Welcome to SpringTalk

Kelly Vives: I’m Kelly Vives, chief marketing and communications officer. Today, I’m here with Ann Miletti, our chief diversity officer and head of Active Equity, and John Moninger, head of U.S. Distribution. Thank you, Ann and John, for joining us on what is the first ever episode of SpringTalk, our new podcast platform for Allspring.

Ann Miletti: Thanks for having us, Kelly.

John Moninger: Kelly, thanks for having us. I look forward to it.

Kelly: So, you’ve both been guests on our previous series, On The Trading Desk, which we’ve had for many years. Today marks a transition that I’m personally very excited about. It’s more than just a name change for the podcast. I really see it as another milestone in our rebrand strategy and the journey of fully realizing who we are at Allspring, both as a company and as a brand. We like this name, SpringTalk, because we feel it’s indicative of what’s happening here. If you think about “spring,” we’re fresh. We’re new. We’re taking a new approach to investing. We’re meeting our investors and our clients where they want to be met. “Talk,” we’re people centric. We’re human centric. Whether it’s clients, employees, our partners, it’s a key component to our success. It’s our core belief that people drive it. Everyone’s voice is important and we want to hear what they have to say. So, I don’t know how you guys feel about the new name, but I think it’s an exciting next chapter.

Ann: I do, as well. I love the variety of voices we have and the different ideas that come out of the people at Allspring. So, it’s a great name.

John: Kelly, I like the way you broke it down. So, “spring” to me does mean looking ahead, right? Like springing forward, we always use that as a way to think about the clock even. So, having a fresh set of eyes and perspective. And I like “talk” because I think one of the things that we’ve done in the past and I think we want to do more of is that straight talk, right? It’s hearing from experts on important and relevant topics. So, bringing a fresh, forward-looking set of eyes coupled with a straight talk to me is exactly what we should be doing.

Kelly: Yeah, it feels authentically Allspring, which I like. So, before we get into some of the key questions and what’s in store for 2024, I just want to reminisce for a minute. Ann, you’ve been a very frequent guest on On The Trading Desk throughout the years. And if we want to just be nostalgic for a minute, I don’t know if you have any favorite memories or episodes from those appearances through the years.

Ann: You know, Kelly, I had a hard time with this one because there are so many episodes that I thought of. But really what sums it up for me is I love the episodes the most where we get to dig a little bit deeper and get to know our people better. And I think the reason why is our business is based so much on relationships and trust and the trust that our clients have in us. And, so, when we get to dive a little bit deeper into our people, that really helps build the connections. So, I did a podcast in 2020, I think, and I talked a little bit about my unconventional path into our industry and the challenges along the way. And although it was uncomfortable and can be uncomfortable to share sometimes your personal story, I think I got probably the most feedback from our listeners from that podcast than any other. And it was less about markets, but I think it’s because they felt that connection and it was about building relationships. And, so, I think the ones that we really get to know our people better are the ones that I tend to really love the most.

Kelly: Oh, I love that. And I think it’s a nice balance, right? You have timely market insights. We come a few times a month. There’s humanistic content, but the humanistic ones perform quite well, which is interesting. And I think that’s a little bit of a shift over the past few years, just in terms of how people are engaging with content. And I think, John, we’ve tortured you sufficiently in the year that you joined by you having been a host on the podcast. And I think a notable shift that we made when we became Allspring was we said, well, why do we need to have 1, 2, or 3 people do all of the hosting? Let’s get more faces, more voices out there. And in fact, I think last year we had 33 different hosts, including you, hosting. And I think that was something different. Did you see an advantage to that?

John: Well, I’m an active listener of podcasts. And you know most podcasts do have a central figure that is the host and it runs it that way. And that’s great and I think there’s room for that. But I think what we benefited from is the range of topics and depth we can get into with leaders and experts, whether it’s personal, as Ann alluded to, or it’s really digging into real relevant topics and themes and considerations in the markets. And I think my favorite ones were not only the ones that Ann referenced, I do think that’s true, but it’s also ones where we got into very specific client issues where we can really drill into how do we address the typical client problem that we’re trying to solve for? I think those allow us to bring more people in because the host having that expertise knows what questions to ask. And I think one of the things I hope we get out of the future of these is we not only give you insights as a listener, that’s certainly the, I think, the benefit of most podcasts and I think we’ve been able to do that hopefully in the past, but it’s also arming you with the right questions to ask, the right questions to consider that you might use with your clients or constituents. Whether it’s a board, a committee, or if you’re an advisor with your clients, we want to arm you with the right questions to ask them, as well. And I hope that comes out and I think that only comes out by having the right people being the host and the guest.

Kelly: That’s a good segue to our top five questions. So, in the spirit of new beginnings, we’re kicking off this new podcast, SpringTalk, and also kicking off 2024. I would love to talk about what are those burning top questions that investors should be asking themselves right now? Ann, I know you’re head of Active Equity, but let’s talk fixed income. It’s an interesting time for investors. They’re rethinking, recalibrating their positioning right now. How are you thinking about the fixed income space?

Ann: Kelly, it is such an interesting time. And although my entire career I’ve mostly been focused, as you said, on equities, as an investor, I too am interested in fixed income now. And part of the reason is because yields have risen significantly. And after more than a decade of rates being historically low, you now see yields that are really, really attractive. There’s also a lot of cash on the sidelines. And that cash is going to need to be put to work at some point. And when you look at all the macro uncertainty that’s out there, there’s some fear to go all the way into equities. But fixed income is a nice kind of middle ground to go to. And there’s a lot of variety within the fixed income space. And, so, I think as an investor myself, fixed income seems to be one of the best places to go with some of that cash on the sidelines.

John: And, Kelly, if I could just jump in, I think the next most obvious question then is, for investors, how am I planning on moving out the curve? If I buy into this concept of this yield advantage or yield opportunity, I think that has to be the next question. And for me, I think about the expectations of rate cuts in the coming year, the probability of the Fed (Federal Reserve) lowering rates is high, resulting in what I think is an opportunity to benefit from yield and capital appreciation for those moving out the curve. And you’re not going to get that, unfortunately, sitting in cash. So, although cash is king at the moment, it’s been a great place for most people although there has even been a give up in 2023, frankly, the Goldilocks moment is here. It’s upon us that adding duration could help you generate better expected returns over the coming years. And it may even simply be just moving out a little bit. Ultra-short, short duration becomes maybe the most obvious for a conservative investor. So, I think the added question to an investor is what are they solving for? What are you trying to address? Like I said, you can move out a little bit and that might just help a little bit on returns. And there’s some cushion there. Even if rates were to go the other way, you still have room right now, more than we’ve had in the past, of yield cushion that we didn’t have before in terms of the potential for losing money. That all said, I think the biggest suggestion that lies in this question is the question of diversity. How much do you want to diversify your duration and how much quality do you want to take on? And I think our suggestion simply is diversify duration while maintaining an up-in-quality bias across fixed income sectors. And I think the questions have to lie in there.

Kelly: So, let’s move to the equity side, Ann. As investors are looking at what happened last year, what should they be asking themselves related to outcomes they should be hoping for in 2024 in their equity portfolio?

Ann: Well, I do think we can get positive returns out of equities, but it’s going to be from different places than we saw in 2023. And one of the things we think investors should be focused on is their concentration risk. That’s really one of the key points. Index investors are taking some of the highest concentration risks they’ve ever seen before. And it’s really because of the concentration we see in the indexes themselves. There’s a big part of that benchmark that is almost sitting out of the game or did in 2023. We don’t think that that’s likely again to be repeated in 2024. And so, our investment teams are much more interested in being diversified and looking at returns, being much more active, taking that active approach. And again, we do both passive and active here at Allspring, but taking an active approach and really being much more diversified seems to make so much sense given where even earnings are going to come from as we look to 2024.

John: Ann, I think you’re 100% right. That concentration looks so evident and maybe even so obvious. I think the other one, though, is after considering concentration, investors, I think, should consider what triggers am I monitoring to help me jump on opportunistic portfolio decisions? What am I looking for? And for me, I go back and for my entire career talked about cycles of the market and really understanding where we are. And I think cycles of the market are helpful guides. They’re not the triggers exactly and they’re not really to time the market, either. They’re really just to give you a market context around how to maximize returns while also managing risk. But it gives you a little bit of perspective. As an example, when I look at last year, large caps were the 2023 outperformers in equities. And we believe and if we look at cycles, 2024 could see the return of quality small-/mid-cap equities, as an example. And the reason you see that as the trigger is there’s a valuation disparity today between large and small cap, which has widened tremendously. If you marry that disparity with what we’ve already mentioned about earnings quality, which is super important in that space, if you can identify those with valuation disparities, which we can see today, and earnings quality, you can begin to identify leaders. So, I think that’s a good example of triggers to identify. Maybe the other one might be on the fixed income side. That similar concept of you’re looking to get extra yield while also managing higher interest rate sensitivity. You’d be looking at the plus sections of the market. And for that, again, you got to keep in mind earnings quality, durable balance sheets to be able to capture those opportunities, but I think those are what we’re looking at, what you should be looking at as you think about opportunistic views. So not only is the bond market moving out the curve a good idea, but how do you do that? And again, I think the plus sector is presenting a cool opportunity because you do get credit risk management. You’re looking for protection against earnings quality and certainly durable balance sheets give you something that you can really have a little more confidence in going forward.

Kelly: Yeah, I think we have one more top five question; although, John, you’ve layered questions in questions, so maybe we’ve given people more to think about. But to round out our top five, John, what do you think question number five is? What’s the last thing you think people should really have front of mind right now?

John: Well, I think there’s a lot of uncertainty out there today, right? I mean, we have Fed uncertainty in rates, you have geopolitical uncertainties, we have an election coming up—I’ll let Ann maybe speak on that for a minute—and their potential impact on the markets. And I think it’s one of those years when I’m actually probably more uncertain this year coming in than I have typically been about where things are going to go. One of the great things that Allspring has created is the Market Risk Monitor, and it’s a great tool to help kind of synthesize some of that down for you, our clients, and our potential clients. And so, maybe if I pull from that a little bit and get back to podcasts, Kelly, some of you may have heard the podcast back in October when I had John Hockers on and we spoke about the top risks we were seeing at the time. I’ll just give you a preview of a couple of the new ones that showed up and some of the existing ones that were there. I’ll pull the top three for a minute. Number one on the list, which was up from number two, is the potential conflict with Iran. You’ve seen, all of us, the activity going on in that part of the world and you can see that it’s relatively uncertain what could happen there, whether it’s Israel and Iran, U.S. and Iran, or some combination of those is not great. High probabilities of something happening and the impact could be great. The impact is likely higher energy prices. So, if you’re underweight energy, that’s a problem. And you might want to consider how you play the energy markets or how your portfolios are represented there, as well. Number two would be Chinese military action in the South and East China Seas. Again, maybe less of a probability, but a probability, nonetheless, and certainly one we’re paying a lot of attention to because the risk, again, lies from a portfolio perspective is if you’re overweight Asian equities, that has one particular issue. But even without that, Taiwan, which is one of the potential targets, is a hardware segment of the IT sector for semiconductors. They’re a semiconductor hub, so if you’re not paying attention to that, that could be a risk. And then, the third one is just a global recession. And again, we don’t know. I think a lot of people are stepping off of recession. That said, China, Europe, and even the U.S. to some degree began to exhibit signs of economic contraction. You see that in companies’ decision making. You see that in the way inflation’s coming down. So, cyclicals, industrials, financials, and IT sectors could underperform if the world enters a recession. So, you just have to pay attention to it and how you are insulating your portfolio around those risks doesn’t mean get out of those. It just means how do you insulate the risk.

Ann: If I just go back to what John said about it being an election year, I think that’s one of the key focus areas for all of our equity investors, for sure, and fixed income. And what we know historically is election years typically are good for markets. But I think they also realize that we’re closer to the end of what has been a pretty good economic cycle. And so, there’s a lot of give and take and a lot of uncertainty, as John pointed out, as well. And I, too, believe that the Risk Monitor has been a great tool to look at. But I’m always humbled by the fact that many risks that happen in the market are surprises. And so, we spend a lot of time trying to listen for the quiet and trying to look around the corner and figure out what other people are not talking about and hopefully get a chance to talk more about those on SpringTalk and in other venues, too.

Kelly: Yeah. And in an election year, I mean, John, something I know is near and dear to your heart is taxes. We talk about it a lot and so how are you thinking about that? I mean, that’s probably another embedded risk within an election year that we should be thinking about.

John: Yeah. And Kelly, to be clear, what’s near and dear to my heart is the minimization of taxes, just to be fair.

Kelly: Yes, nobody loves taxes.

John: I like talking about taxes. I like the minimization of taxes as a gift to our clients, frankly, to the degree we can deliver that, that’s certainly our strategy and mandate. I think there is a big issue, right? I mean, if you look at the election and the outcomes, we do have sunsetting. For those that pay attention to tax law, there is a number of tax laws sunsetting in 2025. So, the election’s going to play a big role in whether those sunset or get pushed forward to other years. And I think one of the things, Kelly, we’ll try to do this year is maybe we’ll spend a little more time on elections and what is that impact on portfolios? It could be a good set of topics as we think about the remainder of 2024.

Kelly: Absolutely. Well, Ann, John, I think you’ve given our listeners plenty to think about in terms of navigating what’s ahead in 2024. Thank you for joining me today for the first ever episode of SpringTalk and for laying out the big questions for 2024. To recap, our top five questions are surrounding cash on the sidelines; riding the curve in fixed income; concentration in an equity portfolio; where and how to be opportunistic in a portfolio; and, lastly, managing risk. And don’t forget about tax and minimizing your taxes. So, I would also like to thank our listeners, whether you’ve been following along with On the Trading Desk for 15 years or if this is your first time joining us, we appreciate your support and look forward to this new chapter. We hope to see you next time on SpringTalk.

Announcer: Visit allspringglobal.com to receive more market insights and investment perspectives from Allspring Global Investments. To hear the latest from our thought leaders on the ever-changing investment landscape, you can subscribe to the program on Apple Podcasts, Spotify, or wherever you get your podcasts. Thank you for listening and joining us on the road to investing elevated.