Transcript
Speaker: Welcome to Synergize. I'm Bill Koppel, Director of Client Growth at Trey PMR by Robinhood. and i'm ryan neal editorial manager at trade bumar by robin hood and welcome to our Synergy Summer Series. We're taping these from the conference floor at Synergy 26 in Washington, DC. That's right, Ryan. We're live here in Washington, D .C.
Speaker: And all summer long, we're going to be sharing plenty of insights, and actionable ideas that you can use to build your business. So let's get into the episode.
Speaker: And we're back on the Synergize podcast here on the... Conference Hall floor at Synergy 26 in Washington, D .C. And we've got an awesome guest stopping by the podcast booth, Steph Gill. She is the Chief Investment Officer at Robinhood. Steph, thank you so much for taking some time with us. Thanks for having me. It's a great conference. Yeah, we're glad to have you. Yeah, we certainly are. And particularly with your opening line this morning at your panel, which I loved. It got reactions. Oh, absolutely. I had somelaps in some Yeah, so I want to share it with our listeners because I think it's yeah where we want to kind of take part of this conversation. which is you made this bold statement. Modern portfolio theory is dead.
Speaker: Yes, I did. And index investing went with it. And I felt the air rush out of the room. I mean, there are things to take away from modern portfolio theory. It teaches you that investing is a trade -off between risk and return.
Speaker: But... If you take a step back as to what's been shifting in the world, I think there are four Uh... Tailwind. that we're really supporting. Modern portfolio theory. framework and index investing. like all
Speaker: you know only index investing. um And that really was, if you think about what 10 -year interest rates have been doing. Since 1981, they went from 15 % to... 0 .6 % in 2020. like consistently the costs to borrow money just fell and that goes right to the bottom line we saw interest expense as a share of EBIT or earnings.
Speaker: just dropped precipitously over that same time period. The other tailwind is tax rates. and Corporate tax rates fell continuously over that time, and that contributed to net margins growing. So if you think about those two things alone, The Federal Reserve actually noticed it. They did a paper in April of 2023. They said 42 % of corporate profits from 1989 to 2019 We're down to those two things, falling interest rates and falling corporate tax rates.
Speaker: So if you think of like... CEOs could... just keep the business going and they they had improving margins over those time periods. So and there are a couple of those things.
Speaker: Deficit. The U .S. deficit has been growing and it kind of didn't matter. It's expected to continue to expand and I do think it's getting to that part where it starts to matter. But even so, it because it's so big, it means we have so much supply of debt, it's going to be hard to get interest rates and tax rates down from here. And then the last thing is...
Speaker: the kind of generational. thing that's happening, right? Baby boomers, the last ones will turn 65 in 2030 and the most of them are turning 65 now.
Speaker: you start seeing the ones that aren't well off, that aren't going to transfer wealth, are going to start spending what they've saved. and 50 % they own 50 % of retirement assets and 50 % of retirement assets are invested in indexes. So indices, in indexes, I think you can use both. But they're, that like...
Speaker: Those tailwinds are... going to go the other way. and Kind of lassie. so I didn't put it as an official tailwind, but... Yeah. Companies themselves, like think about how much stock buybacks. contributed to the markets.
Speaker: particularly from the tech sector. Now what is the tech sector doing? spending on AI and infrastructure, materials, everything you can think of. and so That just, ah it's a shift.
Speaker: Yeah, that's right. And a lot of them were just printing money for a long time. Yeah, that cru cash cows. And they were sending it out to their shareholders, and now they're reinvesting that money heavily into artificial intelligence and other infrastructure. And borrowing now. Exactly. And even Google, and out they're issuing shares. that's right That's exactly right. So there has been a significant and shift that I have to chuckle when I think back to. you know, those days of
Speaker: 15, 16, 17, 18 % interest rates. We still had clients complaining it wasn't enough money. okay And now now we go the other way and everybody wants a 1 % mortgage again. And everybody thinks the mortgage rates are high. In retrospect, they're actually very low. I know. I used to love going to my...
Speaker: You know, I had like the Savings Pass book as a kid and I used to love going and having them like updated because I got like 10 plus percent interest rates a month. savings account. Yeah. So obviously, you know, no investment advice being given here, but for ah for a rookie investor like me, who who doesn't know much about this, I'm a journalist, not ah not a finance professional by any means, um how is this changing the playbook? What does this mean going forward for investors or for but advisors?
Speaker: To me it means that Owning... index funds itself aren't bad but i think you want to start branching out because i think index investing is actually it's investing for the last decade um whereas the index over time is going to shift. And so it's better to me to get ahead of that and start investing in single names, even in private companies, because so many of them, well, now they're starting to go public, but you know we are I think you're going to find opportunities that...
Speaker: either play a very small role in the index or aren't in the big, broad -based indices. And that's where you I think you want to spend some more capital there to kind of diversify a away. Interesting. And are we starting to see that at Robinhood? Are customers starting to act like that and go that route? I think that's the other thing is, like, who customers at Robinhood have been acting like that. Gotcha, yeah.
Speaker: it's you know the The participation in direct stock ownership has been on the rise, and I think you'll see it, you know as long as the markets are okay, will continue to go that way. and Most of our customers only use ETFs to...
Speaker: buy on a big dip. If there's a big dip they use that, otherwise they are playing. the themes and the stock stories and um and I think that's where... you kind of need to add to thematic stock single stock baskets. And with the cycle so short today, you're seeing some enormous shifts. and A lot of investors at Robinhood have actually done pretty well creating some unusual wealth for themselves. yeah um
Speaker: Yeah. You know, I know that you run strategies for Robinhood rob hood asset management. What are you seeing in terms of behavior of some of these early successful investors and how are they using strategies maybe to begin to take something off the table? and diversify a bit.
Speaker: Yeah, I mean, i I think you see them kind of splitting their their money between playing themselves playing it themselves. I mean, it kind of depends on the person, really. But i I've heard seen a couple things. One is...
Speaker: dave They know that they should be investing. They want something that they can relate to so they can look at their account and say, oh, I own this stock rather than I don't know what's in this fund. um And so they like that. And we leave messages for them as we make changes in the portfolio so they can sort of be guided along the way. And that makes them happy. And they learn along the way, too. The other thing we've seen is the more active traders on our platform use it as idea generation, and where they're kind of playing theirs and then they're splitting their money with us and saying, oh, that's kind of interesting. Like, let me buy more of that. Because we still maintain diversity. Like, we're not buying 10 % in one name. Like, we're, you know, we're we're being diverse about it. so um And if they're willing to take even more risks than that, then so be it. Yeah.
Speaker: So one thing I'm curious about is, looking forward, um Maybe if you put your goggles on for next year, what's something you think will dominate that conversation next year when it comes to investing and and themes?
Speaker: Let me see if whether her I don't know if this is like a good next year one just because but um I do think... the the supply issue around raw materials.
Speaker: is known. but not really like... fully um understood in terms of the repercussions that it has. you know We've had this conflict in the Middle East going on. It's not solved.
Speaker: um And even if it gets solved tomorrow, you can't just like turn everything back on like it's a light switch. And it's been... you know an issue for a while and consumption is going up not down so i do think like there's this kind of like...
Speaker: lack of care for what that actually means and so we've kind of been using materials and energy exposure is almost the hedge in our portfolios versus like what bonds maybe used to be. um And I do think you're going to have like a period maybe next year or maybe it's sometime this year where, you know,
Speaker: everyone's worried about. this being a bubble. I don't think it's a bubble, but I... It, it... is It is... can happen that like... things just get temporarily over their skis and then you get a pull back.
Speaker: And those are times to to take advantage of it. So and those are like the two things on my radar. I'm kind of always like... Wanting to take a couple chips off the table just in case like the dance the song, you know The DJ stops playing for a little bit of time yeah so that's good let me Let me throw one more question your role as the head of Robin Hood asset management chief investment officer just expanded a bit.
Speaker: with the introduction of the Robinhood Advisor Network. which is actually a product and service coming out of what we refer to as Ram Robin Hood Asset Management. yeah As a leader of that group, Share with our listeners how you see this unfolding. in Obviously acknowledging that there is an opportunity for some of our clients today and into the future. Needing advice from an advisor, a role both of you have.
Speaker: Both of us have played in the past. um I mean, I think it's it's... really exciting to be able to deliver this. We're in kind of charge of them. more client part of it, obviously. And so I feel very protective of our client base and making sure we have great, you know,
Speaker: tenured advisors on the platform because we are handing them our children, our babies, in a way. um And so we do the due diligence um and make sure that these are people who will take care of our customers. um And our customers, you know I think what's great about it is that they're used to being able to kind of
Speaker: scroll through things and make some of decisions and not feel like they have a lot of commitment at first which I think this does that and it allows the customer to directly decide rather than having a lot of like frictional steps in between um and the more that we can add I think the more we can connect this bridge especially because our customer base is getting
Speaker: a bit older. um Although we have young people as well, the average age has been rising. the average wealth has certainly been rising. And so I think that's where the more wealth, the busier you get, the more you need someone to help guide you. And that's why I'm very excited to be able to have that ah that connection.
Speaker: Right? Thank you. Great. Well, Steph, one thing we do on the podcast as we wrap up is we like to leave on our listeners with like a piece of actual advice or actual information they can take back with them. yeah So for those that couldn't make the conference this year, what's like one thing from your presentation that you'd like them to to know?
Speaker: um I would say... at the highest level that you need to start thematic investing um beyond just the broad -based index funds because I think you're going to leave opportunity on the table. So make sure you start kind of thinking about that for your client base. Great.
Speaker: and Well, thank you for stopping by the podcast booth. We appreciate having you. Thank you.
Speaker: If you want to join the conversation or connect with us, please visit us at synergizepodcast dot com
Speaker: This content is provided for general information purposes only. The views expressed by non -affiliated guest speakers are their own and do not necessarily reflect the opinion of Trade PMR or its affiliates. Trade PMR and its affiliates do not endorse any guest speakers or their companies and therefore give no assurances as to the quality of their products and services. This channel is not monitored by Trade PMR. Trade PMR does not provide investment advice, tax advice or legal advice. Trade PMR is a member of FINRA and SIPC. Trade PMR, Inc. is registered with the Securities and Exchange Commission, SEC, and the Municipal Securities Rulemaking Board, MSRB.
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Speaker: For a transcript of this episode with sources visit synergizepocast dot
