John Bryson: Hello, and welcome to the portfolio intelligent podcast. I'm your host, John Bryson, Head of Investment Consulting at John Hancock Investment Management. The goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice. Topics we'll typically address include advisor business building ideas, capital market updates, the latest trends in portfolio construction, and unique investment insights from veteran managers across our global network. Today, June 29th, 2020, I'm joined by one of those steely veterans, Jay Feeney, Chief Executive Officer and Chief Investment Officer at Boston Partners, a 25 year old, $60 billion Value Shop headquartered here in Boston with offices around the globe. Jay was an instrumental founder of the Shop and its wellrespected value investment approach. Jay, welcome to the show.

Jay Feeney: Thanks, John. Good to be here.

John Bryson: So let's get into it. Tell us about how you define value at Boston Partners.

Jay Feeney: Well, I'd start off with the observation that I certainly don't think there's any necessity to redefine "value." I mean, typically, when you've had a long period of underperformance in any type of investment discipline, there's always an upwelling and an undercurrent. Some people are very vocal that they want to kind of redefine and will declare things obsolete. And I certainly don't see any evidence that there's a need to redefine the very traditional metrics that underscore value investing, and by that I mean, Peter Lynch famously said, "Earnings drive the market," and I'd remind our listeners that traditional value metrics based on earnings and cash flow are both theoretically and empirically and fundamentally what determine stock prices. We've certainly been in an environment particularly in the last three years where there's been a focus on other measures to define value, namely momentum and things like that. But we see no evidence whatsoever that, again, traditional multiples of earnings of cashflow, the sum of the parts of underlying businesses, we see no evidence that those aren't highly relevant in determining stock prices. So, again, I think traditional value metrics are still, always will, form the basis for fundamental valuation and the determinant of the long‐term direction of stock prices.

John Bryson: Okay. So we hear, in certain articles or certain broadcasts, there should be a value premium but it's no longer there. It's either washed out of the market because people have identified it and you can't really capitalize on it. What's your take on that?

Jay Feeney: Sure. I mean, the most famous measurements of the so‐called value premium I think at least academically speaking was Fama and French back in the early 1990s. There's been a lot of debate on the source of a value premium, and first I'd start with, there needs to be a recognition that a value premium isn't some consistent factor premium which consistently earns an excess return. The value premium varies over time, but over time, on average, it is positive. It is significant. We've clearly gone through a period recently, particularly in the last three years, where that value premium is quite negative. But we've been through this before, back in the 2000s. The 10 years leading up to the bursting of the internet bubble, the value premium was negative but it was quickly earned back and quite substantial surplus value premium in a very short order after the bursting of the bubble in the year 2000. So I think there's reams and reams of evidence pointing to the existence of a value premium and one of the more compelling observations that I've seen and heard is the existence of that premium and the excess return, again, over time, I clearly understand your listeners don't have infinite patience, few people in this world have infinite patience, but part of the reason you earn a value premium is because you do endure fairly lengthy periods of underperformance. We're clearly in the midst of that now. We were clearly in the midst of that in the 2000s leading up to the internet bubble which burst in March of 2000. But you get paid to endure these periods of underperformance. And I think the root cause of that really, I think some of the best explanations really, as many of the listeners know, is rooted in fear and greed and behavioral biases, that expectations, very high and very low expectations, are rarely met. Meaning high multiple growth stocks, which embed very, very high expectations of future earnings and sales growth are rarely met and very, very low and pessimistic explanations of value stocks meeting the expectations of value destruction, and declining earnings and sales—that's rarely met either. And so the source of much of the value premium really accrues to the latter, and a source of much of the failure of growth is based on that form or observation that super high expectations rarely come true and super low pessimistic expectations, similarly, rarely come true.

John Bryson: Do you feel that we're in a situation now where the optimistic expectations are so extreme that we're close to a turning point?

Jay Feeney: Well, look, I spoke at the summer sales meeting last year and some observations from some of the participants and attendees were like, "Jay always sounds the same. He sounds a little bit like a broken record." And, frankly, I view that as a compliment because in times like this when value is clearly out of favor you're really going to get punished if you lose your conviction and you change your stripes. So I can't call a turning point, and quite frankly, I'm surprised that we are now again, if you look over a 10‐year period, value's underperformed, but as I like to point out, in the aftermath of the financial crisis from '09 to 2016, value, I like to point out, was in a recession. Relative to growth value was experiencing recessionary conditions and kind of lumbering along and bleeding a little bit but still generating good returns. But in the last three years, value's really felt like it's gone into an outright depression in terms of the velocity of its underperformance or the severity of its underperformance relative to growth. So, frankly, and you mentioned the term turning point, and I've been surprised in many respects because here we are, we're back to a 10‐year period. But your question was, do you see evidence of these super high expectations? And we clearly do. I mean, right now we're at the point where value has underperformed growth to a degree which exceeds the bubble in 2000. You may recall, John, that back in the summer sales meeting last year I had asked the audience, how many of the attendees had been professionally active in the realm of investing during the internet bubble? And out of 100 plus attendees, if not more, you know the number, only a couple of hands went up. And so what we're seeing now is a large number of investment professionals really don't have that personal or professional perspective of having seen these exceedingly stretched valuations in the embodiment of super high expectations in security, because many of them are younger, certainly younger than me, and haven't been through it before. They're looking at some of these multiples and expectations and narratives surrounding these stocks and thinking it's normal and it's not. So there's ample evidence that the degree to which valuation multiples have been stretched for particularly a handful of technology and communication services. And you know who they are. There's ample evidence that they're embodying completely unrealistic expectations. Will they revert? Yeah, I'm quite confident they will revert. When will it revert? I can't call that. I read the same newspapers that you folks do and that's a speculative call. I think the investment call is that the probabilities are clearly stacked against the super high multiple stocks, which have derived the vast majority of their returns, excess returns, over value stocks in the last three years have been driven by multiple expansion rather than fundamental growth in earnings and cash flow.

John Bryson: It's interesting. You mentioned the internet bubble and I remember you asking that question that you did at our last sales meeting. And I think back to 1999, I was actually covering a value manager and he was an excellent value manager, well‐respected, and he finally quit because so many clients had bailed on him and he just kind of got tired of it. He was close to retirement anyways. I fear that we almost need a couple of really legendary value managers to quit and those will be the final death knell of the growth run and we'll go back to that period again, because I remember it in '99. I remember it again in 2008.

Jay Feeney: Well, John. John, it's not going to be us.

John Bryson: Excellent. Excellent.

Jay Feeney: Okay, I can guarantee you that. Now, interestingly, what I vividly remember, I think it was a cover of Barron's and even the cover of Time Magazine had these pictures of Warren Buffet more or less declaring him a dinosaur and obsolete, and that kind of marked the bottom. But you see some pretty well known hedge funds, it's tough on value managers. It's doubly tough on a lot of hedge funds who are long/short, because, face it, in general, most investors have a value bias. It's just a matter of degree and value. Their job is to go find undervalued stocks, and everybody has a different mechanism for their measurement of undervaluation or attractive valuation, so to speak. Hedge funds, on the other hand, they're short, the opposite characteristic. So they're getting doubly squeezed, and you've seen just tremendous numbers of hedge funds and very, very well‐known hedge funds shuttering their businesses and sending their capital back, which I think is clearly the lead indication of the stress in the investment and active management industry and it's palpable. I think you're right there, the frustration level and clients voting with their feet will tend to mark the bottom. There's always, in our own collective experience, Mark Donovan and Steve Pollack and Chris Hart and Josh White, who are part of our global team in discipline value and discipline mid‐cap value, we all in our collective experience have recollections of just very difficult situations where a client has fired us because their patience ran out and there's always one that marks the bottom of the cycle. And we're kind of seeing it now that when you get redemptions from your funds and things like that, it's, hey, look, it's a cyclical business and it's understandable but we're seeing signs now that people are not doing smart things. Because, remember, the golden rule in investing and in life in general is you buy things when they're on sale. Whether you're buying a house or you're buying an automobile or you're buying an investment product, you buy it when it's on sale. And when you look at the suite of disciplined value strategies, and I look at them both in relative and absolute multiples embedded in the probabilities that are embedded in these portfolios, I think you come to the conclusion that these things are on sale and clearly when people vote with their feet they're moving and buying financial products and competing strategies that are much more momentum driven. And it feels like where we're beginning to divine the depths of a bottom.

John Bryson: Gotcha. So one of the questions that I had lined up, and I think you've already answered it, it's really around, is value dead? Is mean reversion dead? And I'm hearing pretty loud and clear, "No, it's not. It's been a long stretch and it's usually a long stretch and a painful stretch, but there is light at the end of the tunnel." Is that a fair way to think of it?

Jay Feeney: Yeah, well, mean reversion is a very widely used term in financial economics and in academic literature in the realm of finance theory. I prefer to think of it a little bit differently. I prefer to think about it in terms of probability. I told you at the outset that I'd been revisiting and reading a couple of new Churchill books, he's a wildly entertaining character and there was a great quote that he had. His security staff used to get very nervous during the Blitz. He would go up on the roof of 10 Downing Street and watch where the Luftwaffe was bombing pieces of London and the security details were petrified that he was going to get hit with shrapnel. They said, "You can't do that." And he said, "I take refuge beneath the impenetrable arch of probability," which I think is a great reference for value managers. And I guess many years ago, I used to say, "I worship at the altar of mean reversion." But I think a more accurate descriptor is that we basically are in the business of probabilities and when you get to points where you have such extreme spreads in valuation between value and growth and you really begin to look at what probabilities are implied in those extreme valuations, you have to come to the conclusion that they're just really unrealistic on both sides, on both the probabilities embedded in the discounted valuations of the value cohort and then the exceedingly high expectations of in terms of earnings and sales growth embedded within much of the growth cohort. Again, so while you think about mean reversion, I encourage people to think about what kind of probabilities are truly embedded in the prices of these extreme valuations. And, ultimately, I think you have to come to the conclusion that they're simply not realistic on both ends and that's evidenced by these super wide valuation spreads, which are now at historical extremes. Again, not calling it a turning point but you're beginning to see all different types of connecting the dots. You'll see data points that are just beginning to point to a highly unsustainable situation.

John Bryson: Is there any other data points or catalysts that you're looking for that will, I would say, continue to give conviction that now's the time to kind of stick with it and keep holding on to your positions?

Jay Feeney: Well, look, I mean, the basis of any rational asset allocation framework has to be, again, diversification in balance. You're never supposed to have no growth in your portfolio. You're never supposed to have no value in your portfolio. And as I pointed out, the golden rule in life, again, whether you're buying a house or an automobile or investing in a financial strategy or product, is that you buy things when they're on sale. And I'm telling you, I mean, value is on sale. I've said it four different ways. I said it last summer. I certainly didn't foresee a global pandemic combined with a deterioration of global geopolitical relationships. Now we're in an election year as well, which creates another layer of uncertainty. And then you layer on a huge amount of civil unrest and near race riots, and you've got a recipe for uncertainty and people hiding and running for the high ground. And what do they do? They typically run to what's worked. They keep allocating to what's worked most recently as opposed to taking the plunge and investing in what's on sale. We all know that momentum has been the factor that's worked over the last three years in particular and even somewhat over a longer period. But based on the probabilities embedded in the valuations, which has underscored these momentum trades, it's really tough for me to see somebody being overallocated to growth at this stage of the game and not moving more aggressively into value‐based strategies.

John Bryson: Jay, it's wonderful to talk to you. I always learn something. I've got two closing questions. Tell us the name of that book again, and any other books that you would tell a true value investor, if they need a boost in spirit, what they should look for. And then you've been investing for 35 years, any final comments you'd leave for us?

Jay Feeney: Well, I mean, the Churchill book is The Splendid and the Vile. And truthfully, it's a very odd name and I don't know what the origin of that strange name is, but it's an easy read and it's a quick read and it's highly, highly both informative and entertaining. And, look, guilty as charged. I sound like a broken record. I understand any value investor's frustration in listening to, "Well, geez, you sound the same and it keeps going on." Look, there are a couple of things that I point to that I don't think are getting sufficient attention, and your listeners and you know we're bottom‐up stock pickers and we don't spend huge amounts of time on macroeconomic narratives. But if you look at the expansion of the money supply that has happened in the last two or three months at the behest of the Federal Reserve, any measure, M2, M3, broadly defined, you have this massive, massive expansion in the money supply. And the deflationary impulse, which happened right as the economy shut down, clearly, there was a deflationary impulse because the economy shut down and the consumer basically, forcibly had to completely shut down spending. That's ebbing and that's going away, but then you have to layer on a 25% to, in some measures, a 40% increase in the money supply. And the old quantity theory of money, MV equals PQ, money supply times the velocity of money is equal to inflation price level multiplied by the quantity of money, MV equals PQ made famous by Milton Friedman, there has been a massive expansion in the money supply and I think the odds and the probabilities point to an increase in inflation, an expansion, an increase in the level of interest rates, steepening in the yield curve, all of which are favorable and create a fairly significant headwind for value investment strategies. And when you really scratch and peel back the layers and you look at the size of the expansion of the money supply, it's really jaw‐dropping. So I'd encouraged people to take a look at that. It's just one factor. And then, as you know, growth stocks being long duration securities are clearly placed at a higher level of risk in a rising rate environment. So it's just one. Again, from a macro standpoint, it's one observation that I really just haven't seen much emphasis on and it's fairly mind‐boggling the degree to which the money supply and the inflationary pressure that that brings with it is in existence out there.

John Bryson: Without a doubt. Jay, like I said, it's always wonderful to talk to you. I always learn something new. I want to thank you for sharing your time today and sharing your insights. To our audience, if you want to hear more, please subscribe to Portfolio Intelligence on iTunes or visit our website jhinvestments.com to read more of our viewpoints on macro trends, portfolio construction techniques, business building ideas, and much, much more. Thanks for listening to the show.

John Bryson:
Hello, and welcome to the Portfolio Intelligence Podcast. I'm John Bryson, your host and head of investment consulting at John Hancock Investment Management. The goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice. Topics we'll address include advisor business-building ideas, capital market updates, the latest trends in portfolio construction, and investment insight from veteran portfolio managers across our global network.

John Bryson:
Today's June 11, 2020, and I'm joined by Emily Roland and Matt Miskin our co-chief investment strategists at John Hancock Investment Management. Emily and Matt are the engine behind our quarterly capital market's outlook piece titled Market Intelligence. Emily and Matt, welcome to the call.

Emily Roland:
Thanks for having me.

Matt Miskin:
Yeah, thanks for having me, John.

John Bryson:
All right. It's always great to talk to you two. I want to start by sharing with you an article that I read in the New York Times earlier this week. It's about a Buddhist monk living in Vermont, who went off into the woods for a 75-day silent meditation. He left in early March and came out in late May. And basically asked, "Hey, did I miss anything?" Now we know he missed quite a lot, but if you were to look at his 401(k) statement or his investment statement, he might conclude that he didn't miss all that much because we've seen a big sell-off, but a big rally.

John Bryson:
Now it's been a few weeks since we've last connected. Emily, maybe you could summarize for us how much the market has come back and maybe highlight how it's diverged from the economic growth.

Emily Roland:
Sure, John. It really has been pretty remarkable. You think about the decline that we saw in equity markets so fast from February 19 to March 23, and the S&P 500 fell about 34%. So it's the fastest decline that we've seen in modern history there. And since that March 23 low, markets are actually up about 43%. So we're not quite back to those highs yet, but we're getting awfully close. And meanwhile, the economic backdrop has been pretty disastrous. We've lost over 22 million jobs in March and April.

Emily Roland:
What we're starting to see are some green shoots developing in terms of the economic outlook. And that's really one of the key reasons that the market has done as well as it has. We all know that markets are forward looking and stocks are pricing in a good outcome here. They're pricing in a better optimism on the jobs front. And I think certainly last Friday's jobs report was great news in terms of actually adding two and a half million jobs. I think we need to be a little bit careful there as we still have quite a ways to go until the economy heals, but that was undoubtedly very, very good news.

Emily Roland:
The market's also looking forward to this economic reopening that we're seeing with all 50 states now reopening. Some better news on the vaccine and treatment front that we've seen— still no signs yet that we definitely have a vaccine here, but good developments happening as well. And then finally, we've got this big shift in sentiment as you're seeing investors coming off the sidelines. And we've joked before about family members that are in middle school and high school wanting to know how to invest in the markets. And so we're certainly seeing a lot of participation from the retail side as well that's been also fueling this. We've come a long way very, very fast.

Emily Roland:
So as we look forward, we want to be careful from a risk management standpoint, but as the Fed and as fiscal stimulus continues to be supportive here, which is another element that's absolutely been responsible for pushing markets, we want to continue to engage. We want to also do that though with a risk management mindset and with a balanced approach.

John Bryson:
I think that's wise. And you mentioned the Fed, and I certainly want to talk about that. I know their meeting concluded yesterday, and Matt, I'm sure you were tuned in listening to every word. What were you listening for and what were your key takeaways?

Matt Miskin:
The first thing that we're really listening for was the forward guidance. So forward guidance is this powerful tool of monetary policy, where the Fed says, "This is what we're going to do in the future." And what they said yesterday was that they believe that they're going to keep interest rates at basically zero through 2022. So that forward guidance suggesting that interest rates are going to stay low for that long was the first element we were looking for. And what does this mean for investors? It means that cash returns, so money markets, short-term Treasury, T-bills, are going to offer very low return potential as long as the Fed keeps these interest rates low.

Matt Miskin:
So Morningstar just came out with data on flows. Money markets took in another $30 billion net in May in flows, and now cash on the sidelines in money markets has now eclipsed 2008 and stands at $4.7 trillion. So as the Fed says interest rates are going to remain low, what does that mean for portfolios and investors? That means that that cash balance, that return of cash, is going to be exceptionally low and there likely is better opportunities across the portfolio to allocate that capital.

Matt Miskin:
Another thing that I think jumped out to us, was that we do align in essence with the Fed's view that this economy is going to take some time to recover. That we believe that it's a Nike “swoosh” in terms of the recovery, meaning you've got this dropdown and then a slow recovery backed up to potential GDP growth. So the Fed has actually penciled in, in terms of the consensus of the FOMC members, negative 6.5% GDP growth for this year. Then next year they're saying 5% positive growth, and then 3.5% for 2022. This suggests that growth reclaims the losses from this year, really at the back half of 2021. So there is more time likely for everything to come back.

Matt Miskin:
And that's really one of the key things we were listening to from the Fed. So that's less of a V-shaped recovery in terms of the Fed's expectations. And we are in line with that view that this could take a bit longer—for when growth really starts to recover fully from what everything has happened thus far this year.

John Bryson:
Okay. Hey, let's take a little pivot. Emily, we heard so far about economic growth in the U.S. Maybe expand that conversation as we look at the second half of the year and into '21, but make it more of an international focus. What do you see for global economies?

Emily Roland:
So global economies, broadly speaking, are starting to bottom and recover. The challenge for overseas economies, and we look at the largest non-U.S. developed countries, is that they were in a tougher position than the U.S. coming into this virus-driven recession. So we saw a flat-lining, a possible bottoming of PMI data. This is one of our favorite data points: Purchasing Managers' Indexes. It's a monthly survey of purchasing managers at manufacturing firms and anything above 50 is expansionary, and anything below 50 is contractionary.

Emily Roland:
And while the U.S. economy was really starting to see some strengths coming into this, overseas the PMI data was fairly lackluster. Trying to put in a bottom, but certainly we've had to put the pause button on that narrative. And we hope that the worst of it's behind us; we saw a real contraction playing out. We're looking at an environment with areas like Japan, France, Germany, Italy, the U.K., all starting to show signs of reacceleration, but we think it's going to be a little bit more of a challenge, especially when you consider the export-oriented nature of a lot of these major non-U.S. and European countries. It's going to be a bit more of a challenge to come back.

Emily Roland:
So that is also one of the reasons that we have preferred leaning into U.S. equities versus non-U.S. equities, in our view. We also think a lot about just the sector composition, investing in the U.S. versus non-U.S. equities. Non-U.S. equities are dominated by highly cyclical parts of the market areas like banks, areas like industrials, where we do things that you need to see a real strong, robust rebound off the bottom in order to really fully embrace those areas. Within the U.S., it tends to be a higher quality, lower beta market that's dominated by areas like technology, where we think that there's a really strong secular growth story there. And we continue to really embrace the quality factor in the U.S. So I think this does favor U.S. equities, broadly speaking, over the next 12 months or so.

John Bryson:
Excellent. So, Matt, I want to go back to something that you mentioned: rates near zero and we'll probably stay there for an extended period. So in your conversation with advisors, what are you recommending people to consider for their fixed-income portfolio if rates are so low?

Matt Miskin:
Yeah, I mean, the first part of the discussion is where do you allocate capital across the fixed-income curve. So you can choose short maturity or limited duration type strategies. You can go to intermediate-type strategies, intermediate duration, intermediate maturity, or you could go longer. Our view is that the intermediate part of the curve is the best point across that spectrum. And the reason why is, the short end has very little yield at all. If you do see opportunities that have a lot of yields with low duration or limited maturities to also suggest that it's a lot of credit risk, because there's no free lunches right now.

Matt Miskin:
So we would be cautious of that part of the market if there is yield. If there isn't, then the Treasury market's suggesting you're going to get something like 10 basis points or very low return. The intermediate part of the curve looks better to us. You are getting compensated with some yield and the corporate curve is also upward sloping. So there is roll down, in essence, from the intermediate part of the curve to the short end, because the yields are higher.

Matt Miskin:
The long end of the curve, to us, while it is a good hedge from equities—the long end of the curve typically, yields go down when stocks go down, meaning bond prices actually rise when stocks go down on the longer end of the curve. But we do think there's going to be some volatility there. And we'd actually prefer the intermediate part of the curve versus the longer end because of that. And so we position the intermediate part of the curve, and then it's about just trying to find income for clients, but on a risk-managed basis. And to us, there's a spectrum between Treasury bonds, which are yielding ... The Treasury Bond Index is about 50 basis points; that's what it's yielding. Mortgage-backed securities are yielding about 1.3%, as is the Aggregate Bond Index. That is of the lowest yields that's ever had in history, so that's a tough place to be.

Matt Miskin:
Investment-grade corporates are just about 2.3% right now. That's a decent yield to us. And then high yield is yielding about 6.7%, emerging-market debt about 5%. Really what we're focused on would be translating this into a strategy, would be a core plus intermediate strategy. Where investment-grade corporates, mortgage-backed securities are the bulk of the portfolio, but then the ability to nibble on a little bit of those higher yielding securities. Yes, they offer, they have more risks in high yield or emerging market debt, but just nibbling on some select opportunities there can get your yield up to something like two and a half, 3% to us.

Matt Miskin:
That would be the ideal income stream right now, where you're getting positive income for clients, but not overdoing the risk budget of the fixed-income portfolio. And as I said, highlighting that intermediate part of the curve as a sweet spot across maturities.

John Bryson:
Great. And Emily, you started in your conversation about underweighting international and allocating more toward the U.S. Can you go a little bit deeper on that and talk about how people should consider their equity portfolios? And maybe touch on the whole value to growth conversation that people are having.

Emily Roland:
Yes, that is a huge topic of conversation. And so many investors out there are looking for signs that we could start to see the value complex coming back, and we are starting to see some signs of life. One of the key dynamics that we're watching play out in the markets right now is that there has been a broadening in terms of market leadership and participation from various parts of the market.

Emily Roland:
Up until really mid-May really, it was really about owning U.S. growth; it was about owning technology stocks; it was about owning U.S. versus non-U.S. And on the fixed-income side, it was about embracing Treasuries. It wasn't really the only ... Trade really worked well on a relative basis. And since mid-May, we're starting to see some leadership come from the value side. Its early growth has actually outperformed the value year to date by a wide margin, gross up 9.5% while value is down 9.5% year to date.

Emily Roland:
So there's a huge gap here to fill, but again, we’re starting to see some signs of life from value, as well as moving down in cap. Looking year to date, large-cap core is positive, but in the core space, mid- and small-cap equities are down 4.5% and 9%, respectively. Looking across sectors, the S&P 500 as of yesterday, basically flat on the year, which is pretty remarkable. And areas like technology really leading, up over 12%. But then you've got areas like financials, which are down 14.5% year to date.

Emily Roland:
So we're looking, right now in terms of a tactical balance in those areas. I would include international equity there as well. And this is especially important for investors who haven't rebalanced and who may be overweight, large-cap growth, or U.S. equities. We think this is an opportunity to look for some of these areas that have been beaten down and have some decent catch-up potential here. This does not mean that we're abandoning growth stocks though. We continue to have a neutral position on growth versus value. We like quality growth. Matt talked about the sweet spot in fixed income. Quality is really the sweet spot for us on the equity side.

Emily Roland:
So we're continuing to lean into sectors like technology; areas like communication services. We also like healthcare, which has that mix of authentic defense within the sector. And then we're embracing a little bit more risk, a little bit more cyclicality by thinking about adding some exposure to areas like industrial. So we want to be positioned here again in order to participate in the market. But we also want to be cognizant that some risks do still exist, and the economic recovery still has some uncertainty around it. We want to be very balanced here in terms of our positioning and really think about how a 60/40 portfolio is really the way to approach this market.

John Bryson:
Great. And maybe to close out the conversation. Matt, I'll go to you the last time we talked, you had recommended dollar cost averaging into a balanced portfolio. How has that worked out for investors, and any other closing thoughts you'd have for them today?

Matt Miskin:
Well, it has worked out pretty well. I think that it's not like we're patting ourselves on the back or having a victory lap on that one, but there are still very time-tested approaches to investing that remained very relevant and are showing their merits. And dollar cost averaging into a balanced portfolio amidst volatility, is one that we continue to see work. You're not going to pinpoint the bottom perfectly or pinpoint the top if you're trying to trim risk into it, but we really wouldn't try to get that tactical. We think that's going to end up with a drag on returns if you're trying to shift around too quickly here around this choppy market.

Matt Miskin:
Instead, this dollar cost averaging strategy is one that can be additive to longer term returns. It can continue to keep the risk budget that an investor is looking to have in place, because you still have the diversification underlying in that portfolio. So, it's something we continue to highlight as a good strategy. And again, when I was talking about the cash balances $4.7 trillion. That's a lot of money that's in cash. And I'm not saying, or we're not saying, that you want to chase equities with that or high-flying stocks. But we do think a balanced portfolio over the next several years will outperform zero, which is what cash yielding. And we continue to believe that strategy holds a lot of merits today, given even though there's a lot of uncertainties in this market and in this environment.

John Bryson:
Yeah, it's funny. I know, Matt and Emily, you both have kids and they are Disney fans, like most kids. And it reminds me of the movie Finding Nemo. Where Dory, her mantra is, "Just keep swimming, just keep swimming." There's going to be more volatility, there's going to be more waves in the market. But I think that makes a lot of sense. It's basic, but it makes a lot of sense to just keep dollar cost averaging into a balanced portfolio, ride out the volatility.

John Bryson:
So Matt and Emily, always great to talk with you. You always share a great insight. So thank you to the audience. If you want to hear more, please subscribe to the Portfolio Intelligence Podcast on iTunes or visit our website jhinvestments.com to hear more specifically about Market Intelligence. You'll hear about Matt and Emily's views in the market. You'll also hear portfolio construction ideas and business-building ideas, and much, much more. Thanks so much for listening to the show.

Disclosure:
This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA/SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There's no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical, and is not indicative of future results and no forecasts are guaranteed. Investing involves risks, including the potential loss of principle.