Karen Ward: Hello. Thanks for having me.

Black: An absolute pleasure. I mean, there's plenty going on. I'm sure you've had your hands full over the past few weeks. But kind of wanted to talk about some of the lessons that investors can take from this sell-off and the Covid-19 crisis in markets. What would you say is one of the first things we can learn from all of this volatility?

Ward: Well, I think, Holly, the market is very much still digesting what all this means. I think analysts too are forecasting companies thinking about earnings to some extent are still flying blind. And we're going to learn a lot more about not only what the crisis is doing for current earnings but how companies feel about the future in this current earnings season. And that keeps us fairly cautious at the moment. We know there's been a bit of bounce recently, but we think until we get closer through this earnings season, we still warrant a bit of caution.

So, our focus at the moment really is on quality stocks. And by quality, we are focused on companies with good balance sheets, good free cash flow. Because we know in this expansion there was a big pickup in debt. So, that's where we want to stay away from. We want to these companies that are going to weather a period of earnings weakness, come out the other side and importantly, come out the other side being able to pay dividends and return capital to shareholders.

Black: And I think one of the things that scared a lot of people in recent weeks is, it looked like there was nowhere to hide. This was an indiscriminate sell-off. But that doesn't mean that diversification isn't still important, does it?

Ward: Diversification is essential but getting very complicated, Holly. Because what we used to go to was our core government bonds. They were the things that went up in price when stocks were falling and cushioned the value of a portfolio. But we've now got yields at extremely low levels all around the developed world. So, I think we've got to start thinking outside of the box about other diversifiers. So, some of the things we're focused on are core infrastructure. For example, if you don't need access to liquidity, these are illiquid, or alternatively, some of the macro funds because we know being able to move nimbly they tend to weather periods of volatility better.

Black: And are there any areas that people might thought would diversify for them and kind of didn't live up or shown that it doesn't quite work how we'd hoped?

Ward: Well, I think, the core bonds have done their job up until now. It's really, I think, as we look forward, certainly as we go through another bout of volatility, that's where I think we need to be doing our homework right now, getting those assets in our portfolio. It's about protecting against the future.

Black: And I suppose the final lesson is, in all of the panic there are usually opportunities as long as you are brave enough to look for them and act on it. Have you found any?

Ward: There are plenty. I mean, every crisis throws up opportunities. This is when the market resets. And as you say, Holly, it's not getting so bogged down in fear, emotion and the very near-term news flow; keeping calm and able to focus on those opportunities that do arise. Now, of course, I've just said, we could go through another bout of volatility. So, you've really got to know you've got the stomach for some of these opportunities. But absolutely, we're just got to focus on making sure that as those valuations reset, we are going to be at the forefront of getting ahead of the next expansion and the next bull market.

Black: And are there areas of the market that look more attractive to you than maybe they did before this sell-off?

Ward: Well, I think, the emerging markets are worth looking at. Again, this is – let's be clear – this is on a very long-term horizon. There has been a big valuation reset. But I think one of the key things as we come out of this recession is going to be – the hunt of income is going to be even more acute than it was when we were into it and it was hard then. And I think we've been increasingly looking to stocks for income. That's going to be a little bit challenged by thinking very near in some of the developed markets. But maybe as we come out of this not only we had that valuation reset in the emerging world, we think that's still where the growth is going to be, but maybe they are also going to play a role in that income solution as well.

Black: Karen, thank you so much for your time. For Morningstar, I'm Holly Black.