final trade. >> microsoft. >> josh?

>>. thank you very much. er with live if chicago for one of the highlights of the investing year. the mutual fund manager of the year awards from morning star. five managers all five stars, five-year returns, that put them in the top one, two or three percent of their peers. you will find out in this hour how they made so much money in 2012, what they think about 2013, and whether you, sue, want to invest with them in this new year. >> i can't wait, ty, thanks. we are also watching google right now. ftc making an announcement they are looking into the company over alleged anticompetitive conduct. we are monitoring. when they begin that news conference, we will bring you headlines. to the markets where buzz down here is about the fact that mark set adding on to

yesterday's spectacular gains. after a little profit-taking, we are on the plus side to 13,420. nasdaq is up two points, almost two and three quarters. bob pisani joins me on the floor. i was talking to some of the guys this morning and they were saying, it is pretty extraordinary that after the move we saw yesterday, very little profit taking and now we are on the plus side again. >> yes. this is the action you want to see today. an lot of move to the jup side, not to the down side but right in the middle. some winners, some losers. i want to show you some big exchange traded funds. we have money flowing into stock exchange funds. coming out of stock mutual funds. here is the two biggest etfs in the world. this is from the spider symbol as spy. just slightly on the positive side. this is the biggest etf out there. vanguard's emerging markets. etf is emerging market stocks. vwo is the symbol there.

i want it point out, volume is very heavy in the last couple days in the hedge funds. sue, new 1 1/2 year high, railroads and airlines strong. >> one of my favorite indicators. >> good numbers from the airlines. good monthly report from airlines overall. finally, i want to point out that money is coming out of bond funds. an flood but a trickle. here is a big one. this is 20 plus year treasury bond. long-term treasury bond. and can you see that's a one-month chart. see, sue, trend to the down side. but some of the broader funds like vanguard's total bond market fund, this is a terrific etf to owned. bnd is the symbol. even that you can see has slowly been coming down and is down again today. not floods here but volumes are starting to pick up a little bit. >> which i guess is not unexpected given the fact we have the fed make its announcement. we know it'll happen.

that is pretty much what the market has been factoring in. >> the market has been waiting a year, literally a year, to see a slow move out of bond fund and into stock funds tp there is a little bit of a trickle that is starting right now. enough to in the. >> thank you, robert. >> see you later. meantime, in washington, a new day in congress. 113th congress will meet for the first time after new members are sworn in and house speaker is elected. eamon javers is on capitol hill. given what we went through with the last congress, is there any optimism that the new group coming in will get something done? >> no. i hate to be a cynic. >> okay, thank you, eamon. >> i hate to be a cynic. but there are a lot of bruised egos. there is a clans for a real optimism and real energy but these guys have been through a tough week now. we have a bunch of new members

and as you can see, the vote for the house speaker is ongoing. tallying up the votes on democratic and republican side. we don't expect a significant challenge to speaker john republicans.he you will see democrats here voting for pelosi. republicans voting for boehner. boehner should win this thing but there have been a couple 1s and 2s of republicans voting for someone else other than speaker john boehner, including one vote for collin powell. and you don't have to be a member of congress to be elected but that said, even though some of those republicans have broken away from boehner in the course of this vote we don't expect yet that they will have enough votes away from boehner to go to a second ballot or to seriously threaten boehner's chances of being elected. but he has add tough week. >> indeed, he has. >> given the fact there are so many new members of congress, do we know yet what the defining kark tistic of the new group

might be. >> a racial gender, regional diversity, that we have not seen before in the united states congress. interesting statistic is that among democrats in the house, white males will not be the majority any more of the democratic conference. that's the first time that has happened. we have an african-american republican appointed to the united states senate. that the first time we have had an african-american republican in the senate since 1970s, early 1980s i believe. clearly you are looking at a different group of folks in terms who've is represented up here. the problem is, they are having the same problems to deal with once they're sworn in. we have seen the swearings in going on all day, sue. >> thank you very much. congress might be be able to get much done but ty can get it done. he is at manager of the year conference and awards in chicago. ty? >> sue, i was just thinking, if you don't have to be a member of house to be speaker of house be

i nominate jon stewart. we are back for manager of the year awards presentation. basically golden globes, oscars, emmys of the hedge funds business. who would have turned a $10,000 investment into something worth more than 21,000? you will meet one of those individuals later this hour. but right now, to explain how they choose managers of the year, morningstar's director of active mutual fund research joins me on stage. [ applause ] >> good to have you with us. >> thank you for having me. >> how do you do this? how do you pick managers of the year? what's the prob says? >> we are looking for managers that had an extraordinary 2012. but they need to be morningstar medallists. meaning a rating of at least bronze, virl or gold? >> what have they done right to get those ratings. >> we look at a number of

factors. but what it boils down to is any of the medallists, we believe these people will be over their pierce over a market cycle of five years. >> so you have confidence that whether they will be able to perform just as well or not isn't really the point. but you have confidence they can replicate a very strong performance over the next five years. >> that's true. there's no guarantees in life but we think these managers have all of the guts and pieces of the puzzle that you need to suck sees over the long haul. >> so these people not only had a good hot hand in 2012 but you think they will db-it wasn't only a good hot hand in 2012. what did they do right as a group in 2012? what were the challenges they had to overcome? >> challenges were considerable. heavy doses of political uncertainty. weak it faultering economies, globally speaking. for allocation managers, trying to decide where the best value is across asset classes. for alternatives managers,

market dynamics since 2008 and even over the past year have made execution of those strategies challenging as well. >> when we return under a couple of minutes, michael, you will introduce us to the winners in domestic and foreign stock categories. michael herbst, thank you very much. >> ty, retail sales are in focus and retail sales in december better than expected. but consumers were extremely focused. hi, court. >> hi, sue. many same store sales stronger than commentary. same store sales index increasing 4.5%, beating estimates. department stores did disappoint while kohls increased and beat expectations, late season deeper discount sales was appreciate ushing the retailer to lower its q4 by a wide margin. macy's falling just shy of

estimates. macy's also lowering the q4 forecast range. but nordstrom does buck the trend, doubling investment, up 8.6%. limiting a posting a rare miss. tough compare. gap again, with strength from the old navy division, the company announcing its buying intermix for $130 million. retailer like tj maxx, leading both to increase their earnings guidance. costco one of the best reports, up 9% with strength in food. which is also target's strongest category in the latest monthly same stores sale reports which will be its last. fs reporting flat comes for december falling shy for expectations. now back to you. >> thank you. now back it ty for morningstar awards in chicago. what do you have coming up. >> sue, thank you very much. well meet two individuals who

are in the top 1% of their peers as mutual fund managers and we will ask them about their insights for 2013. winners in domestic and foreign stocks categories. let me bring them to the stage now and we will introduce them after this short break. welcome and congratulations. good to see you. i've always had to keep my eye on her... but, i didn't always watch out for myself. with so much noise about health care... i tuned it all out. with unitedhealthcare, i get information that matters... my individual health profile. not random statistics. they even reward me for addressing my health risks. so i'm doing fine... but she's still going to give me a heart attack. we're more than 78,000 people looking out for more than 70 million americans. that's health in numbers. unitedhealthcare. that if you pick three people, odds are they'll approach everything in their own unique way -- including investing. so we help clients

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and the time has come to unveil the winners in the domestic stock and foreign or international investing categories in the 2012 morningstar mutual fund managers of the year awards pf michael herbst is back with me. who are the winners? >> stock fund manager of the year is the mars aefrn powers growth fund. >> they are from mars. that's why it is so difficult -- >> mars and powers growth fund aep manager of the year is mr. reggie jane from the foreign opportunity and emerging markets opportunities funds. >> congratulations to both of you. quickly, michael, what did these guys do that made them standout for 2012? >> they got very big wins from two of the worst performing sectors of the s&p 500. and for mr. jane, it is really a combination of factors.

>> a couple of questions. bill, you have extraordinarily low turnover. what the heck do you do all year? clearly not trading stocks. what do you foresee in 2013 and have you made any material changes in your portfolio to get ready for what you envision for 2013? >> well, we really haven't because we are stock pickers. we like to know the companies we invest in very thoroughly. we are looking for growth and we are testing the waters for above average growth. >> once you find a company, you stick with it. how long do you hold your average portfolio holding? >> forever. >> forever. this

this is is /* buffet like. >> results from chipping away at companies that we feel become fully valued or over valued. occasionally there are companies where we've misjudged the fundamentals and we need to -- >> am i hearing you say that all of this stuff about fiscal cliffs and debt deal and all of that, to you that's effectively noise? >> absolutely. >> question? >> one thing i would be curious to lear a little bit about, you do tend to emphasize the relationships to company management and that combined with a long holding period, the fund has tremendous down side protection over the long-term, typically when the market drops, your fund doesn't drop as much or it is very, very resilient. >> is there something to the relationship where the

conversations that have you with company management that gives extra can comfort or extra down side in your view? >> absolutely. we like to know what happening, how company managements are adjusting to changing conditions and -- >> got a tremendous portfolio holdings are there in minnesota where you're based. that's because you want it know the management intimately, right? >> absolutely. and we benefit from the fact that there are a diverse number of high quality companies that have displayed above average growth. >> let me bring you into the conversation here as we turn. michael will ask you about india, which has been a major factor in your success but i want it drill down on europe. you have, in your broad foreign fund, a lot of holdings in the united kingdom and in what you call developed europe. how are you avoiding the bombs

in europe, so to speak, and how are you positioning and getting ready to play 2013 in europe? >> well, broadly speaking, we have been very cautious on the european banks for a long time. only this year we started tipping our -- you know, getting into the european banks for example. so avoiding a lot of leverage areas for quite a while. there are a lot of opportunities that are extremely multinationals. you know, names we have heard and maybe use products everyday. so insulated from facing europe but can prosper in a growing global economy. am i saying that right? >> right. a lot of things got hit hard a few years ago. >> so in europe you avoid et the worst of the banks. you're a very risk averse guy? >> yes. >> don't let them say you are wild and crazy. >> we are extremely conservative

and if you don't understand an area, if you would rather stay away than say well it is a benchmark like risk. >> i want it get to michael's question first but also to the audience far question. you are now officially recognized. >> -- higher quality stocks had a good run -- >> we are having trouble with your mic. known for high quality stocks. >> yes. high quality stocks had a pretty good run the last can couple of years. do you think they have become fully valued? >> have high quality stocks become fully valued from where you sit? >> no, there is still quite a bit 6 maturity. if you look at domestic consumption growth, that remains very strong. some of the companies are extremely well positioned for that. so in fact, our last, you know, the bunch of names where we have seen no multiple expanse,

basically earnings growth is what we captured. we feel comfortable about that. >> michael. >> one thing that really struck us when we looked at performance in 2011 and 2012, historically you emphasized india a bit more than some of your peers in both funds. obviously in 2012 that was a bit after tail wind as india performed well as a market but the reverse is true in 2011 when india did poorly, your funds did well and when india did well your funds did extremely well. seems like the picks that you have in india, far outperformed the broad market. >> i have to take a quick break. give a quick answer to that. we have breaking news we have to go to. how have you managed to avoid problems in india? sum it up quickly for me, rajiv. >> we have a handful, maybe a half dozen. these are extremely well positioned. and they continue to deliver. you got to look at fantastic

companies. >> quality companies in india is the way to do it. long-term holdings, hold them forever, bill says. we will have more from morningstar after a short break. meanwhile, to washington and hampton pearson with breaking news on google. >> we have breaking news from the federal trade commission announcing results after probe into google. two parts to a settlement outlined by ftc ae chairman john leibowitz. google will change its practices, into its access and technology like smart phones, games and tablets and other major issue, on-line search. under the settlement, gool el will make prior commitments to allow access to patents critical for standardized technologies in

the areas of smart phones, lap tops and tablets. the question of on-line advertising search and allegation that essentially google gave preference to its advertisers or competition, google is agreeing to change some of its business practices in that regard. but the ftc in its own investigation said there wasn't enough evidence to mount a significant leg challenge in that area. we will have more throughout the afternoon. sue, back to you. >> hampton, thank you. google stock is up about four bucks on the day, about half a percent. >> coming up, auto makers in overdrive. shares of ford and gm hitting new highs. well talk about the where the big three u.s. car makers go from here.

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common side effects include nausea, trouble sleeping and unusual dreams. it helps to have people around you... they say, you're much bigger than this. and you are. [ male announcer ] ask your doctor if chantix is right for you. welcome back to "power lunch." the state department just weighed in on a possible trip to north korea by google. a statement from the state department spokesman, by eric schmidt of google, not particularly helpful. the spokesman saying with regard to the trip, we are obviouslyware it's bb announced. as you know there are private citizens traveling in an unofficial capacity. they are not accompanied by any u.s. officials. not carrying messages from us. frankly says the state department spokesman, we don't think the timing is particularly helpful. clearly a stern warning here

from the state department to eric schmidt of google say be, we don't want to you go to north korea. we will see where this one plays. >> thank you very much. >> if you are surging due to pent up demand. two stocks hitting new 52-week highs and hanging on to advances of 3% and 2% respectively. cnbc's phil lebeau has more from chicago. >> we knew the numbers would be strong. almost all of the reports today better than expected. gm, ford, chrysler, doing well compared to what the street was expecting. toyota, the one falling shy of that, coming in at 9% increase. the december sales rate, that what people are focused on right now, it is likely to be the best of 2012. it needs to beat 15.54 which is what it was in november.

i've talked to people who think that is likely to happen. that's the projection at this point to be greater than 15.5 million. one piece of news that's out there today, we had the clans to talk with general motors regarding its sales. it did a job of cutting out its inventory. remember a bloated supply of pickup trucks there at 139 days supply in november. they cut nearly two months off that. down to 80. and they believe they do not have to cut production because they have been able to manage inventory. as you look at shares of gm and ford, as you mentioned, both hitting 52-week highs. couple of other notes to keep in mind here. we still wait it hear from bmw and mercedes. who still has the luxury crown. and it is projected that market share will end at 17.9%. if that happens, sue, that's roughly half of what it was back in 1990 when it was at 35.4%. pretty amazing statistics,

phil. thank you very much. appreciate it. >> coming up, america's debt threat. congresswoman diane black, republican from tennessee, will join us. she voted no on the fiscal cliff initiative. we will get her take on the upcoming debt ceiling debate as well. plus, ty, as you know, is in chicago. more from the morningstar awards we when come back to "power lunch." you turn for legal matt? at legalzoom, we've created a better place to handle your legal needs. maybe you have questions about incorporating a business you'd like to start. or questions about protecting your family with a will or living trust. and you'd like to find the right attorney to help guide you along, answer any questions and offer advice. with an "a" rating from the better business bureau legalzoom helps you get personalized and affordable legal protection. in most states, a legal plan attorney is available with every personalized document to answer any questions. get started at legalzoom.com today. and now you're protected. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 and the streetsmart edge trading platform from charles schwab...

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right now. prices are getting ready to show. sharon is tracking action for us. hi, sharon. >> hi, sue. closing below 1675 an ounce. that is a key support level here. bear share for prices to be closing below this mark. we will continue to watch from what is happening in the retail investors mind as well. looking at gold etf market and hsdc cutting its 2013 forecast for the gold price to 1760 an ounce. they were at 1850 an ounce. they said why? look at the 5.5% slide in gold prices in the fourth quarter. they see weakness ahead before gold rallies later in the year. they are also moderately bullish

on silver, platinum and also on palladium. they are looking at one group that will rally in the later part of the year. why? because of supply tightness. back to you. >> thank you very much, sharon. all right, trading action here, we're holding on to a gain. bob pisani joins me and kenny is here as well. bob, i'm impressed by the fact that market has been able to add on to its advances at this point. >> the important story today is we had a huge rally yesterday and today stocks are essentially moving side ways on a much lower valium. that's great follow through if you're a trader. you don't want to see a blowout or sell off. this action is really good. normally the dow moves 125 points. that's a typical amplitude in a single day, from low to high. today it is half that. you can see, the volatility is very, very low today. that's a good sign. take a look at major sectors. can you see either side of

positive or negative. none of this is particularly important. the retailers, some of them are up somewhat better than expected december same store sales numbers. just slightly down side. little more than risk on here as you can see. finally, i want to point out that vix collapsing here. that two-day move on monday answers within was stunning from 22 to 15 we're down again today and we are very, very close to multiyear lows on the vix right now. >> kenny is here. what do you do in this market? a lot of people thought we would have more market taking and it -- >> you might. there is gap. to you look at the chart, there's a gap where we just blasted. the market has to go back and fill that gap before it can proceed higher.

now 1425 is not a correction but it are has to continue to do that. i wouldn't run away with it because i think the market has to digest. it had a big move yesterday and it has to digest. >> yes, a huge move yesterday. you said there is a lot in front of the market. i automatically think of the debt ceiling. but we have data before the debt ceiling debate. >> there is a lot coming up. whether data and the data -- listen, data is getting better. continues to be mixed but it is airing out to more positive, right? so that's good. yet, we have the debt ceiling and spending cuts and they are setting it up for that fight that's coming up. obama wants more tax increases along with spending cuts and republicans have gone, we want spending cuts. we saw seven retailers went sales, more than anticipated in december. i think the more on the ping is, will that kind of trend spill over into the broader markets? will we hear more down grades because the market is not doing that right now?

the market is not set up for that. >> thank you very much, appreciate it. speaking of the debt ceiling and talks that are ahead of us, the 113 congress convening in washington. two days after reaching that fiscal cliff deal and pressure is already on them to get back to work. the folks behind the fix, debt campaign campaign with print ads saying, hold the applause. i'm getting nods of agreement from mr. polcari. can a divided house get dem dprats missouri? democrat from tennessee, thank you, we appreciate you being here on "power lunch." >> it is good to be here. >> you voted no on the recent debate in congress. how do you plan to vote on the debt ceiling debate coming up? >> i think that depends upon what we will see will happen in the debt ceiling debate. obviously wbt reason i voted no on this bill is it did not do anything it fix the root of the fiscal problem. that is our spending is out of control. so i want to see that we are going to get some spending cuts

and we will get true reform. that's what i want to see in this debate. >> how contentious is this debate going to be? you saw the volatility on wall street. you saw the angst in the consumer. some reflect fled the retail sales report because congress took us over that fiscal cliff. waited until the last minute then passed a measure that many, including yourself, feel is not contentious to pass. are you willing it take the united states in a default situation? >> first of all, let's talk about the anxiety that was caused by the fact that the senate did not react to our bill. we sent them a bill hr-8 in august and it took them four months all the way up to new year's eve to finally take action on that bill. i hope we don't have that kind of anxiety out there this time. the bond mark else have started to say that they are going to react to what we do in this upcoming ceiling debate. so i think that we are getting

to work as soon as we are finished today in our organization. you will see that house republicans are going to be working on having something that the president and senate can do something hopefully faster than what they did on the debt ceiling. >> congresswoman black, we have to leave it here. we have breaking news. thank you for joining us. to eamon javers now. >> hi, sue. it is official, john boehner has been re-elected to speaker of the house. he won can ten defections from colleagues. republicans and democrats can vote for whoever they want. typically they vote for their house. david walker, forther head of gao, we saw a couple of votes for eric cantor. three votes for eric cantor among republicans but interestingly eric cantor voted for john boehner.

that put to sleep rumors of republicans. for her part nancy pelosi saw four votes from defectors who voted for other figures including one who voted for collin powell instead of nancy pelosi for speaker of the house. in the end, boehner will have enough votes re-elected as speaker of the house. today he gets a fresh start, sue. >> along those lines, eamon, will the speaker change his leadership style or tactics as he has to move forward in these debt ceiling debates? because we have already had some prominent republicans come out and say, it is better it take the united states into a default situation and remedy what ails the country, versus just extending the debt limit once again. how does he circle the wagons, if you will. >> that's right. the thing i'm watching with john boehner is if he tightens the

reigns of control. his leadership style today is to let the housework its will. he is not the heavy-handed hammer that tom delay was when he was in charge of republicans in the house of representatives. john boehner lets these guys go where they will. that might not have served him well during late negotiations. he might want it tighten up control. it is against his personality, though tz. >> it is. thank you, eamon. do you think the new congress will be more effective than the old one? 7%, only 7% of you, said yes. there will be more bipartisanship. 51% said no. the great divide still stands. 42% said it'll be business as usual in washington. all right, let's go back to ty now with morningstar fund manager awards in chicago. what's ahead, ty? >> what's ahead, sue, is three

more managers. fixed income manager of the year. alternative strategies manager of the year. we will find out what that means. and asset allocator of the year. let me welcome them back to the stage. when we come back, morningstar manager of the year awards. . male announcer ] this is karen and jeremiah. they don't know it yet, but they're gonna fall in love, get married, have a couple of kids, [ children laughing ] move to the country, and live a long, happy life together where they almost never fight about money. [ dog barks ] because right after they get married, they'll find some retirement people who are paid on salary, not commission. they'll get straightforward guidance and be able to focus on other things, like each other, which isn't rocket science. it's just common sense. from td ameritrade. humans -- sometimes life trips us up. and sometimes we trip ourselves up. but that's okay.

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if your bank takes more money than a stranger, you need an ally. ally bank. your money needs an ally. coming up on "street signs," republicans appear more divide than ever. john boehner, live at the top of the show, among with fed minutes. and political battles ahead in coming weeks, months, over spending cuts and the debt ceiling, you name it. well discuss why the u.s. is still not greece. and should texas skroin opec in they have more oil and members like niger gentleman. we have "street signs" at the top of the hour. >> at morningstar for the 2013

fund manager awards. who were the winners in the three categories on stage now? >> we welcome mr. mark kiesel. for the allegation fund manager of the year, award, this year, our first, is mr. david jeru from tee row price and also our first alternatives fund manager of the year award this year, goes to the team at tfs market neutral today by eric neuman. >> what did these folks do well this year? start with mark and take them down the line. why did they win? >> oh, how much time do we have? >> in any case, well we have seen over the last couple of years in the fixed income space is investors pour dollars into riskier and riskier assets which met investment grade and high

yield corporate bonds. mr. kiesel continues to find bottom up opportunities within the credit markets pch mr. jeru found success both by adjusting the asset allegation of this fund and tweaking asset mix within the stock sleeve and fixed income sleeve of his fund. not radical changes, but we can talk a little bit more about how that has worked out. and for mr. neuman, it has been a tough stretch since 2008 especially for market neutral funds but his team generated exceptionally strong absolute and risk adjustment remarks. >> mark, let me turn to you first, if i might. top 1% over tep years. top 1% over five top 1% over three. you had an off year last year, top 2%. really, get with it, will you? as you look ahead to 2013, the fed basically laid out a roadmap. it has said, what it will do.

buying treasury, buying mortgages. how do you take that information and invest, change your portfolio ws, subtly, dramatically for 2013. >> we have to lef rablg our secular long-term views and have conviction where we find companies where we grow faster in the overall economy. pemco leverages 90 employees from bottom up perspective and we have opportunities today in the u.s. housing market, in the energy revolution tagsing place and emerging markets. so diversifying risk where we get paid the most and where we see the growth. >> questions for mark? >> something we have seen with so much money pouring into corporate bonds in the last couple of years is a ton of corporate bond issuance. which to our team raises the question or risk of, is debt issued to shakier and shakier companies as a result. you've talked a great deal when looking for issuers. do you think they can grow earnings two to three times more

than the market of their industry. can you touch on dynamics that you are look for and issuers these days. >> that's a good point. there are a lot of companies out there and companies to avoid. what we try to focus on is companies the most in control of their own destiny given all this ma crow unserbty. reality is that housing is in the beginning stages of what we think will be a mault eye year recovery and there are many companies in housing. lasts year we invested in bank of america weyerhauser whirlpool, mazco. there are many more building companies that we believe will grow double-digit returns. and also in embracing the markets in gaming which tyler and i have spoken about yb and gas distribution in china. there are many opportunities out there. it requires a bottom-up approach. >> david, asset allocation this past year, you have been basically sort of 55% u.s. equities, is that roughly where you are? >> mid to high 50s. >> but you have a very high cash

position, right? what is it now? >> probably 12, 13%. >> that means you are basically making almost nothing on 12 or 13% of your portfolio. what would cause you to put that money to work and where would you put it to work in equity and higher fixed income. >> well cats been around for 26 years and we had an above level of cash in the 26-year history. one of or objectives is preservation over three-year period of time. so to preserve capital we will have more cash than the average mutual fund. what would cause us to add equities, or to add fixed income and fixed income, spreads went higher, we want to invest into uncertainty, fear wheb there is blood in the streets, if you will. if equity market were to come off 5, 10, 15%. you could see us take our

equities up like we did in early 2009 and as well as mid 2011. as as you look at equity portion today, looking ahead to 2013, do you keep it roughly where it is given where prices are and given what you anticipate for 2013 or are you decreasing? increasing? what? >> our equity exposure has gone up a little bit. we took advantage of the post presidential election to add to select equities on weakness. to today we are in the very, very low 60s equity exposure but we are probably more likely to take it down than up in the near term. >> quick question for david. >> if you looked at fixed income and you favor bank loans and conventional wisdom is one attractive quality of bank loans so if interest rates rise, theoretically the payouts would rise as well. is it expressing your view or providing some protection about

the direction of rates going forward or is it more just a valuation opportunity that you took advantage of? >> sure, i would say if you think we tend to invest on five-year view, if you will. not only if bank debt but if you look hadded at fixed rate ratio, we have a big bet, that rates will go higher. not to 6, 7% but the ten-year from 8.4 over time. bank loans will do well in that environment. things like state trait, northern trust will go well and in the fixed income portfolio wbt effective to ratio portfolio is sub two years. >> floating rate begins you've protection in interest rates go up. >> and it gives you protection because you are the top of the capital structure. very limited structure of principal loss. >> eric, let's turn to your fund. a strange animal. you try and get a positive return while maintaining a

pretty close to neutral position on u.s. equities. you use quantitative models to do that. how does this all work and which models work best for you in 2012 and which ones do you think are going to work best in 2013? >> we have nine separate in this fund. each muddle comes from a concept which we believe in and that calls for hundreds of other factors. that could be classical factors such as earnings growth or quality of earnings to things that are more interesting such as number of patent filings. most models are built having a long side and short side. so building from the ground up to take out most of the market impact and have a very low beta. what we have seen the last couple of years is that some more common factors, the ones that i think fundamental managers would be comfortable with, haven't worked very well.

could be trades are getting very crowded. so we focus research effort on some of these more interesting third party data sets. >> quick question for eric. >> actually you just started to hint at the question that i wanted to ask you. which is especially since 2007, 2008, it's been a tough stretch for quantitatively driven funds. your team has done extraordinarily well over that period using primarily a quantitative approach. what do you think has been your advantage. >> a couple of things. one, we are comfortable going where the alpha is. where the value is. we don't have mandate to manage a 20 billion fund. most assets are in the small caps space. that's where the alpha is. that allows us to explore opportunities that others might not bother with because they think, these are too small. very quickly, what role does your fund play in my portfolio? >> i think these days you can't just stumble into low correlation. if you look at 2012, the seventh

year in a rethat small caps add correlation above 90%. you used to not see high correlation, now you see nothing but high correlation. there are others in the category giving you the broad market to zig when the market is zagging. >> one final question, mark. you work at pemco. everybody knows bill gross. what is the culture like there and how with -- you are playing with lebron james, man. come on. what is it like to work there? competitive, what? >> it is quite frankly an honor. all 2300 employees at pemco feel comfortable to work there. work with bill. he is an incredible -- >> oh come on. it is not that good. >> well we do get up early in morning. but outside of that, bill is a legend. he built a $2 trillion company. he is a great player and great

coach. i wouldn't be sitting in this coach if it weren't or him. mohamed, as well as other employees at pemco. >> are you -- but let me talk about the u.s. markets, do you think 2013 will be a good year for u.s. equities? >> i think an average year. we have seen the market go up a full point in the last year. i think an average or below average year. >> gentlemen, congratulations. we appreciate you being with us today. and we will wrap it up here from the morningstar manager of the year awards in just a couple of moments. meantime, sue, back to you. this is the award they get here. a lovely little glass thing but it has no front. so you can't drink out of it, is the problem. >> that would be a problem. >> see you in a few minutes. meantime we are focussing once again on washington with the new 113th congress just being sworn in. a short time ago. you see there nancy pelosi,

making some comments. she is going to introduce the newly re-elected speaker of the house, john boehner. there were 426 total votes cast. mr. boehner garnering a total of 220 votes. however, ty, as you know, it's been a humbling weak for the speaker pch it has been a difficult week for him and i asked eam o on whether he thought he would really a have to change his leadership style, which some people say will be a more challenging debate and contentious debate as we approach the late february/march debt ceiling debate. i think it is interesting to see how he manages to reign in house members or perhaps to maintain the leadership style he preferred all along. what do you think? >> he has more fracktious caucus than most parties have -- have had over the years. i think he is obviously having trouble doing that pip think back to prior speakers of the house whether tip o'neill or

going back to when i with a as little boy, they weren't able to impose their wills over the caucus in a way that speaker boehner has so far not been able to. he of course comes out of a different sort of strain of the republican party than the folks who were elected in 2010 and many of whom retained offices or one in 2012, that means the more deeply conservative so-called tea party members of the party. speaker boehner comes out after different more moderate strain of it. he has had a harder time imposing his will. his leadership style is his. and so we will see how he goes. he seems not to be able to get many deals done with the president. and that's why we saw in the most recent debate mr. biden having to come in, and the deal getting done not in the house with the president but with the vice president and the minority leader in the senate. >> i have a funny feeling we will be wearing those rise above

pins once again, ty. i think one of his key issues is the fact that some republicans and democrats alike, but mostly republicans have been out saying they feel as though perhaps the better way it go is to allow the united states to go into default. coming to mind senator patrick toome of pennsylvania saying they should risk default, which includes for those of you that don't know, interrupt budget checks, benefit checks, checks for government workers, if it is the only way to compel the president to renew spending cuts for the deficit. as eamon javers joins the conversation, the spending cuts will be difficult at this point and it seems as though the gaunt lunt is thrown down once again. >> that's right, sue. if you look at the

administration they feel like they don't have to negotiation on this debt ceiling at all. and you're right, the president said exactly that. republicans on the other hand feel like they have just given the president the tax increases that he was asking for on the well think. those above 250 are going to pay more in terms of deductions limits and personal exemption limits. those above 450 pay more in terms of rates. that's a big give from republicans perspective. they are in no mood to start to offer new concessions on revenue to the president. so how are we going to get this debt ceiling deal brokered is a very big question here. but i think the administration feels like they simply don't have to compromise on this thing. that sets up just a big, big roadblock very early in the year as early as late february or march. >> eamon, how much of the comments by several republicans that it might be okay to allow the united states to go into default, how much of that stems from the fact that last time when the united states was downgraded, instead of seeing a huge spike in interest rates, we

saw interest rates go down. and because of the situation around the world, in europe and elsewhere, even though we have fiscal issues, we still probably have the best economy around and the best stock market around and they know that. >> look, there is skeptics here in washington who tend to be on the conservative side ideal logically who say, where are global investors going to go other than treasuryes. treasuries are so much safer than anything else you can put your money in. if you decrease the amount of safety by 5 or 10%. it is significantly safer than anything else. the world has nowhere else to go therefore we have flexibility here financially. i think a lot of analyst would say, that is fire you don't want to start it play with as the united states government. one of the powers the united states has as a super power in the world is that we have the would reserved currency. that gives us a lot of sway around the plan tote influence events that other countries just don't have. if you start to tinker with that, these folks would say, you

start it really diminish the u.s.'s power globally. >> you know, ty, i'm looking at a quote from the chairman of honeywell. he also happens to be a republican and he was the member, a member, of the 2010 simpson bowls fiscal commission and he is pushing back allowing the united states to go into default and not increasing debt limit by saying quote you don't put the full faith and credit of the united states finances at risk. the whole idea of using the debt ceiling that way or saying i'll do this horrible thing to all of us unless you give in, just doesn't make any sense to anybody. he continues, he said it makes him very nervous. it is not a smart way it run the country. this man is head of the major corporation in the united states, ty. i wonder whether or not we aren't going to see that pa rafd ceos once again marching on washington. nrs. >> i think they will and i think most of them with line up along wi