Morgan Stanley (MS) Earnings Call Transcript & Summary

Hi, everyone. Thank you, and welcome to the Milken Institute Asia Summit 2020. We're at the Traditional Asset Classes in the New Normal panel for today. And I'd like to introduce our esteemed speakers, starting with Mr. Alper Daglioglu, Head of Morgan Stanley's Portfolio and Investment Manager Solutions; Mr. John Reade, Chief Market Strategist of the World Gold Council; and Steven Rocco, Partner and Co-Director of Taxable Fixed Income from Lord Abbett. Thank you, gentlemen, for joining us today, and we look forward to hearing your views.

Let's kick off with the first question, and it's a review of how the markets have done in 2020. It has been a tumultuous year, to say the least, but how have each of your spaces done? And maybe, John, we'll start with you. How has gold done?

Thank you, Debra, and it's a pleasure to be here today, I must say. It's also a pleasure to be talking about gold this year as well. It's been a very positive performance for gold, hitting a new all-time high at the start of August. And although it's corrected somewhat since then, we're still up 20% or so year-to-date, which is a pretty decent performance, probably what you would expect, to be honest, in a year where the coronavirus pandemic has wreaked havoc across the global economies. But it's good from our perspective to see demonstrated again how, including some gold in your portfolio, can help protect against these tumultuous events.

Okay. Alper?

Sure. Thanks, Debra, and thanks, Milken Institute, for having us. So as you said, this has been such an incredible year, a lot of different ways. And when you think about our investment outlook, there is no pandemic playbook in our toolkit. So we often talk about the market cycles and the importance of the -- understand the market cycles. Obviously, a pandemic is in the way an economic cycle typically ends. And the pandemic crisis is more an episode rather than a cycle end. So over the last 8 -- 7, 8 months, clearly, we saw a very -- one of the fastest V-shaped market recovery that -- and that created a meaningful mood swing and pendulum swing in the -- within our investor base. And I will say most of our investors and most of our portfolios, we went from the pure capital preservation to somewhat defensive posture to now thinking about the income, thinking about the form or fear of missing out. So -- but the most important job is to strike the appropriate balance between offense and defense in this environment.

Thank you. Steve?

Well, thanks, Debra, and I'm excited to be here today. So it's been quite a whirlwind, as Alper has suggested. And really the playbook we've been using is one of a natural disaster. And if you remember, before the pandemic hit, everybody was thinking about how this cycle would end, and I don't think anyone had a pandemic on their list. But we've come a long way and unbelievably so, and I'll speak to credit markets where, if you look at investment-grade spreads where they sit now just inside of 100 basis points, that's almost back to where we started the year. High yield is at 400 basis points over treasuries. That's about 70 basis points away from where we started the year. And our expectation is, as we progress here, that heading into next year, we could go back to those levels. But kind of sitting here now from where we were in March, I couldn't say that was my base case. We were constructive on risk, and risk was worth taking at these higher spread levels in April, but it's just amazing to see the recovery and the change in tone. But there's been a lot of volatility along the way, and I expect that, that will be a key theme here as we come through the end of this year and into next year.

Fantastic. Thank you, gentlemen. It has been kind of a rollercoaster ride. The end of the world seemed to be nearly upon us and then the recovery. So equity markets, still very strong. I think the S&P and the NASDAQ, double digits, and that's like very strong. Us investors, I think, continue to be concerned, though, about correlations and equity beta in their portfolios. John, maybe let's start with you and talk about the gold as a diversifier and its role in the portfolio.

Thank you. Yes, well, aside from the performance this year, as I say, up around 20%, 21% year-to-date, if you look over the longer term, you see the benefits of holding gold in the portfolio not just during the bad times, not just during periods of inflation or economic recession or when crises strike out of the blue, which is -- as has happened this year. But if we look back to, say, 1971, the average return for gold has been about 10%. And whether you look over the last 20 years, over the last 5 years and even, to a certain extent, over the last 10 years, the performance of gold has been in line with or better than many of the traditional asset classes. So it's worth having them in the portfolio from a returns perspective, at least historically. But it's whether -- it's the diversification characteristics where it really kicks in. I mean, in general, gold is not correlated to equity market performance. But if you break up that performance into different periods and if you look at when, say, the S&P 500 is rising rapidly, up, say, 2 standard deviations in a week, gold is modestly positively correlated to it. But when the S&P 500 falls sharply down 2 standard deviations in a week, then that correlation flips. So now you're negatively correlated to equity markets, which are falling quickly, which is clearly what you've won. And this flip over in correlations in gold is almost unique. The only other asset we found that does something similar is silver, but that's much less liquid and not really an institutional investment market. So gold's combination of returns and this diversification that tends to really work when you need it the most has benefited portfolios. And pretty much every portfolio that we've looked at over the last 10 years would have benefited from having a relatively small exposure, somewhere between 5% and 10% in gold, and it would have increased your risk-adjusted returns. So we think it's an asset class that belongs in pretty much every portfolio pretty much all the time.

Thank you, John. And Steve, I think bonds and the traditional core bond portfolios have been extremely challenged due to the interest rate environment that we're facing now. How have they held up? And what are your comments on their role as diversifiers?

Well, I think core bonds, obviously, there's a big duration element. So the total returns have been good in those types of products. And I do believe that -- there's all this talk of a 60-40 portfolio, with 60 equity, 40 bonds being dead, right? I do think that high-quality bonds, treasuries, agencies, high-quality sovereigns, those will be diversified and will continue to be. I mean if you look at Central Bank balance sheets, the growth, the exceptional growth we've seen in Central Bank balance sheets, that will only continue, in my mind. What are they buying, right? They're buying treasuries, agencies, sovereigns, right? You now have $12 trillion in Central Bank balance sheets. And I think also, if you look kind of at exposure in the market, right, I think if you look at the equity market, you touched on it, right, we're trading at a very, very high multiple, and that's because real yields and real rates are very low, right? And there's probably a limit, in my mind, to how far rates can rise before it affects the equity market and the duration in the equity market that has grown. So to me, I think rates would be here are relatively well anchored, especially because we haven't seen any signs of inflation yet. Not to suggest that we can't have inflation next year as things recover, but it's not quite there yet. And then the Fed, if you look at the Fed, right, they're not -- they don't seem like they're ready to move any time soon. And if anything, as we kind of move through the kind of December, right, we'll have an ECB meeting where the currencies appreciated substantially, and my expectation is the ECB will do more. So I think high-quality bonds will still kind of hold their value. I think the challenge from a fixed income perspective is kind of what is the acceptable risk that you're kind of willing to take outside of that, right? And I think that's where multi-asset comes in. I think that's where credit comes in. I think that's where securitized products kind of enters the picture and maybe more in liquidity as well.

Okay. Thank you. Alper, I know that you do have a long experience in the alternatives side as well. And I'm very interested in your observations on hedge funds as a diversifier and how they've performed this year.

Yes. Thanks, Debra. And I agree with Steve in terms of the fixed income. We have to -- investors have to be selective here because really, the security selection and the portfolio construction are very important. In the alternative investment world, maybe let me start talking broader hedge funds. As you know well, also given your work in Albourne and your expertise, certain hedge fund strategies can be viewed as a compelling alternative to fixed income as a capital preservation asset going forward, given the historical correlation of properties and return consistency. And from our perspective, we remain highly supportive of strategies such as relative value, multi-strategy and even some net law hedge equity managers, considering their proven diversifying properties. And -- but also another area, broader alternative investment space, we believe that real assets is particularly interesting, areas like -- if you think about the current environment boosted by, to Steven and John points, by the macroeconomic tailwinds, such as infrastructure and green energy, giving this tailwind to be like managers that's focused on the renewable energy. I will say, renewable energy strategies have been particularly resilient to the impact of the pandemic, unlike the traditional energy strategies based on fossil fuels, which have experienced notable volatility. And also another key area within the infrastructure complex, I should say, that we saw the digital infrastructure and including fiber networks, wireless spectrum and cell towers, as employees or as conferences, as we know, across the industry have shifted working or doing from home or from their offices, communication infrastructure has become more valuable. And additionally, with the emergence of the 5G and exponential growth of the mobile data traffic, communications infrastructure has become even more critical. So I think those are the areas that we are thinking as we try to build this mosaic with different tiles. And I think alternative investment plays a very, very meaningful role from now to -- for the foreseeable future.

Right. Thank you. I mean, yes, I think there have been other opportunities. And on the infrastructure or real asset side, we've certainly seen an increasing demand from investors from Australia to across Asia. So that's been an interesting development, the appetite for less liquid strategies as well in the search for yield. So maybe let's -- maybe we can touch upon that liquid and illiquid divide at this point in time. And it is infrastructure where long-term kind of investment horizons for some of those funds that you invest in. But then there's also been a move, equity to private equity, credit to private credit. Alper, what are your observations or the comments that you make in that move? And how should one think about that illiquidity premium in the current environment?

Sure. Those are great questions, and let me try to touch on quickly. So as you said, given the unknown duration and lack of clarity on the broader economy to turn into its historical equilibrium, I should say, pre-pandemic levels, from our vantage point, we like more niche, distressed and special situation funds that have, as you know, able to take advantage of more narrow sectors that will have a multiyear recovery from the pandemic. So with the broader -- in the credit side -- in the private credit side, I should say, with the broader recovery since second quarter, companies follow 2 divergent paths. Companies and sectors with stable balance sheet, equity sponsorship and I also say diversified revenue base have been actually resilient. On the flip side, though, there is separate ecosystem almost of companies who have been more severely impacted by COVID-19. So the second subset has big headwinds resulting from limited working capital, more COVID-impacted revenue streams and higher fixed expenses and limited basic balance sheet flexibility, and we see that across the -- around the globe. And however, this group of companies and sectors can also offer the most significant, in our opinion, investable opportunities as they require in many different forms of -- to extend a pandemic. Sectors like most impacted are -- has been aviation, travel, leisure, hospitality, sports and media and entertainment, and that's going to continue. But on the other side, we think that the managers with sector specialty can identify long-term macro factors and drivers that can help with both better investment identification and risk avoidance, such as avoiding companies whose balance sheets are too impaired to recover from the pandemic. But specifically, on the trade credit side, I will say that from our vantage point, it looks very attractive on a relative basis. But you had a situation in markets now where Central Banks have used fairly crude tools simply because they are the only tools available to them, and they have to support the most traditional areas of the market. So in short, a lot of liquidity hasn't found its way into private areas yet in the corporate markets. And as overall, as market will subside and private credit manager regime deploying capital into new deals, we remain cautious, but we believe that there's a lot of opportunity there. So let me pause there, but I think those are the ways that we think about it. And finally, the -- I also say the credit solution strategies are more comprehensive and offer the greater certainty of execution for borrowers, include things like that have higher spread and more covenants and better call protection that's available to the broadly syndicated loan market. So we see a lot of different pockets there, but still more to come, in our opinion. So -- but it's a very secular shift.

Yes. I think it's certainly a developing story and lots going on. So you really -- I think our observations really need a lot of expertise on the ground. Steve, I know that you have some thoughts on this area. I'd love to hear your opinions on that.

So I'll largely echo what Alper just said. I mean I think there are fantastic opportunities, special situation credit, distressed and taking on the liquidity in the right vehicle. We run a credit opportunities fund that's kind of made for that type of investing where you don't have the need for daily liquidity. I think at this moment in time, also for some of these companies, right, the vaccines give hope, right? And I think if you asked me 3 or 4 months ago before a vaccine, I would have said sometime in '21, if we didn't have a vaccine, we would have seen a lot of strategic defaults in some of these more troubled sectors or outright defaults. And I don't think we're going to see that, right, as long as we're able to vaccinate a large part of the world here. And so when you have that hope, you're more willing to lend, right, and bridge to the other side. I think those will be the types of opportunities that investors can structure for themselves, right, and to help these businesses kind of succeed moving forward. I think that's what kind of the average sponsor is thinking right now as well. And then -- and also more traditional kind of public credit, there's still a wide divide, even for performing businesses, between kind of the larger capital structures and to some of the smaller capital structures. No different to what we see in the equity market, right, where large cap has outperformed small cap, until recently, where small-cap is kind of compressing. You'll probably see that continue in the credit markets where more down in quality, smaller capital structures and performing businesses compress and that kind of liquidity kind of discount shrinks. And I think that's kind of the name of the game here, I think, is to see where you can capture that compression, but also realize that the world is hopefully going to reopen at some point, life will go on, but there'll be a lot of differences, right? And you got to make sure you're doing your work there as to what's the same and what's different, right? And I think -- like I'm just looking at an example, a company like DocuSign, right, like that -- if you're familiar with that company, I don't think that's a trend that's going away because we have a vaccine, right? And then there's other things that may never come back, like movie theaters, right? That may be a permanent shift. But then there's things that people want to travel and there's pent-up demand, right, whether it's a hotel or Airbnb, like that may be the same, right? And so those are the kind of things that we're trying to sort out, and I think that's where the opportunity is.

Great. Thanks, Steve. It's fascinating. So we've touched about how the spaces have done, the diversification benefits and then talked a little bit about the liquid, illiquid divide. Maybe let's turn our attention to kind of the search for alpha, applicable in some cases. But Alper, I know it's something that is of great interest to some of your clients. Would you talk about your thoughts on, is alpha growing or diminishing?

It's a very good question. So let me offer my own perspective on this. I will separate the public markets alpha and the private markets alpha a little bit here. And in our opinion, in the public markets, alpha is more like a zero-sum game. And it's fair to say that in a predominantly bull market we have had since the global financial crisis, alpha has been more nuanced among market participants. So part of that also active management has struggled over the last decade. And because of that -- and when you're in a bull market that we have been in most parts and where fairly low volatility and, I should say, the low average volatility historical context and above average return, all else equal, it has been a little bit difficult for the -- to generate alpha for the active managers. But we believe that that's really shifting. And we believe that 2020 has been a good example of that, where we saw one of the sharpest V-shaped move in the marketplace, not just in equities, but across the different public markets. And we do believe that the active management has shown that it can add value in the current environment. We see that in the [ long-going decide ]. We saw that in the different sectors like equities or fixed income, but also we see that in alternative investments like hedge funds. I think one of the untold story about this year is that most of the successful hedge fund managers, actually, they've been able to deliver their mandate, which, from our vantage point, we are very encouraged to see that. But the other interesting trend on alpha, though, we believe that there is a structural shift, alpha shift from public to private. That has been happening for a while, but I think that's going to continue to accelerate. Because if you think about the private equity space, right, I mean private equity space, all else being equal, let's call it a $3.4 trillion assets on a global basis. But still, it's only 4% of the global public equity market, which is about $72 trillion, $74 trillion, however you measure that. And there are 10x more public companies -- sorry, 10x more private companies than public companies. So I think private side, we expect it's going to continue to grow from alpha opportunity, and it's less than zero-sum game or less than the public side. And there is, why the return dispersion? As you know, well, in the private side, among the different managers, because more alpha opportunities exist and will continue to exist, and manager selection even matter on that side of the equation. This is why those are alpha and manager selection, the way you think about it are 2 individual parts of the same puzzle.

Yes. I mean we would -- Albourne would certainly agree on the importance of manager selection because I think the dispersion is so high, especially during this period. And also, I think the transition from public to private equity in terms of where the alpha is generated, I think investors just -- it feels like they're just trying to get early on earlier-stage investments in order to participate in that upside because if you just wait for IPO or public listing, you may not be early enough, right? So I think a lot of that also is starting to be captured earlier. And in my opinion, I think sometimes that doesn't benefit the retail side. It's more institutions that can't get into those deals. But thank you. That's fascinating. Steven, I know you have some observations on alpha, and we're really interested to hear your opinions on that.

Sure. So I'll take it from a fixed income perspective.

Please.

First of all, I always think there are alpha opportunities there for investors to capture. And I don't want to debate the efficient market hypothesis here on the equity side. But I will tell you, the markets that we invest in are not efficient, right? Credit markets are not efficient, especially the further down you go, the more illiquid that you go. And I think what you've seen from fixed income managers since the financial crisis is most fixed income managers, the average is the opposite story of equities, they're able to outperform their benchmark. Now the criticism is it's because there's a lot of carry and spread, but that's also been the right idea. Now I think the challenge becomes now we're in a tighter spread environment, right, and then how do managers kind of distinguish themselves? And that's where you may see that, right? And I'll use like the high-yield example here because I manage a high-yield fund at Lord Abbett. Like last 2 to 3 years, it's been, for the most part, about buying high quality, right, and the manager dispersion has been very, very well. And I think that will change, right? I think that will change as the environment changes. We're already starting to see that shift, and there'll be managers who are kind of better equipped for that because the average high-yield manager likes to stay up in quality. And when you get into these more kind of bull-type markets and it becomes more esoteric, you've seen like a lack of comfort from the average high-yield manager kind of dipped down. And that's not been our MO at Lord Abbett. We like to kind of get our hands dirty and look at opportunities across the rating spectrum. I think if we're right in our outlook, I think that's going to separate one versus the other, as an example. So it may not be about the average kind of credit manager just having a bunch of risks, long versus their benchmark. It maybe a little bit more nuanced than that. And you can have kind of modest risk or lower risk than your benchmark, but then able to capture some of the things we just talked about with liquid versus illiquid and securitized products and such. So I think that's what we're thinking about. That's how we think about kind of capturing alpha at Lord Abbett.

Interesting. Yes, so the definition of alpha as well is relevant here. Thank you. Thank you, Steven. John, I don't want to make you feel neglected. So the next topic I wanted to touch on was China. I think China has been opening up its financial markets. I think most people are very familiar with the changes in the equity markets. Some perfectly are aware of what's going on in the bond markets. But what's your opinion with regards to gold? And what's going on in China?

Yes, I think gold is an interesting example of what can happen when China opens up its market. And they probably started to do this quite a bit before other markets, starting with the process of liberalization or at least thinking about liberalizing the gold market the late 1990s into the early 2000s. And we did quite a lot of work assisting in terms of thinking how you should structure a gold market. And it's had an enormous impact. China was about a 200-ton-a-year producer and consumer of gold around the turn of the millennium, and that's increased pretty steadily through to about 1,000 tons. Now part of that is economic growth, but part of that is through opening up exchanges, both physical exchanges and futures exchanges, allowing banks to sell investment products to the retail audience. And I think that there is tremendous pent-up demand for access to the sort of products that we take for granted in the West. And that's certainly what happened when they opened up the gold market. So now China is the largest gold producer, largest gold consumer, largest gold importer, largest jewelry market and a substantial investment market, too. And I think opening up will be good for China, but also good for people that are trying to do business into China as well. And I think the gold example is one that really should be in the textbook somewhere.

Thank you, John. Fascinating. Steven, I think Chinese sovereign bonds and other bonds credits have been going into the indices. Tell me how that's been impacting your space.

Sure. So in our global products, I mean these are large parts of our index, and we are definitely paying attention and investing there and using the platforms that are available to us, especially with the yields that are on offer. China is a large market. Obviously, as John just said, if you're a metals or commodity investor, you're not paying attention. I'm kind of not sure what you're doing. And also kind of from the standpoint of just our -- just the outlook, right, just the outlook of the world, right, it's [ 80% ] of GDP. And now we haven't talked about this yet, but the fantastic job that China has done recovering from this pandemic, and that is a true kind of V-shaped recovery and opening up, which is a nice tailwind for the world for the -- given the stature of China, right? And so I think these are all things. And also, if you're sitting in the U.S., you can't -- I don't get the impression. And I look at some of the data that China is a big overweight for many, many kind of global managers. And certainly, it's growing. And the same is true on the bond side. So I think it's going to be of increasing importance for the global multi-sector manager. And I think there's fantastic opportunities both from an industrial side, also from a consumer side as well that we've been able to kind of look at and capture the convertible bond market, as an example. And then also, the change in administration, too, here, I think, may -- I'm not suggesting Joe Biden is going to solve the kind of the China-U.S. problem, right, that exists at this point in time. But certainly, we can kind of maybe kind of cool our engines just a little bit, and we can kind of figure out kind of a better path forward for cooperation and agreement. And I think if we kind of remove kind of the Twitter element and the tariff element, right, that's kind of taking place, like I think there's kind of ways and get investors more comfortable kind of engaging, right, with the Chinese markets. So all those are good things.

Yes. I think from our client base, especially the U.S., it's been mixed, but there is undoubted interest and focus on, for us as a firm from our clients, due diligence on managers. So liquid and illiquid strategies, there continues to be a very strong interest to do work and to look for opportunities to allocate. So it's been very interesting. Alper, I know that with great opportunities come great risks. I would love to hear your opinions on the opportunities and potential risks.

For China or general?

China, I think.

Sure. I think -- sure. I think both John and Steven did a fantastic job to cover. And I think I agree with that most Asian economies, not just China, and government responded to the pandemic with very different and highly effective policies. And it's resulted in a significant fewer people died across Asia compared to the Western world. And China is the first country to enter, obviously, the COVID-19 crisis and also appears to poised to be the first out, and that's very remarkable from our perspective. And to Steven's point, given the fact that the change in the -- given the recent U.S. election, changing the presidential in White House, China, all else being equal, is going to benefit from -- most from the U.S. tariff rollbacks and global trade dynamics improving. So that's very important. But on the other side, I will balance that for you. Although I think the overall, the current environment post-COVID world, over the medium to long term, it's I think -- we believe that it's going to be very bullish for Asian economies, including China. I believe in the short to medium term, still, we are going to deal with this de-globalization, right? What I mean by that? All else being equal, all of us, no matter where you are in the world, we are so focused on our more personal life or family life or community we contributed in. And I think that's not going to change anytime soon. And that's why most investors, they are going to be a little bit more focused about their current environment and current -- the world that they live in. But all else being equal, we do believe that the secular portion in China and the broader Asia, it's only amplified given the recent events. So I think we are, long term, very bullish. But in the short term, there will be a little bit more noise, as there always is.

Yes, agree. I think the global structure is changing, if anything, as a result of the various events that have happened this year and have been ongoing. So I think we watch those with great interest. Now we have about 8 minutes left. So maybe for the next few minutes, I just want to talk very quickly about ESG because we've got a lot of client interest in this. It feels like everyone has had to at least come up with an answer to that question. So I'd love to hear your thoughts on that. And maybe, Steve, and I know that you guys have come up with a policy for responsible investing. We'd love to hear about what you guys are doing in that space.

So ESG is very, very important to Lord Abbett. It's very important for our clients, and we take it very seriously. And for us, it's about being authentic, right, and then having our investors believe that ESG, when evaluated as a risk factor, could add alpha to your portfolios. And we believe that at Lord Abbett. And so the key for us, the first part is the integration piece now. On the equity side, it's -- I'm not going to say it's easier, but you have data, right? I think one of the challenges in ESG is the data, right? And there's different platforms that are out there, and you certainly have a lot of equity data to incorporate. I think from a fixed income perspective, you have less, right? And we just talked about a lot of private companies. And so we're working with our quantitative research team to develop matrix scoring for credits that we own so that we can provide rating for all the companies that we invest in. And it's not necessarily about avoiding companies with kind of super-high ESG risk scores, right? In fact, that may be even the best opportunity for engagement. But we just want to make sure that if we own a company like that, the engagement is going to be worth it for our clients, right, and then that score can lower the energy. You talked about green energy, but in high yield, we have a lot of energy companies that are -- score very poorly in ESG, and there's a lot of work that needs to be done there. And we want to be part of that. We want to be part of that conversation, right? And so that's -- and engage. And we're doing that through various kind of various organizations, but the challenge is the data. And then lastly, I would say, it's just a passion of mine and of investors out at Lord Abbett is climate. And we think renewable is a fantastic opportunity. We launched a climate-focused bond product that we're very excited about and investors are very excited about. And that captures some of the thematic kind of themes that we've talked about around green and renewable, solar, wind, agriculture, and there's going to be fantastic opportunities there. There already is, both not just from a traditional green bond perspective, but also the technology as well, and we'll see more of that. And I think green bond issuance now was last year -- or this year was up to about $400 billion and growing, and we're seeing those bonds now trade at a premium. I think you'll expect more of that, more issuance. You just got to be careful of greenwashing, and you want to make sure that the companies that are kind of setting these targets, that they're realistic and that they, too, believe. And so we're just very cautious in how we apply it. It's not just buy every single green bond that comes our way. And I'll stop here...

Sounds great. I mean alpha and green, I think if you can do both of those at the same time, that's like the Holy Grail.

Exactly.

John, tell me how you're solving for that in the gold -- the space of gold.

Well, we don't really have time to go into enough detail to make this worthwhile. But just simply, we've obviously recognized in the gold industry that we need to be addressing these issues, too, so that -- because investors now just don't make these investments without being aware of the ESG risks that you're involved with. And we've tackled it 2 ways. One is working with and on behalf of our members, the largest gold or most significant gold mining companies in the world to allow them to demonstrate that they're ESG-compliant by following what we formed as the Responsible Gold Mining Principles, which is about 18 months old. And within 3 years of that launch, all our members will be compliant and documented with that. So that will help quantify how they're performing. And there's other work we're doing with our members also about pathways towards climate neutrality or carbon neutrality in the longer term. But then the other piece of research that we've been doing and we've published on all of these topics, all available on our website, of course, is to look at the ESG implications of owning gold itself because gold -- 98% of greenhouse gas emissions are incurred during the production of gold. Once it's produced and you're investing in the physical product, much less so. So lots of work on there. I can't really talk about it all. But...

Fantastic. So 10% average return forever, and it's good for the earth as well. Sounds great. I know we're coming to the end of it. So Alper, maybe I'll start with you, but 30 seconds, what do each of you think is the biggest investment opportunity you anticipate in 2021?

Sure. So a couple of things. As I said earlier, we believe that the overall active management is poised for a turnaround. And we believe active management is the way to think about going forward. And especially in the passive side, you look at the equity markets, right, you look at the U.S. equity market, like S&P 500, like you have -- if you track the S&P 500 Index, 20% of the index is invested in 4, 5 different names. And those 4, 5, market cap of those companies is more than the bottom 354 companies. And that's really an extreme. And you've got to really think about it when you invest in these market-weighted, cap-weighted indices, what you are getting again. The other thing I will say, somewhat controversial, we believe that this is, all else being equal, value is here to -- we believe that there will be some recovery there. And value as a style is going to be more interesting. And if you'd like the small- to mid-cap stocks in the current environment, we believe that they were giving the recovery to the -- from the pandemic, they're going to be well positioned. And finally, we expect a little bit a market leadership change. We talk about clean energy, but also I will talk about the financials, industrials, construction, consumer durables and service sector automation. These are very real opportunities, and that's really what I will focus on. So those are the things that we are thinking about.

Thank you, Alper. That's fantastic. Lots of ideas. Steven, as quick as you can.

Maybe 2 -- let me give you 2: what I spoke about renewable technologies, that's one; two, in the leisure space, we like hotels. We think there's going to be a lot of pent-up demand for travel, and a lot of these -- a lot of the companies who own hotels have operated with great resiliency. So it's not even about getting back to 90% capacity or 80% capacity. Even at lower capacity levels, you'd see record profitability. So those are the 2 areas that we're spending time on.

Okay. Great. John, I guess, we know your view on gold. Do you have anything else to add?

Well, look, I mean, so you can guess what I'm going to say, but I certainly reckon that any opportunities to implement a strategic asset allocation towards gold on any potential price weakness, we've seen a few negative reactions in gold from great vaccine news, for example. I think those are good opportunities. But I certainly echo Steven's comments about travel. I haven't traveled since February, and this is the longest since 1992, I think, that I haven't been on an aircraft, and I'm getting very itchy feet.

Same. I think we're all in the same position. Gentlemen, thank you so much for sharing your thoughts and your observations and your tips for next year. We look forward to maybe seeing you again next year to see how they panned out. Thank you, and have a good day.

Thank you very much.

Thank you.