Hello, and welcome to the Credit Edge, a weekly markets podcast. My name is James Crombie. I'm a senior editor at Bloomberg.

Hello, and welcome to the Credit Edge, a weekly markets podcast. My name is James Crombie. I'm a senior editor at Bloomberg.

And I'm Jeannief Cooper, senior analyst at Bloomberg Intelligence. This week, we are very pleased to welcome Savina Risova, co Chief Investment Officer and Global head of Research at Dimensional Fund Advisors, at seven hundred and ninety billion investment firm. How are you, Savina, good?

And I'm Jeannief Cooper, senior analyst at Bloomberg Intelligence. This week, we are very pleased to welcome Savina Risova, co Chief Investment Officer and Global head of Research at Dimensional Fund Advisors, at seven hundred and ninety billion investment firm. How are you, Savina, good?

Thank you for inviting me.

Thank you for inviting me.

Savina joined Dimensional Fund Advisors as a research associate in two thousand and four, and just of our year ago she added the title of co Chief Investment Officer. You also obtained a PhD in finance from the University of Chicago. Last, but not least, Sabina was recognized as one of Barn's one hundred most Influential Women in US Finance for two years in.

Savina joined Dimensional Fund Advisors as a research associate in two thousand and four, and just of our year ago she added the title of co Chief Investment Officer. You also obtained a PhD in finance from the University of Chicago. Last, but not least, Sabina was recognized as one of Barn's one hundred most Influential Women in US Finance for two years in.

So we're going to get into all that, but just to set the scene before we do. Markets have rallied on high hopes of a broad ceasefire in the trade war, but there's still a lot of uncertainty out there, plus more volatility to come as the US moves on from tariffs to tax and immigration. Reform, headline risk is very high, yet credit markets project an air of complacency, with debt spreads back below where they were before the so called Liberation Day at the start of April. Keeping corporate debt risk premium very tight is the fact that there's way too much demand for a very limited net new supply of corporate bonds, and unless the M and A machine cranks back up, that supplied demand imbalance will probably continue. On top of that, the US has lost its Triple A credit rating, calling into question the idea of risk free rate and investors are now looking more at Europe and Asia as alternatives, but there are clear limitations when it comes to scale and liquidity there. So, Sabina, what's your take. I'm going to ask a really broad question because it's one that keeps coming up on this show. But is credit fairly valued at these levels?

So we're going to get into all that, but just to set the scene before we do. Markets have rallied on high hopes of a broad ceasefire in the trade war, but there's still a lot of uncertainty out there, plus more volatility to come as the US moves on from tariffs to tax and immigration. Reform, headline risk is very high, yet credit markets project an air of complacency, with debt spreads back below where they were before the so called Liberation Day at the start of April. Keeping corporate debt risk premium very tight is the fact that there's way too much demand for a very limited net new supply of corporate bonds, and unless the M and A machine cranks back up, that supplied demand imbalance will probably continue. On top of that, the US has lost its Triple A credit rating, calling into question the idea of risk free rate and investors are now looking more at Europe and Asia as alternatives, but there are clear limitations when it comes to scale and liquidity there. So, Sabina, what's your take. I'm going to ask a really broad question because it's one that keeps coming up on this show. But is credit fairly valued at these levels?

Well, the meension we don't pretend to have a crystal bow, James and know where prices are relative to fair value. We actually take priceses kind of given in public competitive capital markets. But what we can say is where the current credit spreads are relative to historical averages and medians, and these days, what you mentioned is absolutely correct. Credit spreads have are about eighty to ninety beps depending on whether you look at US or global markets below historical mediums of over one hundred, one hundred and ten basis points, So definitely narrower credit spreads and based on academic research underpinning our approach that suggests lower credit premiums expected in the future. As a result, our core strategies tend to not go to their maximum allowed credit allocation right now, and our credit strategies are not allocated to the maximum in what we call low work here single aay tripob bombs for example.

Well, the meension we don't pretend to have a crystal bow, James and know where prices are relative to fair value. We actually take priceses kind of given in public competitive capital markets. But what we can say is where the current credit spreads are relative to historical averages and medians, and these days, what you mentioned is absolutely correct. Credit spreads have are about eighty to ninety beps depending on whether you look at US or global markets below historical mediums of over one hundred, one hundred and ten basis points, So definitely narrower credit spreads and based on academic research underpinning our approach that suggests lower credit premiums expected in the future. As a result, our core strategies tend to not go to their maximum allowed credit allocation right now, and our credit strategies are not allocated to the maximum in what we call low work here single aay tripob bombs for example.

So in terms of allocation, I mean, are you looking across the credit spectrum, do you have any views on higher quality names versus lower quality names given the environment.

So in terms of allocation, I mean, are you looking across the credit spectrum, do you have any views on higher quality names versus lower quality names given the environment.

Absolutely, And it's probably worth kind of taking a step back and just telling people a little bit more about who they mention is and how we approach investing both in equities and fixed income, because I think it's pretty unique and different from a lot of guests you've had on the podcast. The Dimensional is a firm that was founded in nineteen eighty one to implement kind of rigorous research into robust investment solutions. One we would like to think about. It is sensible ideas, implement it thoughtfully and so and it comes to fixed income. You mentioned Gene Fama being one of the academics tightly connected to dimensional He did a lot of research in the seventies and eighties in terms of what drives expect bond returns. And if you think of the expected returnal defaulte free bond, like what my thing, the US bond still US government bands still consider it uh to your earlier point, UH, you can actually write it down as like three terms yield expected capital appreciation or depreciation depending on the shape of the curve, so roll down as some call it. And the third term is expected changes in the shape of the youth curve. And between now and when you expect to sell the bond. So the first two components of that decomposition, yield and roll down together our called forward rates. And there is a lot of empirical academic reaserch showing that forward rates do contain information about subsequent bond returns. So differences in forward rates across bonds contain information about differences in future bond returns. And you can apply the frame and tested and we have not only across duration spectrum, but also across credit quality spectrum and across currency of issue spectrum. So, for example, the differences in fields or forward rates between longer and shorter bonds tell you the term spread essentially contain information about the future term premium. The wider the term spread is generally the wider the subsequent future term premium is. Similarly for credit premium and credit spread. That's why I said like currently credit spreads are relatively narrower, which means we expect relatively narrower credit premiums less reward for holding credit. And then similarly you can apply it across different currencies around the world. For example, HATCH to USD looking at what's steep versus flatter, the steeper curves HASH to USD imply higher expected reward for going into those bonds and hedging back to USD right now. For example, the Japanese government bond curve is relatively steeper haah to USD compared to many other develop market currencies, so some of our strategies that are allowed to go global are allocating more to Japanese intermediate bonds. So in essence that the dimensional we look at forward rates the combination of field and roll down as the indication of where highest expected returns are and allocate on a daily basis based on differences in expected returns and those expected returns those forward rates can change any day across the credit, the duration and the currency of vision spectrum. So it is important to have a daily process where we consume information, compute those expect returns, and decide how to allocate new cash community or from coupons or from cash flows, and what to buy what to sell based on those expected return differences.

Absolutely, And it's probably worth kind of taking a step back and just telling people a little bit more about who they mention is and how we approach investing both in equities and fixed income, because I think it's pretty unique and different from a lot of guests you've had on the podcast. The Dimensional is a firm that was founded in nineteen eighty one to implement kind of rigorous research into robust investment solutions. One we would like to think about. It is sensible ideas, implement it thoughtfully and so and it comes to fixed income. You mentioned Gene Fama being one of the academics tightly connected to dimensional He did a lot of research in the seventies and eighties in terms of what drives expect bond returns. And if you think of the expected returnal defaulte free bond, like what my thing, the US bond still US government bands still consider it uh to your earlier point, UH, you can actually write it down as like three terms yield expected capital appreciation or depreciation depending on the shape of the curve, so roll down as some call it. And the third term is expected changes in the shape of the youth curve. And between now and when you expect to sell the bond. So the first two components of that decomposition, yield and roll down together our called forward rates. And there is a lot of empirical academic reaserch showing that forward rates do contain information about subsequent bond returns. So differences in forward rates across bonds contain information about differences in future bond returns. And you can apply the frame and tested and we have not only across duration spectrum, but also across credit quality spectrum and across currency of issue spectrum. So, for example, the differences in fields or forward rates between longer and shorter bonds tell you the term spread essentially contain information about the future term premium. The wider the term spread is generally the wider the subsequent future term premium is. Similarly for credit premium and credit spread. That's why I said like currently credit spreads are relatively narrower, which means we expect relatively narrower credit premiums less reward for holding credit. And then similarly you can apply it across different currencies around the world. For example, HATCH to USD looking at what's steep versus flatter, the steeper curves HASH to USD imply higher expected reward for going into those bonds and hedging back to USD right now. For example, the Japanese government bond curve is relatively steeper haah to USD compared to many other develop market currencies, so some of our strategies that are allowed to go global are allocating more to Japanese intermediate bonds. So in essence that the dimensional we look at forward rates the combination of field and roll down as the indication of where highest expected returns are and allocate on a daily basis based on differences in expected returns and those expected returns those forward rates can change any day across the credit, the duration and the currency of vision spectrum. So it is important to have a daily process where we consume information, compute those expect returns, and decide how to allocate new cash community or from coupons or from cash flows, and what to buy what to sell based on those expected return differences.

Say, Savi, you have a sort of scientific approach to this, and you know, you talk about decades of rigorous theoretical empirical research. But as we've discussed, you know, the so called developed markets are becoming highly unpredictable as politics becomes such a big factor. You know, I would say that they're behaving a lot more like emerging markets than they used to. Who knows what social media posts will wake up to on any given day that will royal global markets. But how does that affect your approach? Do you need new models for that? Do you rip up the script and have to you know, really just improvise a lot more than you used.

Say, Savi, you have a sort of scientific approach to this, and you know, you talk about decades of rigorous theoretical empirical research. But as we've discussed, you know, the so called developed markets are becoming highly unpredictable as politics becomes such a big factor. You know, I would say that they're behaving a lot more like emerging markets than they used to. Who knows what social media posts will wake up to on any given day that will royal global markets. But how does that affect your approach? Do you need new models for that? Do you rip up the script and have to you know, really just improvise a lot more than you used.

To not really exactly, because we are kind of grounded in evercreen principles of what drives expect the returns. All we need is latest market prices essentially to identify bonds with higher versus lower expect the returns. And that's why we are big advocates for price transparency and we're very happy to see trace that trade reporting and compliance engine arrived in the early two thousands bringing a lot of transparency to the corporate bond market in USD and now there's tracks for a non USD. So we have that and we use it on a daily basis in real time during the day to essential monitor prices as well as bidden as quotes across many different bonds to identify differences in expected returns. But what we also do with current market information as it changes all the time to your point right now very volatile markets, is also used current market information for the other two very important dimensions of investing. So one day mention is expected returns. The other two day mensions of investing in general are risks and costs, and we use current market information all the time to manage risks and control costs in our portfolio. Is because we believe that you can add value by systematically designing strategies to pursue higher expected returns, but you can also add value through talk for portfolio management and trading, how do you use current market information? In portfolio management, we, for example, track to your point within the day through and daily. The deer inventory trace gives us kind of information on net deer buys and sales throughout the day. We also get that information daily from similar information daily from Blueberg and inter the day from trade web and market access platforms that many of your listeners probably are familiar with, and this helps us identify bones where dealers might in augria have an inventory, accumulated inventory might be willing to sell to us at a favorable price, and similarly for sales, so der inventory is very important to monitor to get great execution. Also, we use market prices to monitor credit quality. To your point, in the last five years, most of the credit rating changes internal credit rating changes we've performed most have been driven by prices information in current market prices, not by credit rating agencies changing their ratings. So what we use there is not just prices of bonds, trading or quotes, but also CDs market prices. Even the equity prices of the issues of those bonds, so you can use current real time market information along with kind of the academic framework for what drives expected returns to continue to deliver robust investment solutions even in highly volatile times as we are experiencing this year.

To not really exactly, because we are kind of grounded in evercreen principles of what drives expect the returns. All we need is latest market prices essentially to identify bonds with higher versus lower expect the returns. And that's why we are big advocates for price transparency and we're very happy to see trace that trade reporting and compliance engine arrived in the early two thousands bringing a lot of transparency to the corporate bond market in USD and now there's tracks for a non USD. So we have that and we use it on a daily basis in real time during the day to essential monitor prices as well as bidden as quotes across many different bonds to identify differences in expected returns. But what we also do with current market information as it changes all the time to your point right now very volatile markets, is also used current market information for the other two very important dimensions of investing. So one day mention is expected returns. The other two day mensions of investing in general are risks and costs, and we use current market information all the time to manage risks and control costs in our portfolio. Is because we believe that you can add value by systematically designing strategies to pursue higher expected returns, but you can also add value through talk for portfolio management and trading, how do you use current market information? In portfolio management, we, for example, track to your point within the day through and daily. The deer inventory trace gives us kind of information on net deer buys and sales throughout the day. We also get that information daily from similar information daily from Blueberg and inter the day from trade web and market access platforms that many of your listeners probably are familiar with, and this helps us identify bones where dealers might in augria have an inventory, accumulated inventory might be willing to sell to us at a favorable price, and similarly for sales, so der inventory is very important to monitor to get great execution. Also, we use market prices to monitor credit quality. To your point, in the last five years, most of the credit rating changes internal credit rating changes we've performed most have been driven by prices information in current market prices, not by credit rating agencies changing their ratings. So what we use there is not just prices of bonds, trading or quotes, but also CDs market prices. Even the equity prices of the issues of those bonds, so you can use current real time market information along with kind of the academic framework for what drives expected returns to continue to deliver robust investment solutions even in highly volatile times as we are experiencing this year.

So in terms of your investment approach, I mean, I mean the two main investment approach being top down or bottoms up, and especially you know, looking at all these data that is available in terms of as you said, trade and ventory prices, how do you reconcile the two and how your investment process I'm sure incorporates you know, both of the top down view from rates to you know, sectors and then the bottom up this this bond is actually treading wide or cheap against another one, and that's the.

So in terms of your investment approach, I mean, I mean the two main investment approach being top down or bottoms up, and especially you know, looking at all these data that is available in terms of as you said, trade and ventory prices, how do you reconcile the two and how your investment process I'm sure incorporates you know, both of the top down view from rates to you know, sectors and then the bottom up this this bond is actually treading wide or cheap against another one, and that's the.

Time to buy. Yeah, thank you for the question. It's a common question we get because people are in fixed income are generally used to two types of investing traditional passive and by the way, these are the biggest kind of ETFs and mutual funds out there. Indexed approach in fixed income with some sampling under the hood, or traditional active where you're typically either top down for making macroeconomic forecasts and then driving your investment or bottom up picking individual bonds based on research on specific sectors or currencies, et cetera. We are kind of combining the best of both worlds, traditional passive and traditional active in the sense that we have broad diversification in our strategies and relatively low turnover just like traditional passive, but we are taking from traditional active the daily flexible implementation in the pursuit of higher expected returns. How do we do it, though different from traditional active? Are we top down or bottom up? I would say we're both. Why because we start every day by looking at the overall spreads out there, turn spreads, credit spreads, and spreads across different field cares, heads to a local currency, and that kind of guys the overall positioning of a portfolio in terms of how much we want to okay to credit corporates versus governments or different types of currencies. Once we get do this kind of top down analysis based on current market information, then we try to kind of bottom up looking at what we hold, what we want to hold, which bonds within kind of the para. Now those parameters how much we want to okay to corporate today versus governments within corporates, Let's say, which are the bonds with highest expected returns, most attractive forward rates, And we start kind of identifying bonds that we would like to buy today based on that approach, very systematic, and then what we do is we go filter those bonds to a bunch of criteria including kind of how liquid those bonds are in the marketplace today, are we likely to get good prices for those bonds? And then once we kind of set on a group of bonds we'd like to buy, we pass this to the trading that so for from portfolio management to trading, where traders whould go to the marketplace and very flexibly seek to purchase some of those bonds without being particularly attached to an individual bond. And I think this is also a huge differentiator for the dimensional is that we are not chasing individual bonds picks of a portfolio manager, not at all, and that gives us the ability to have great execution. What do I mean by great execution? When we compare our corporate and agency trades versus the prior trade in the same issue or the next trait, on average, our trades are twenty basis points better on the buy side and five to ten basis points better on the sales side because we trede flexibly with patients with optionality out there, we have multiple bonds with similar expactor returns that we're interested in buying or selling today.

Time to buy. Yeah, thank you for the question. It's a common question we get because people are in fixed income are generally used to two types of investing traditional passive and by the way, these are the biggest kind of ETFs and mutual funds out there. Indexed approach in fixed income with some sampling under the hood, or traditional active where you're typically either top down for making macroeconomic forecasts and then driving your investment or bottom up picking individual bonds based on research on specific sectors or currencies, et cetera. We are kind of combining the best of both worlds, traditional passive and traditional active in the sense that we have broad diversification in our strategies and relatively low turnover just like traditional passive, but we are taking from traditional active the daily flexible implementation in the pursuit of higher expected returns. How do we do it, though different from traditional active? Are we top down or bottom up? I would say we're both. Why because we start every day by looking at the overall spreads out there, turn spreads, credit spreads, and spreads across different field cares, heads to a local currency, and that kind of guys the overall positioning of a portfolio in terms of how much we want to okay to credit corporates versus governments or different types of currencies. Once we get do this kind of top down analysis based on current market information, then we try to kind of bottom up looking at what we hold, what we want to hold, which bonds within kind of the para. Now those parameters how much we want to okay to corporate today versus governments within corporates, Let's say, which are the bonds with highest expected returns, most attractive forward rates, And we start kind of identifying bonds that we would like to buy today based on that approach, very systematic, and then what we do is we go filter those bonds to a bunch of criteria including kind of how liquid those bonds are in the marketplace today, are we likely to get good prices for those bonds? And then once we kind of set on a group of bonds we'd like to buy, we pass this to the trading that so for from portfolio management to trading, where traders whould go to the marketplace and very flexibly seek to purchase some of those bonds without being particularly attached to an individual bond. And I think this is also a huge differentiator for the dimensional is that we are not chasing individual bonds picks of a portfolio manager, not at all, and that gives us the ability to have great execution. What do I mean by great execution? When we compare our corporate and agency trades versus the prior trade in the same issue or the next trait, on average, our trades are twenty basis points better on the buy side and five to ten basis points better on the sales side because we trede flexibly with patients with optionality out there, we have multiple bonds with similar expactor returns that we're interested in buying or selling today.

Your approach seems take a lot of trust in what the market price is selling us in terms of transparency in terms of the liquidity. But as you know, you know, the further you get down the rating spectrum and the more you get into sort of exotic credit you know e merging markets, those markets get stuff wrong all the time. You know, the signals are just plain wrong. How do you protect yourself against that as an investor?

Your approach seems take a lot of trust in what the market price is selling us in terms of transparency in terms of the liquidity. But as you know, you know, the further you get down the rating spectrum and the more you get into sort of exotic credit you know e merging markets, those markets get stuff wrong all the time. You know, the signals are just plain wrong. How do you protect yourself against that as an investor?

Great question, James, Another great question. We have historically stuck to the parts of the market that benefit from a lot of price transparency. So, in terms of kind of history, Dimensional started in high quality corporate and government back in nineteen eighty three with its first fixed income strategy, and then later on expanded to develop market currencies, so applying our kind of variable maturity and variable currency approaches there. And then we started investing in full investment rate only in two thousand and nine, actually a few years after trades arrived and brought transparency to the corporate bond market, and then we started also kind of dipping our tools in double bees, but not going below that. To your point, once you go the low double bees into single bees and three POC's and below, one major concern is the default rates. The default rates increase meaningfully on average historically for single bees they are like three percent for trip o C and below twenty five plus percent. Those are we viewed those as not necessarily suitable investments for ETFs and mutual funds, which need to provide liquidity on a daily basis. Similarly, we've stuck through history to develop market currencies. We do not invest directly in emerging market currencies to a large degree because of price tre experiency, but also because of operational law and order consideration as well.

Great question, James, Another great question. We have historically stuck to the parts of the market that benefit from a lot of price transparency. So, in terms of kind of history, Dimensional started in high quality corporate and government back in nineteen eighty three with its first fixed income strategy, and then later on expanded to develop market currencies, so applying our kind of variable maturity and variable currency approaches there. And then we started investing in full investment rate only in two thousand and nine, actually a few years after trades arrived and brought transparency to the corporate bond market, and then we started also kind of dipping our tools in double bees, but not going below that. To your point, once you go the low double bees into single bees and three POC's and below, one major concern is the default rates. The default rates increase meaningfully on average historically for single bees they are like three percent for trip o C and below twenty five plus percent. Those are we viewed those as not necessarily suitable investments for ETFs and mutual funds, which need to provide liquidity on a daily basis. Similarly, we've stuck through history to develop market currencies. We do not invest directly in emerging market currencies to a large degree because of price tre experiency, but also because of operational law and order consideration as well.

I think there is an interesting point of you know, create risk transparency and maybe to switch gears a little bit and move into private credit. I mean, we've seen a huge expansion of private credit, but also a lot of comments and risks maybe out there, and some people have been saying there is maybe a risk of you know, ratings inflation, or risk of lack of transparency or very credit trade. I mean, how do you approach private credit as a nassage class within fix income.

I think there is an interesting point of you know, create risk transparency and maybe to switch gears a little bit and move into private credit. I mean, we've seen a huge expansion of private credit, but also a lot of comments and risks maybe out there, and some people have been saying there is maybe a risk of you know, ratings inflation, or risk of lack of transparency or very credit trade. I mean, how do you approach private credit as a nassage class within fix income.

So as a manager, they mentioned it is in the public space public stocks and public bonds and a systematic approach. But we strive to be a very objective thought leader in the industry put a lot of papers out are the SIK to provide kind of a framework for how to think about different investment topics. And so a couple of years ago, with the growing interest in private and the growing i'd say push of private out there, we decided to actually buy data historical data from Burgess now MSCI on private fund performance and study private performance across four major asset classes, one of them being private credit. So we looked at historical performance of private credit from nineteen eighty to twenty twenty two, and what we found there for private credit was that depending on the average kind of historical ten year IRR is about ten percentage points, which sounds appealing, But when you compare to hyat public benchmarks like the Bloomberg Hi index, then what you see is that public market equivalent or direct out of measures comparing private to public performance are all kind of in favor of the high index. There is no outperformance relative to yield public bonds, which comes to tell you that private credit is, at least historically has been a way to get exposure to yield below investment grade credit. Does private credit provide additional diversification beyond what's available in the public market? Yes, absolutely. There are different bonds out there, generally different issuers going for the private route versus public, So there are some diversification benefits if you want to add private credit to your public exposure. But of course private comes with a lot of caveats and challenges, one of which you mentioned very important ones for US prices, frequent updates of prices, reliability of prices there it's not by accident, it's called private. Also, lack of adequate diversification because ultimately we cannot all own parts of all private companies, you cannot get the full diversification you get in public markets if you want to. And as a result, I think, well, it will be interesting to see how private interesting private credit develops, because there is kind of a an evergreen value proposition for private It is has its own economic function out there, but not everyone probably suited for an investment in private people who might have short term immediate liquidity needs, etc. Who cannot have a long horizon and a for not to touch that part of money for a long term might not be prepared for private investments or well suited for private investments. In terms of information available, definitely much less information available easily, and I think that's why even in the when you look at buyouts, another segment of the private market trades in the secondary market, which attempts to mimic a public market right in terms of getting some valuations for buyout stakes, et cetera, you typically see haircuts of like ten fifteen percent, which speaks to prices might not be as reliable they are as they are in public markets.

So as a manager, they mentioned it is in the public space public stocks and public bonds and a systematic approach. But we strive to be a very objective thought leader in the industry put a lot of papers out are the SIK to provide kind of a framework for how to think about different investment topics. And so a couple of years ago, with the growing interest in private and the growing i'd say push of private out there, we decided to actually buy data historical data from Burgess now MSCI on private fund performance and study private performance across four major asset classes, one of them being private credit. So we looked at historical performance of private credit from nineteen eighty to twenty twenty two, and what we found there for private credit was that depending on the average kind of historical ten year IRR is about ten percentage points, which sounds appealing, But when you compare to hyat public benchmarks like the Bloomberg Hi index, then what you see is that public market equivalent or direct out of measures comparing private to public performance are all kind of in favor of the high index. There is no outperformance relative to yield public bonds, which comes to tell you that private credit is, at least historically has been a way to get exposure to yield below investment grade credit. Does private credit provide additional diversification beyond what's available in the public market? Yes, absolutely. There are different bonds out there, generally different issuers going for the private route versus public, So there are some diversification benefits if you want to add private credit to your public exposure. But of course private comes with a lot of caveats and challenges, one of which you mentioned very important ones for US prices, frequent updates of prices, reliability of prices there it's not by accident, it's called private. Also, lack of adequate diversification because ultimately we cannot all own parts of all private companies, you cannot get the full diversification you get in public markets if you want to. And as a result, I think, well, it will be interesting to see how private interesting private credit develops, because there is kind of a an evergreen value proposition for private It is has its own economic function out there, but not everyone probably suited for an investment in private people who might have short term immediate liquidity needs, etc. Who cannot have a long horizon and a for not to touch that part of money for a long term might not be prepared for private investments or well suited for private investments. In terms of information available, definitely much less information available easily, and I think that's why even in the when you look at buyouts, another segment of the private market trades in the secondary market, which attempts to mimic a public market right in terms of getting some valuations for buyout stakes, et cetera, you typically see haircuts of like ten fifteen percent, which speaks to prices might not be as reliable they are as they are in public markets.

We've had some guests recently talk about a two hundred basis points premium in private markets against public I'm assuming that mostly talking about loans there, but sounds like what you're saying is that there is no relative value in private and actually there's better risk just to return in hial bonds versus private debt. Is that is that correct?

We've had some guests recently talk about a two hundred basis points premium in private markets against public I'm assuming that mostly talking about loans there, but sounds like what you're saying is that there is no relative value in private and actually there's better risk just to return in hial bonds versus private debt. Is that is that correct?

So it's very important what you compare private.

So it's very important what you compare private.

Too.

Too.

Many people might compare private to the Global or us ag I Investment Grade Index. There you would see our performance if you compare to Hyatt, you don't see our performance. Yes, and it's kind of similar. On the private equity side, many managers like to compare themselves to the S and P five hundred. In our opinion, that's not an adequate benchmark public benchmark. For private equity, you want to probably take a look at well designed small happiness is small growth, small value. And then the conclusion is very similar to what we discuss for private credit. So it really matters what you compare yourself to.

Many people might compare private to the Global or us ag I Investment Grade Index. There you would see our performance if you compare to Hyatt, you don't see our performance. Yes, and it's kind of similar. On the private equity side, many managers like to compare themselves to the S and P five hundred. In our opinion, that's not an adequate benchmark public benchmark. For private equity, you want to probably take a look at well designed small happiness is small growth, small value. And then the conclusion is very similar to what we discuss for private credit. So it really matters what you compare yourself to.

And also you mentioned it, you know, it really depends on the kind of investors. Not suitable for everyone, but you know you're an ETF shop. There are ETFs now for private credit. What do you make of that?

And also you mentioned it, you know, it really depends on the kind of investors. Not suitable for everyone, but you know you're an ETF shop. There are ETFs now for private credit. What do you make of that?

We shall see, let's put it that way. In terms of public bond ets, we see a lot of demand for those. Obviously the largest ones are index focused, but we now see growing demand for a kind of what the types of ETFs with delivery dimensional systematic active, both on the bond and on the equity side. We are actually the largest systematic active ETF manager out there with one hundred and seventeen plus a billion dollars in active ETFs. We have forty one ETFs right now, thirty one on the equity side, ten on the fixed income side, and of the ten I was looking, which are kind of all of them have positive flow netflows this year and last year broadly used and the most used ones are our US core fixed in committef along with global corporals ultra short. So kind of a variety of segments where people like to use a thoughtful, systematic yet active approach. And I think for for focusing on public corporate bond of public market bond markets, not just corporate government, corporate munis, even mortgage backed securities. I think the ETF rapper is a good wrapper, but of course even the ETF rapper has to be well implemented. I think this is something that I'm not sure your listeners have been aware of, but there are some papers in the academic literature that have looked at the baskets for fixed income ETFs in the last years and suggests that looking primarily at index of fixed income baskets that authorized participants, those that come to the ETF you sure to create and redeem baskets, create more shares of an EF essentially have been getting an advantage in terms of pricing of these or picking bonds, delivery which bonds to deliver some advantage over the issuer. So when we set off our active ETFs, we are very cautious to make sure that there's no all want taking advantage of us in in that space of activitfs where you have to kind of create baskets every day throughout the day, negotiate baskets with APS, and we developed a lot of infrastructure and criteria how to create our baskets and in a typical dimensional men are also a lot of infrastructure to track our execution of baskets over time. So when we compare the bonds that we eventually bought through a creation process from APS versus the bonds we discarded and the bonds that kind of we started with in the initial basket, we we don't find any underperformance, no evidence of underperformance of what we bought versus what we started with or what we discarded. Uh to the point that we don't see APS pushing prices up to deliver to acquire the securities we got, or to demonstrate any informational advantage. And I think going forward, people shure and hopefully will pay more attention to basket creation, because this is where you might be leaving money on the table if you're not careful enough.

We shall see, let's put it that way. In terms of public bond ets, we see a lot of demand for those. Obviously the largest ones are index focused, but we now see growing demand for a kind of what the types of ETFs with delivery dimensional systematic active, both on the bond and on the equity side. We are actually the largest systematic active ETF manager out there with one hundred and seventeen plus a billion dollars in active ETFs. We have forty one ETFs right now, thirty one on the equity side, ten on the fixed income side, and of the ten I was looking, which are kind of all of them have positive flow netflows this year and last year broadly used and the most used ones are our US core fixed in committef along with global corporals ultra short. So kind of a variety of segments where people like to use a thoughtful, systematic yet active approach. And I think for for focusing on public corporate bond of public market bond markets, not just corporate government, corporate munis, even mortgage backed securities. I think the ETF rapper is a good wrapper, but of course even the ETF rapper has to be well implemented. I think this is something that I'm not sure your listeners have been aware of, but there are some papers in the academic literature that have looked at the baskets for fixed income ETFs in the last years and suggests that looking primarily at index of fixed income baskets that authorized participants, those that come to the ETF you sure to create and redeem baskets, create more shares of an EF essentially have been getting an advantage in terms of pricing of these or picking bonds, delivery which bonds to deliver some advantage over the issuer. So when we set off our active ETFs, we are very cautious to make sure that there's no all want taking advantage of us in in that space of activitfs where you have to kind of create baskets every day throughout the day, negotiate baskets with APS, and we developed a lot of infrastructure and criteria how to create our baskets and in a typical dimensional men are also a lot of infrastructure to track our execution of baskets over time. So when we compare the bonds that we eventually bought through a creation process from APS versus the bonds we discarded and the bonds that kind of we started with in the initial basket, we we don't find any underperformance, no evidence of underperformance of what we bought versus what we started with or what we discarded. Uh to the point that we don't see APS pushing prices up to deliver to acquire the securities we got, or to demonstrate any informational advantage. And I think going forward, people shure and hopefully will pay more attention to basket creation, because this is where you might be leaving money on the table if you're not careful enough.

You're right. The ETFs in credit have just become so huge and so influential, not just for retail investors, also for institutional investors using them to trade. But I'm interested in in, you know, the active elements of that, because the passive guys just tracking the index sing to be doing just fine and they're probably very low cost. So what's the edge you get from being active in this?

You're right. The ETFs in credit have just become so huge and so influential, not just for retail investors, also for institutional investors using them to trade. But I'm interested in in, you know, the active elements of that, because the passive guys just tracking the index sing to be doing just fine and they're probably very low cost. So what's the edge you get from being active in this?

Yeah, And I love how you mentioned the first thing people think about when when indexing comes to mind is cost, low cost. And I was looking at kind of the two largest ETFs out there are index ETFs. We all know probably they are tickers and they're about three based sports in expense ratio. And when people see that, they're like, they're they're cheap, Like, why why should I go with anything else? Well, because you can, again based on rigorous academic research and top FOO implementation actually outperforms systematically benchmarks net A fees and expenses over the long term. And one of our the most popular flagship strategy of dimensional in mutual fund format code investment grade portfolio in each format code DFCF core fixed income. Both of those, the longer one, the mutual font format since inception has outperformed the same benchmark that the two biggest index city have struck, the Bloomberg Us Act by thirty five to forty basis sports per year NETA, FeAs and expenses over the last ten years and since inception back in twenty eleven. And I think this speaks to the point that there is something you can do better. You can than indexing by focusing on current information in for rates, to think about where to position new flaws, where to kind of pursue higher expector returns, how to control costs, how to manage risks in the portfolio. And these are areas where the indexing just falls behind and leaves money on the table because it's index. Our index approaches are simply thinking about sampling from the huge index universe, but then not taking into account real time market information as we discussed, to identify where the best opportunities highest expected returns are in a systematic manner, or how to monitor credit quality on a real time basis, or how to seek for being flexible in what bonds to buy and sell to get the best trading costs possible for the index approach, the tradeoff is always tracking error versus costs or taxes depending on the wrapper. For us, that's not the right trade off. As we talk, tradeoffs are very important, but the right tradeoff should be expected returns versus costs and risks.

Yeah, And I love how you mentioned the first thing people think about when when indexing comes to mind is cost, low cost. And I was looking at kind of the two largest ETFs out there are index ETFs. We all know probably they are tickers and they're about three based sports in expense ratio. And when people see that, they're like, they're they're cheap, Like, why why should I go with anything else? Well, because you can, again based on rigorous academic research and top FOO implementation actually outperforms systematically benchmarks net A fees and expenses over the long term. And one of our the most popular flagship strategy of dimensional in mutual fund format code investment grade portfolio in each format code DFCF core fixed income. Both of those, the longer one, the mutual font format since inception has outperformed the same benchmark that the two biggest index city have struck, the Bloomberg Us Act by thirty five to forty basis sports per year NETA, FeAs and expenses over the last ten years and since inception back in twenty eleven. And I think this speaks to the point that there is something you can do better. You can than indexing by focusing on current information in for rates, to think about where to position new flaws, where to kind of pursue higher expector returns, how to control costs, how to manage risks in the portfolio. And these are areas where the indexing just falls behind and leaves money on the table because it's index. Our index approaches are simply thinking about sampling from the huge index universe, but then not taking into account real time market information as we discussed, to identify where the best opportunities highest expected returns are in a systematic manner, or how to monitor credit quality on a real time basis, or how to seek for being flexible in what bonds to buy and sell to get the best trading costs possible for the index approach, the tradeoff is always tracking error versus costs or taxes depending on the wrapper. For us, that's not the right trade off. As we talk, tradeoffs are very important, but the right tradeoff should be expected returns versus costs and risks.

And then on the return side, I mean could investor expect from those Well, what.

And then on the return side, I mean could investor expect from those Well, what.

I mentioned is for our investment great portfolio here in the US has outperformed the Bloomberg Us Act by thirty five to forty basis points. Again native fees and expenses, So forget about industry, the feed differential, expense oration differential versus the bloomberg Us Act over the last ten years since inception almost fifteen years now. So I think it's a it's a good trade off for many advisors and many advisors in their end clients, many institutional clients. And as a result, we've seen kind of growing interest in systematic active fixed income. I think in fixed income, more people are aware of the rigidities and flaws of indexing. As a result, more more people know about kind of the maturity cutoff where everybody has to sell one year or once a bond is down organded, everybody has to kind of sell it out of their portfolio because it's leaving the index for investment BRAN and we still see meaningful costs around those transitions. So people are open to something better than indexing. But at the same time, people often get disappointed with the inability of traditional active to consistently systematically outgas the market, and as a result are looking for an approach. It doesn't claim to have a crystal ball, but see systematically based on science to deliver with the understanding that it won't necessarily outperform the market day in and day out, but over the long term, based on academic principles and research, it should deliver higher expected returns.

I mentioned is for our investment great portfolio here in the US has outperformed the Bloomberg Us Act by thirty five to forty basis points. Again native fees and expenses, So forget about industry, the feed differential, expense oration differential versus the bloomberg Us Act over the last ten years since inception almost fifteen years now. So I think it's a it's a good trade off for many advisors and many advisors in their end clients, many institutional clients. And as a result, we've seen kind of growing interest in systematic active fixed income. I think in fixed income, more people are aware of the rigidities and flaws of indexing. As a result, more more people know about kind of the maturity cutoff where everybody has to sell one year or once a bond is down organded, everybody has to kind of sell it out of their portfolio because it's leaving the index for investment BRAN and we still see meaningful costs around those transitions. So people are open to something better than indexing. But at the same time, people often get disappointed with the inability of traditional active to consistently systematically outgas the market, and as a result are looking for an approach. It doesn't claim to have a crystal ball, but see systematically based on science to deliver with the understanding that it won't necessarily outperform the market day in and day out, but over the long term, based on academic principles and research, it should deliver higher expected returns.

The strategy kind of outline quality, you know, transparency, liquidity, all this stuff. That's basically what everybody wants right now, and there's just so many people chasing it. How do you get your edge in that? I mean, how do you get your allocation? How do you kind of muscle in when there's so much you know, pressure to buy, there's so much capital to allocate. You know, you have to be selective obviously, but what's what's the strategy in terms of just like getting enough assets to buy.

The strategy kind of outline quality, you know, transparency, liquidity, all this stuff. That's basically what everybody wants right now, and there's just so many people chasing it. How do you get your edge in that? I mean, how do you get your allocation? How do you kind of muscle in when there's so much you know, pressure to buy, there's so much capital to allocate. You know, you have to be selective obviously, but what's what's the strategy in terms of just like getting enough assets to buy.

Yeah, how do you execute efficiently right now? If other people are also focusing let's say, only government bonds or higher quality in a very short term, I say, go back to kind of the key principles of our value ads in portfolio management and training, being flexible. We believe that they measure that optionality. Flexibility adds value as a result. If you are starting the day with one hundred or two hundred eligible bonds to buy in a given portfolio, or a thousand for that matter, being able to walk away from a potential trade because you know that there are similar bonds with similar characteristics that you might be equally happy to buy today. That is what helps us in today's environment where others might be kind of looking for similar type bonds at the same time. Uh, The ability to be flexible, be patient, and not chase an individual specific bond. As we discussed earlier, many bonds don't trade on a given day, so if you are chasing as particular, body are likely to push prices for that bond. Whereas if you are flexible, you if you view multiple bonds is substitutes for each other when you go to buy or sell. That gives you more flexibility, and as I said, this flexibility ultimately gets reflected in better execution. We've been monitoring that for years and we see kind of year in and year out as paying off, and especially kind of in April, as I mentioned, our relative trade price adventage was higher than in the in the previous three months of the year. Again, when periods are highly votile, this is what we see both inequities and fixed income. A lot of people tend to panic, the many immediacy try to kind of rush to market, and people who are flexible, who are long term focused and discipline, tend to benefit in those environments.

Yeah, how do you execute efficiently right now? If other people are also focusing let's say, only government bonds or higher quality in a very short term, I say, go back to kind of the key principles of our value ads in portfolio management and training, being flexible. We believe that they measure that optionality. Flexibility adds value as a result. If you are starting the day with one hundred or two hundred eligible bonds to buy in a given portfolio, or a thousand for that matter, being able to walk away from a potential trade because you know that there are similar bonds with similar characteristics that you might be equally happy to buy today. That is what helps us in today's environment where others might be kind of looking for similar type bonds at the same time. Uh, The ability to be flexible, be patient, and not chase an individual specific bond. As we discussed earlier, many bonds don't trade on a given day, so if you are chasing as particular, body are likely to push prices for that bond. Whereas if you are flexible, you if you view multiple bonds is substitutes for each other when you go to buy or sell. That gives you more flexibility, and as I said, this flexibility ultimately gets reflected in better execution. We've been monitoring that for years and we see kind of year in and year out as paying off, and especially kind of in April, as I mentioned, our relative trade price adventage was higher than in the in the previous three months of the year. Again, when periods are highly votile, this is what we see both inequities and fixed income. A lot of people tend to panic, the many immediacy try to kind of rush to market, and people who are flexible, who are long term focused and discipline, tend to benefit in those environments.

Is there a way that you can get an edge over the competition when we hear a lot of people talking about CMBs, about MBS, about structured, about asset based finance, but all these other things that they're trying to get and you know, generate alpha from in terms of you know, standing out when it comes to doing better than the index and best than everyone else for returns. How do you get your edge in.

Is there a way that you can get an edge over the competition when we hear a lot of people talking about CMBs, about MBS, about structured, about asset based finance, but all these other things that they're trying to get and you know, generate alpha from in terms of you know, standing out when it comes to doing better than the index and best than everyone else for returns. How do you get your edge in.

Mortgage back securities? I should have mentioned that earlier. We do invest now in mortgage back securities as well in some of our strategies. I think it's a fascinating asset class. But we started investing in mortgage back securities only only in twenty twenty. Again, if you track our evolution because transparency price transparency arrives to the NBS and TBA market in twenty eleven twenty twelve, when those transactions became mandatory to report to trades, similar to what happened to corporate bonds about ten years earlier. And so once we accumulated enough price information and study or able to study the MBSTBA market historically and essentially see that the same framework for what drives expected returns in corporate government immuni bonds can be applied. It is well supported in the data for mbstbas. We started investing in nbs via TBA is actually because they are ninety percent of the trading happens through the TBA to be the announced derivatives market. And we also engage with one of the top experts of MBS in academy, again going back to our strong ties with academia, Professor Sung from John Hopkins Carry Business School, and we hold together a paper on the drivers of Expected Returns of MBS, which essentially says, again kind of field and roll down, but customized to the world of MBS is with the prepayment kind of potential, there still are the main drivers of differences in expected returns within MBS, and this is kind of where we seek to have, say, seek out performance within that spectrum right now in our portfolios that invests in MBS tvas is basically by identifying tvas with higher expected returns and allocating more to them within our TVA portfolios. So again going back to having a robust, academic scientific framework for how to seek systematically higher returns and then applying in a very thoughtful manner, because even though TBAs are the second most liquid market out there after US treasurers, in case your listeners didn't know even there, you have to be very thoughtful about execution. You cannot be just demanding a particular TBA contract today in huge qualities and expect that you're not going to have any impact on the market.

Mortgage back securities? I should have mentioned that earlier. We do invest now in mortgage back securities as well in some of our strategies. I think it's a fascinating asset class. But we started investing in mortgage back securities only only in twenty twenty. Again, if you track our evolution because transparency price transparency arrives to the NBS and TBA market in twenty eleven twenty twelve, when those transactions became mandatory to report to trades, similar to what happened to corporate bonds about ten years earlier. And so once we accumulated enough price information and study or able to study the MBSTBA market historically and essentially see that the same framework for what drives expected returns in corporate government immuni bonds can be applied. It is well supported in the data for mbstbas. We started investing in nbs via TBA is actually because they are ninety percent of the trading happens through the TBA to be the announced derivatives market. And we also engage with one of the top experts of MBS in academy, again going back to our strong ties with academia, Professor Sung from John Hopkins Carry Business School, and we hold together a paper on the drivers of Expected Returns of MBS, which essentially says, again kind of field and roll down, but customized to the world of MBS is with the prepayment kind of potential, there still are the main drivers of differences in expected returns within MBS, and this is kind of where we seek to have, say, seek out performance within that spectrum right now in our portfolios that invests in MBS tvas is basically by identifying tvas with higher expected returns and allocating more to them within our TVA portfolios. So again going back to having a robust, academic scientific framework for how to seek systematically higher returns and then applying in a very thoughtful manner, because even though TBAs are the second most liquid market out there after US treasurers, in case your listeners didn't know even there, you have to be very thoughtful about execution. You cannot be just demanding a particular TBA contract today in huge qualities and expect that you're not going to have any impact on the market.

And for those out there, I don't know what TBA is. What is it?

And for those out there, I don't know what TBA is. What is it?

It is an abbreviation for to be announced and it's a very interesting mechanism. Maybe we should spend like a couple of minutes just explaining it to people to bring more liquidity and lower execution costs to this mortgage backed securities market. So when I get got a mortgage on my house, and I'm sure you guys have probably mortgages on your house. Is the band that lends the mortgage typically doesn't hold on to death. Mortgage sends sells it to one of the three agencies out there in the US. This is specific to the US market, and those agencies package many mortgages, typically of the same term, so let's say thirty or fifteen year with similar coupons, payments, so interest rates on a mortgage, and they pass them to investors out there and securitize that. And as you can imagine, every month there is a new potentially package out there from one of the three agencies with different terms, with a different coupon. Lots of packages training issued over many, many vintages, So the market is quite dispersed for mortgage backed securities if you are One way to bring transparency to that market is actually to create an instrument that aggregates a lot of those characteristics, and that's what the TBA delrivative does. It basically says, I promise to deliver to you in a month or in two or three months, a package of mortgages that is issued by one of the three agencies that has this coupon let's say five point five percent and has thirty year term, oh you know, up until a few days before delivery, is just those three characteristics. And by limiting the information exchanged across market participants to those three characteristics, it makes the market much more liquid. And as a result, tvas are very very cost efficient to trade and a highly highly liquid market. And one little interesting nugget on that is, when we started researching MBS and tvas, I was surprised to see that one of my huge mentors in life, can French, professor Ken French from Dartmouth College, he actually had a paper on tvas or related back in the day where they made a comparison basically with diamonds traded in a black bags in transparent bags similarly to reduced kind of informational advantures or cross market participants in increased liquidity of trading diamonds. And I found that comparison very fascinating.

It is an abbreviation for to be announced and it's a very interesting mechanism. Maybe we should spend like a couple of minutes just explaining it to people to bring more liquidity and lower execution costs to this mortgage backed securities market. So when I get got a mortgage on my house, and I'm sure you guys have probably mortgages on your house. Is the band that lends the mortgage typically doesn't hold on to death. Mortgage sends sells it to one of the three agencies out there in the US. This is specific to the US market, and those agencies package many mortgages, typically of the same term, so let's say thirty or fifteen year with similar coupons, payments, so interest rates on a mortgage, and they pass them to investors out there and securitize that. And as you can imagine, every month there is a new potentially package out there from one of the three agencies with different terms, with a different coupon. Lots of packages training issued over many, many vintages, So the market is quite dispersed for mortgage backed securities if you are One way to bring transparency to that market is actually to create an instrument that aggregates a lot of those characteristics, and that's what the TBA delrivative does. It basically says, I promise to deliver to you in a month or in two or three months, a package of mortgages that is issued by one of the three agencies that has this coupon let's say five point five percent and has thirty year term, oh you know, up until a few days before delivery, is just those three characteristics. And by limiting the information exchanged across market participants to those three characteristics, it makes the market much more liquid. And as a result, tvas are very very cost efficient to trade and a highly highly liquid market. And one little interesting nugget on that is, when we started researching MBS and tvas, I was surprised to see that one of my huge mentors in life, can French, professor Ken French from Dartmouth College, he actually had a paper on tvas or related back in the day where they made a comparison basically with diamonds traded in a black bags in transparent bags similarly to reduced kind of informational advantures or cross market participants in increased liquidity of trading diamonds. And I found that comparison very fascinating.

Maybe to talk a little bit about about risk, I mean we're you know, fixing of investors and or analysts and always worry about what could go wrong? But what are the key risks that you see right now in the market.

Maybe to talk a little bit about about risk, I mean we're you know, fixing of investors and or analysts and always worry about what could go wrong? But what are the key risks that you see right now in the market.

I'd say they mentioned when we think about key risks in portfolio, we always think the number one risk in any portfolio is probably concentration and the risk that your portfolio will be driven down by the underperformance or default of particular UH issuer. And so from that perspective, the best and the best way to address that risk of concentration is diversification. Diversification across issuers, issues, garanteurs, UH sectors, industries, countries of visions if if allowed, and currency of visions if allowed. I think that's kind of always number one.

I'd say they mentioned when we think about key risks in portfolio, we always think the number one risk in any portfolio is probably concentration and the risk that your portfolio will be driven down by the underperformance or default of particular UH issuer. And so from that perspective, the best and the best way to address that risk of concentration is diversification. Diversification across issuers, issues, garanteurs, UH sectors, industries, countries of visions if if allowed, and currency of visions if allowed. I think that's kind of always number one.

Uh.

Uh.

Think about concentration, then liquidity obviously, how liquid are the bones you're holding? Can you relatively quickly trade them around? And of course when you're running an ITA for a mutual fund, that's top of mind to have. Also kind of a good pocket of liquidity in a portfolio, even if it's long term, that can be turned around and satisfy redemptions for example a quick notice. And after that, I would say it's just generally the understanding that for us, the other risk is obviously that the academic kind of driven relationships in the data that we are pursuing turnspread predicting turn premium credit spread predicting credit premiums might not manifest themselves in the predicted by consistent with theory manner every day, every month, every year, you might have a period of one, two, three years underperformance because terms spread, why don't but premium dinner wide after that? Instead it narrowed and so building a roll bust well diversified portfolios that even if those relations we are pursuing, based again on academic theory and research, do not show up in the data over a given period of time, you're still left with a very good portfolio to hold, and applies to both our equities and our fixing of so broadly diversified systematic approach that will deliver kind of minimum costs the good portfolio to hold regardless of what the future brings.

Think about concentration, then liquidity obviously, how liquid are the bones you're holding? Can you relatively quickly trade them around? And of course when you're running an ITA for a mutual fund, that's top of mind to have. Also kind of a good pocket of liquidity in a portfolio, even if it's long term, that can be turned around and satisfy redemptions for example a quick notice. And after that, I would say it's just generally the understanding that for us, the other risk is obviously that the academic kind of driven relationships in the data that we are pursuing turnspread predicting turn premium credit spread predicting credit premiums might not manifest themselves in the predicted by consistent with theory manner every day, every month, every year, you might have a period of one, two, three years underperformance because terms spread, why don't but premium dinner wide after that? Instead it narrowed and so building a roll bust well diversified portfolios that even if those relations we are pursuing, based again on academic theory and research, do not show up in the data over a given period of time, you're still left with a very good portfolio to hold, and applies to both our equities and our fixing of so broadly diversified systematic approach that will deliver kind of minimum costs the good portfolio to hold regardless of what the future brings.

Do you worry it's all about the risks that might be brewing in private credit in terms of you know, the risks that you cannot see that building your potential defaults. There's a lot of payment and kind a lot of amendments and things you can't see. But also essentially it's taking away supply that maybe further distorts pricing in the public markets.

Do you worry it's all about the risks that might be brewing in private credit in terms of you know, the risks that you cannot see that building your potential defaults. There's a lot of payment and kind a lot of amendments and things you can't see. But also essentially it's taking away supply that maybe further distorts pricing in the public markets.

Whether I worry or not, I think that all of those potential developments are there. The word is that actual investors in the marketplace have are reflected in kind of their trading decisions, bias and cells of different types of bonds out there. If edything, some people might get disappointed with, again some of the attributes of private credit or private in general, if they are not going with enough kind of research on what that type of investment can representing their portfolio and in their investment experience. And I think we all need to also kind of appreciate even more the benefits of public markets, the transparency that we talked about a lot today that gives us any immediacy in liquidity that are instrumental to most people's needs when it comes to investing.

Whether I worry or not, I think that all of those potential developments are there. The word is that actual investors in the marketplace have are reflected in kind of their trading decisions, bias and cells of different types of bonds out there. If edything, some people might get disappointed with, again some of the attributes of private credit or private in general, if they are not going with enough kind of research on what that type of investment can representing their portfolio and in their investment experience. And I think we all need to also kind of appreciate even more the benefits of public markets, the transparency that we talked about a lot today that gives us any immediacy in liquidity that are instrumental to most people's needs when it comes to investing.

And as you say, your sort of more scientific approach is quite different to a lot of guests we have on this show. If you had to kind of say how you most contrarian on credit, I mean, how would you describe that? Are you contrarian at all? And if so, how would you characterize that?

And as you say, your sort of more scientific approach is quite different to a lot of guests we have on this show. If you had to kind of say how you most contrarian on credit, I mean, how would you describe that? Are you contrarian at all? And if so, how would you characterize that?

I would say that our focus, our location to credit depends on the current curves of their spreads and curves. So in periods like now, where credit spreads are not as wide as they have been historically, we are a little bit less focused on credit and more on governments, so you could say a little bit more focused on government. And then in you know, in periods or in areas of the market where we see steeper credit curves, so intermediate segment us for example, generally steeper than short term within a credit strategy would be kind of going longer corporate bonds and less shorter corporate bonds, So depends on market conditions. How have your corporate bonds?

I would say that our focus, our location to credit depends on the current curves of their spreads and curves. So in periods like now, where credit spreads are not as wide as they have been historically, we are a little bit less focused on credit and more on governments, so you could say a little bit more focused on government. And then in you know, in periods or in areas of the market where we see steeper credit curves, so intermediate segment us for example, generally steeper than short term within a credit strategy would be kind of going longer corporate bonds and less shorter corporate bonds, So depends on market conditions. How have your corporate bonds?

Great stuff, Savina Resova, co, Chief investment Officer and global head of Research at Dimensional Fund Advisors. Has been a pleasure having you on the credit edge. Many thanks, thank you, and of course we're very grateful to Jehan ef Coupin from Bloomberg Intelligence. Thank you so much for joining us today. Welcome for even more credit market analysis and insight. Read all of Jean Eve Coupin's great work on the Bloomberg terminal. Bloomberg Intelligence is part of our research department, with five hundred analysts and strategists working across all markets. Coverage includes over two thousand equities and credits and outlooks on more than ninety industries and one hundred market industries, currencies, and commodities. Please do subscribe to The Credit Edge wherever you get your podcasts. We're on Apples, Spotify, and all other good podcast providers, including the Bloomberg Terminal at bpod Go. Give us a review, tell your friends, or email me directly at Jcrombie eight at Bloomberg dot net. I'm James Cromby. It's been a pleasure having you join us again next week on the Credit Edge

Great stuff, Savina Resova, co, Chief investment Officer and global head of Research at Dimensional Fund Advisors. Has been a pleasure having you on the credit edge. Many thanks, thank you, and of course we're very grateful to Jehan ef Coupin from Bloomberg Intelligence. Thank you so much for joining us today. Welcome for even more credit market analysis and insight. Read all of Jean Eve Coupin's great work on the Bloomberg terminal. Bloomberg Intelligence is part of our research department, with five hundred analysts and strategists working across all markets. Coverage includes over two thousand equities and credits and outlooks on more than ninety industries and one hundred market industries, currencies, and commodities. Please do subscribe to The Credit Edge wherever you get your podcasts. We're on Apples, Spotify, and all other good podcast providers, including the Bloomberg Terminal at bpod Go. Give us a review, tell your friends, or email me directly at Jcrombie eight at Bloomberg dot net. I'm James Cromby. It's been a pleasure having you join us again next week on the Credit Edge