Webcast – Markets at mid year: CIO insights on what matters next

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Hello and welcome to Fidelity Compass, I'm Pamela Ritchie.

 

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Canada has entered a technical recession, and with most of the second quarter

 

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behind us, it's maybe still too early to tell how fully markets

 

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are pricing that in. Our next guest says investors are treating markets

 

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a bit like a glorified casino with some short-term moves masking

 

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what is really happening underneath.

 

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So where are the disconnects?

 

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What's being mispriced, and how is he navigating the landscape for opportunity?

 

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Joining us here today for a mid-year check-in on global equities and

 

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forces shaping markets is Fidelity's Chief Investment Officer and Portfolio

 

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Manager, Andrew Marchese.

 

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Warm welcome to you, Andrew. Great to see you.

 

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Thank you. Great to be here. You're welcome. Being here for everyone here

 

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today. Do you mind if we begin, first of all, questions are welcome.

 

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Please send those in for Andrew.

 

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With the technical recession discussion, whether it's something you worry

 

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about, how close you're looking at some of the other factors with that, we have

 

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to kind of address it.

 

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Yeah, I'm more concerned about, or not concerned, but I

 

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pay more attention to the corporate profit backdrop as opposed to

 

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traditional economic metrics that measure a recession or no recession.

 

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And on that front, the corporate profit backdrop is exceptionally strong.

 

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The AI thematic ones is obvious, but there's a lot of good stories going

 

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on underneath as well in different industries and sectors, and so the

 

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economic metrics in North America both on the manufacturing and

 

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service side, are actually still improving.

 

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That was the case as we entered, 2026.

 

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So it's nice to see.

 

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So I'm not too fussed.

 

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You talk to the Canadian banks out there.

 

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They're optimistic a little longer term based on some of the

 

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initiatives that you've heard our Prime Minister talk about in terms of avenues

 

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for growth going forward.

 

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So we're gonna pay a lot more attention to the corporate profit backdrop

 

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as opposed to any kind of.

 

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Traditional economic recession barometers.

 

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Mentioned short-termism, I guess, in the introduction there.

 

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There's always that in markets.

 

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Is there more now than traditionally?

 

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I mean, kind of give us a rating on that. How do you see that?

 

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I think short-termism, animal spirits,

 

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whatever you want to call it, ebbs and flows with the market at all times.

 

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There's generally a few ingredients that are necessary, one, ample liquidity,

 

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we have a bunch of that, two, avenues and pockets

 

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of exceptionally strong growth. We have that principally in

 

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US technology and in particular certain US

 

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AI thematics, like semiconductors and memory, so chips in general.

 

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We have that, a either benign or

 

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a rate-cutting environment, we kind of have that.

 

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So you put all those things together and it does create a backdrop for

 

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those who want to continue and invest

 

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where the growth is or where the highest growth in the market is coming from.

 

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You're going to get that. You're gonna see kind of a bit up in multiples in

 

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certain sectors and areas of the market.

 

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So let's talk about what is underneath and what's sort of behind this.

 

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You've mentioned for years the globalisation story is in decline,

 

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many people have spoken about this. It's really a question of how you invest

 

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that more de-globalised world and ultimately how Canada

 

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is doing that. Take us there a little bit, what you see on the landscape,

 

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sort of the chessboard, if you will, at this moment, and then we'll go into how

 

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you take a look at it for investment.

 

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Yeah, I think we entered kind of this period of de-globalisation,

 

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the Minsky moment of which was probably April 2nd of last year,

 

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and it certainly I think was the case for our country, and you've heard

 

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our Prime Minister talk about Canada having to forge new alliances

 

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with the middle countries.

 

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If you're not an economic superpower, you're at a disadvantage, and

 

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its necessary for the middle powers to come together,

 

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form new trade alliances.

 

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I think the country needs to explore new avenues for growth, and that means

 

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more efficiently using and optimising

 

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for our natural resources.

 

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And so that's all very encouraging from a longer-term perspective.

 

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Now in the short term, what do you have going on?

 

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You'll have the U.S. Continuing to move in an isolationist practise

 

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in fashion. With that, other countries will look

 

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to possibly...

 

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Diversify themselves away from the U.S.

 

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Dollar. That could mean continuing to top up on their gold reserves.

 

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That could be selling U. S.

 

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Treasuries. That also means, particularly with respect to Canada and

 

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other nations around the world that are rich in natural resources, those

 

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elements in the ground become that much more valuable, right?

 

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So I think if you look back in history, whether you're talking about the 19th

 

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century, the 18th century, when the

 

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world becomes unstable. In a way, and there's a shift,

 

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whether it be in power or economies, then there

 

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is always this kind of pursuit by some, usually the most powerful,

 

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to attain natural resources support.

 

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The land. Yeah.

 

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Commandeer trade in certain ways, whether it was shipping lanes in the 19th and

 

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18th century or now through policy,

 

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these things all change. And so you have to change with them.

 

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But the bottom line is if you happen to be in a country rich of natural

 

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resources, due to the scarcity value of them and the continued

 

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strategic importance of them, obviously the value of those assets rises.

 

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And so, ultimately, what's underground, the economics

 

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are right for them to perhaps come above ground in new ways

 

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and just with more effort.

 

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Yeah, to that point, I think if the trend that we have seen over the last year

 

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continues or and or accelerates,

 

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then it will necessitate capital coming into these

 

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countries to look at projects that, you know, at one

 

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point in time were not economically feasible, may now be economically

 

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feasible. So it means new avenues for growth.

 

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It means continued strategic importance of these assets

 

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and, you know, as a We lived through the last natural resources

 

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bull market, which took place in the first kind of 10 or so years of this

 

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century. We saw a lot of consolidation globally in

 

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this. So the assets are in the hands of fewer and fewer organisations.

 

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And so that takes with it its own kind of,

 

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as demand rises and supply remains static, both from an

 

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underlying asset perspective, but also from a public security trading

 

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perspective. Can do funny things to price this, right?

 

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Can do funny things to prices.

 

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Does that make prices go up?

 

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Can you ultimately build new companies to take things

 

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in other, this is probably the moment for that.

 

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So the money that would go after building that out ultimately,

 

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some of it's private, there's a government will, it appears.

 

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Tell us where the capital will come from.

 

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Can you tell at this point? Well, private, public.

 

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But you have to create the story that the

 

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return of invested capital for these things is going to be particularly

 

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exciting. And eventually...

 

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And worth the investment.

 

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Worth the investment. And the money will flow from in

 

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the private sector for things that have worked and the money needs to kind of

 

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flow elsewhere. It moves off of one group of assets or sectors to

 

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a different one. And that's the way big picture cycles work.

 

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We saw, you know, in the 90s you moved from a U.S.

 

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Large cap growth culminating in the U.

 

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S. Technology, NASDAQ bubble.

 

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And eventually the market, you now, kind corrected there,

 

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but the money flowed. Into the national resources areas

 

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of the market, whether it was industrial commodities, fertilisers,

 

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steel, oil and gas.

 

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And we saw that, and it was very much thematic around

 

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higher than normal demand coming out of China for all these

 

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goods. And so as a result, the money moved from

 

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one part of the economy to another.

 

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And so we'll probably see that again.

 

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On the power energy, I mean, this fits into Bill and everything we're

 

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discussing with the Straits of Hormuz.

 

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But is the energy picture different than it was, for instance,

 

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in the super cycle that took place in the aughts?

 

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Would you say there's different types of demands?

 

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I'm sort of getting at the uranium picture here.

 

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But I'm wondering if the power story will be different going forward.

 

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There's lots of demand from data centres and so on.

 

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Yeah, there are some people who argue that based on

 

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the numbers that we've seen from a power

 

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requirement side to fulfil some of the AI build-out that

 

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some people have talked about, there's no way that

 

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the power supply can be fulfilled.

 

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But so it means more investment in alternative forms of energy,

 

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you mentioned uranium, You know, so nuclear makes a comeback, maybe other forms

 

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of alternative energy. Make a comeback, and then there's always the

 

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petrochemical side as well, right? So that will continue to be

 

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front and centre in that whole discussion.

 

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The other part of the argument, I think, is what we've seen on the geopolitical

 

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side, whether it was the U.S.

 

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Invading Venezuela. Some pundits will say that, you know,

 

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whether it's the primary reason or, you

 

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same-stance situation in the U.S.

 

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And its actions in Iran and the ramifications of what that

 

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may have for longer term for oil supply to China.

 

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We've already talked about that with respect to Venezuela.

 

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So all of this kind of plays into the thematic around

 

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energy demand, the price for all kind of energy

 

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molecules and security.

 

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And that's probably a longer-lasting...

 

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Discussion that's going to have many chapters in the story.

 

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Does it look like it's going towards a North America, South America sort of

 

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energy security picture? I mean, we're selling, and there's big deals happening

 

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going to Europe. So that's also happening.

 

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The new trade alliances are being sketched out anyway.

 

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Some economists have raised that kind of fact that the U.S.

 

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Will control the Americas from pole to pole.

 

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And I think it's a convenient argument. I don't know if it's true.

 

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I mean, you know, a country like Canada, for example,

 

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they benefit from being a diversified supplier.

 

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So if you think about it from a trade perspective,

 

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75 percent of our exports, holistically, all exports,

 

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went to the U S. If you were looking at Canada as a country...

 

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Or Canada as a company, rather, you would say, well, if

 

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I was investing in that company, it's nice to have a customer

 

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who 75% of your business, it's also nerve wracking, because if

 

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that customer flakes out or they undergo a period where they're

 

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not healthy, it has grave ramifications for the state of your

 

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company, the health of your country.

 

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So much the same way, Canada has to diversify, and this is why

 

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I said, I think maybe Liberation Day of 2025.

 

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Was the Minsky movement for Canada to address

 

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a diversified trade platform through all

 

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means, right? So natural resources, industrial manufacturing,

 

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what have you, doing more for

 

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small medium enterprises here, maybe changing taxation, preventing

 

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the brain drain. I think some of that has been taken care of because the U.S.

 

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Has become a little bit more onerous with respect to granting visas to foreign

 

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workers and so on and

 

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So some are coming to Canada as a result.

 

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Some come to Canada or those who are in Canada who wanted to leave maybe

 

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look to stay at home and maybe with that over time policy

 

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changes, taxation changes, and you make this country

 

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much more interesting and lucrative from

 

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starting businesses and develop pockets of excellence, whatever those may be.

 

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Whatever those may be.

 

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So let's layer on top of that sort of the story of rates

 

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and inflation as we go through various transitions, one of them being towards

 

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building out the infrastructure it appears for a new industrial revolution,

 

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AI being sort of the piece of intelligence leading us there.

 

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What is gonna happen in the meantime for investors to know about in terms of

 

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inflation? What is the call on inflation at this point?

 

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It looks like things will be inflationary.

 

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Yeah, I think there's a bias upward in inflation.

 

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It's hard to speak with any degree of conviction about a tangible

 

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number. But what we do is we look at the ingredients in place to

 

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say inflation should either move higher or lower.

 

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One, an enormous amount of US debt that has been

 

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talked about for forever and is growing doesn't

 

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seem like that problem's being addressed.

 

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Some people would actually say that this administration has exacerbated the

 

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issue.

 

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You have a, obviously

 

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the price of oil in the short term has gone up, which causes problems

 

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at the pump.

 

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It makes everyone feel bad about inflation.

 

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Right, so that might hit consumer demand for discretionary

 

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products. It may cause input costs to rise for manufacturing.

 

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That hurts margins longer term.

 

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I think everything with respect to inflation in the short term

 

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can be relieved by some very clear cut

 

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smooth resolution in the Middle East that leads

 

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to the opening of the straight without any knock-on

 

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effects, so you kind of get that.

 

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Oil to come down a minute. Longer term, there's, you know, again,

 

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you have to address the fact that we have empty money supplies grown

 

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uncontrollably since the global financial crisis.

 

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You have that, as I mentioned, U.S.

 

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Debt as well. You've have countries around the world who all want to

 

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devalue their currency.

 

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Yes, at the same time.

 

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At the same time. So all of this, you don't know

 

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what the degree of magnitude is, nor the speed to get there.

 

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But there is a non-zero risk that inflation secularly

 

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just grows. Now, the opponent to that thesis

 

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would be unless we make some huge gains

 

00:15:14,346 --> 00:15:18,317

from a technology perspective that increase our productivity dramatically

 

00:15:18,317 --> 00:15:22,888

and bring down costs and we can grow.

 

00:15:22,888 --> 00:15:26,959

Faster than we ever have without all the inflationary

 

00:15:26,959 --> 00:15:29,295

pressures that build from that.

 

00:15:29,295 --> 00:15:31,196

And people point to AI on that front.

 

00:15:31,196 --> 00:15:35,367

So you increase your productivity, bring down costs, and

 

00:15:35,367 --> 00:15:38,971

there you go. Then you can address your deficits, your debt situation, so on

 

00:15:39,004 --> 00:15:43,175

and so forth. And that, you know, that's the panacea,

 

00:15:43,175 --> 00:15:46,312

right? That's utopia at the end of the day.

 

00:15:46,345 --> 00:15:50,382

So a couple of different ways to invest

 

00:15:50,382 --> 00:15:54,420

against inflation, and as you have spoken about many times, one of them is just

 

00:15:54,420 --> 00:15:56,822

the growth of some of the AI superstars.

 

00:15:56,822 --> 00:16:00,759

And they have IPOs coming to market and maybe new ways to

 

00:16:00,759 --> 00:16:04,530

invest. And the other is sort of commodities, which is what you were talking

 

00:16:04,530 --> 00:16:07,099

about before. There are other ways to do it as well.

 

00:16:07,099 --> 00:16:11,503

Just sort of talk a little bit about the allocation story of what today's

 

00:16:11,503 --> 00:16:15,007

investor might want to consider that's a bit different.

 

00:16:15,007 --> 00:16:18,844

Yeah, and I think you can, as always, you should have balance.

 

00:16:18,844 --> 00:16:23,182

So there is right now, and

 

00:16:23,182 --> 00:16:27,353

we've seen it firsthand in the chip market in particular,

 

00:16:27,353 --> 00:16:30,522

the numbers these companies are printing are very real.

 

00:16:30,522 --> 00:16:34,727

What you have to ask yourself going forward if you're purchasing such

 

00:16:34,727 --> 00:16:38,530

securities is how long does this cycle remain intact?

 

00:16:38,530 --> 00:16:42,501

We know these things are cyclical, but are we on the cusp of something that

 

00:16:42,501 --> 00:16:45,004

may longer than we've ever seen a typical.

 

00:16:45,004 --> 00:16:49,041

Kind of semiconductor and ship cycle in our lifetime or throughout the

 

00:16:49,041 --> 00:16:53,779

history of the market, we have to ask ourselves that will

 

00:16:53,779 --> 00:16:58,283

the purchasers of such things remain

 

00:16:58,283 --> 00:17:01,854

price insensitive? They've been really price insensitive to this point.

 

00:17:01,854 --> 00:17:05,324

I mean, demand is just, it doesn't look like it'll ever end.

 

00:17:05,324 --> 00:17:08,560

But if their business is slow, if their revenue and profits slow, does that

 

00:17:08,560 --> 00:17:10,629

change their capex projections?

 

00:17:10,629 --> 00:17:14,700

And typically, when you're speaking about what is

 

00:17:14,700 --> 00:17:18,737

the fate of the stocks, the stocks never wait until things

 

00:17:18,737 --> 00:17:22,274

go negative. It waits till the second derivative rolls over.

 

00:17:22,274 --> 00:17:25,144

So that's what you have to kind of pay attention to.

 

00:17:25,144 --> 00:17:29,014

On the other side of the equation, you may be at the start of a hard asset

 

00:17:29,014 --> 00:17:31,150

cycle that I spoke of.

 

00:17:31,150 --> 00:17:34,586

So you have one thing going on in the innovative world.

 

00:17:34,586 --> 00:17:38,424

That has a knock-on effect of what's going on in the hard asset world, and

 

00:17:38,424 --> 00:17:42,728

maybe at some point in the future, the AI thing is dominant right now,

 

00:17:42,728 --> 00:17:44,997

the other one's percolating, and maybe it shifts.

 

00:17:44,997 --> 00:17:46,265

That's really interesting.

 

00:17:46,265 --> 00:17:47,800

Right, at some point in the future.

 

00:17:47,800 --> 00:17:50,469

Both help with inflation?

 

00:17:50,469 --> 00:17:52,871

Potentially.

 

00:17:52,871 --> 00:17:56,909

And yeah, if I were to sort of say, which is the longer cycle, what

 

00:17:56,909 --> 00:18:01,080

we're in right now for AI, or sort of the geopolitical, which sounds

 

00:18:01,080 --> 00:18:04,716

like, I mean, tell us, could that switch, for instance, if there's a new

 

00:18:04,716 --> 00:18:06,752

administration in the United States?

 

00:18:06,752 --> 00:18:10,422

Could that all switch the de-globalisation story from here?

 

00:18:10,422 --> 00:18:12,458

Historically, no, actually.

 

00:18:12,458 --> 00:18:15,561

So I've gotten this question, so I've looked into it a bit.

 

00:18:15,561 --> 00:18:19,498

Even if there is a change in the

 

00:18:19,498 --> 00:18:24,703

administration, or the party's administration,

 

00:18:24,703 --> 00:18:28,674

if there's a new party in effect in the US, what

 

00:18:28,674 --> 00:18:32,911

history has told you, is it takes a long time to unwind these

 

00:18:32,911 --> 00:18:34,913

things. They gain an inertia.

 

00:18:34,913 --> 00:18:38,517

And despite the fact that maybe a different administration feels differently,

 

00:18:38,517 --> 00:18:40,686

You've already embarked down the path.

 

00:18:40,686 --> 00:18:44,623

And to the extent that policy gets drafted between, continues to get drafted

 

00:18:44,623 --> 00:18:48,594

between now and 2028, it's very hard to undo that

 

00:18:48,594 --> 00:18:51,897

stuff overnight. All the while, the other countries who are on the receiving

 

00:18:51,897 --> 00:18:52,498

end of this.

 

00:18:52,498 --> 00:18:53,732

Or sort of making their own plans.

 

00:18:53,732 --> 00:18:58,137

Absolutely. So you have to do those things.

 

00:18:58,137 --> 00:19:00,272

Needless to say then, things don't get unwound.

 

00:19:00,272 --> 00:19:04,877

You just continue to go at a pace, a certain pace,

 

00:19:04,877 --> 00:19:08,914

down the path of being a little bit more self-reliant, striking

 

00:19:08,914 --> 00:19:13,952

new trade alliances, and everything that builds, that involves.

 

00:19:13,952 --> 00:19:18,157

So, we're going to always continue to have a

 

00:19:18,157 --> 00:19:22,661

meaningful trade practise and strategic

 

00:19:22,661 --> 00:19:27,032

partnership with the US on a variety of things, but on the margins

 

00:19:27,032 --> 00:19:31,003

we're going to have to look to other countries to build

 

00:19:31,003 --> 00:19:34,106

businesses with, so to speak.

 

00:19:34,106 --> 00:19:38,911

Tell us a little bit about the Canadian-US-Mexico

 

00:19:38,911 --> 00:19:43,048

deal, KUSMA-USMCA, which is kind of happening in real time right now.

 

00:19:43,048 --> 00:19:47,352

We know it's unfolding, well, it has been unfolding for a while.

 

00:19:47,352 --> 00:19:49,087

What do investors need to know about that?

 

00:19:49,087 --> 00:19:51,857

It really is right here, right now, it's not in the future.

 

00:19:51,857 --> 00:19:55,894

Yeah, I think what you have is trade practises in place that

 

00:19:55,894 --> 00:19:59,965

have been governed by a policy, by a deal that got

 

00:19:59,965 --> 00:20:04,002

kind of turned on its ear last year, and you're

 

00:20:04,002 --> 00:20:07,039

having to deal with that in the here and now.

 

00:20:07,039 --> 00:20:09,541

We don't know how that's going to kind of resolve itself.

 

00:20:09,541 --> 00:20:13,712

We can take measures to say what are the spectrum of

 

00:20:13,712 --> 00:20:17,849

outcomes, what are probabilities of the spectrum of

 

00:20:17,849 --> 00:20:21,220

outcomes coming to fruition and investing accordingly.

 

00:20:21,220 --> 00:20:24,456

I mean, a rollback of tariffs in certain ways, but maybe not about the

 

00:20:24,456 --> 00:20:25,123

financial. Well, you saw it overnight.

 

00:20:25,123 --> 00:20:27,793

Well, you saw it overnight with respect to like things like steel that are

 

00:20:27,793 --> 00:20:32,297

involved in certain sections like 232 and whatnot, but to

 

00:20:32,297 --> 00:20:36,235

me the more exciting thing is to think about a longer trajectory of

 

00:20:36,235 --> 00:20:38,170

growth and what it means.

 

00:20:38,170 --> 00:20:43,242

I don't know how the USMCA deal or Kuzma will get resolved,

 

00:20:43,242 --> 00:20:47,212

but, to me, it's more exciting to think about will

 

00:20:47,212 --> 00:20:52,184

we create policy and will there be an inertia in the century to...

 

00:20:52,184 --> 00:20:56,121

Build pipelines, to change laws in the ports in

 

00:20:56,121 --> 00:21:01,360

British Columbia and ship things out of there that we haven't shipped before.

 

00:21:01,360 --> 00:21:05,197

What other alliances can be made across the globe in a variety of ways?

 

00:21:05,197 --> 00:21:10,035

So that to me is the more interesting thing from an investment perspective.

 

00:21:10,035 --> 00:21:12,337

We'll deal with these things as they have.

 

00:21:12,337 --> 00:21:16,341

Nobody has any real great conviction or insight

 

00:21:16,341 --> 00:21:19,511

in how that kuzma is going to be resolved, whether it's going to be.

 

00:21:19,544 --> 00:21:22,481

You know, favourable in certain industries, not favourable in others.

 

00:21:22,514 --> 00:21:26,752

Do we need to pay attention to the CapEx cycle itself?

 

00:21:26,752 --> 00:21:30,889

We're in it, it's happening. Much of it is originated

 

00:21:30,889 --> 00:21:34,826

from the large tech players and the AI story.

 

00:21:34,826 --> 00:21:38,764

But within Canada as a country, a whole bunch of it related to AI and

 

00:21:38,764 --> 00:21:42,801

the build-up. But a lot of it is almost a new version of state building

 

00:21:42,801 --> 00:21:46,772

too. So there's a CapEx Cycle that's linked to just sort of Canada

 

00:21:46,772 --> 00:21:49,975

investing in itself, its energy.

 

00:21:49,975 --> 00:21:53,345

Minerals and and kind of the defence that overlays all of that.

 

00:21:53,345 --> 00:21:56,648

I wonder if that's different to you in one way to keep an eye on.

 

00:21:56,648 --> 00:22:00,585

Yeah, the question, I guess, is it's of a

 

00:22:00,585 --> 00:22:05,624

far smaller order of magnitude presently, but one asks

 

00:22:05,624 --> 00:22:09,661

themselves, are we kind of like, to use a baseball analogy, are we kind in

 

00:22:09,695 --> 00:22:14,866

hitting one of that? And if so, is this like a

 

00:22:14,866 --> 00:22:17,936

multi-decade type of venture that we go down?

 

00:22:17,936 --> 00:22:20,272

For our kids kind of thing. Yeah, exactly.

 

00:22:20,272 --> 00:22:24,643

Whereas, is the artificial intelligence capex

 

00:22:24,643 --> 00:22:29,047

cycle at a booming point, and at which point it will go through a cyclical

 

00:22:29,047 --> 00:22:32,984

downturn, but it will continue because of the nature of Moore's Law

 

00:22:32,984 --> 00:22:36,955

and the kind of computing power we're talking about, the energy demands that

 

00:22:36,955 --> 00:22:41,093

we're talking about. Is it also a secular theme, but with more

 

00:22:41,093 --> 00:22:44,029

cyclicality, so to speak, in it? That's interesting, yeah.

 

00:22:44,029 --> 00:22:47,833

These things will kind of reveal themselves over time with various other data

 

00:22:47,833 --> 00:22:51,970

points soon as we get a better sense of who the players are exactly

 

00:22:51,970 --> 00:22:55,774

and their intentions longer-term.

 

00:22:55,774 --> 00:22:59,711

I think both areas of the market are very interesting.

 

00:22:59,711 --> 00:23:04,816

One has been priced for a fair degree of

 

00:23:04,816 --> 00:23:09,054

blue sky scenario, and the other is kind of not even widely accepted yet.

 

00:23:09,054 --> 00:23:11,056

So how does Canada look to the world?

 

00:23:11,056 --> 00:23:13,325

Has Canada looked, has the world looked at Canada yet?

 

00:23:13,325 --> 00:23:17,662

I mean, I think there are efforts and we read locally that that's happening,

 

00:23:17,662 --> 00:23:21,633

but actually genuinely from an outside perspective, are we on the map in a

 

00:23:21,633 --> 00:23:24,069

new way at all yet?

 

00:23:24,069 --> 00:23:28,407

I believe so, but I can't offer you any kind of great tangible proof

 

00:23:28,407 --> 00:23:32,544

or a copious amount of tangible proof to substantiate

 

00:23:32,544 --> 00:23:35,847

that. I just think we're, again, I think to use the baseball analogy, I don't

 

00:23:35,847 --> 00:23:36,782

think we are needing one of this.

 

00:23:36,782 --> 00:23:39,217

We're early. Yeah. Okay.

 

00:23:39,217 --> 00:23:45,157

That's fascinating. What else would you take a look at that has

 

00:23:45,157 --> 00:23:47,559

legs within sort of the rate story?

 

00:23:47,559 --> 00:23:51,563

We've talked a lot about inflation, but also whether

 

00:23:51,563 --> 00:23:55,300

we need to get prepared essentially for higher rates across the globe.

 

00:23:55,300 --> 00:23:58,103

There are lots of knock-on worries about that, whether it's U.S.

 

00:23:58,103 --> 00:23:59,971

Debt and their repayments.

 

00:23:59,971 --> 00:24:01,940

But what would be your stance right now?

 

00:24:01,940 --> 00:24:03,108

What are we preparing for?

 

00:24:03,108 --> 00:24:07,045

Well, I think to that theme, if you're concerned about longer

 

00:24:07,045 --> 00:24:11,116

tenure bond or higher tenure bond yields

 

00:24:11,116 --> 00:24:16,621

and higher short-term interest rates at some point, then the natural

 

00:24:16,655 --> 00:24:21,193

evolution of one's total portfolio is to move from that balanced 60-40

 

00:24:21,193 --> 00:24:25,263

split to something that resembles 60-20-20, and you use your fixed

 

00:24:25,263 --> 00:24:29,234

income allocation as a means of funding your kind of hard asset.

 

00:24:29,234 --> 00:24:32,137

Allocation for all the reasons I mentioned earlier, so whether that's

 

00:24:32,137 --> 00:24:36,374

commodities, whether that's land, whether that is strategic infrastructure

 

00:24:36,374 --> 00:24:43,014

in certain ways and I think that would aid in.

 

00:24:43,014 --> 00:24:46,985

Build a more holistic portfolio that deals more with the

 

00:24:46,985 --> 00:24:49,721

spectrum of outcomes that are before us here.

 

00:24:49,754 --> 00:24:54,326

Rapid innovation in a way that we can't fully appreciate yet,

 

00:24:54,326 --> 00:24:58,730

changing trade alliances, increased security

 

00:24:58,730 --> 00:25:03,101

measures, and securing natural resources

 

00:25:03,101 --> 00:25:05,704

in the ground globally.

 

00:25:05,704 --> 00:25:08,807

So all of that kind of plays into the spectrum of outcomes for all those

 

00:25:08,807 --> 00:25:12,878

things. And I think balances one's portfolio a little bit

 

00:25:12,878 --> 00:25:17,782

more such that you can deal with the

 

00:25:17,782 --> 00:25:22,454

risk of using the bubble word, bubbles in certain areas and then

 

00:25:22,454 --> 00:25:26,525

kind of the early stages of other things.

 

00:25:26,525 --> 00:25:30,161

You know, as I said, we saw that kind of the turn in 2000.

 

00:25:30,161 --> 00:25:34,299

First innings, is that almost the thought you'd leave investors with?

 

00:25:34,299 --> 00:25:38,270

I mean, it sounds like it's a pretty persuasive moment,

 

00:25:38,270 --> 00:25:39,104

potentially.

 

00:25:39,104 --> 00:25:42,674

I think it very well could be.

 

00:25:42,674 --> 00:25:46,745

I think we are actually at the mark of something that's very hard to

 

00:25:46,745 --> 00:25:52,551

put your finger on, but there's enough signs to say that the world is changing.

 

00:25:52,551 --> 00:25:56,922

The actors are behaving in a way that is somewhat similar

 

00:25:56,922 --> 00:25:59,724

to things that we saw in the 19th century.

 

00:25:59,724 --> 00:26:03,795

And if the 19 century playbook is followed, that means

 

00:26:03,795 --> 00:26:07,966

trade is going to become a lot more competitive.

 

00:26:07,966 --> 00:26:11,536

Onerous and confrontational.

 

00:26:11,536 --> 00:26:12,804

It means...

 

00:26:12,804 --> 00:26:13,805

We have to fight for it a bit. Right.

 

00:26:13,805 --> 00:26:19,344

Right, it means assets in the ground become that much more valuable,

 

00:26:19,344 --> 00:26:23,481

alliances will be built in ways that you never thought they would be.

 

00:26:23,481 --> 00:26:27,319

And that was the playbook that we saw in the 19th century.

 

00:26:27,319 --> 00:26:29,254

So it's interesting from that perspective.

 

00:26:29,254 --> 00:26:31,022

We're getting not just a master's in business.

 

00:26:31,022 --> 00:26:32,724

I feel like it's a PhD at this point.

 

00:26:32,724 --> 00:26:35,427

Andrew Marquesi, thank you very much for joining us here today.

 

00:26:35,427 --> 00:26:38,496

Thank you. Andrew Marcesi joining us on Fidelity Compass.

 

00:26:38,496 --> 00:26:41,600

If you have suggestions for future topics or even guests you'd like to hear

 

00:26:41,600 --> 00:26:45,604

from, please do go ahead and share your ideas with us and you can

 

00:26:45,604 --> 00:26:48,573

stay tuned for more Fidelity Compass webcasts in the weeks ahead.

 

00:26:48,573 --> 00:26:50,408

Thanks for joining. Have a good rest of your day.

 

00:26:50,408 --> 00:26:51,376

I'm Pamela Ritchie.