John Diehl [00:00:07] You know, Julie, we don't often talk about current market dynamics

on our podcast, but from time to time I think it's warranted. We just closed the first half of

2022 and I don't know about you, but over my length of time in this industry, it's been one

of the craziest time periods with lots of questions about where we've been and where we

go from here.

Julie Genjac [00:00:29] It certainly has, John, and I'm really excited to hear what Johanna

has to say today. She talks a lot about mindset. And I think that these are themes and

topics that all of us can take to heart, whether we're financial professionals or ultimately

investors, thinking about how do we shift our own mindset and thinking about not only

today, but how we navigate tomorrow. Johanna Kirkland is group chief investment officer

at Schroders. She oversees investment performance, philosophy and process for all asset

classes, excluding private assets, reinforcing a culture of collaboration across all desks. In

addition, Johanna leads the Multiasset Investments Division is a member of the Group

Management Committee and chairs the Global Asset Allocation Committee. She is

responsible for investments on behalf of multi-asset clients globally and is the portfolio

manager of the Schroder Diversified Growth Strategy. She joined Schroders in 2007 and

is based in London. Prior to joining Schroders, Johanna specialized in tactical asset

allocation strategies. From 2005, she worked at Insight Investment, where she managed

an unconstrained global macro absolute return fund from 1997 to 2005. She worked at

Deutsche Asset Management, where she was head of asset allocation in the UK and fund

manager of the Deutsche Tactical Asset Allocation Fund. Johanna is a CFA Charterholder

and has her BA in philosophy, politics and economics from Oxford University.

John Diehl [00:02:01] Julie, I hope our listeners learn as much from this conversation as

you and I did. So without further ado, let's hear from Johanna. Hi, I'm John.

Julie Genjac [00:02:11] And I'm Julie.

John Diehl [00:02:12] We're the hosts of the Hartford Fund's Human Centric Investing

podcast.

Julie Genjac [00:02:17] Every other week, we're talking with inspiring thought leaders to

hear their best ideas for how you can transform your relationships with your clients.

John Diehl [00:02:27] Let's go.

Julie Genjac [00:02:29] Welcome to the Human Centric Investing podcast,Johanna.

Johanna Kyrklund [00:02:31] Thank you, and thank you very much for having me.

John Diehl [00:02:35] Well, Johanna, it's the summer months, July, to be specific. And

many of us who are parents often endure the annual question from our children on those

road trips of Are we there yet? And I think it's really interesting how you use that parallel to

talk about where the economic situation is, maybe not just in the United States, but around

the world. And I'll add to that, Johan, it has been a particularly bumpy road trip. So our

question, I guess, to you is, are we there yet? Have we suffered enough? Are we at the

bottom? Where do things stand?

Johanna Kyrklund [00:03:07] Well, unfortunately, you know, from our perspective, we

think that we we aren't there yet. This is been so far an old fashioned valuation bear

market. Essentially, we have the challenge that volatility has picked up and now it's

leading to concerns about the outlook for earnings. And ultimately, we need to get

valuations to a sufficiently compelling level that we can basically just close our eyes and

buy. So I'd say we're not quite there yet. I think we need to see a little bit more value creep

into the market.

Julie Genjac [00:03:38] Sometimes Johanna. I know that it's important that we look to the

past, although maybe we can't stay firmly grounded there. But if we think back or look

backwards to previous bear markets, are there any lessons that come to mind that we've

learned from that that might be applicable as we sit here today?

Johanna Kyrklund [00:03:59] Yes. I mean, and I think the good news is that we have

seen this kind of thing before, and we do have the tools to cope with these kinds of

environments. I think the first thing is, if you must move out of your strategic plan and

remember, with six months into it, a lot of damage is already being done. And so I wouldn't

say now's the time to sort of throw the baby out with the bathwater, as we say in the U.K.

So don't forget your strategic plan. I think the other thing to mention is that we're likely to

now see an oscillation between concerns about rising rates and concerns about recession

and the challenges that the portfolio needed for these two different scenarios is very

different. So I think being diversified until valuations become more extreme is probably still

a good idea. So balance your risks very carefully. And then finally, we also need to look to

the future. Typically, once you get into recession, you get some of the best buying

opportunities. So don't lose faith. I think that we have a bit more work to do. Things will be

a little bit volatile for a bit longer. But ultimately, there will also be some major buying

opportunities that come out of this. And typically those will arise when things feel probably

at their bleakest on Main Street. So hopefully that's helpful in terms of thinking about how

to navigate this bear market.

John Diehl [00:05:12] Johanna, when you mentioned that perhaps a little bit more value

needs to creep into the equity markets. It sounds like you and your team think there's still a

little bit too much of a rosy view on earnings. Would that be would that be an accurate

statement? Is that what you're thinking these days?

Johanna Kyrklund [00:05:30] Yes. It's interesting. I often get question asked whether the

market's priced enough recession risk. I'm actually when we look across markets, we don't

see much evidence of that. The falls we've seen year to date has really been driven by

reassessment of the discount rate. The reality that rates are going up. And so bird in the

hand is worth two in the bush to some extent. So that's a valuation problem. But really, if

you look at the shape of the yield curve in the bond market and also if you look with in

equities in terms of the earnings expectations, there isn't that much pessimism priced in

yet on the economic outlook. So really that's that's the challenge that on the one hand,

there could be more pessimism priced in on the economic outlook. And, of course, the Fed

isn't done yet.

Julie Genjac [00:06:12] Johanna, I know that you you've shared your your thoughts in the

past, that that there's obviously been a significant regime change in the markets. And

we've all felt that. And you know what? If for our investors and financial professionals

listening, what does that really mean to them as they sit here today in early July, thinking

about the remainder of the year as it pertains to their portfolios and and their their planning

process?

Johanna Kyrklund [00:06:39] Well, over the last decade, we had endless quantitative

easing rates pinned at zero, if not at negative yields in many economies. And essentially,

that led to an unrelenting search for yield in the way I've described. It was like a game of

Whac-A-Mole. You know, the second there was a bit of yield anywhere in the world, you

had a wall of money moving that to take advantage of the yield. And this really suppressed

rate volatility across the curve and across markets, which in turn then suppressed the

volatility of the market. What we're now dealing with is much more I wouldn't want to say

an adversarial situation with the central banks, but clearly they're looking to resolve the

problem of inflation, which does mean higher rates, and that's less helpful to market

valuations. And so we can't just rely on central banks underpinning valuations anymore.

And that's really been the major shift that we're likely to see more rate volatility as a deal

with the struggle of inflation. And as a consequence, that rate volatility, that needs to

recalibration on the valuation side.

John Diehl [00:07:38] So, Johanna, I know you said as you think about as you looked at

equity markets, there's a feeling that maybe equity markets haven't priced in the risk of

recession. How do you and your team view the risk of recession both in the United States

and maybe in the European market as well? Kind of. What do you think the possibility is

going forward? Is that a strong possibility or maybe something we just need to be aware

of, but something that you're not convinced of yet?

Johanna Kyrklund [00:08:08] No, I think it is quite a significant possibility for 2023, simply

because we do know that central banks have to raise rates and ultimately this will pose a

challenge to growth. Now, the nature of those recessions is somewhat different, though, if I

compare the U.S. and Europe. So in the case of the U.S., it's a classic rate induced

recession. Of course, in Europe, we have a slightly more complicated situation because

we're also facing significant geopolitical risk in the form of the Ukraine war, which is also

leading to concerns about energy prices. So Europe in some sense has a more volatile

mix, actually. So maybe that slightly different challenges. But given when I think back,

what causes a recession is ultimately when policy has to tighten, irrespective of whether

growth is slowing. And this time we have two aspects of policy which are tightening,

irrespective of whether growth is slowing. One is central bank policy, because they're

behind the curve. They need to normalize things. And we're still a way away from actually

them being able to pause. And the other aspect is commodity prices and the energy price

in Europe, which again is tightening conditions in Europe. And there's not really much we

can do about it.

Julie Genjac [00:09:20] Johanna, how likely do you think it is that maybe a mistake or a

lack of a correct decision will put it by the Fed, could really cause a recession or have a

significant impact on us heading in that direction?

Johanna Kyrklund [00:09:34] Well, I think in the case the states I mean, really, the the

problem was that with hindsight, of course, maybe the Fed just started moving sooner, but

of course, they were dealing with a human crisis. You know, the pandemic was very

extreme. So, you know, central banks don't keep things too loose because they're trying to

make a mistake. It's because typically they need to take into account, you know, the reality

of what human beings are experiencing at that point in time. So that was slow to tighten

liquidity because of the risks associated with the pandemic. And so it's that sense. The

inflation genie was left out of the bottle. So that's the challenge in the Fed with the Fed. I

don't think the fact that raising rates now is a policy mistake. I think it's the right thing to be

doing. In the case of Europe, again, things are more complicated because on the one

hand, the ECB has to raise rates. On the other hand, they also have to keep sovereign

debt spreads under control and so that there's more risk of some kind of policy mistake

because they want to raise rates. But they also need to sort of reassure the market that

they're also going to underpin the level of sovereign yields in the periphery. So more

complicated outlook there, thankfully, I think elsewhere in the world. I mean, you know,

China is in a better position from a rate perspective. So now they're likely to be easing

policy, which is helpful. And actually, many emerging economies run a less unorthodox

monetary policy. They didn't have the luxury of doing some sort such attacks and sooner

than the West. So, you know, I don't think it's all doom and gloom on the policy front.

John Diehl [00:11:00] So Johanna earlier in this cycle, I think investors who were

diversified, especially in the area of commodities, were somewhat rewarded at least over

the past several months. But I know recently you said that your team is taking a different

look at commodities versus where they were earlier in the cycle, kind of. What is your

thinking about the commodity sector these days?

Johanna Kyrklund [00:11:23] So we're very bullish commodities in 2021 on this view that

we were in a reflationary environment and we persisted with that policy this year because

we were concerned about inflation. The reason why we took our commodity weight down

tactically and this was a few weeks ago, was just because we were concerned that the

market was now shifting from pricing to rate shock to pricing, a growth shock. But

ultimately, I still think that commodities are an interesting diversifier for people's portfolios

because we are in a more inflation regime than what we experienced in the last decade.

So strategically, I still think that commodities are an interesting asset class is just a come

a long way. Right now, the market's focused on recession risk. And so that's why we

reduced our allocation tactically.

Julie Genjac [00:12:22] Since we're talking about asset classes. Obviously, the sell off in

the bond market caught many investors off guard this year. At what point, Johanna, do

you think bonds look attractive? Are we there yet or what is your mindset on? On that

asset class?

Johanna Kyrklund [00:12:39] Well, we were underweight. Now we upgraded to neutral.

So we prefer we prefer them to equities, which is possibly damming them with faint praise

because we're still quite cautious on equities. I was talking earlier about the need to have

a diversified portfolio. And I do think bonds in that context are starting to offer something

interesting as we start to price the potential risk of a recession. We need to be careful,

though, again, with this level of rate volatility. When we look at credit markets, we need to

also recalibrate the level of spread that's appropriate in a world of negative yields, an

ending search for yield, lower credit spreads where appropriate. I think if we're in an

environment now of high volatility, investors will need to see some compensation in the

credit spread. So we're getting that it is getting more interesting in the bond market and I

think it's a diversifying position. But again, if we head into recession, watch that credit

spread because I think most investors will demand a little bit more compensation and

certainly don't use the ranges of the last decade as your starting point. You need to think

about bigger picture than that.

John Diehl [00:13:44] Johanna for the financial professionals that are listening to our

podcast many times, it's about setting the right expectation of the investors that they look

to them for advice. Julian I have often remarked the past few corrections that we've

experienced have been kind of sharp and brief, almost, so that by the next quarter's end

we were already well on the way to recovery. Would you counsel financial professionals to

be a bit more cautious given the economic scenario that we're in, that it might last a little

while longer? And what would you how would you advise financial professionals to talk to

their clients about what could be an extended period of of kind of defensiveness, if you

will?

Johanna Kyrklund [00:14:29] In some ways, the way I think the way to think about it is

just to look at the level of Fed funds over the last 20 years. And if you look at a chart that

you'll see that the lack of interest rate moves in interest rates has been remarkable in the

last decade. And so that very low interest rate really underpinned valuations, which meant

that when you got a correction, the valuation was improved quite quickly because actually

didn't have a move in the discount rate. It was just a shift in the growth expectation. What

we have right now is more of a pincer movement where on the one hand you have rates

going up and then on the other hand, you've got growth expectations getting hit. So it's

sort of a double pronged attack on valuation of the market, which takes a little bit longer to

resolve itself. So that's why it's a different kind of bear market to what we had in recent

years. I think it's much more similar to what we had going into 2000, 2001 at the turn of

the century. So, so in that sense, it is a bit more protracted. But again, I don't want people

to despair because actually we've already we've seen six months of it already. And there

will be parts of the market that will be able to be more resilient to the threat of rising rates

and weaker growth.

Julie Genjac [00:15:39] For our crystal ball moment of today's podcast, how long, in your

opinion, would you say that our economic downturn could last? What are we in for here,

Johanna?

Johanna Kyrklund [00:15:51] Well, remember what I said earlier. Once you get into a

recession, actually, at that point, typically you can buy the market because it's cheap. So if

we're saying the valuation was the problem, ultimately when valuations got cheap, that

we'd be able to buy the market. We don't necessarily have to wait for the economy to

come out of recession to do that. Market moves ahead of the real economy. And that's a

really important point to remember in a bear market. So if I think about the markets

themselves, we've had six months of correction. I think that as long as the Fed is in play,

which I think we have to assume for the rest of the year, it's going to be hard to really

resolve the valuation dynamics of the market. But as we get to the end of 2023 or 2022,

sorry, we're looking we'll be looking ahead to the next year. There may be talk of the Fed

pausing rates, so the pressure from rate increases might be abating at that point in time.

And hopefully some more negativity on the growth outlook will be already priced into

markets. So, you know, I think there could be better prospects as we get through this year,

even though maybe the growth outlook might be darker for the next year or two. So again,

we have to remember there's a distinction between the economic outlook and the market

outlook. The market's corrected this year when growth actually is be feeling okay and

equally it will recover before we actually get out of any kind of recession or slowdown. So

we need to be ready actually. We need to be looking ahead to the opportunities that will

emerge from this.

John Diehl [00:17:17] Johanna If we look specifically at the United States, there's been a

lot of talk about the strength of the labor market right now in the United States, given what

seems to be a supply constraint on labor and that partially driving inflation here in the

United States. How how might the United States withstand a mild to moderate recession in

light of this labor market that we're experiencing here? Or would we expect to see what we

normally see in a recession, which is eventually that that labor market starts to tighten or I

guess, loosen as you think about companies looking at ways they can cut costs. What's

your expectation in terms of the ability of the United States to weather a mild to moderate

recession?

Johanna Kyrklund [00:18:05] Well, we would expect the unemployment rate to rise as the

Fed acts to slow the economy. Ultimately, that's how they'll bring inflation under control,

unfortunately. So we would expect an impact on the labor market as this progresses. The I

guess the good news is that ultimately we also think, though, that. The relationship

between employment and wages has kind of reasserted itself. So if we think about over

the last decade, people were wondering what had happened to the Phillips curve. Phillips

Curve looks at the relationship between unemployment and wages and what was all but a

few years ago was the employment was very high, but wage growth wasn't picking up. And

although that's great for profit margins. It does pose a challenge. It creates a very unequal

situation. And ultimately, you want workers to be sharing in the success of the economy.

That actually leads to a more sustainable and successful economy over the long term. And

I think that that relationship, as we asserted itself through the pandemic, we've seen in

some sense one of the most profound reshuffling of the labor market that we will have

witnessed in our generation. And I think it's meant that the pendulum swung a little bit

more in favor of labor. I know that poses potentially a challenge for profit margins, which

we need to price, but it also ultimately also leads, I think, to greater resilience for the

economy over the medium term. You know, we do need people to participate in the

success of the economy.

Julie Genjac [00:19:23] It's interesting, Johanna, as John and I have conversations with

financial professionals day in and day out, so much of of what what they're trying to do is

take all of this information in and then formulate some talking points to reach out, hopefully

proactively or potentially reactively to clients who are panicking or are just trying to do

something right. Let's let me tinker with my portfolio or just do something in the hopes that

this makes things better. I think that's human nature, that when things are going wrong,

how can I how can I fix it, if you will? If you were to think about sort of how today's

environment is different than past cycles that we've experienced, what would be your

handful of talking points that you would want to arm a financial professional with to pick up

the phone or send an email to clients just to really continue to educate them and explain to

them sort of what what the current State of the Union is and how this truly is different from

the past.

Johanna Kyrklund [00:20:25] Well, in some sense, I think the first thing to reassure

investors is actually to say that in some senses, we have seen this kind of bear market

before. I mean, this is very similar to what we had in 2000, 2001. A rate induced bear

market is in some sense the classic bear market. I think we've just been through

unprecedented times with COVID and obviously now we have the situation in Ukraine. But

actually the some elements of this bear market. The actual well positioned to take

advantage of because as I said, is in some sense a fairly traditional bear market. So we

have we have the maps to think about it now in terms of thinking about what might be

different. I think the key thing is the risk to commodity prices in recent history, commodity

prices probably for the last 25 years. Commodities generally have been quite weak with

growth weakened and they haven't been particularly diversifying in the portfolio. This time I

think they are more diversifying because of the risk of inflation, because of the trend

towards decarbonization, which ironically is somewhat stagflation. Because of the trend

towards globalization. I think the geopolitical environment is getting people to thinking

about how they secure the resources they need. The energy transition is very resource

intensive. So there are a number of factors, not to mention and the geopolitical situation

with Russia that mean that actually compared to previous bear markets. But in terms of

our ability to get through this, I think I think that the industry actually is well positioned for

it. I think we can think it through its valuation.

John Diehl [00:22:09] Johanna, how do you and your team feel about the energy sector

these days? It's obviously, you know, when we look at commodities, obviously energy

plays a role there, but has has the current demand that we've seen in energy, do you

expect that to remain sustained over the longer term? Or is this just kind of a a snapshot in

what has been an extremely volatile time, given geopolitical events and so on? Where do

you stand on energy these days?

Johanna Kyrklund [00:22:40] Well, again, tactically, we reduced our allocation. We also,

besides owning commodities, we were also quite bullish on energy stocks. But we

reduced our allocation in the context of this concern about demand destruction at high

levels of energy, but at energy prices. But that was a tactical view, I think on a 2 to 3 of

you are still think it's an interesting sector because it's facing chronic underinvestment due

to the emphasis on the energy transition, divestment from fossil fuels. And at the same

time, we're still very reliant on traditional energy values. It's also quite diversifying in a

portfolio context. And actually, the energy sector is a value oriented sector less exposed to

rising rates. And so in that sense, quite diversifying in a portfolio context.

Julie Genjac [00:23:39] Johanna. Since this is the Human Centric Investing podcast, I'd

like to ask one of my favorite questions, and it really has to do with your team and thinking

about how you are processing all of this information. Obviously, all of these data points

and factors are moving so rapidly every single day. And so, you know, it's so similar to a

financial professional who is rallying their team and trying to continue to stay on top of

things as they're changing to communicate that with clients. How does your team take in

information and and process it and come together and share timely insights in terms of a

best practice scenario? Again, with all of the information and it's so rapidly changing, I'd

love to know sort of how that how that works. And also maybe an additional question is

how have you kept morale and team culture really strong and positive, especially on some

of these more trying days?

Johanna Kyrklund [00:24:36] I love this question because I actually think that

investment's all about the combination of people and process and really about dealing with

behavior. So it actually is fundamental to everything I do all day long is really thinking

about how the culture supports our decisions and vice versa and vice versa in terms of

thinking about the information. And we are quite lucky here at Schroders in the sense that

we have experts across all the different asset classes. And so really, as in my role as CIO,

my job is to ensure that if we have a question to ask about the geopolitical environment or

the rate environment, the first thing we do is seek some of the specialist knowledge we

have within the organization, and that means that we then have our colleagues that we've

built relationships with over the very long term, who we know we can trust to help us to

make the best decisions. So in that sense, I think it's very helpful, but I think really in terms

of maintaining morale, I always say the investment process does exist to cope with failure.

So the reality is, as an active manager, even if you are doing a good job, you typically

getting things wrong 40% of the time. That's actually if you're really good. So 40% of the

time we're making bad decisions. So to be honest, we have to consciously think about a

culture that supports that and allows us to cope with that chronic failure and the number of

ways in which we do that. First of all, we typically have a team based approach because I

think that creates an environment where you have the support of your peers in difficult

market environments. Secondly, we have a high level of accountability. It's always very

clear who is responsible for every investment decision because it's human nature to

always focus on the things that go right and to want to ignore the bad mistakes we've

made. By having that high level of accountability, people can't shy away from the

consequences of their decisions and having that peer scrutiny to ensure that we can see

recognize our mistakes as quickly as possible. And I think ultimately that leads me on to

the final point, is that we need to have an environment where it's okay to make mistakes.

That then supports you in the good times and the bad times. So we have a culture where

we say, Look, it's fine to make a mistake. Realistically, you'll be making mistakes 40% of

the time. But the question is, what do you do about that mistake? Recognize it early, think

about the consequences for your client and do something about it. And that's essentially

the summary of the culture that we have.

John Diehl [00:26:52] So, you know, I'm going to go back to one of the first statements I

asked you about, and I'm going to put myself in the shoes of the child in the back seat of

that car. You've now told me we're not there yet. But my next question is going to be, how

will I know when we're getting close? I think I heard you say keep an eye on equity

valuations, but are there any other signs that we may be getting closer to our destination?

Johanna Kyrklund [00:27:16] So you can watch earnings revisions. If earnings revisions

really turn negative, you start to see that earnings concern being reflected. What's the yield

curve and bonds if that inverts, that tells you again that recession risk is being priced.

Watch the inflation statistics. You know, I think we'll get a bit of a technical peaking of

inflation just because of year on year effects in commodities. But watch the labor data. If

we start to see wage inflation dissipate, that will really allow the Fed to take their foot off of

the needs of the gas in some sense when it comes to rate hikes. So I think those are three

things you could be looking at earnings revisions, the shape of the yield curve and wage

data. I think all of these are important things to be monitoring in terms of working out

whether we're there yet. I think the final thing is, I mean, torturing the analogy of being in a

car with my children also set to say that it'll be great once we get there. I mean, you know,

so as I said, the good news is the market is starting to look more attractive. For many

years, we're having to buy assets that were ever more expensive. And although it might

have felt less risky at the time because the market was going up, actually it was more

risky. Now we're seeing valuations improve and ultimately we all get into a much better

path for markets over the next, I guess, 6 to 12 months.

John Diehl [00:28:32] So would you also caution financial professionals are probably

more so their clients from being kind of tempted by these bear market rallies, if you will? Is

it still time just to say, let's not make any major jumps yet, but let's just keep an eye on our

bear market rallies of big risk?

Johanna Kyrklund [00:28:53] I think bear market rallies are we we get them right. I mean,

even if we think again about the analogy of 2000 to 2003, when the market ultimately

bottomed, we still had within that the very strong rally there from September 2001 until to

the summer of 2002, when then the Enron scandal hit. So my point is bear market rallies

can persist for a number of months. We need to be a very alert to that, the kind of thing

that could cause a bear market rallies if we see this technical peaking and inflation and at

the same time, if earnings held up better than expected. So, you know, we need to be alert

to that, I think, to avoid oversteer. It comes back to this point about being diversified. I don't

think it's a time to be heroic. I think it's a time to be diversified. That will mean that an

equally sell out of the market stay invested, but diversified. It means that you regret risk if

the market rallies won't be too bad because you'll still be invested. But crucially, if it proves

to be a bear market rally, you went off overstated in the opposite direction. To me, it's

about diversification, don't be a hero.

Julie Genjac [00:29:56] That makes sense. Johanna And I know we've we've talked a lot

about yesterday and today and maybe even tomorrow. What if we looked out further the

12 to 18 months? As you think about your team and your broader Schroder's teams

outlook, what what are some of those ideas that you're talking about as you gather around

the table for the longer term that the 12 plus month horizon.

Johanna Kyrklund [00:30:21] Well, I think over that time horizon, I mean, we still like. We

still lack value as a style within equities because it's less vulnerable to rising rates. But

really, if we think about 12 to 18 months, we'll be potentially back in an environment where

we can buy more rate sensitive investments. I think one thing I'm very focused on right

now is making sure that we are ready when credit has been priced for the opportunities

that will exist, for example, more broadly fixed income beyond government bonds. So

that's something I'm thinking about. Over the next 12 to 18 months, there could be major

opportunities to actually invest in decent yields without having to take too much risk that

will make a change. So I think that's one of things that we're certainly focused on. You

know, we always have to do our research and resource make resource allocations based

on where we think there might be the best opportunities on a 12 to 18 months view. And I

think that's a good example of where, again, with significant repricing, there could be some

major opportunities. Emerging market debt in that context could also be very interesting.

So so yields on fixed income, I think is a major trend to think about on a on a 12 to 18

month view in equities, we still value tilted that all. To me, I think that could be major

opportunities and quality oriented exposures on that 12 to 18 month view. And then I think

finally from a sort of regional standpoint, you know, again, the US outperformed for many,

many years, for many years we said the US was reassuring the expensive because in a

world where growth was scarce and rates were low, the superior earnings stream offered

by the US is very attractive for international investors. But I think that, you know,

international markets have cheapened up significantly and that could be major

opportunities on that front. On a 12 to 18 months view.

Julie Genjac [00:32:01] Johanna Maybe we could end with a coach. The coach question

I'm thinking of financial professionals who obviously change their minds or their guidance

to clients as they process it, take in more information and there's more market cycles and

more days go by. In this particular cycle, you mentioned that your team has such a positive

culture of owning up to mindset changes or even potential mistakes. What guidance would

you give a financial professional or what words have you used in the past when you've

changed your outlook or your mind? Just for those that are sitting here thinking, I have to

pick up the phone and deliver this message to my clients and it isn't incredibly comfortable.

Any words of wisdom before we wrap up today?

Johanna Kyrklund [00:32:50] Well, it really depends what your starting point is. So I think

the first step is to make an honest assessment of your clients exposures. You know, all

that you've exposed to particular factor the realities over the last decade, having an

undiversified portfolio work very well, having bonds and then growth stocks, which are

actually very correlated, was the place to be for the last decade. Maybe we need to

recognize the correlations are shifting. So the first step is to work out are you running a

diversified portfolio or not? Is it actually over exposed or not? If you find that you in some

sense have been wrong footed, I think the key is to stay invested, but maybe try to

rebalance exposures a little bit because that would minimize your regret risk if the market

rallies. But we also will contain your losses if this continues. And, you know, I sometimes

one of the coping strategies are used is I sometimes have what I call the sacrificial lamb

trade. And what I mean by that is that if you've been caught out by the market, maybe

make accept this one small trade, you'll do just put yourself into a more diversified position,

accept you might have some regret risk around it, but it will allow you to live to fight

another day in the sense that if the market continues to be difficult, at least you will have

felt you've done something. But equally, if the market rallies, you'll still have plenty

exposure in your portfolio. It's really managing the psychology. So that's one thing that I

sometimes do, so that the risk is that you become too entrenched. You end up losing so

much money that you lose your rationality. And then you're in a situation where you're like,

Oh, the market's wrong and I'm right and I'm going to prove the market wrong. I think once

you start thinking about that, you know, you've got a big problem. You have to manage

your psychology through a bear market. So so that's hope. That's helpful. That's how I

tend to think about it. Make sure you are diversified. And if you're not, maybe a small

sacrificial lamb trade might help you.

John Diehl [00:34:35] Johanna On behalf of Hartford Funds and all of our listeners, we

want to thank you for sharing your insight today. It's clear to me that what you're

challenging us with is really a mindset change versus where we've been over the past five

or six. We could argue even longer number of years we get into certain habits. But your

comments today, I think we'll all take away and do some reflection for the positive, not only

for ourselves, but for our clients. So we want to thank you for coming on the podcast today.

Johanna Kyrklund [00:35:05] Thank you very much.

Julie Genjac [00:35:08] Thanks for listening to the Hartford Funds Human Centric

Investing Podcast. If you'd like to tune in for more episodes, don't forget to subscribe

wherever you get your podcasts and follow us on LinkedIn, Twitter or YouTube.

John Diehl [00:35:22] And if you'd like to be a guest and share your best ideas for

transforming client relationships, email us. Guest booking at Hartford Funds dot com. We'd

love to hear from you.

Julie Genjac [00:35:33] Talk to you soon.