Joseph Mallen, founder and CEO of Modelist, discusses with Jeffrey Sherman and Samuel Lau evidence-based investing, the integration of customized models with the securities and managers to implement them, the role of AI in his platform, and his take on the present state of financial markets and the macroeconomy. Modelist constructs model portfolios tailored to the needs of financial advisors. This conversation took place Sept. 7, 2023.
After Mr. Sherman introduces (0:33) Mr. Mallen and they discuss the career that led him to launch Modelist, Mr. Mallen shares (4:00) his approach to modeling and the way Modelist works with independent financial advisors. Modelist develops and maintains models that implement a diverse array (9:01) of investment methods, including trend-following, relative strength, duration management, credit management and inflation expectations. Modelist’s models incorporate passive strategies as well as strategies that allocate among active managers. In the case of using tradeable securities (12:46), Modelist often relies on exchange-traded funds. At the end of the day, Mr. Mallen says, the objective, regardless of the choice of models tailored for the advisor, is “robotic-type investing based upon what the data says and taking emotion completely out of the equation” (17:09). Toward the end of the conversation (49:51), Mr. Mallen discusses Modelist’s use of artificial intelligence as an investment tool.
Turning to market and macroeconomic outlooks (29:45), Mr. Mallen observes markets have “churned up,” leaving equity valuations “pretty extended” amid a “severely inverted” yield curve and signals of a “recession that’s looming” but “still has yet to come.” He notes (30:44) that the Federal Reserve has “done a good job of putting itself in a position where if data does start to get pretty gnarly, they can reverse course. And I think that’s what’s kind of priced in and embedded right now is the fact that people are expecting economic weakness, and, in turn, they are expecting the Fed to react and loosen monetary policy.”
With respect to U.S. stocks (31:15), Mr. Mallen would “like a little bit of a mean reversion” with value “catching up, maybe providing that leadership between now and the end of the year relative to growth. I think growth could use a little bit of a reset. We’ve had seven companies in the S&P drive most of the return so far this year.” In fixed income, he still favors short duration. “Just from an academic perspective, I’m getting a greater yield with less expected volatility than on the longer end of the curve. I’m not as insulated if rates do fall, but I like that kind of conservative approach. Take that 4½% and 5% on the fixed income side of the book – go value.”
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Jeffrey Sherman, DoubleLine’s Deputy Chief Investment Officer, is a thought leader, portfolio manager and public speaker in the industry. Mr. Sherman is a member of DoubleLine’s Fixed Income and Global Asset Allocation committees, and he serves as lead portfolio manager for the firm’s multi-sector and derivative-based strategies. In his role, Mr. Sherman guides the investment teams in developing top-down macro views and collaborative asset allocation processes throughout a market cycle. Additionally, he is a member of DoubleLine’s Executive Management Committee. In 2018, Money Management Executive named Mr. Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW, where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. Prior to that, he was a statistics and mathematics instructor at the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the USC/CFALA CFA® Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro Committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.
