how equity markets across Europe and Asia are responding to these changing dynamics, whether companies are absorbing the cost of tariffs or passing them on to consumers and what resilience looks like for investors in market shaped by volatility and transformation.

Helen and Belinda, thank you so much for joining us on The Bid.

Helen Jewell: Great to be here. Thank you for having us.

Belinda Boa: Thank you so much for having us both here today. Thank you.

Oscar Pulido: Belinda, thank you so much for joining us all the way from Singapore. It's great to get your expertise from you being on the ground in Asia. we've talked a lot about, global equity markets and the volatility since Liberation Day in early April. But the impact of that is very far reaching. And so, I'd love to hear your views on how is it impacting the equity markets in Asia and how are companies navigating this?

Belinda Boa: Well Thanks Oscar. Look, tariffs are going to remain a key theme for our markets this year. and so, for the remainder of the year, that's something that we're focused on. It clearly is going to have a negative impact on growth for most of the economies in this part of the world.

But I would say especially for the countries which are export, reliant. What we've seen up until now is that it's incredibly hard to predict the outcome of these tariffs. And I would say even on a country-by-country basis, it's going to be almost impossible to know where the outcome lands. But we do know some things.

First of all, we know that it's likely to take longer, and so I expect there'll be some volatility over the coming months as the windows for these pauses, come to an end. Secondly, we know that there are going to be certain sectors that are more impacted than others. Sectors like steel, autos, electronics, they're going to be more impacted.

And then of course, we all know that China is going to remain at the front and center of this tariff war. So how are companies actually dealing with it? What are we seeing? Not really that much difference from what's been happening over the last couple of years. Companies are rethinking their strategies and they're trying to build more resilience in their supply chains.

Asia has a very big competitive advantage when it comes to goods production, and we do expect to see more companies moving their production locally and regionally, but also to new markets going forward. The other thing that we're seeing actually is companies using the free trade agreements that exist. I expect we should see more of those and far more collaboration across the region, as companies are looking to rewire their supply chains.

So even though tariffs I think are negative for this part of the world, they are going to have an impact on growth. They are driving uncertainty. There are opportunities. We need to look for those new markets. We need to look for sectors that are perhaps tariff exempt, like pharma. And then we need to look at companies that are able to adapt very quickly to this changing trade, regime.

Oscar Pulido: Helen staying on the topic of tariffs and, the impact on companies around the world. I'd like to now bring the lens over to Europe, and what has been the impact on European companies. I know for example, that companies like Nestle have said that they are able to absorb the impact a little bit better, and I think some of that is because they have a lot of production already in the U.S. Is the Nestle example unique or is that a common theme across European companies?

Helen Jewell: It is very stock specific, but let's start with the top line first. European outperformance in 2025 has been very strong. That's been 8% year to date, or even 19% if you look at that in dollar terms. So, at an index level, Europe is coping very well with the impact of tariffs. However, it is stock specific and even within sectors you've got different companies doing different things.

So, for example, Ferrari for some of its models, they are able to increase prices by 10% to offset those tariffs. And the sales and profits in Q1 were able to absorb some of the nervousness that has been seen. But there were other companies in the luxury space that increased prices a lot during the COVID years, and now they're saying they simply can't do it anymore. They can't increase the prices to offset those tariff impacts, and they are the ones that are going to be more impacted by tariffs.

Industrials is another area that we're seeing dispersion. There are companies like Siemens Energy that recently raised full year guidance because although there are some tariff impacts, they are more than offset by growth in long-term themes like their data center businesses. But there are other industrial companies that are much more closely tied to what is going on in the microeconomic cycle, and they are far more likely to feel the impact of reduced trade and slower economic growth as a result of tariffs.

We also have to be conscious of the weaker dollar, and the impact of the weaker dollar on European company margins, particularly for European exporters. Some of those companies have cited that weaker dollar as something that might put a small dent in what they're able to deliver going forward.

So, what we're able to do in our equities business is look stock by stock to find those companies that can cope with that uncertainty. We look for companies with good quality, strong management teams, strong pricing power, who are able to navigate what we are seeing in the market in terms of volatility and pick up market share.

Oscar Pulido: You gave a number of specific stock examples and even sector examples and the takeaway, I guess for me is that it's very nuanced in terms of how European companies are navigating this period of higher tariffs. And you also touched on the start to the year that European equities have had. What's driving that performance and do you think it can continue?

Helen Jewell: So, let's start with a bit of honesty, Oscar. Some of that is a bit of a reversal from what we saw in Q4 of 2024, where the US was up by 3% and Europe was down two and a half percent. So, some of it is a reversal of that, but there are more concrete reasons for the momentum we've seen in the market.

First off, a lot of the companies that have domestic revenues have led the way. So, for example, European banks and defense companies. Now these companies are of course less impacted by tariffs, and they are also benefiting from some structural shifts that we are seeing. Particularly, of course, the announcements by the German government to spend 1 trillion Euros on defense and infrastructure. The DAX alone is up 20% plus this year, and this spending and the impact of this pro-growth agenda in Europe is a major source of returns, not just now, but for years to come as well. So that is key.

There are other reasons for the rally as well. A potential peace deal in Ukraine and a moderate level of Chinese stimulus all support the European companies. On the other hand, the quality global, more exporting companies that we have here in Europe have lagged a little bit and they are starting to rebound. So, they very much could support the next leg of European leadership from here.

Oscar Pulido: Right, so Europe, there are companies that are benefiting more from some of the domestic policies and decisions that are being made by the German government, for example, and then there are companies that are more global that are more impacted by what's going on from a tariff policy but are navigating it case by case basis.

Belinda, if I could come back to you, we talk a lot about AI as one of the mega forces talk to us a little bit about how that opportunity set differs from that of the US companies that are invested in this AI theme, and maybe what are some of the opportunities outside of tech and AI that you see in APAC?

Belinda Boa: As Helen said, there are, concrete reasons for the momentum that we're seeing in Europe. I believe the concrete reasons for the momentum that we're seeing in the AI trade in Asia. But how is it different? Well, when you look at the AI ecosystem in the US in particular, it's very concentrated.

What Asia brings is diversification. Not just regional diversification, but actually also diversification for currency exposure- which right now is actually particularly important given we've seen the weakness in the dollar. So, if you want to access the AI ecosystem, you can find trades in Taiwan, in Korea. All of those countries offer diversification, and I think that's going to be absolutely key going forward.

Now outside of AI, what do we think is interesting? Still Japan. I know I spoke about a year ago on Japan, we still think that story is interesting. Growth remains untrained and if you look into the growth number, you'll see that actually the domestic demand is expanding much, much faster. inflation is still ticking up and that's driving higher real wages. And of course, that means that we're seeing strength in the consumer as well. But we think they're going to be two key drivers of returns in Japan.

The first one is the corporate reform story. In fact, that continues, it's still intact. And in 2024 we saw share buybacks double from 2023 and we think that's going to continue this year too. And then secondly, we should look at the valuations of Japan. It is very cheap versus its developed market peers. It's lagged in performance. We actually think the market is going to reward companies that are seeing corporate reform and while their earnings unfold, our focus is on the domestic demand sectors.

And then outside of Japan, now we're starting to see actually some signs of recovery in India. We also saw the RBI move last week, so monetary easing, which is easier financial conditions. Inflation has come down, and as we see the government, both public and private CapEx start to increase, that should have a positive impact and boost growth in the market.

 What is particularly interesting in light of this conversation around tariffs is that India is a domestic market. It exports to the US only 2.2% of its GDP, so it's likely to be far more resilient as a market than some of our other markets in the region. But I would say one word of caution is you absolutely need to be selective. In India, there are still parts of the market, which are very expensive.

Helen Jewell: And Helen, outside of AI, when we think about European equities, are there other themes? I think you've alluded to some of these like banks and defense companies, but what are some of the other big themes that we should be thinking about?

As you say, we've mentioned defense, but another part of the German spend is in infrastructure. And infrastructure stocks are really important at the moment. They are resilient. They're not impacted by tariffs. By their own nature they are very domestically focused, and they've also got a real earnings growth that is linked to the megaforces, not just like AI, but also the energy transition. So, infrastructure stocks are really important.

We've talked about banks a little bit, but I would like to talk about them a little bit more. Because historically, there've been very cyclical names, but actually what they've been doing recently has been behaving much more defensively and we still see that there is potentially further to go within the banks than we've already seen. Why? Firstly, they return capital to shareholders. Up to 25% of capital is being returned to shareholders by buybacks and dividends in the next few years. Secondly, they are benefiting from strong corporate positions and strong consumer positions, and that is very beneficial for the banks. And thirdly, they have structurally changed a lot since the financial crisis when they were required to have very strong capital basis be selective within them, but European banks still have further to run.

And a couple of other areas, gold equities. The gold price may have run a long way, but the equities have actually lagged a little bit in how they've responded. And we think that they can be very profitable, very high cash returns, cash generative companies and their costs are also lower at the moment due to oil prices.

 And one other, industrials. We touched on this one a little bit, but it's a really interesting way of playing the AI theme, as I mentioned already, because European industrial capabilities are across that AI infrastructure stack, also they've pulled back quite a lot because of nervousness on tariff concerns, providing a really interesting buying opportunity in high quality names in the industrial sector.

Oscar Pulido: And Helen, you've touched on sectors, but we're sitting here in London and so I have to ask you about the UK which has been a market that you've actually highlighted in previous episodes as an interesting opportunity set, perhaps a little bit more insulated from some of the trade policy headlines that we've seen this year. what's your view on the UK?

Helen Jewell: Thank you for asking me, Oscar, because as you know, I do get very excited about the UK. It is an index that continues to do well because it is showing how resilient it can be and how from a trade beta perspective, it isn't as exposed to those tariff concerns. It's very services driven, it's very defensive driven. And on top of that, it is also a high yielding index. The FTSE 100 dividend yield is around 4% compared to the S&P, which is around 1.5%. It's also very cheap, 13 times for the index versus the S&P at 23, and the stocks at close to 15. So high income, looking good from a valuation perspective, and it's ripe for active stock picking. You've got great companies across different sectors, both in the defensive space, in the retail space, and also data names as well. So finally, we're seeing investors take another look at the UK because of all those reasons.

Oscar Pulido: We've talked to a couple of your colleagues recently, Tony DeSpirito, Carrie King, and they've said a lot of the same things around being selective, and that there is more breadth in the market more sectors, the sort of participating in the opportunity set. and it sounds like you're talking about some of that as well in Europe.

Belinda Boa: Helen and Belinda, you're both, experienced investors who have been through periods of market volatility and ups and downs. Belinda, in Asia volatility is, also very prevalent. it has been this year; it has been for many years. What's your counsel to investors? what do you tell them about how to manage those ups and downs? Look, volatility in our markets is actually a benefit, it creates opportunities, but this volatility that we've recently experienced is pretty unusual because, as I said before, it's incredibly difficult to predict the outcome of these tariff negotiations. So, I would say to manage this going forward, we don't really want to try and predict that. But really what we want to do is use this volatility, especially for being more tactical, being more active.

Secondly, we also know that the markets react far more to negative and positive news. And that was exactly what happened this time. So, we've seen some pretty big drawdowns, and that I think is an opportunity for us to stick with our high conviction views and use those drawdowns as better entry points into the market.

And then the third thing I think is interesting is diversification. So, this is a conversation, or at least a topic in finance 1 0 1, that everybody's always spoken about. But actually, over the last 10 years or so, given U.S. exceptionalism, you haven't needed diversification. I think that comes back.

In this environment, we're faced with far more global uncertainty. It's going to impact economies across the world. It's going to impact asset classes, and therefore, I think diversification is going to be absolutely key going forward.

So, as Helen said, Europe offers different opportunities, different themes, different markets. I think Asia, given the diversification that we have across this region, for the same reasons will massively benefit from the diversification trade.

Oscar Pulido: A common theme that I'm, hearing as I listen to both of you is, we talk about equities as this monolith sometimes as an asset class, but when you dig into specific countries, specific sectors and specific companies, you see that the opportunity set really varies. Belinda, when you think about the APAC region, and also Helen, when you think about the European region, what are you both seeing in terms of how these markets have evolved over the last year, and what are you seeing in terms of 2025 and beyond?

Belinda Boa: Look, our markets they evolve incredibly quickly, the market dynamics change in this part of the world, but I want to try and maybe call out three themes that I think have already started to play out, and I think will have A number of years still.

The first is obviously the rewiring of these supply chains. What we are seeing is a very big, a massive decoupling of trade between the US and China, but actually at the same time, exports into Europe and to Asia are increasing from China. So, we think that's going to continue. and of course that provides opportunities, in these markets and markets globally.

The second is just in technology. This part of the world has incredibly rich tech talent pool. At the same time, it's infrastructure ready. In other words, we have billions of mobile phone users today, and they will really accelerate the adoption of things like consumer AI databases or applications. We are seeing a lot of funding support for technology companies in the region. Whether it's emerging companies or established companies, they are able to get capital for their R&D and also for their CapEx. Where actually, they're new to the sort of cap spend that we've seen in the us so we think that should accelerate from here.

And then the third theme, which I think we sometimes forget, is just the growth of the consumer base. So, Asia is currently home to 55% of the world's global consumers. By 2030, just the three countries of China, India, and Indonesia will increase that by 830 million. And then if you think about the fact that actually we're seeing rising income in some of these countries, that is going to be a huge consumer, fast growing market going forward, which again, I think provides big opportunities, investment opportunities into 2025 and beyond.

Oscar Pulido: And Helen, what about you? What, when you think about the last year and how the opportunity set has evolved and what 2025 has in store, and then beyond what should we be thinking about for European equities?

Helen Jewell: Definitely the key thing from European equities perspective is thinking about these global exporting names. Yes, Europe has done very well, but so much of that has been driven by the domestic names that we've seen by the banks, by the defense names. We have some really good companies within Europe that are global exporters.

40% of European revenues are within Europe, but that means 60% are outside of Europe. And year to date, it's been about those companies that have that 40% exposure. I do think the rest of the year is going to be about the companies that are more globally producing, and we are going to find investors as they've diversified their portfolios, revisit those names.

And as both Tony and Carrie have said, what this volatility in the market gives us is opportunities for active stock pickers, where you see those names that have pulled back because of tariff concerns, but actually they are very strong global exposed companies who are exposed to AI themes, who are exposed to energy transition themes, and now is the time to buy them when they're at really interesting valuations.

Oscar Pulido: Well, we do take The Bid on the road from time to time and being in London this week and hearing from you, Helen, as you're living and breathing European equities day to day. And Belinda, thank you again, for dialing in from Singapore. Again, you're living and breathing the Asia Pacific Equity story day to day.

Sounds like there's great opportunities in, both of these regions, and we appreciate you sharing that expertise with us here on The Bid. Thank you for joining us.

Helen Jewell: Great to be here. Thank you, Oscar. Thank you, Belinda.

Belinda Boa: Thank you. Thanks Oscar. Thanks Helen.

Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed this episode, go back and check out our last two episodes with Carrie King on US Equities, and Tony DeSpirito on stock picking during volatility. And subscribe to The Bid wherever you get your podcasts.

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Spoken disclosures at end of each episode:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

MKTGSH0625U/M-4573329

The Bid – A Stock Picker's Guide To Volatility: Global Equity Opportunities Across A Shifting Market Landscape

Episode Description:

It's been quite a ride for equity markets this year. Uncertainty and volatility hit a fever pitch in the weeks following President Trump's sweeping tariff announcement in April as investors feared the potential for rising inflation, slow economic growth, and US assets, losing their aura of dominance. Tony DeSpirito, global CIO for BlackRock's Fundamental Equities Group, joins host Oscar Pulido to help make sense of recent market turmoil from an equity perspective where he sees opportunities amidst the volatility and what history tells us to expect as we look ahead to the rest of the year.

Sources: Equity Market Outlook Q2 2025, BlackRock; BlackRock Fundamental Equities, with data from Morningstar & Bloomberg as of April 30, 2025;

Key Moments in this episode:

00:00 Equity Market Turmoil and Recovery

01:22 Tony DeSpirito Gives His Q2 Outlook

04:15 Historical Equity Markets Volatility

06:53 Where Equity Opportunities in Volatile Markets Lie

12:55 Global Market Comparisons

17:34 Final Thoughts and Investor Considerations

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Written disclosures in each podcast platform and each episode description:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

Tags: equity markets, stock market, stocks, value stocks, growth stocks, heathcare stocks, investing opportunities

<<THEME MUSIC>>

<<TRANSCRIPT>>

Oscar Pulido: It's been quite a ride for equity markets this year. Uncertainty and volatility hit a fever pitch in the weeks following President Trump's sweeping tariff announcement in April as investors feared the potential for rising inflation, slow economic growth, and US assets, losing their aura of dominance.

Tony DeSpirito: Since then, we've had a number of trade deals get struck and a number more in progress, and so uncertainty has come down. And with it, the market has recovered, and we've been saying, stick with equities, don't exit the market, stay with your strategy. And the reason behind that is It doesn't stay uncertain forever. And once you have certainty, almost no matter what the certainty is, it's good for equities.

Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido. Coming up, Tony DeSpirito, global CIO for BlackRock's Fundamental Equities Group, joins me to help make sense of recent market turmoil from an equity perspective where he sees opportunities amidst the volatility and what history tells us to expect as we look ahead to the rest of the year.

Tony, thank you so much for joining us on The Bid.

Tony DeSpirito: It's great to be here again, Oscar.

Oscar Pulido: and Tony, you were here in January. we were talking about your outlook on the stock market for the year. animal spirits were high. People were optimistic on the economy. I remember you saying that stocks had been up more than 20%.

For consecutive years and that it was rare for it to happen three years in a row. And it looks like your viewpoint on that is correct because we've had a lot of volatility this year. We've had announcements around tariffs that caused stocks to pull back. We've now seen a rally that has, seemed to get us back to where we were at the beginning of the year. So tell us a little bit about what you're observing and what's going to cause markets to stabilize.

Tony DeSpirito: Sure. Without a doubt, there was a lot of optimism at the beginning of the year, and that's how you get two years of 20% plus in a row, right? Optimism and there's a decent amount to be optimistic about. If you looked at consumer balance sheets were really strong going into the year, still are, and that's result of both strong house prices as well as financial assets. And of course, that provides a good macro backdrop for the markets 'cause there's a lot of cash on the sidelines waiting to get in, right? So, that's always a good thing. And then corporate balance sheets are in pretty good shape as well. So, no real big excesses there.

And then you look at earnings, earnings growth is still quite healthy, so that's the positives. The only concern I would've had at the beginning of the year was really around valuation. Valuations are high by historical standards, and that was certainly true at the beginning of the year. And then we've gotten a lot of uncertainty around policy. So, if you look at any kind of policy uncertainty index that's been off the charts this year and it's all related to trade. And so, we had a market drawdown, and if you look peak to trough, that was about 17%. But if you think about what's happened subsequently is we had peak uncertainty.

Since then, we've had a number of trade deals get struck and a number more in progress, and so uncertainty has come down. And with it, the market has recovered, and we've been saying, stick with equities, don't exit the market, stay with your strategy. And the reason behind that is It doesn't stay uncertain forever. And once you have certainty, almost no matter what the certainty is, it's good for equities. In the sense that corporations can then adapt themselves to that and then you see earnings go up and stock prices go up with it.

And that's what we've seen subsequently, is that the markets have generally recovered. So, if you look point to point, it almost looked like nothing happened, but obviously there's been a lot of volatility in between.

Oscar Pulido: And when we zoom out, many years from now and look at these few months, it will look like nothing happened. But of course, the day-to-day has felt very different. And Tony, when you and I talk, one of the things that I always find interesting is that you have these, historical anecdotes. you're able to go back and look at some data points from the past and tie it to what's going on in markets today. So, what does history tell us about the recent volatility in the market events that have been going on?

Tony DeSpirito: Yeah, so history's pretty clear on this, actually. if you look over the last, call it 35 years, go back to 1990 and look at the average drawdown in any given year, it averages roughly 14%. So, this year we had a 17%, draw down peak to trough. I'd say it's right in line with historical averages. So really from the historical scheme of things, no big deal. It obviously felt like a big deal, but it really wasn't. when you look at it from a historical point of view. The other interesting thing is if you look historically buying dips has been pretty profitable. In fact, we went back all the way to, the 1930s and looked at data. What happens when you buy on a dip of 20% or more? We use 20% as the cutoff. And it's pretty interesting on average, if you look one year later, so if you buy it exactly the 20% dip, even if it goes lower one year later, on average, you have returns of 15% positive. So that's healthy relative to historical averages. What's really interesting is the hit rate, 73% of the time, the returns were positive one year later. And if you extend that time horizon out to three years, you actually get to over 90% hit rate on positive returns. And so, I think that tells you in general you want to have a bias towards buying the dips.

Now, when might you be more hesitant to buy the dips? Historically, if you look back, it's when there have been big dislocations in the economy. Think about the global financial crisis where consumer balance sheets were extremely levered. That's an example of where you might want to be more hesitant in buying the dips, where the downturn can be bigger and more protracted. But again, go back to what we experienced this year, consumer balance sheets are healthy, corporate balance sheets are healthy, I think everything told you this would be a good, dip buying opportunity.

Oscar Pulido: And it's fascinating. You mentioned going back and looking at the 20% pullbacks in markets, which is higher than a historical average. But, when we hit 20% drawdowns, the media and the press and the narrative starts to talk about how we're in a bear market, 20% is usually when we denote that as a bear market. So, it requires a certain level of courage to be able to invest at that time. But what you're saying is that it has been rewarded if you've come in at that time period.

Tony DeSpirito: Exactly. And that's why we chose the 20% because it's what commonly people think of as the 'bear market'. 10 percent's a correction, 20 percent's a bear market. And so that's why we use that particular marker.

Oscar Pulido: Tony, you recently published an equity market outlook for the second quarter of the year. I just want to read a couple things that you wrote in there, which is volatility can present great opportunity, and Dispersion is an active investor's friend. So, talk to us a little bit about where are you finding the opportunities right now as an active investor?

Tony DeSpirito: Yeah, it's an important point that I want to emphasize because our job as active investors is really to take advantage of dispersion, to take advantage of volatility. That's what we do. And I think of active returns is a function of both skillset and the opportunity set. And the way I measure the opportunity set is volatility and dispersion. In fact, I think the hardest time for active managers is when there's very limited volatility, very limited dispersion.

So, I think really that period after the Global Financial Crisis from the end of the global financial crisis through to Covid was a period of actually very low volatility. The market went up quite nicely, actually. Returns were about double historical averages with less volatility. So, there was an easy answer just buy cheap beta. but since Covid markets have been more volatile. That's actually made things much more interesting for active investors. So, obviously we've had a lot of uncertainty around trade and trade policy, so I think that's been certainly an area. As I look forward, I think there's more policy to come. Tax, for example, that'll present some winners and losers, and that'll create opportunities for active managers. deregulation. I think that's a real opportunity, particularly for large banks. We're just getting the people in place who are responsible for that we should see that coming shortly.

Obviously, that'll have impacts on capital ratios, but it'll go beyond that. It'll go into planning for these large banks. We'll have more transparency around the stress tests. There can also be a cost cutting opportunity there, in the sense that there's a lot of spending, a lot of costs that go involved with compliance. If those costs can come down, that'll be really beneficial for banks. So, I see, a lot of opportunity there, for example.

Oscar Pulido: And one of the other things that you touched on when we spoke in January was this opportunity in large cap value stocks that you thought this was an area that maybe had some performance embedded within it and we've seen these stocks have a good run this year. Remind us again when you say value stocks, what that means and what is the role that they play in on certain markets like these?

Tony DeSpirito: So, in terms of value, I think about stocks that are statistically cheap on average, low PE, low price to book, et cetera. And obviously as an active manager, how you implement that differs from other active managers, 'cause price is what you pay, value is what you get. So, you really have to measure the value of a company correctly, and that's actually an active exercise.

Certainly, year to date, value stocks have done relatively well, but in the historical context, the outperformance of values pretty small year to date. And so, it's not like you've missed the opportunity and value by any means. In terms of the opportunity, I think the biggest and easiest opportunity is just think about diversification and resiliency of your overall portfolio.

First of all, you've set certain targets of value and growth within your portfolio. Over the last several years, growth has outperformed and that means it's become a larger percentage of your overall portfolio. So, there's an opportunity to get that back in line So I think that will just add resiliency, will add diversification.

But also, it's not just portfolios, it's the indices themselves, the cap weight indices, in particular, if you think about the mega cap companies with a trillion dollar or more market cap, those all skew heavily towards tech and growth stocks. And so, as a result, the s and p 500, you think of it as a core index, but it's actually become more growthy in recent times.

And we've done work, with our internal risk models to classify companies within the s and p 500 in terms of, growth, core and value. And then we look at the different weightings in growth and value over time. And by the way, the index always skews a little bit growthy. but right now, it's even more skewed towards growth than it was at the peak of the.com bubble, believe it or not. So, what that tells you is you, if you think you own a core index, you actually own an index that's quite growthy. And so, I think there's an opportunity to supplement that with value, which will create more resiliency.

So, I think that's the real case for, active within value. and I think we saw the importance of having value in your portfolio year to date, as a real diversifier. I’m particularly fond of mixing value in quality. When you think about a margin of safety, how do you get a margin of safety? one way you can do that is through quality. Companies that have more steady earning streams, companies that have healthy balance sheets, strong balance sheets, companies that pay dividends, right? Dividend paying stocks tend to hold up better in down markets. Certainly, this year was no different there. The other way to create a margin of safety is through valuation. If you pay a low multiple, there's just less downside risk in general. Combining the two, it's really powerful and can be really a great way to create more resiliency in your whole portfolio.

Oscar Pulido: Tony, we talked about tariffs, and we've been talking about tariffs for a while now. Over the last, couple of months. It's certainly not the only issue that investors or equity investors are thinking about. What are some of the other things that you think they should be, thinking about or that you're thinking about for the outlook?

Tony DeSpirito: Well, without a doubt, over the long run, the most important thing to be watching, is earnings 'cause its earnings that ultimately drive stock prices? Sure, in the short run, it's going to be about valuations, it's going to be about factors, it's going to be about the news of the day. But in the long run, it's all about earnings and earnings power.

So, you always have to keep your eye on the prize, which is focus on earnings. Trade's not done; it's not completely off the table. There's still a lot of deals to be negotiated. There's a lot of pauses and so stay tuned is what I'd say there. Obviously, the tax bill is going to be a huge deal over the next several months. And then, like I said, deregulation. So, there's still plenty to be watching, but again, the real focus should be on earnings.

Oscar Pulido: Another thing that comes to mind when we sat down in January, the US equity market had been the dominant outperformer for many years. And there was a lot of skepticism that markets outside the US could outperform. But what in fact we've seen this year is with some of the policy headlines coming out of the US and some of the uncertainty that's created, we have seen some outperformance from areas like Europe, for example. So, do you think those sorts of trends are going to continue? Are we going to continue to see outperformance from some of the international or ex-US markets?

Tony DeSpirito: Well, it's really hard to compare one market to another, it's like comparing apples and oranges. Without a doubt, the US is expensive relative to other markets around the globe, but on the other hand, it's also the highest quality. When you think about companies with a lot of innovation, when you think about high levels of profitability, return on invested capital, return of capital to shareholders through dividends, but also buybacks, and so yes, it's more expensive, but it's also has more quality and I think it's a hard comparison to make. I tend to think more in terms of apples and oranges, when you think about comparing markets. That said, I will point out Japan is an interesting market for investors to look at. Japan has a very low correlation to other markets around the globe. Again, going back to this idea of resiliency and diversification, Japan's always a good diversifier for that reason. The US is interesting 'cause it's the quality of the companies are so great. If you look at return on invested capital, across the globe, the US is about double the world average in terms of return on tangible capital. Japan's at the low end, but that's what makes it interesting is that there's an opportunity for that to improve.

Japanese corporations, they've really gotten religion with respect to this, both in terms of, improving profitability, simplifying their businesses, as well as returning capital to shareholders. And that has just been improving year after year in small increments, but it's added up. At the same time, the macro backdrop in Japan looks better. They've gone from multiple years of deflation to now having inflation. but you have this huge potential improvement in corporate profitability. And again, it's a real diversifier 'cause it's so uncorrelated with the rest of the world. So, I do think that's an interesting market just to call out.

Finally, I prefer, and this is something we do in fundamental equities, it's more comparing apples to apples, so look within a global business-like energy or healthcare, and then make comparisons across the globe there and see where the opportunities set. lies. Two areas where I think, there's interesting opportunities in Europe that I would highlight. One's in energy and one's in pharmaceuticals. If you look at, energy companies, in the US and in the UK and Europe, there's a pretty big valuation gap. 30- 40% the US is more expensive. And if you look at the quality gap, historically there has been a big quality gap. There are instances of specific companies where they've been shrinking that quality gap over time, they've been becoming a lot more like the us more focused on return on capital, et cetera. And so I think that makes for some interesting stock opportunities in the energy space to go abroad.

Similarly in pharmaceuticals, the multiples are pretty close between the US and European pharmaceutical companies. The difference is quality is actually better in Europe in many cases. A lot of that goes to patent expirations. a lot of the US large companies have upcoming patent expirations that the Europeans just have further out in the future. Patent expirations are always tough because your revenue declines and then you have a certain fixity of costs that you have to deal with. So, I think that puts actually some of the US pharmaceutical companies at a disadvantage to some of the European ones.

And then of course, healthcare, certainly in the policy hotspot at the moment. One of the ideas there is most favored nation status, Historically, drug prices in the US are a lot higher than they are in the rest of the developed world. One of the goals of the administration is to normalize that, that means lower drug price in the U.S. but it also means maybe higher drug prices in Europe or other parts of the world. And when you look at the global pharmaceutical companies, they are global businesses, but on average, the US ones tend to skew a little bit more towards the us the European ones a little bit more towards Europe. if you think about drug prices normalizing around the world, with the US coming down, European prices going up, that's potentially an opportunity for some of these, European companies. So in addition to just not having to deal with the patent expirations, they may have better pricing power over the next couple of years.

Oscar Pulido: So Tony, as we wrap up, I always enjoy hearing, your words of wisdom for investors, and you've shared some of those already. You've told us that, we should focus on earnings. You said, price is what you pay, but value is what you get. What else would you say to investors who are trying to navigate the ups and downs of market volatility?

Tony DeSpirito: You know, Oscar, I think it's important and helpful to go back to first principles. And so what are you doing when you're buying stocks? You're essentially buying a share of the world's productive capacity, and over time, through innovation, through company's abilities to do things faster, cheaper, better over time, that goes up. And that's a great place to be. And yeah, there are setbacks along the way, temporary setbacks, that cause volatility, policy changes, inflation, recessions, even geopolitical right? But the general direction is up. And when you think about volatility, sure, stock prices are going to be volatile, earnings less volatile. GDP, even less volatile than that. But the direction of travel is up for all of these things. And so, when you take that mindset, you really look at volatility differently and you don't get as worried about short-term volatility and you keep your eye on the long run. And so, one of my favorite expressions is that it's not about trying to time the market, it's about time in the market. And so if you can just extend your horizon, extend your thought process, and stay invested. That's going to be the key to wealth creation over time.

Oscar Pulido: And that actually rhymes with a message that I find myself telling people when they ask me about long-term investing, which is that when you invest in stocks, you're betting on human ingenuity, and I think you used the word innovation. And if you believe that improves over time, then investing in stocks is potentially a rewarding experience over the long term. So, I guess I'm channeling my own inner Tony DiSpirito when I tell people that. Tony, it's always a pleasure to have you on, to hear about the equity markets and your outlook, and thank you for doing it here on The Bid.

Tony DeSpirito: I love doing it. Thank you, Oscar.

Oscar Pulido: Next up on The Bid, Carrie King will get more granular on equities discussing the recent earning season and where savvy investors can look for opportunities during this period of uncertainty. If you've enjoyed this episode and you want to keep up with what's happening in the economy and the latest market trends, make sure to subscribe to The Bid wherever you get your podcasts.

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