Transcript:
Karen Watkin: Welcome to Alpha Females, the investment podcast from AllianceBernstein. I'm Karen Watkin and I'm a fund manager in the multi-asset solutions team here at AB. As a multi-asset investor, I love the challenge of looking across the capital markets to deliver the best outcomes for our clients, and I work closely with colleagues across all areas of the investment universe to tap into their research and expertise along the way. The alpha females are those women who developed these unique areas of expertise and made their mark in the investment industry. We'll also discuss their career journeys, the challenges they faced, and the lessons they've learned along the way. So, stay with me as we uncover the stories of these impressive and inspiring women and gain a deeper understanding of the multi-asset investment landscape.
They say that timing is everything. In multi-asset investing, it's certainly something we think is important. In today's episode, we're looking at the question of when and how to adjust investment across asset classes according to what's going on in the market. The skill lies in understanding what might be coming around the corner in the capital markets, and how to navigate that uncertainty. And while that might sound esoteric, it's not. Trying to address the future trends and direction of market movements can deliver material returns and a potentially smoother path for investors. But it requires considerable skill, digesting and assessing the multitude sources of information and factors that influence the markets. Joining me from New York today is Caglasu Altunkopru and her job as the head of macro strategy in AllianceBernstein’s multi-asset solutions group is to do just that. She studied mathematics at the world leading Massachusetts Institute of Technology. Yet trying to time the markets can require as much art as science. Caglasu, welcome to the podcast.
Caglasu Altunkopru: Thanks, Karen a pleasure.
Karen Watkin: Caglasu, I'd love to kick off with understanding a bit more about what your role as head of macro strategy really involves, and how the work that you and the team do helps to shape our multi-asset portfolios.
Caglasu Altunkopru: I would say it's about trying to understand secular and cyclical trends, and trying to formulate how they might translate in terms of how asset class performance evolves over time. And in doing that, we try to guide our portfolios in terms of trying to position for those secular and cyclical trends in the most favorable way.
Karen Watkin: And as you think about that positioning, you know, we often refer to it as tactical asset allocation and it's often referred to as market timing, which is notoriously difficult to do, and yet we know that investors often, you know, find it very hard to stomach short term volatility. So, given how challenging it is to think about market timing and shifting, investments across asset classes, why do you think it's such an important part of what we do as multi-asset investors?
Caglasu Altunkopru: So, if we think about asset class performance, if we've studied, let's say, the last 50, 60 years, you can characterize asset performance in broad strokes. You can kind of sense that, you know, equities will generally generate on average 8%, performance per year. But the volatility around that is fairly large. So, our job is really trying to enhance that return profile by hopefully trying to avoid the downside as much as possible and to try to tilt portfolios toward risk assets, equities, when those assets are doing well. So let's say in the global financial crisis of 2008, if somehow one were smart enough to take off risk at the end of 2007 and get back in in early 2009, one could realize a return profile that is way superior to the 8% on average. But again, it's hard to do because everyone's trying to play that game and there's a swathe of data and it gets really hard to be precise about when certain events will coalesce to drive market performance in the sort of wild manner that we've seen on occasion.
Karen Watkin: And, you know you talked about the global financial crisis. We obviously also had Covid very recently. And like you say, if you are able as investors to get out to the markets ahead of those big drawdowns, that can be beneficial. But then of course, the challenges, as you mentioned, also getting back in before all of the recovery has happened. Why are those turning points the most challenging, and how do you think about trying to navigate those when you're building your investment thesis and macro strategy?
Caglasu Altunkopru: So, the challenge is there are so many signals. And at any given point in time, they will point in different directions. There is a bit of an element of democracy to markets, meaning it's not enough that you think that things are turning everyone else, or it's or at least a critical mass of people need to think that things are turning, and then things take on a life of their own. To me, it reminds me a little bit about art. It's very hard to define what is art, but at the same time, there's an element by which we say, okay, there's a community, that art community, critics, collectors, and then you form some kind of consensus around, well, okay, this is art, right? So, the market and while there's a lot of hard data, it will need that consensus that drives the sort of persistent market direction.
Karen Watkin: As you say, a lot of what we do is very much grounded in that data. And there's a huge swathe of data that you can look at. What would you say are some of the key drivers that you look at on a regular basis when you're trying to form your investment views?
Caglasu Altunkopru: So, it's basically trying to put together a framework around fundamentals, valuation, and sentiment. So, fundamentals in essence you know, so we think about really trying to understand are earnings likely to grow or are we likely to go head towards a period of below average earnings growth or even sort of compressing earnings growth. The valuation bit tries to tell you as to what extent is this expected. And to what extent is it in the numbers so that we can start anticipating a turn around and sentiment is trying to say, well, do enough of us agree that things are getting better? And do we agree that that the signs are all sort of pointing, starting to point in the right direction, that we can kind of start to sort of bet on the market's turning.
Karen Watkin: How do you set about kind of, I guess, balancing that challenge between you've got huge amounts of data points you can look at, but the actual history and the number and nature of cycles that we've lived through is, is perhaps more limited.
Caglasu Altunkopru: That's right. So while we have a ton of data today, we didn't always have the amount of data we had. So, in an ideal world then we've sort of talked about how, you know, if you're a scientist in an actual science, trying to conduct an experiment, you have the opportunity to control as many variables, most of the variables that matter. And really just trying to understand, okay, if I just tweak this one thing, what do I get? And so, in economics and finance we have a different problem in that there are many, many, many variables. And you don't really get to conduct experiments. You have to kind of make the best of what history offers you. But history is almost too short for the number of variables you can tweak. So, you know, while I think something that happened in 1870 is very interesting and relevant for today, it's very hard for me to draw parallels to today. And again, you know, sometimes it's also maybe not even relevant because, you know, physics is physics and the nature of physics hasn't changed, but the nature of how we conduct economics, the way in which sort of knowledge percolates has changed. In that way like even if you had the perfect data, you still would need to be nuanced about how you apply it. Because societies and economies evolve over time.
Karen Watkin: As you think about navigating some of these different environments and how society in the world is evolving. Can you talk a little bit about, I guess, some of the evolution of the data you perhaps look at? Are you seeing benefits from, you know, developments in technology, in AI that give you different perspectives on perhaps some of the fundamentals or how you're assessing, you know, the economic variables when you're thinking about making these decisions?
Caglasu Altunkopru: One of the things that I'm really excited to hopefully be able to do in the next, you know, five years is to really be able to process non-numerical data in a meaningful way.
So, I think one of the things that our data science team is working on is trying to help us read and interpret, earnings transcripts, where management teams will talk about what's happening with their businesses. And so historically, that's been a process by which sort of, you know, we divide, you know, a few of the sort of large companies that try to sort of get, you know, get an understanding of like what may be big picture implications for how the economy is going and so on. So, if you were to be able to process a broader range of companies and to draw macro conclusions from micro data, that will be enormously powerful. I mean, I think that the technology isn't quite there yet, but I also don't think we're too far.
Karen Watkin: How do you think about building your conviction and investment views when you are having to deal with such a large degree of uncertainty?
Caglasu Altunkopru: While it's important to be able to draw sort of macro conclusions from micro data, and you do want to cover as many bases as possible, one nuance I will introduce to that is there's I think it was in one of the sort of popular books like blink or something where they looked at how well your doctors did. One side was given sort of specific data, and then the other set of ER doctors was given the broad range of data. So, what was interesting is that the ER doctors that had the more limited set of data actually did better. To me, what that says is it's important to know what to focus on in a given point in time. It's just that in our role, those things evolve over time. I think the human body is more or less the same. One can assume. Of course, everybody is unique, but it's not changing. For us. It's just really recognizing what's unique about that cycle. But I think within the idiosyncrasies of a cycle, there still are 4 or 5 things that matter. And so, 80% of the job is figuring out what are those 4 or 5 things. And then how can I get as smart about those 4 or 5 things as I possibly can?
Karen Watkin: I'm interested to hear as well how you deal with any failure. Right? There's always a degree of getting things wrong. And I've talked with other guests about how, you know, the markets are just very humbling for all of us. So how do you deal kind of through your career, perhaps you know, where you've had points of failure or, you know, things haven't worked out according to your investment thesis? How do you adapt your views and how do you work through, you know, what can be kind of challenging, professional situations?
Caglasu Altunkopru: I've certainly had my fair share. And I guess, you know, there are a couple of things, you know, one is I think the markets will always challenge you to, you know, on one side maintain your conviction, but on the other sort of recognize when you're wrong. And I think what makes it difficult in our profession is sometimes your convictions are right, and, and figuring out whether or not this is the time to double down, if you will, or whether it's time to fold and you just say, look, this was wrong, and it's going to play out. And a lot of times it really is a matter of timing, which I think is, you know, like the other critical part with investments and part of it is really just you may be right, but you may be right at the wrong time.
Karen Watkin: So, given that and as you look back on your career, what do you think are the important characteristics to be successful in this, in this type of role and in our industry more generally?
Caglasu Altunkopru: I would say for any job to be successful, there should be an element of the job that you would do even if you were not being paid. So to me, I think the fun part of the job, if you will, is that you get thrown, you know what I call these like word problems. You just, you know, no one just flags it. But, you know, like you were in elementary school, right? It's just that no one's flagging it for you as a word problem. You just have to recognize it and be able to break it down into its sort of analyzable components and then be able to come up with an answer. And to me, that's the part of the job that I really enjoy. And I think it's easier to be better at things that you actually enjoy doing because you will invest more time and effort and that over time will show.
Karen Watkin: And as I, you know, as you look back over the course of your career and kind of how you got here, I'm interested to hear the path you took. I don't know if you've seen this on LinkedIn. It keeps coming up on my feed, but that kind of refreshing or relaunching this campaign that Barbie ran around closing the dream gap. And they talk about, you know, needing to see brilliant women being brilliant and see how they got there. And so I would love to ask you, you know, a little bit about the path that you took to get to where you are today.
Caglasu Altunkopru: Well, I will say I went to an all-girls high school, and while we were kind of grumpy about being in the, you know, all-girls school at the time, we did, I think, benefit from it because only a girl could be the newspaper editor. Only a girl could be school president. You know, there were only girls on the volleyball team or whatever it is.
I mean, so you didn't really sort of say, oh, you know, a girl can't do that, or a girl can't be good at biology. A girl can't be good at math. Someone has to be good at math. And, you know, guess what? It's got to be a girl because it's a girl school. So, you know, there wasn't this sort of shyness about. And there's also not that, you know, shyness about being good at academics, and so I think that it was a big benefit. I was told later on by someone I met through the investment world that, apparently that the best ratio is sort of 2 to 1 or something, but, you know, so you don't want to have all single sex either. But at the same time, I think it is incredibly helpful for women to see other women, girls to see women in sort of various roles and to start accepting that as a norm. We need to push it, but at the same time not get too frustrated and recognize that progress takes time and it's going to be difficult. But anything that's worth doing is going to be difficult. But every step that we take hopefully we’re easing the way for others and hopefully that that we have a better outlook sort of in the next ten, 20 years.
Karen Watkin: So, I also wanted to ask, you know, as you look back over the course of your career, you've seen a number of different market cycles as we spoke about earlier, what would you say are the kind of three key investment insights or lessons that you've learned over the course of your career that that perhaps influence you know, how you are as an investor today.
Caglasu Altunkopru: The one big one is that how anticipatory markets are. It's underappreciated. I think when people miss inflection points, there is a lot of this sort of wanting things to align in the perfect way, but markets can really run away from you again, it's like if the sentiment is poor enough, etc., just recognizing that markets are incredibly forward looking. And equities, the earnings power that the companies have generated over time has been truly impressive. And I think that to me has been from an earnings perspective, from a corporate sort of governance perspective, I think we are in a different world than we were in sort of like the 60s and 70s. And I think that's one of the things that the investor community is trying to come to grips with. The third one is I'm, being humble before this, the strength of the markets and the ability of the markets to really surprise you in both ways. Like there is this sort of wisdom of crowds. I mean, because if I think about bottom up, let's say, stock investors and making individuals top decisions, they obviously know a lot more than I do. But the collection of billions of dollars being managed by individuals, sort of single name stock investors does give you information about sort of what's happening at a high level. Then you kind of have to respect that as a macro analyst that you don't know, and that if you know that, that you kind of need to read the tea leaves, if you will. But then on the other side, you know, there's this whole sort of sentiment aspect where there is a bit of a mob like quality sometimes in markets. And we also have to be respectful of that and be and to try to balance those two.
Karen Watkin: So Caglasu, thank you so much for joining me today.
Caglasu Altunkopru: Thank you very much, Karen. It was a pleasure.
Karen Watkin: I think there are a lot of really great insights from Caglasu in that conversation. But I think the main takeaway for me was this idea that she really helped to illustrate that actually, when you're thinking about investing, it is as much an art as a science. And being able to understand in particular where the markets are reflecting consensus and understanding is that for a very good reason. And actually, are you best served by essentially kind of following that consensus, or has the market got ahead of itself? And that to me really serves to illustrate how challenging it can be, in particular to try and find those turning points in large market movements and how important it is not just to be able to understand those huge swathes of quantitative data, but really being able to bring to bear that fundamental judgement, knowing which of those data signals to focus in on as much as those you know that you need to ignore. So she talked about, you know, what she loves about this type of role, where you're dealing with these real world problems and ultimately you have to try and break it down. You certainly see that in her approach, where she clearly has this extremely kind of quantitative background and skill set, but yet she marries that with this real breadth of kind of world perspective and actually understanding this is the problem I'm trying to solve, which, you know, can be something as nebulous as how is the economy and markets going to evolve coming out of a Covid pandemic, but breaking that down then into ways that she can measure, quantify and ultimately make a decision on how best to help position our portfolios to navigate those markets.
Karen Watkin: That brings to a close this episode of Alpha Females the Investment Podcast from AllianceBernstein with me, Karen Watkin. If you've enjoyed this episode, don't forget to tell your colleagues and friends about it. It only remains for me to thank Caglasu Altunkopru. This episode was produced by Richard Miron from Earshot Strategies.
