The Outthinking Investor

Exploring the continued evolution of the ETF landscape, fueled by rapid growth in active ETFs and an expanding universe of investment choices. ETFs, or exchange-traded funds, were born out of a need for greater market liquidity following the 1987 stock market crash known as Black Monday. US regulators determined that institutions needed the ability to trade stocks more efficiently and cost-effectively during trading days. In 1993, the first ETF in the US emerged: SPY. With one trade, investors could buy or sell a basket of stocks that tracked companies in the S&P 500. ETFs have since revolutionized investing. A combination of liquidity, diversification, tax efficiency and ease of access has helped ETFs attract trillions of dollars in capital. A 2019 regulatory update in the US, which made it easier to launch new ETFs, paved the way for further expansion, fueled by active strategies that are driving the next phase of growth. Offering access to actively managed strategies across stocks, bonds and alternatives, active ETFs surpassed $1 trillion in global assets under management for the first time in 2024. Our guests are Matt Collins, CFA, Head of ETFs at PGIM Investments; Eric Balchunas, senior ETF analyst at Bloomberg Intelligence and author of “The Institutional ETF Toolbox”; and Dave Nadig, independent financial futurist and former CEO of ETF.com. Learn more about PGIM ETFs at PGIM.com/investments/exchange-traded-funds-etfs. Do you have any comments, suggestions, or topics you would like us to cover? Email us at thought.leadership@pgim.com, or fill out our survey at PGIM.com/podcast/outthinking-investor. To hear more from PGIM, tune into Speaking of Alternatives, available on Spotify, Apple, Amazon Music, and other podcast platforms. Explore our entire collection of podcasts at PGIM.com.

With a standard deck of cards, there are around 2.5 million potential hands at the start of each game of poker. The key to success is in the decision process—determining how to play a hand, and how much to bet, despite not knowing which cards are in another player’s hand. Like in poker, every investment decision includes at least some degree of uncertainty. What lessons can poker teach investors about sizing their bets, managing risk, and making better decisions for their portfolio? This episode is not intended to promote gambling or equate investing to gambling. This episode of The Outthinking Investor delivers insights on the benefits of probabilistic thinking, the best methods for analyzing portfolio decisions, and how investors could develop a sound decision-making process for targeting returns - even when facing uncertainty and market volatility.   Our guests are Annie Duke, a decision scientist, former world-class professional poker player, and the author of books including “Thinking in Bets” and “Quit”; Tina Lindstrom, Head of Oil Derivatives Trading for North America at Marex; and Adam Papallo, Head of Implementation Research at PGIM Quantitative Solutions.  Do you have any comments, suggestions, or topics you would like us to cover? Email us at thought.leadership@pgim.com, or fill out our survey at PGIM.com/podcast/outthinking-investor. 

The world’s superpowers are engaging in a different type of arms race beyond the battlefield. With technology advancing at a speedy pace, a global competition for all the ingredients necessary to support artificial intelligence—from data centers and semiconductors to the AI models themselves—is heating up. Not only do these ingredients form the building blocks of today’s economy, but building a secure and reliable flow of data is also considered a key national security objective. The UK designated data centers as critical national infrastructure in 2024, underlining how governments are now prioritizing energy supply, cybersecurity, and efforts to guard the digital world from adversaries. This race for technological supremacy, coupled with growing private-sector demand related to AI and cloud computing, is propelling new investment opportunities. This episode of The Outthinking Investor covers the opportunities, challenges, and security considerations at play amid rapid innovation in AI and a global battle for technological supremacy. Topics include the intersection of AI, chips and national security; governments’ pursuit of secure and reliable supply chains; and real estate opportunities created by rapid growth in hyperscale data centers. Our guests are Chris Miller, a professor at the Fletcher School at Tufts University and author of the book “Chip War: The Fight for the World’s Most Critical Technology”; William Reinsch, senior adviser with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies; and Morgan Laughlin, Global Head of Data Center Investments at PGIM Real Estate. Do you have any comments, suggestions, or topics you would like us to cover? Email us at thought.leadership@pgim.com, or fill out our survey at PGIM.com/podcast/outthinking-investor. To hear more from PGIM, tune into Speaking of Alternatives, available on Spotify, Apple, Amazon Music, and other podcast platforms. Explore our entire collection of podcasts at PGIM.com.

Edward Lorenz, a meteorologist and mathematician, formulated a theory called the butterfly effect—based on a hypothetical scenario in which a butterfly, simply by flapping its wings, affects a tornado weeks later. The butterfly effect illustrates how small actions in complex systems can lead to big changes, underscoring the challenges in making forecasts. This is particularly relevant for investors. A complex global economy often takes unexpected turns, and macro disruptions and uncertainty present challenges for those navigating financial markets. But with this knowledge, investors could make better decisions by challenging conventional wisdom and taking a long-term view. The Season 5 premiere of The Outthinking Investor explores how investors can steer through economic volatility and pursue sound portfolio construction for the long run. Philipp Carlsson-Szlezak, Boston Consulting Group’s Global Chief Economist, and Robert Tipp, PGIM Fixed Income’s Chief Investment Strategist, discuss the forces that may drive change in the economy, potential risks to the outlook, how market fears can distract from real long-term consequences, emerging opportunities in fixed-income markets, and structural changes resulting from a higher level of expected interest rates. Do you have any comments, suggestions, or topics you would like us to cover? Email us at thought.leadership@pgim.com., or fill out our survey at PGIM.com/podcast/outthinking-investor. To hear more from PGIM, tune into Speaking of Alternatives, available on Spotify, Apple, Amazon Music, and other podcast platforms. Explore our entire collection of podcasts at PGIM.com.

Italy surprised much of the world when it became the first—and only—member of the G7 to join China’s Belt and Road program in 2019. Just four years later, Italy withdrew from the initiative. The about-face served as a microcosm of the geopolitical landscape’s evolution. Policymakers have long viewed the economy through a geopolitical lens. But the overlap between the economy and national security has grown, increasingly becoming the focus of today’s geopolitical fractures amid global competition over trade, technology and defense. This episode of The Outthinking Investor explores the ways in which nations are balancing economic and security priorities, and how investors can leverage geopolitical analysis to make informed portfolio decisions in a changing world. Our guests are Mark Esper, former US Secretary of Defense and author of “A Sacred Oath: Memoirs of a Secretary of Defense During Extraordinary Times”; Nobel Prize-winning economist Michael Spence, senior fellow at the Hoover Institution, former Dean of the Stanford School of Business and co-author of “Permacrisis: A Plan to Fix a Fractured World”; and Magdalena Polan, PGIM Fixed Income’s Head of Emerging Markets Macroeconomic Research. Topics include the three main forces affecting the global economy, how national defense is influencing economic policy, the geopolitical factors impacting trade flows and emerging markets, and whether the peace dividend is evaporating. To learn more about the macroeconomic and investment implications of geopolitical risks, explore PGIM’s 2024 Global Risk Report, Resilient Investing Amid Geopolitical Uncertainty, at PGIM.com. Do you have any comments, suggestions, or topics you would like us to cover? Email us at thought.leadership@pgim.com.

The use of economic statecraft is on the rise. With rivalries among major economies intensifying, countries are increasingly employing tariffs, sanctions and subsidies, contributing to a global realignment in trade flows. Meanwhile, elections in the US and Europe portend new debates over taxes, government spending, and the right fiscal formula to support growth and productivity. In the US, the 2017 Tax Cuts and Jobs Act’s tax reductions for individuals are due to expire in 2025, setting the stage for another round of changes to the tax code. Europe faces difficult budget choices amid calls for the bloc to double down on industrial policy and implement capital markets reforms to boost growth—the subject of a highly anticipated report from Mario Draghi. In the face of rapid economic changes and a shifting political landscape, investors need to consider how fiscal policies will influence the evolving investment outlook. Glenn Hubbard and Jason Furman, former Chairs of the Council of Economic Advisers under Presidents George W. Bush and Barack Obama, join PGIM Fixed Income’s Lead Geopolitical Analyst Mehill Marku in this episode of The Outthinking Investor. The discussion covers major economic challenges facing policymakers, the effects of tariffs on inflation, trade flows, and the broader economy, and the future of U.S. tax policies. Additionally, they explore efforts to boost Europe’s economic competitiveness, the importance of remaining vigilant against potential market shocks, and investment strategies to mitigate risks from fiscal and geopolitical uncertainties.

The “year of democracy” holds the potential to bring profound change to global politics, economic policy, and the investment environment. By the end of 2024, more than five dozen countries, accounting for nearly half of the world’s population, will elect new leaders. Elections in Europe, including the UK, France, Germany and European Union, have already yielded both expected and surprising results. The US presidential election in November, as well as key congressional races, also could create significant policy changes—both expected and unexpected—during the next administration, no matter who wins the White House. For investors, the challenge lies in identifying the impact of elections on financial markets. How are 2024’s elections going to change the investment outlook? This episode of The Outthinking Investor takes a closer look at elections around the world, the issues most important to voters, the challenges that political leaders face, and election season’s potential short- and long-term implications for investors. Our guests are Jeanne Sheehan Zaino, professor of political science and international studies at Iona University and author of “American Democracy in Crisis”; Morris Fiorina, Wendt Family Professor at Stanford University and senior fellow at the Hoover Institution; and Taggart Davis, Vice President of Government Affairs at PGIM.

Cities have faced a host of challenges over the course of history, such as affordable housing, transportation, public safety and economic opportunities. In today’s rapidly changing global economy, these challenges are becoming increasingly complex, with cities needing to adapt to technological advancements, climate risks, and fluctuating fiscal policies. The most successful cities are dynamic and adapt to changing circumstances. Consider Pittsburgh, Pennsylvania, as a prime example. Once known for its manufacturing might, Pittsburgh had to reinvent itself after the collapse of the steel industry in the 1980s. The Steel City successfully mounted a turnaround by becoming an innovation hub, thanks to a strong academic presence and low cost of living that attracted technology and healthcare employers. What lessons can cities draw from urban transformations of the past?  This episode of The Outthinking Investor explores the role investors will play in solving many of the challenges that cities face. With opportunities emerging across real estate, infrastructure, technology and more, institutional investors are already providing much of the capital needed to fund urban development. Edward Glaeser, economics professor at Harvard University and co-author of “Survival of the City: Living and Thriving in an Age of Isolation”; Jeff Speck, partner at the urban planning and design firm Speck Dempsey; and Cathy Marcus, Co-CEO and Global COO of PGIM Real Estate, discuss the evolution of cities, the challenges they must overcome, and emerging opportunities for investors.  To hear more from PGIM, tune into our new podcast, Speaking of Alternatives, hosted by Eric Adler, President and CEO of PGIM Private Alternatives. Speaking of Alternatives is available on Spotify, Apple, Amazon Music, and other podcast platforms. Explore our entire collection of podcasts at PGIM.com. 

In the middle of the Great Depression, President Franklin Roosevelt spearheaded the creation of Social Security, forever changing the US retirement system and how Americans think about long-term savings. Only a few pensions existed at the time, and Social Security was the first government-backed program to provide for the basic welfare of all seniors. The retirement landscape in the US—and around the world—has no doubt undergone massive change since the days of FDR. DC plans have significantly improved the retirement outlook, and an estimated 54.3% of American families now participate in some form of retirement plan such as a 401(k) or IRA, according to a 2022 survey by the Federal Reserve. Meanwhile, seniors still rely on Social Security payments, yet the Congressional Budget Office has forecast that Social Security’s Old-Age and Survivors’ Insurance Trust Fund will be depleted in 2033. Building retirement security for generations to come will require not only a solution to the Social Security funding crisis, but continued support for the broader retirement savings system. How can policymakers address Social Security’s challenges without weakening private retirement savings? In this episode, The Outthinking Investor speaks to three experts about retirement readiness, how governments and employers alike help workers save for retirement, and policy prescriptions for the challenges that lie ahead. Our guests are Dennis Simmons, Executive Director of the Committee on Investment of Employee Benefits Assets (CIEBA); Andrew Biggs, a senior fellow at the American Enterprise Institute and former Deputy Commissioner of the Social Security Administration; and Mike Miller, Head of PGIM DC Solutions. To cultivate rich conversations around complex investment topics, The Outthinking Investor features speakers with diverse points of view. Participating on the podcast does not imply endorsement of other speaker's opinions, nor does PGIM necessarily endorse the opinions of its external guests. To hear more from PGIM, tune into our new podcast, Speaking of Alternatives, hosted by Eric Adler, President and CEO of PGIM Private Alternatives. Speaking of Alternatives is available on Spotify, Apple, Amazon Music, and other podcast platforms. Explore our entire collection of podcasts at PGIM.com.  

Harry Markowitz, the legendary economist and father of modern portfolio theory, has been credited with saying that diversification is the only free lunch in investing. However, his work on the efficient frontier shows that investors give up expected returns to lower expected risk. This may make diversification even more compelling. With uncertainty becoming a prevailing theme in financial markets and the global economy, focusing on the benefits on diversification could prove valuable for investors. The 60-40 portfolio may have lost its luster in the broad market selloff of 2022, but allocating across a diverse mix of assets is crucial in the long run. This episode of The Outthinking Investor dives into the topic of asset allocation and the role of stocks, bonds and alternatives in a diversified portfolio. Our guests are Antti Ilmanen, Global Co-Head of the Portfolio Solutions Group at AQR Capital Management and author of “Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least”; Scott Cederburg, associate professor of finance at the University of Arizona and co-author of a research paper titled “Status Quo: A Critical Assessment of Lifecycle Investment Advice”; and Lorne Johnson, Head of Multi-Asset Portfolio Design at PGIM Quantitative Solutions. To hear more from PGIM, tune into our new podcast, Speaking of Alternatives, hosted by Eric Adler, President and CEO of PGIM Private Alternatives. Speaking of Alternatives is available on Spotify, Apple, Amazon Music, and other podcast platforms.