The Upside: December’s top five market highlights

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Subtitles are AI-Generated.

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Hello everyone, happy new year and welcome to today's episode of The

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Upside. I'm Kyle Cheropita.

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Like we do every month, on this show we'll be counting down the top Fidelity

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Connects highlights from the prior month.

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Connects is first presented as a live webcast for financial professionals,

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and then released on Replay for All as a video podcast, with new episodes

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dropping daily. So let's take a look at December's big stories.

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Mid-month we welcomed head of Quant Index Solutions Bobby Barnes into our new

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Montreal studio. Bobby sat down with host Mary Lynn Bardagy, and

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in this clip, we'll hear about how Fidelity's impressive quant team in Boston

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works with the portfolio managers.

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Take a look.

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Bobby, it's quite an eventful day today.

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Both the Bank of Canada and the Fed met for the last time this year to decide

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how they go about interest rates and we'll get to it.

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But before we do, I'd like you to talk to us about the quantitative research

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team. So how did the team come about?

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What is it exactly that you do?

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And that data, is it only used for our quant products or is it

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also used by some of our fundamental portfolio managers here at Fidelity?

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Sure, yeah, there's a lot to unpack there.

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So I'll start with my favourite story, which is that, unbeknownst to a lot of

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people, Fidel has been doing quant for a very long time.

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So we hired our first one back in 1965.

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And his job was to help the firm understand how to use the computer,

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because there was only one back in those days.

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But if we fast forward, in particular, I would talk

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about how the quant took shape around the mid 2000s

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because that's more similar to what it is today.

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And so historically quant had been an independent silo separate from our

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fundamental department. And then in the mid-2000s is when they integrated the

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two together to identify stocks that are attractive

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both fundamentally and quantitatively.

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And so that's how I spent most of my career.

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I started full-time in 2009.

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Working alongside with many of the portfolio managers that Fidelity

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Canada knows and has money invested with.

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And I created the models to stock the quant models using

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the best ideas and approaches both quantitatively and fundamentally.

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And that is those insights that led to the factor ETFs

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that we ended up launching both here in Canada and in the U.S.

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Having said that, where we are now is even more integrated.

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And so, you know, depending on which specific quant team you're talking about,

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we've got teams that are like the ones that I started on.

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We call them the embedded equity team, where you're working one on one with

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quant portfolio managers.

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We also have, you know, because quant naturally is very technically in kind,

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we use our quant expertise to build technologies to

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help augment the fundamental job.

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So what that might look like would be, as you can imagine, our fundamental

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analysts who are experts in every area or industry

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across the globe, they publish tremendous amounts of research daily.

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One of the technologies we've built is an AI

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engine that will help portfolio managers summarise all

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the research that's published internally and elevate the most attractive

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ideas that they should add to their portfolio.

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So that's one way of enhancing the portfolio management

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job. We do the same thing with analysts, where if you think about the

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day-to-day job of an analyst, you're on earnings calls,

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and you're summarising the information that is presented by management on those

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calls. There are only so many hours in a day, so you can't sit in on all the

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calls. And so we've built systems that will do

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that for the analyst. And again, summarise all the relevant information to

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help speed up the number of rocks that they can uncover.

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As we like to call it. Right.

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You've also said when we spoke to Prep This Call, that you do work

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alongside portfolio managers like Will Danov, Joel Fillinghouse.

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So how do they use that research?

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You mentioned making it easier to read some of

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the Atlas reports and whatnot, but how do you look at the data that you provide

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for them?

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So the job of a quantitative analyst that are partnered

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with our portfolio managers like a Will and a Joel is twofold.

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One is to provide stock selection ideas and then

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the other is to help them with portfolio construction.

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The former, however, usually what happens, like if I'm working with

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any portfolio manager in my prior role, because now I'm managing

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the ETF business, but we still have other

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quantitative analysts who are working directly with those portfolio managers on

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a day-to-day, they will sit with a will and say,

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okay, Will, talk to me about your investment philosophy.

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How would you articulate that? And then the job of the quant is to take...

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Uh you know what's said and translate that to okay you

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know if he's if will just say it i like um you know

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companies that have you know durable modes and are compounders over

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time what does that mean quantitatively and then develop

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a model that's really custom tailored to will and his process

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And so that's what I did over the course of many years, and many of our

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quantitative analysts are still doing that today.

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And that's why that would look like, is they'll surface those ideas that are

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custom tailored to the portfolio manager based off of their investment

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philosophy, but then also help them create a portfolio based off those

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ideas, with the idea of maximising exposure to the most attractive

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stocks while minimising any unintended risks.

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In early December, Chris Kuiper joined the show.

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Chris is VP Research at Fidelity Digital Assets, and he spoke with host

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Colin Randall about the Digital Asset's rollercoaster of 2025.

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They also spoke about major regulatory developments, the Genius Act in the US

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and the Stablecoin Act here in Canada.

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And here they are with more.

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2025 has been an interesting year of announcements related

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to stablecoins from governments in the U.S.

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And of course, just recently here in Canada, the recent federal budget,

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the Canadian government unveiled a new framework that would regulate

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stablecoins. And this of course follows the passing of the Genius Act

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in the US back in July.

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Maybe we can start with the basics. What is a stablecoin and what is it used

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for?

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Right. So the simple definition of a stablecoin is it's a cryptocurrency.

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So it's like all these other tokens that sit on a blockchain.

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It runs on these crypto rails and networks, but it's,

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well, stable. Its design is to not fluctuate

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in value against a currency like the US dollar

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or the Canadian dollar. So it pegged to another currency

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or sometimes a commodity like there's gold and stuff like that.

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And therefore, it's backed by this other currency.

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It has a reserve behind it.

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Now, that's different than Bitcoin.

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There's nothing redeeming that you can redeem for Bitcoin.

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You can't bring your Bitcoin in and redeem it for something else.

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It's just Bitcoin. It's like a commodity, like something is just gold.

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Or even today, it is just a dollar.

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So the idea of the stablecoin is that it's pegged.

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It doesn't fluctuate.

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And then what is it used for? Three main things, really.

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And stable coins have been on an absolute run in terms

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of their creation. We've gotten hundreds of billions of dollars worth of stable

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coins nowadays because they found this perfect product market fit.

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I think you could argue stable coins are probably the most successful product,

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if you will, that's come out of crypto.

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And the three main uses we see it being used for is number one, trading pairs

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and DeFi. So if you're an exchange, you want to trade out

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of your position in Bitcoin or Ethereum.

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You want to go to something stable and get volatility

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off your books.

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You can go to the US dollar, but then your exchange is going to be set up to

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accept and take US dollars or Canadian dollars with the whole

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banking system, whereas it's a lot easier to just trade into

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a stable coin. These are the most highest traded pairs out

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there. And then all of DeFi uses stable coins.

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So if you're borrowing or lending on chain, that all uses stablecoins.

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And then the other two is just moving money.

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So moving money across borders is a big one.

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Remittances, much, much cheaper to move stablecoins

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anywhere in the world, rather than use a wire, ACH,

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a company like Western Union, something like that.

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Those have average fees around the world of 7%.

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And then just payments. You can use stable coins to pay for things because it

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is a stable currency, just like using the Canadian dollar or the

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U.S. Dollar.

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And there are centralised stablecoins, which are what are being announced by

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the governments. There are also decentralised stablecoins picking up on that

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conversation we were having about Solana.

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What's the difference between the two?

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Right. So what I think you're getting at is the whether or not there's a

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central issuer behind the coin and most stable

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coins today and by far the most popular ones today are all

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centralised, if you will, meaning they are issued by a

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company or an organisation.

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So this company will take in dollars people will send or wire in something like

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US dollars and then they will mint or create the

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stable coin on the block chain.

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And then they're responsible for holding that asset or investing those dollars

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to back the stable coin.

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And then, they can also do the reverse. You can send your stable coins in and

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say, I'd like to redeem this, and then they'll give you back the dollars and

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burn it. Now, that's done at a very high level with big players and

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institutions, but that's the point of a centralised issuer.

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Not as popular yet are these decentralised solutions where they do everything

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on the blockchain. So, there's no central company.

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Party issuer, it's all done with software on the blockchain with these

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smart contracts where you send in some kind of collateral like

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Bitcoin or Ethereum and they'll issue you a stable coin.

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Now because of this, they're often overcollateralized, so you have to send in

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more of something like a Bitcoin because you can't send in dollars

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usually. So they're not as popular, but mostly what we're talking about is

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centralised issuers. Now, that's different than what you noted about the

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government stuff. Whether or not the government is involved is a separate

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issue or question.

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Portfolio manager Salim Hart is no stranger to our webcast audiences.

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Here with host Pamela Ritchie, he unpacks the investment case for Global

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Microcaps and reflects on the year that was.

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Enjoy.

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Sal, when we spoke to you last, it was sort of mid-year through 2025,

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and I think it was the anniversary of this new fund that you launched, the

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one-year anniversary, we were talking a lot about trade at that point and how

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micro caps actually, to an extent, were protected because

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they often were selling to more local markets, their smaller company.

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They weren't necessarily globally trading.

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It was an interesting time then.

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Just tell us a bit about how that's either changed or some of the new parts

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that you're interested in right now.

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Yeah, I think, you know, in the first quarter, a lot

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of global markets fared quite poorly,

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especially U.S. Markets, saw pretty significant breakdowns.

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The global micro cap fund was actually up, I think, in the first quarter.

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So it kind of weathered that storm quite well.

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Partly because of what you said, that a lot of micro camps are very kind of

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niche, very geographically focused on their local markets and aren't really

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that that exposed to trades and also they're quite out of favour.

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So, you know, when you kind of see a liquidity driven sell off and

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a lot unwindings positions, micro camps are typically the first thing that

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people sell. So.

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You know, the micro cap fund actually provided some pretty good downside

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protection during that.

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But I found it, you know, as we discussed in June, I found a lot of

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opportunities, you know, especially in the U.S.

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On that dislocated sell off to deploy capital.

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And I think by the you know I started the year about a thousand basis

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underweight U. S. And kind of by mid April it was underweight by only

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300. So I wrote that back up and since then the U S markets have recovered

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well. I think you know, I've kind of taken

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again a maybe more defensive stance where I was kind of aggressively deploying

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capital in the spring.

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You know, there's there's a lot of there's lot of speculation that has crept

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back up into the markets.

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They've kind of reached all time highs again.

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And I think, you know right now I'm finding kind of more opportunities and

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higher quality names outside the US.

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And Japan's definitely continues to be a favourite, but also more opportunities

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in Europe and the UK as There's It's more fiscal stimulus they are

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and quite attractive valuation.

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It's a fascinating asset class that you've told us about before, and

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I think it has a very large universe.

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Tell us a bit about what attracts you to this area, because this

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is a fund that came from sort of, it's quite organic to the

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way you invest. You've created this fund specifically because you like taking a

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look at these companies. Tell us broadly what it means to invest in Microcaps.

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I mean, micro caps are really, I would say, the last really inefficient

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space in the public markets today.

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They're really uncovered, they're overlooked, they are illiquid and difficult

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to trade, which, which all that creates opportunities.

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And there's about seven to 8000 of them in my universe across the

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world, I kind of invest in the bottom half of the small cap indices all

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the way down into the global MSCI global lot.

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So a huge number of stocks to sort through.

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And I think the one thing I would like to point out and dispel the myth off the

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bat is the micro camps are really not as risky as people think

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they are. Yes, if you were to buy one micro cap stock, it

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can have a very wide dispersion of outcomes.

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They could easily be up 100% or down 100% because

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they have very niche businesses. But when you put them all together in a

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portfolio. Even just looking at the MSCI world

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micro cap benchmark, it's actually consistently had lower volatility

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than the MSC world small cap benchmark.

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So even just the benchmark does, and I feel like the types of stocks

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I buy, the value stocks, the out of favour names, the higher quality names

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with actually good management teams that are taking market share,

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have a lot of positive qualities and some growth opportunities.

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I feel, yeah.

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That also provides some downside protection.

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So I would like to, you know, kind of dispel the myth that you can't

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have the return associated with micro caps without risk without being very

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high risk. And I think we've seen that.

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We started the month with a look at the US political scene as they head into a

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pivotal election year. Greg Lowman, VP Digital Advocacy and Policy

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Communications and Denise Chisholm, Director Quantitative Market Strategy,

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reflected on market movements, shifting political expectations and investor

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sentiment.

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Greg, you spend much of your time discussing things on the Hill with people

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in Washington. What is sort of the discussion of the shutdowns over,

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the data has been released again, the happy days to an

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extent. What's shifted though, just on the data front within

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the shutdown? I mean, things have sort of changed, we've marched on without

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it, do we need it? What's the discussion?

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Yeah, generally speaking, I think folks need it and want it.

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I mean, that was a historic shutdown of almost 43 days.

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Anyone you speak to doesn't want to repeat that, but there's very high

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likelihood that we could find ourselves back in a data-less government world

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at the end of January in 2026, where appropriators

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are running up against fast-moving deadlines towards the holiday season and

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then how quickly January is going to come at folks.

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To get the rest of the appropriation bills completed from the Senate,

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move them to the House of Representatives, conference them, come to some

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agreement and pass a government funding bill for FY26.

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And it's just amazing that the progress is just not there.

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And largely as a result of a lot of hangups around healthcare subsidies

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expiring, the political realities of 2026 and

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some many other partisan factors.

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So we could find ourselves looking for data in the forest again in

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the end of January. I think. The shutdown, I'll leave it to economists

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to determine what was lost.

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Generally speaking, I know listening to Denise enough, you don't wanna make

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investment decisions based on shutdown volatility.

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But one thing we've noticed is, particularly at the regulatory agencies, you

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pause work for 45 days, call it, and things

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line up in the queue. And a lot of things get delayed when it comes to some

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of the more arcane regulatory relief and areas we're seeking

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with a friendlier regulatory climate in Washington.

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And so that's something that's sort of impacted at an institutional level.

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Not something I think you'd want to invest on, but something in the business to

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business world we're facing as far as regulatory priorities

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being held up and in a pretty significant way when you take people

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out of work for a month and a half.

17:44.696 --> 17:48.700
So let's go there. Let's talk a little bit about the regulatory framework that

17:48.700 --> 17:52.004
in theory, you know, the one big beautiful bills, new foundations that have

17:52.004 --> 17:56.408
been built. It's part of, I think, Denise, what you argue going into 2026

17:56.408 --> 18:00.412
will make sure that there's wind in the sails for equity markets.

18:00.412 --> 18:03.515
It's not the only piece, but it's one of them.

18:03.515 --> 18:07.719
Just talk a bit about that and what that piece of the policy picture brings

18:07.719 --> 18:10.689
to 2026.

18:10.689 --> 18:15.094
Sure. You know, the one big, beautiful bill beyond extending what

18:15.094 --> 18:19.298
was the Trump Tax Cuts and Jobs Act, his first bite

18:19.298 --> 18:23.535
at reconciliation when he was first president to

18:23.535 --> 18:26.538
lower individual rates, those needed to be extended.

18:26.538 --> 18:30.476
So that was really the engine alongside the fact that the debt ceiling

18:30.476 --> 18:33.045
was going to be reached this past summer.

18:33.045 --> 18:37.015
It really drove Republicans to coalesce in sort of unprecedented speed,

18:37.015 --> 18:40.819
signing that bill the law. Surprising everyone in Washington, really.

18:40.819 --> 18:44.823
By July 4. And you have to remember how quickly

18:44.823 --> 18:49.228
those first several months of power when you run Washington works for

18:49.228 --> 18:53.165
the Trump administration and its Republican allies, his ability to whip

18:53.165 --> 18:57.469
his caucus into line and get that through is something that's sort of eroding

18:57.469 --> 19:01.607
every day here as we get closer to 2026, just how

19:01.607 --> 19:05.777
quickly the political magic dust shifts underneath your

19:05.777 --> 19:09.982
feet. But he was able to do it and pass this significant tax reform bell.

19:09.982 --> 19:14.319
Beyond those individual rates, stuff with a lot of policy in there.

19:14.319 --> 19:18.590
A lot of stuff that eroded EV tax credits and stuff that was in

19:18.590 --> 19:22.761
the Biden administration's Inflation Reduction Act, but also a lot things that

19:22.761 --> 19:26.932
improved capital expensing and depreciation, which we've already

19:26.932 --> 19:30.836
seen play out in the market, particularly around a lot of the CapEx spent on

19:30.836 --> 19:34.907
artificial intelligence and the ability to, you know, earn

19:34.907 --> 19:38.977
cash quickly off those capital investments.

19:38.977 --> 19:43.348
And then beyond that, you've got an interesting policy that's emerged around

19:43.348 --> 19:47.286
things like lifetime savings, or sorry, youth savings accounts, what's referred

19:47.286 --> 19:51.156
to as Trump accounts. There's been a lot of news on that front this week with

19:51.156 --> 19:55.827
respect to Michael Dell contributing or committing

19:55.827 --> 19:59.932
to contribute roughly $6.2 billion into 25 million American

19:59.932 --> 20:04.102
accounts. That's a pilot programme that would start newborn saving in America

20:04.102 --> 20:06.505
from 2026 to 2029.

20:06.505 --> 20:10.609
It's something. The industry is looking at closely because we know a

20:10.609 --> 20:14.580
pilot programme won't remain a pilot programme for long if it's successful.

20:14.580 --> 20:19.218
And if there's a president Newsome or Alexandria Ocasio-Cortez

20:19.218 --> 20:23.522
or Westmore or president Vance, that

20:23.522 --> 20:25.224
programme will likely change.

20:25.224 --> 20:28.594
And in very interesting, uncertain ways.

20:28.594 --> 20:32.698
Alongside that, you know, he obviously provided a lot of his campaign

20:32.698 --> 20:36.768
promises around overtime and seniors and no tax on

20:36.768 --> 20:40.706
tips. And a variety of other credits that I

20:40.739 --> 20:44.977
think will emerge more and more in the markets in 26.

20:44.977 --> 20:49.014
A lot of people are talking about sort of the bump from that law being fully

20:49.014 --> 20:53.018
implemented going into 26, which I'll defer to Denise

20:53.018 --> 20:54.786
on those cycles.

20:54.786 --> 20:58.657
But yeah, the one big beautiful bill as it gets implemented is I think going to

20:58.657 --> 21:02.694
create a lot of tax benefits, certainly on the individual side

21:02.694 --> 21:06.298
and then also from a corporate perspective going into the new year.

21:06.298 --> 21:10.302
It's fascinating, and Denise, I'll ask you to sort of pick up on some of

21:10.302 --> 21:15.007
those pieces. You bring a lot of data and incredible analysis to

21:15.007 --> 21:19.244
everyone joining you here about where we are not necessarily in a cycle,

21:19.244 --> 21:23.448
but what corporate profitability looks like going forward and how

21:23.448 --> 21:27.686
you measure that. You take a look sometimes at the wage story, the underlying

21:27.686 --> 21:29.388
economic story.

21:29.388 --> 21:32.758
Again, just link the one big beautiful bill to some of these pieces, the

21:32.758 --> 21:35.494
corporate profitability, the ability for corporations.

21:35.494 --> 21:39.898
To pay people, to keep wages up, at least, if not growing.

21:39.898 --> 21:45.370
Just bring that policy piece into the corporate profitability story.

21:45.370 --> 21:48.473
Yeah, that was the most important part of the bill from a statistical or

21:48.473 --> 21:51.109
historical perspective is the drop in the corporate tax rate.

21:51.109 --> 21:54.880
So it wasn't a drop in this statutory rate, but it was a drop in the effective

21:54.880 --> 21:57.582
rate almost to the tune of seven percentage points.

21:57.582 --> 22:00.686
So when you look at this historically and you can measure it on the statutory

22:00.686 --> 22:04.089
rate of the effective right extra sessions, and you will come up with the same

22:04.089 --> 22:08.060
results, you do see very clear durability of earnings

22:08.060 --> 22:12.164
growth in year one and year two after those tax cuts.

22:12.164 --> 22:15.734
Again, if you sort of step back and say, okay, let's look at history, what

22:15.734 --> 22:19.738
usually happens in year one, you see a boost in terms of CEO confidence.

22:19.738 --> 22:21.773
Check the box. We just saw that.

22:21.773 --> 22:24.176
We did see a boos from recessionary levels.

22:24.176 --> 22:28.580
And then you see the durability of real GDP growth and earnings growth into

22:28.580 --> 22:32.751
that second year. So if you're thinking about the cycle, I always think of

22:32.751 --> 22:36.788
2022 as the ultimate low of the cycle because as much as it

22:36.788 --> 22:40.759
wasn't a session. It was either a very hard, soft landing or a very soft,

22:40.759 --> 22:44.963
hard landing, but I think we landed because real wages were negative

22:44.963 --> 22:47.933
in some ways, very typical of a recession.

22:47.933 --> 22:51.636
The stock market contracted 30%, which was right in line with median

22:51.636 --> 22:55.640
recessions. And we had a proper profits recession of about seven to 10%,

22:55.640 --> 22:59.644
which on top of inflation, sort of checked the box from a nominal

22:59.644 --> 23:01.380
earnings recession perspective.

23:01.380 --> 23:05.550
We didn't see massive declines in real GDP, and we certainly didn't see any

23:05.550 --> 23:09.654
decline in the unemployment rate. So we almost had a full employment recession.

23:09.654 --> 23:13.625
But ex that weird quirk of the cycle, I do think a lot of

23:13.625 --> 23:17.796
the contraction in 2022 set the stage for the beginning of what

23:17.796 --> 23:22.467
could be a 10 year earnings durability and GDP cycle.

23:22.467 --> 23:26.138
So into going into 2026, do you say, well, are we at the end?

23:26.138 --> 23:29.975
Are we at beginning? Is there anything that can shift the odds to make this

23:29.975 --> 23:33.945
more durable? And I think we have a trifecta of tailwinds, one of

23:33.945 --> 23:38.216
which you mentioned, which is the One Big Beautiful Bill Act to say that it

23:38.216 --> 23:40.919
usually cements durable earnings growth.

23:40.919 --> 23:45.023
We also have a more friendly Fed in terms of cutting rather than on hold

23:45.023 --> 23:49.261
or hiking. And we also have that decline in energy prices, which is

23:49.261 --> 23:53.098
usually related to inflation, which is also usually related to corporate

23:53.098 --> 23:57.469
profits. So I think, we have lot going into 2026 to suggest

23:57.469 --> 24:01.173
this earnings recovery is, in fact, durable.

24:01.173 --> 24:05.377
Which justifies the current valuations we have and makes it very likely

24:05.377 --> 24:09.214
that we remain in the second loopable market.

24:09.214 --> 24:13.218
Our final clip today features institutional portfolio manager Ilan Kolet

24:13.218 --> 24:15.987
from Fidelity's global asset allocation team.

24:15.987 --> 24:19.624
Alain and Pamela Richie touched on a variety of topics, including in this clip

24:19.624 --> 24:24.062
Europe, emerging markets, the overweight and underweights in GA's funds,

24:24.062 --> 24:29.501
and a teaser to their January white paper on if we're in an AI bubble.

24:29.501 --> 24:33.738
Tell us about EFI more broadly, so taking us largely

24:33.738 --> 24:36.208
to Europe, but other places as well.

24:36.208 --> 24:41.179
The international story is something that you were well ahead of, caught it.

24:41.179 --> 24:44.583
The question is sort of where does it go from here, does it continue?

24:44.583 --> 24:47.486
How are you allocated and invested towards that?

24:47.486 --> 24:51.857
Yeah, so right now, EFI, the IFA region,

24:51.857 --> 24:55.527
anyway, if we talk about Europe, is the largest overweight on the equity side

24:55.527 --> 24:59.498
of our funds. And that's been there really since the start of this

24:59.498 --> 25:03.535
year or the early part of this year when we thought, you know

25:03.535 --> 25:07.739
what, valuations are an important input into our

25:07.739 --> 25:11.810
asset allocation investment process. But, valuations alone are

25:11.810 --> 25:16.715
not enough to drive an allocation decision.

25:16.715 --> 25:19.117
It has been forever. For a very long time. It's cheap.

25:19.117 --> 25:20.986
It's been the story forever.

25:20.986 --> 25:22.654
I mean, same as emerging markets, right? Sure.

25:22.654 --> 25:26.258
And I joked that we've been waiting a long time for emerging markets to emerge,

25:26.258 --> 25:30.428
right. But look at them now. But look them now, and the same story

25:30.428 --> 25:33.732
I would say is there in Europe, attractive valuations.

25:33.732 --> 25:38.036
And I heard this when I was a researcher working down in Boston, we do this

25:38.036 --> 25:40.805
Europe research trip, and I'd hear this every single year, attractive

25:40.805 --> 25:43.742
valuations, and we're about to turn the corner with these great structural

25:43.742 --> 25:47.913
reforms. Every single year we'd hear the same thing, and every year

25:47.913 --> 25:52.717
Europe would just get completely steamrolled by US performance.

25:52.717 --> 25:55.820
And as asset allocators, we have to think in these relative terms.

25:55.820 --> 25:59.858
So for us, what an

25:59.858 --> 26:03.762
attractive valuation requires is some sort of catalyst.

26:03.762 --> 26:06.298
Okay. And earlier this year... To diversify, essentially.

26:06.298 --> 26:06.398
Like to...

26:06.398 --> 26:09.601
Right, like to sort of re-rate those stocks, right?

26:09.601 --> 26:13.338
And we believe what we saw earlier this year was that catalyst, right, Europe

26:13.338 --> 26:17.475
removing extreme fiscal restraint, defence

26:17.475 --> 26:19.744
spending kind of hooking higher.

26:19.744 --> 26:22.914
And the performance in Europe this year has not just been defence, right.

26:22.914 --> 26:25.183
It's been the banks as well.

26:25.183 --> 26:27.686
And so we've leaned into that this year, and that's been additive to the

26:27.686 --> 26:33.725
performance as well, but to your question, how long can this be sustained?

26:33.725 --> 26:35.927
Is the gas out of the tank in terms of Europe?

26:35.927 --> 26:39.197
Because for the last couple of months, Europe's moved sideways, right?

26:39.197 --> 26:40.966
There was a lot of return, but it's moved side ways.

26:40.966 --> 26:42.734
It was cheap, got bought.

26:42.734 --> 26:45.937
Yeah, it's sort of flattened out.

26:45.937 --> 26:50.642
This is where working with our researchers is so critical because as

26:50.642 --> 26:54.679
you know, the funds move incrementally and over time,

26:54.679 --> 26:58.683
if we see different signals, if you see that the wind has come out of

26:58.683 --> 27:03.221
the sails of Europe based on our research, that overweight would change.

27:03.221 --> 27:06.491
But as of right now, it is still a pretty significant overweight.

27:06.491 --> 27:10.228
So interesting. So 2026 is a story.

27:10.228 --> 27:11.596
Europe is in it significantly.

27:11.596 --> 27:15.166
And Europe was, to be fair, I mean when people used to ask me about Europe, I'm

27:15.166 --> 27:18.169
not sure if I can say this, but when people use to ask about Europe I would say

27:18.169 --> 27:21.239
Europe's a wonderful place to visit and a terrible place to invest.

27:21.239 --> 27:25.243
So I love going to Europe, but anyone who's allocated to Europe instead

27:25.243 --> 27:28.346
of the US over the last 10 years is poorer for it.

27:28.346 --> 27:32.017
So let's go to AI and discuss...actually, you're going to tell us a little bit

27:32.017 --> 27:35.620
of...give us a sneak preview of a report that you're working on.

27:35.620 --> 27:39.391
I think it's not due out to the new year, but the question for months and most

27:39.391 --> 27:41.926
of this year probably is, is AI a bubble for sure?

27:41.926 --> 27:43.828
I know that's something you'll start with.

27:43.828 --> 27:47.999
So let us go there because it's part of the catalyst question for diversifying

27:47.999 --> 27:50.402
around the world and anywhere else really.

27:50.402 --> 27:54.472
Yeah, I mean, and again, you know, these thought leadership

27:54.472 --> 27:58.510
papers that we publish once a quarter, I know they're very well read, and we

27:58.510 --> 28:02.080
take a lot of time and a lot of effort to pull in research and our latest

28:02.080 --> 28:04.416
thoughts to really address the questions we're getting.

28:04.416 --> 28:07.152
I spent a tremendous amount of time on the road this year.

28:07.152 --> 28:08.653
I mean the most I've ever spent in my life.

28:08.653 --> 28:10.221
So, like how much?

28:10.221 --> 28:13.625
I'm at, at the end of next week, I'll be at 90 flights.

28:13.625 --> 28:15.460
Oh gosh, for 2025.

28:15.460 --> 28:19.798
And I think I'll hit 90 nights in Marriott's this year, so I

28:19.798 --> 28:24.769
don't know if that's a good thing or a bad thing. Probably a bad, but you

28:24.769 --> 28:28.740
know, the conversations that I've had with thousands of advisors coast to coast

28:28.740 --> 28:31.843
inform what we choose to answer in these papers.

28:31.843 --> 28:34.979
Our goal in these papers is...

28:34.979 --> 28:38.683
We want to answer exactly the questions that we're getting in a jargon-free

28:38.683 --> 28:42.987
manner, right? So using the Bloomberg way, so to speak,

28:42.987 --> 28:47.092
you know, jargon free and in the most accessible way possible

28:47.092 --> 28:49.160
so that these are helpful to advisors.

28:49.160 --> 28:53.231
And even in the case that, you now, an advisor may disagree with our view,

28:53.231 --> 28:57.469
at least they fully understand why we have the view.

28:57.469 --> 29:00.605
And so one of the questions we've been getting quite a bit is, is AI a bubble?

29:00.605 --> 29:04.075
And for this, you know, we have to look at...

29:04.075 --> 29:08.012
Again, the researchers that we work with, one of the pillars in our

29:08.012 --> 29:10.815
investment process is a bottom up.

29:10.815 --> 29:13.818
So myself, David Wolf, David Tulk, we all come from the macro world.

29:13.818 --> 29:16.187
You all incidentally come from Canada as well.

29:16.187 --> 29:18.022
That's right. Right. So, you know, tw- That's right.

29:18.022 --> 29:22.627
So 20 years of experience roughly combined at the Bank of Canada and Bloomberg.

29:22.627 --> 29:26.865
But what companies are saying and doing

29:26.865 --> 29:28.700
matters just as much, right?

29:28.700 --> 29:32.871
I mean, as an economist, it's a bit humbling to say what a company is

29:32.871 --> 29:38.009
saying and doing today shows up in the economic data six or eight weeks later.

29:38.009 --> 29:42.113
And earnings revisions, particularly in the US, have been pushing

29:42.113 --> 29:45.683
higher. And, for that reason, we, you know...

29:45.683 --> 29:50.755
We have to really push back on this idea that

29:50.755 --> 29:54.292
the AI expansion is strictly a bubble, right?

29:54.292 --> 29:58.496
It could be this sort of once-in-our-lifetime productivity innovation that

29:58.496 --> 30:00.431
we can't necessarily lean away from.

30:00.431 --> 30:04.369
So in terms of what that means for positioning, we are underway to the

30:04.369 --> 30:06.771
US equities right now, but it's a bit nerdy.

30:06.771 --> 30:10.742
But we can use futures overlays to short out specific

30:10.742 --> 30:14.813
parts of the market. You know, perhaps small cap, right, which are not overly

30:14.813 --> 30:19.217
profitable, and keep great managers like Will Danoff,

30:19.217 --> 30:24.088
Mark Schmale, who are invested in the AI themes, fully invested,

30:24.088 --> 30:27.992
and benefit and still, we can still benefit in our funds from that, from that

30:27.992 --> 30:28.827
theme.

30:28.827 --> 30:33.064
Without having to be all in on that particular discussion.

30:33.064 --> 30:36.968
But you wouldn't be there, for instance, if you thought, which they aren't,

30:36.968 --> 30:38.036
investing in a bubble.

30:38.036 --> 30:42.173
No, exactly. And I mean, again, we work really closely with

30:42.173 --> 30:46.444
our underlying managers and our researchers to examine this very closely, but

30:46.444 --> 30:50.381
it speaks to the importance of having diversified sources of returns,

30:50.381 --> 30:54.252
right? So I mean our concern really in the U.S.

30:54.252 --> 30:58.323
Is I would say more to do with some of the underpinnings of

30:58.323 --> 31:02.260
exceptionalism coming under attack, right, a politicised Fed,

31:02.260 --> 31:06.231
what that might mean. And for us, that's really also

31:06.231 --> 31:10.168
resulted in... A significant change in how we're positioned around the Canadian

31:10.168 --> 31:12.337
and U.S. Dollar.

31:12.337 --> 31:14.973
Thanks for watching, I hope you enjoyed those clips.

31:14.973 --> 31:18.776
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Thanks for watching today, and I hope you'll join us again on the Upside.

31:51.676 --> 31:52.844
I'm Kyle Sharapada.

32:09.627 --> 32:13.998
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32:43.094 --> 32:46.831
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32:57.809 --> 33:01.312
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