Heres sara eisen at cnbc Global Headquarters and Tyler Matheson in chicago. Good afternoon. The markets are up big. The dow gaining 230 points in just two days. Im here in chicago as was just said, at the morningstar annual fund manager of the year award. It is perhaps the biggest event in the entire mutual fund industry. Think of it as kind of the Golden Globes minus the alcohol. I will be somewhere between tina fey and if you watched sunday night, jacqueline bissett. Rea we are joined by the best managers in domestic stocks, International Stocks, Asset Allocation, fixed income and this year, alternatives. We will find out what they owned last year, what theyre doing this year and you will want to be asking yourself why the heck am i not in their fund if youre not. If you are, listen to this, our Domestic Fund manager, if you put 10,000 in his Small Cap Fund or his teams Small Cap Fund 15 years ago, 10,000 would be worth more than 50,000 today. And in the international category, that team, they have been in the top 1 for one, three, five and ten years. These are the funds you want to know about. It all resumes in front of a live studio audience in chicago in about three minutes time. Well be back to introduce you to some of the Fund Managers of the year. Back to you. Looking forward to some of those picks. Meanwhile, the dow is booming, up more than 120 points. The s p 500 near session highs, trading almost in record territory. And the nasdaq at a 13 year high. Ten year treasury yields just under 3 level. We saw the 3 earlier in the month. Gold right now is also giving up some of its recent gains and oil prices are stronger as well. To bob pisani at the center of the action at the new york stock exchange. The bulls are back in charge. Thats right. New highs, december 31st but were back in those new highs. Put up the s p 500, put up the transports, midcaps, historic highs on an intraday basis for all three of those. Not quite on the dow yet but not far away. Banks are leading better than expected results from bank of america, but jpmorgan, wells fargo were pretty good as well. Bank of america is up 10 so far this year. Theres a big winner. Commodities stocks are up after the world bank said Global Economy is picking up. They dont have a great track record on that but they do move the stock market. You can see there. Finally, i have been asked intercontinental exchange, parent of the new york stock exchange. Last night the eu commission, the parliament and their Council Agreed on updated trading rules in europe that might impact trading regulations in europe. They have substantial futures business there. We are sorting all of this out. More on that later on. Shares down 4 . Bob, thanks very much. Over to dominic chu for a market flash. Talk about shares were watching here, a jury is ruling that a heart valve implant made by medtronics infringed on a patent. Edwards lifesciences awarded damages. Any request for an injunction is opposed. Shares are trading marginally to the upside. Thanks very much. Meanwhile, the nasdaq hitting 13 year hies. Sheila dharmarajan at the nasdaq. Hey, sheila. Okay. Looks like we just lost you, sheila dharmarajan. Meantime, we will send it back over to chicago. Tyler . Welcome back to chicago and the Morningstar Mutual Fund manager of the year award. The person who leads morningstars Mutual Fund Global research is scott burns. He will be my partner this hour and help me introduce and interview some of the candidates here. You know mutual funds as well as anybody. This is obviously a different kind of awards because its not merely their performance in 2013 that will stand out. How do you pick these managers you think are managers of the year . Thank you, welcome back to chicago here. Morningstar has been handing out the fund manager of the year award for over 25 years now. We have a great team and its a team thing we work on. Our analysts get together, surveys the entire landscape. We are really looking for the best of the best. As you said, its not just about 2013. To be eligible for the Morningstar Fund manager of the year award, a manager must first be a morningstar medalist. That puts them in elite company. Only 10 of all the fund manager strategies out there gold, silver, bronze, then the star ranking. These funds are four and five stars exclusively. Definitely. Definitely. So this is the best of the best. The best of the elite. Our analyst team looks at all these funds, we use our proprietary five pillar process, or the five ps. One is performance. We are looking at performance in the past and performance we expect to continue in the future. We are also looking at the things that make that performance and make it stable. The people, the process, the parent and the price. We are not looking to award the 2013 fund manager of the year award to just a flash in the pan or manager who took a lot of risk and got hot. These are firms that have been great stewards of capital, they have put their investors interests before themselves and their firms and also firms we expect to produce those returns into the future. One of the things i know you look at is whether the Fund Managers actually have their own money in the funds they manage, and these guys do. Definitely they do. By and large, all these managers, you know, have skin in the game as we say. As my mentor always says, nobody washes a rental car. These gentlemen own these funds, theyre in there just like the investor is. When we come back, we are going to introduce, you are going to introduce the winners in the two equity categories, domestic and international and they are both very interesting funds, as i mentioned just a minute ago. The international category, top 1 , one, three, five and ten years and in the Domestic Equity Fund returns last year from 50 to 60 plus. These are funds you are going to want to Pay Attention to. Meanwhile, lets go back to dominic chu, who will take us through a look at some of the stocks that some of the largest mutual funds in the country have been favoring most recently. Its interesting, you guys have talked about the components that go into all the star manager portfolios. We asked the same analysts at morningstar what the most popular stocks for mutual funds stock only mutual funds in america are, and here are some of the top ones. First of all, number one, apple. It was up 15 over the course of the past year. Morningstar says 1,279 stock mutual funds in america own apple as part of their portfolio so a very popular holding. Next up is microsoft. You can see here, microsoft shares up 35 over the past year and an outperformer. 1,159 funds hold this particular stock. Then theres another tech one, google. This one, a big performer last year, up about 59 . If you can believe it, over 1,100 stock mutual funds in america hold this one and the financial that everyones talking about these days, jpmorgan. 1,052 funds hold it. This stock was also a bit of an outperformer, if you look at some of the other banks, 27 to the upside this past year. We talk about a lot of these funds but take a look at this one here. I want to talk to you about this one. Facebook is one stock that doubled last year and it helped propel a lot of performance in portfolios. Not necessarily some of the bigger ones but thats one stock to watch for a lot of Portfolio Managers out there. Back to you. You could not have teed it up any better. I happen to know that the winner in the domestic stock category has a big holding in facebook. We will drill down on that in just a moment. The best of the best, scott burns, who were the winners in domestic and International Stocks and why . Well, as you said, our winner of the domestic stock manager of the year is dennis lynch and the growth team from Morgan Stanley. Thats a perfect teeup. Dennis and his team in 2013 really separated themselves from the pack by picking up a lot of these beatup names. Congratulations. And on the International Equity side, the winner is the team of david samra and daniel keefe. They represent a pair of funds and this team is interesting because they are winning it in 2013 amid a furious stock market rally but also won it in 2008 when things were as difficult as weve seen in our lifetime. Two very different markets. Congratulations to you both. Let me talk a little about facebook. How long have you owned it and did you have to go through that period when it was very much in the wilderness and how much did that period test your patience and your conviction . Sure. We identified facebook as a company we thought would be very important early on before they became public. We actually invested before the ipo so we did own the stock for that period of time, which was so when the ipo didnt go well and then when that stock went down into the low 20s, maybe even high teens, did you say what did i get myself into . What does it take in a manager to stick with it . I think Warren Buffett says its not about how smart you are in the investment business, its about your temperament. I think our culture, our team at Morgan Stanley, is that we are pretty evenkeeled. Despite that kind of horrible feedback in the short term, i think it was a good litmus test to be able to show we can be long term investors. Its easy to talk about long term investing. Much harder to implement it. One thing i noticed, Morgan StanleysCompensation Program requires us to have our skin in the game, as you mentioned. And you do. We do, big time. Thats absolutely the way it should be. So living through that experience, its painful but we get the same experience our clients do and hopefully make the right decisions. David, quick question for you. As scott pointed out, you not only won in 2013, a rising market. Your funds basically doubled the benchmark. You returned roughly 30 in both of those funds. Benchmark about 15 . And you beat it in a down market in 2008. How do you do that . First, we start off with a good team, myself and my comanager, dan okeefe. We have been implementing a very specific type of philosophy, a philosophy that is consistent with traditional value investing, meaning you have to focus on two things. First and foremost is generating returns. Second is managing risk. We do that by not only buying cheap stocks but we add a number of insurance policies behind the types of stocks that we buy, insurance policies like strong balance sheet, good business, Good Management team, adds value over time. Scott, jump in. I know you have a couple questions. Dennis, i think you mentioned your culture. There are really fascinating things youve done as you built your investment team. One of those is the Morgan Stanley reading list. We have seen a copy. You have your Investment Managers who are supposed to be looking at Growth Companies and they were reading about the Oregon University offense and how disruptive it is and also there were Federal Reserve minutes and papers. How do you build that culture of that thoughtfulness . Just trying to make sure we leverage the distributed knowledge of people at Morgan Stanley. I dont read Scientific American but occasionally there are some great articles there and someone in our network does. We have about 150 people internally contributing. I think youre right, culture is so important in the investment business. For us, we pride ourselves on continued learning. Its hard to quantify culture but i think things like the Reading Network certainly helps give examples to it. David, i want to drill to some holdings in your portfolio. You have a fairly large slug of Financial Services companies. Not all american, bank of new york one of them, insurance companies. Why Financial Services right now going into 2014 . Financial services for us has been more robust area of investment since the financial crisis. Prior to that, we had very little there because of our valuation discipline. After the financial crisis, you had a number of different places you could go to invest within Financial Services because the market became much less interested in them. As we stand today, weve had a big move in our Property Casualty insurance investment so you mentioned a few of those. We have arch capital, chubb, all those stocks have done very well as were at the end of that cycle. What we think today offers us the best opportunity is in the european banks. Want to get a very quick thought. I want to ask you how is this internet boom different than the last one . Youve got a lot of sexy names in your portfolio. You got groupon, the twitter and all of that. How is it different . I think the companies have real Business Models and dont need cash. Theyre not widely owned like stocks were back then. You were early into amazon as well. Its done very nicely for you. Gentlemen, congratulations. Thank you. They will stick around and we will talk a little offline here. Well be back with you about the Halfway Point of the broadcast to introduce you to the winners in the Asset Allocation fixed income, a difficult year there, but this is a fund that actually made money for investors last year and the alternatives space. Stay with us. More from the morningstar manager beautiful little trophy there. You cant pour anything into it because it has a big hole in the center. Well be right back. Looking forward to that, including some names breaking right now. President obama speaking in raleigh, North Carolina, talking about making the u. S. Manufacturing sector more competitive. The president is announcing new initiatives at this hour. He says North CarolinaState University will be home of a 140 Million Consortium of companies and universities that will help develop the next generation of Energy Efficient chips and devices over the next five years. The Energy Department will provide 70 million to that institute matched partly by at least 70 million in nonfederal money by private sector businesses. Of course, we will continue to monitor the president s speech and bring you any big headlines that cross. Coming up on power lunch tyler is talking stocks and ideas all hour long at the Morningstar Mutual Fund awards. We will weave bonds into the conversation as well. The ten year treasury yield right now just under that critical 3 level. Well be right back. [ male announcer ] we dont just certify our preowned vehicles. We inspect, analyze, and recondition each one, until its nothing short of a genuine certified preowned mercedesbenz for the next new owner. [ car alarm chirps ] hurry in to your authorized mercedesbenz dealer for 1. 99 financing during our certified preowned sales event through february 28th. Welcome back to power lunch. Private equity firm carlyle will pay between 4 billion and 4. 2 billion for one of Johnson Johnsons blood testing units. The announcement of a sale could come as soon as tomorrow. Johnson johnson is a bit higher on the news. Remember, carlyle emerged as the sole exclusive negotiating partner for Johnson Johnson on this unit late last year so a deal possibly coming later this week. Back to you. Well keep an eye on that. The broader markets now. Bull market finding its mojo again. The s p 500 back in positive territory for the first time this year. The dow in triple digit territory, giving it its best day in 2014. Where do we go from here and how do investors play into wall streets good news . Ideas now from bernie williams, chief Investment Officer at ufaa Investment Solutions and bill stone with us, chief investment strategist. Welcome both of you to power lunch. 2014 started off pretty slow. Whats driving the mood change and does it last . Well, i think we do have an improving economy and so despite the weather and the jobs report, the markets still on positive footing from an earnings perspective. So i think youre just seeing a continuation of that. We are positive on the economy improving, both u. S. And europe. Bill, you expect the earnings reports to come out here and be good enough to keep propelling this rally into further records . I think it will be good enough. We have seen a pretty good start with the financials. I think as much as anything, the market is also looking to 2014 where youre seeing some, you know, better, as bernie was saying, better Global Economic data overall, particularly in the developed world, which thats what really matters as much as anything is what earnings look like in 2014. Bill, you Like Health Care right now. Thats one of your more bullish sectors. Find that interesting. It was an outperformer last year and has been an outperformer over the last few years. Not too late to get into these stocks . I dont think so. We kind of had a shift, we had a little more of a bias to almost all the cyclicals going into the end of last year and we shifted at the very end of last year into a little bit of health care which has worked out well to kick off this year. I would say, would be surprised to see a shift a little bit back into more cyclicals, honestly, because we do think this is maybe we got a little pause with this payrolls number. Bill, within health care, more specifically, what do you like . There is so much to choose from. Theres pharma, equipment, providers. How do you choose . How do you distinguish between the group . I think as much as anything, when you think about what will work, its the same story as ever as people get paid in the medical for coming up with things that people are willing to pay for. Examples, we think amgen is attractive in the biotech world. We like Johnson Johnson. Thats just a couple ideas we like. Bernie, you like Gilead Sciences for a specific catalyst here. Yeah. Gilead is developing new drugs to treat hepatitis which is a huge unmet need both within the u. S. And the rest of the world. Whats amazing is they have a drug that can cure hepatitis with no side effects. Thats really huge. So youre talking potentially millions of people, both u. S. And around the world, that can get access to this eventually and cure a disease that until now, has just been just created symptomwise. Thanks for the tip. Bernie williams at usaa and bill stone with tmc. Out of time. Thank you for joining us on this day of the rally. Atlantic city casino revenue falling below 3 billion last year, first time we have seen that in more than two decades. Whats behind it . Fewer players, perhaps . Increased competition . Or the shift to Online Gambling . And is the big bet on Online Gambling actually working . We will talk to the president of borgata. Plus coming up, power pitch. Th is startup wants to help you buy a used car without ever stepping foot in a dealership. Does it have what it takes to drive to success . Are you in or out . Stay tuned. Hello, everyone. On todays power pitch we have a startup that wants to disrupt Car Dealerships by letting you point, click and buy your wheels online. Ernie garcia is the cofounder and president of carvana. Before that, he was an analyst at the world bank of scotland and served as Vice President and treasurer of drive time, the seventh largest used car retailer in the u. S. With 108 dealerships. Heres his power pitch. Im ernie garcia. We offer a whole new way to buy a car. The entire transaction can be completed online. You can select your financing, warranty, tradein, sign contracts online. You can also schedule delivery as soon as the next day. When the car arrives, you get to test drive in your neighborhood where youre comfortable, and you also benefit from a seven day no questions asked return policy so you have enough time to really make sure the car fits you. Our goal in general is to make car buying fun again. We want to make sure customers are comfortable and informed throughout the entire process. So entire brand is all about transparency and service. It should become immediately apparent the second you land on our website or if you talk to one of our advocates. In addition, the market we participate in is huge. There are 50,000 dealerships nationwide. They sell 40 million used cars per year. On average, doing it the traditional way costs about 2,000 in labor and overhead. Providing customers an experience many of them no longer want. We replace that experience with technology and deliver to your door that allows us to give you 1500 in savings, a better quality higher reconditioned car and a Better Service experience. We have been in atlanta the last nine months and are happy to be announcing our nationwide rollout. Ernie is on the right side of your screen. He can hear us but cant react just yet. On our power pitch panel today, we have tech advisor nat burgess, president of the corum group. Also on the panel is cnbc auto and Airline Industry correspondent phil lebeau. Phil covers automobiles from detroit to japan and is also the editor of behind the wheel the section on the cnbc. Com website devoted to car news. Folks, lets drive into carvana. Nat, what did you think of the pitch . Im worried about his capital structure, does he have the right investor. Im worried about the competition, its not exactly the competition hes pointing to. And im worried about consumer behavior. Phil, your reactions to the pitch . Lets be honest here. The barriers to entry in terms of their competitors coming in and starting up something similar, whether its carmax or one of the other dealer chains, its very easy to replicate this very quickly. Im wondering how much growth is out there. Also, at the end of the day, if people will come to the realization i still need to go out and look at these vehicles first before i have it delivered to me. Yes, i know theres a return policy there. But is that enough to say okay, lets go ahead and buy it this way. Ernie, welcome. You are now in the hot seat. Thanks for having me. Nat, you get the first question. Basically, any time anyone is buying a recent model car, they have the choice of going to a dealer and getting no money down, maybe even a rebate, they will have a three year, five year warranty, there will be a lot of risk taken out of the deal. How are you going to compete against them . Regardless of what they do, we do have a 1500 cost structure advantage and we can pass that on to the customer. So i think the ways that those discounts are framed at dealerships are generally kind of different ways to market the same discount. No matter what, we kind of have this cost structure advantage. We feel very confident we will be able to continually provide customers with a better deal than going to a dealership. Phil . The barriers to competition here are relatively low. Whats to stop carmax, auto nation, any of the large dealership chains to say you know what, we like this business model, lets do it ourselves. Therefore, in essence, limiting how much Growth Potential there is for you. What separates us is generally focus. Thats difficult to value but it matters. Every day we think about what the customers wants. We dont think how do we supplement the dealership experience or move it online. We think about what does that customer in that mindset want at that moment. I got three how questions. How first of all do you get listings. Second, how do you make money. Third, how do you deliver a car to me if the seller is in dallas and i live in wichita. The first one is its all Company Owned inventory. This is not individual to individual sales. No. You are securing cars from sellers from whom you have bought the cars or at auction. Correct . Exactly. You can think about us like were a dealership except for the dealership is our website. Where we make money is the way the dealership does. We provide a margin or excuse me, charge a margin, so that margin is about the same size dealerships generally get. If im a buyer in new york city, will you get the car to me . We will. We have come to the moment of truth. Are you in or out on carvan da . I see too much risk of becoming another among many. Im out. Phil . Look at this industry and its very clear that others can scale up to a same type of Business Plan as quickly as they want. We mentioned auto nation or carmax or any of the large public dealer chains. At the end of the day, that competition is going to be standing there and if carvana has any type of success, i see others coming in. I am cautiously in but it will be a tough road to hoe in the future. I think you nailed it when you asked whats to keep others like carmax or auto nation from jumping into precisely this space and doing what ernie is trying to do. Im afraid this time, im out. Your reaction . I think were in a great spot. We do have a strategic relationship with the seventh largest retailer of used cars in the country. That will aid us a lot. I think this is much more difficult for other people to kind of copy than maybe you guys believe but time will tell. I promise you, i will be in the market for a used car early next year. Im going to give you a spin, or at least the chance to sell me one. Thanks so much, ernie garcia, and to our panelists. Thats it for this edition of the power pitch. You heard what the panel had to say. Now we want to hear from you. Are you in or out . Tweet us using powerpitch or go to our blog at powerpitch. Cnbc. Com. Please leave a comment. Want to check on metals right now. Precious metals, gold prices closing, giving up some recent gains. Gold closing down about half a percent. Money moving into the stock market and out of gold and with that, lets get trading at the new york stock exchange. Bob pisani joins us from the floor. Basically, still new highs here. I want to communicate that fact very clearly. Historic highs on the s p 500. The midcap index as well as the transportation index. We will keep an eye and see if we close at new highs. The s p would have to close above 1848 to be a closing high. Charles evans, head of the chicago fed, came out with some comments awhile ago. Heres what is the most interesting one. Forward guidance should more strongly communicate that we are yes. The road map to the next fed meeting. If you look at the intraday chart, things are in many ways getting back to normal outside of Little Details like Balance Sheets and qe. But better data and higher inflation, yields up a bit. Year to date clearly reveals that we closed last year at the high, at 303. The low yield was this past monday at 282. Were still in the bottom third. Its reflecting Interest Rates to some extent and if you look at canada going back to september of 2009, you can see how the dollar is really tranching the canadians as many are. We will go to our version of bert parks in the chicago morningstar awards, tyler mathisen. We will introduce you to the winners in the three remaining categories. Fixed income, this is a fund that would have doubled your money in fixed income over the past five years. Asset allocation, a fund that returns 90 of all stock funds while taking on a fraction of risk. We will also introduce you to a new category winner in alternatives. All that and more. [ male announcer ] legalzoom has helped start over 1 million businesses. If you have a business idea, we have a personalized legal solution thats right for you. With easy stepbystep guidance, were here to help you turn your dream into a reality. Start your Business Today with legalzoom. Diarrhea, gas, bloating . Yes one Phillips Colon Health probiotic cap each day helps defend against these digestive issues. With three strains of good bacteria. [ Phillips Lady ] live the regular life. Phillips. Online gambling turns out not such a huge hit in new jersey in 2013. Atlantic city casinos reporting online revenue of 8. 4 million since it was legalized in late november. The state was looking for revenue of 1. 2 billion by june. Joining us with the numbers from the borgata, tom ballans, the casinos president and chief operating officer. How on earth will they get to those projections by june with such a slow start . Im not sure where the projections of 1 billion came from. But we are very pleased with the start of Online Gaming. Borgata captured a 32 share in our network together captured a 45 share. We fully expected that there would be a bit of a bumpy start. These are brand new technologies. The Geolocation Services have taken a very conservative approach. We dont want to have people from outside of new jersey gaming inside new jersey and the result is that there are people inside new jersey that cant get through the geolocation firewalls. We knew that Payment Processing would be a little difficult in the beginning. And those are all things that are working themselves out. Given kind of the early shakeout, we are really pleased with where we are. Actually, the governor of new jersey, chris christie, was throwing out the billion dollar number. He gave his state of the state speech yesterday, didnt mention Atlantic City, didnt mention Online Gambling. Have you spoken to him since the launch of this program and more specifically, since these numbers came out . No, sara, i havent spoken to the governor about the Online Gaming numbers. When it comes to Atlantic City overall, not just Online Gambling, the numbers have been pretty disappointing. I talked about the under 3 billion in terms of revenues last year. How is the industry going to be dealing with the competition from pennsylvania, from new york and from some of the other states in the area . I think what you need to look for in Atlantic City is for operators to behave a little more like borgata did last year. We were able to grow revenues in a down market and generally because we offer a Value Proposition to people that makes it worth their while to drive 35 minutes or an hour or 90 minutes past their local casino. A lot of the competitors in Atlantic City, especially in the early part of last year, kind of went into their shell after the hurricane, didnt spend a lot of money on marketing. I think that that cost the market some. Well have to see if it picks up. Thanks for joining us to talk about the numbers. With that, tyler, i send it back to you. Thank you very much. When we come back, i promise you, we will introduce you to the mutual fund winners in fixed income, Asset Allocation and alternatives. Here they come now. Welcome. Congratulations. In my world, wall isnt a street. Return on investment isnt the only return im looking forward to. And my parachute definitely isnt golden. [ male announcer ] for some, every dollar is earned with sweat, sacrifice, courage, which is why usaa is honored to help our members with everything from investing for retirement to saving for college. Our commitment to current and former military members and their families is without equal. Start investing with as little as 50. Is your tv powered by coal . Natural gas . Nuclear . Or renewables like solar. And wind . Lets find out. This is where americas electricity comes from. A diversity of Energy Sources helps ensure the electricity we need is reliable. Take the energy quiz. Energy lives here. Over the pizza place on Chestnut Street the modest first floor bedroom in tallinn, estonia and the southbound bus barreling down i95. This magic moment it is the story of where every great idea begins. And of those who believed they had the power to do more. Dell is honored to be part of some of the worlds great stories. That began much the same way ours did. In a little dorm room 2713. This magic moment welcome back to power lunch. Lets check up on some rental car stocks. Hertz in particular at session lows right now. Goldman sachs is downgrading this stock to neutral from a buy based on valuation. It says there is too much optimism over more consolidation in the car rental industry. That stock has been up more than 50 over the course of the past year. Now for a look at whats coming up on street signs lets head over to mandy drury. Yeah, another headache for nuskin in china. Well investigate whats going on, sort truth from fiction. And what does a post Net Neutrality world look like . We will explain the winners and losers in this game and the blood bath continues for bed, bath and beyond. We have a couple guys here to debate it. All that and lots more. In the meantime, back to you in chicago, ty. Thank you very much. Scott burns is with me from morningstar. Time to introduce the winners in our three remaining categories. Fixed income, Asset Allocation and alternatives. Who are they and why did they win . So the winner in fixed income category is the team headed by Daniel Iveson and alfred murato. This team looked under every rock to find anything they could to squeak out gains in the tough fixed income category this year. Bar cap ag down 10 . This fund finished up 4. 8. Our winner in allocation is steve romick. Steve and his team rode some amazing stock picking to get to the returns that they had this year even though they had cash stakes as high as 40 this year, still returned 22 for the year. Last but not least in the alternatives category, the team of brian hurst from aqr managed futures. Managed futures has been as cold of a category as there can be but this Team Continues to produce positive returns. Congratulations. Congratulations. Daniel, let me start with you. In fixed income, you have had good performance in different kinds of environments. Last year was a challenging one. Interest rates moving up in the summer. Now we have yet another different kind of environment marked by the socalled taper, the withdrawal of federal stimulus money. What are you doing differently this year, if anything, to get ready for that . Sure. Its always been a mixture of the firms best bottom up ideas as well as top down views on the market. The taper is a concern but the good news is that its been well publicized at this point. Although it presents a risk, we are less worried about it than we were this time last year. One of the key focuses of the fund is to keep our maturities short. One of the highest conviction views we have as a firm currently is the fed will hold for an extended period of time. We are trying to pair those investments with some of the firms best bottoms up idea. This is a great group to talk about the taper. I know your firm has views on the taper. How does it work . Just some really kind of thoughtful, thoughtprovoking take on that. If you want thoughtful, you probably shouldnt come to us. We dont know how it works, actually. We dont really understand how they end up one step is obviously beginning the taper, second is actually stop it entirely and third is to unwind the existing balance sheet. You have a 3 trillion bump in the feds balance sheet. How that plays out, we have no idea. We are in the midst of this grand experiment where we are trying to alchemize an academic argument. I dont know if that actually plays out. We continue to be relatively circumspect and make sure we have a margin of safety. Scott mentioned the large cash holding that you had last year. Tell me what youre doing with it right now and what i should infer from what youre doing with it. Then also, how, with 30 in cash, do you manage to return 20 plus overall . Thats a big sandbag on your ankles. We have been doing this for a couple decades now. We have averaged mid 20s in cash over that time period, yet have been able to do pretty well relative to the markets. Why do you keep so much cash . If there ever was a user to go more fully invested 2013 would have in retrospect been it. Without question. If you can tell me what 2014s going to be, we will adjust the cash accordingly. I want a cnbc guarantee. Scott . Brian, lets get to you. In 2008, managed futures were the darlings, one of the few areas in the market that kind of survived that epic market collapse that kind of happened across the board. But since then, the shine is kind of off the apple in managed futures, with the notable exception of the aqr fund. What is happening broadly in the space and how have you guys been able to differentiate . 2008 was a great year for managed futures. Thats what drew a lot of attention to it. Caused a lot of investors to pursue it. We find that trends exist in all markets, so the difficulty is figuring out which markets are going to trend and over what horizon. When we designed our fund, we decided to go with a diversified approach to trend calling. Those diversified trends, we want to pick up on long term trends that existed last year. Im going to turn to the audience in just a moment and get a question from our studio audience. But i want to ask you what its like to work at pimco, the environment. You have a very high profile bond fund manager named bill gross who is the cocio there, and whats it like, how daytoday is evolvh he involve what you do or do you operate your funds totally independently . First, we get in early, we are headquartered in the Newport Beach office. How early is early . Usually about 4 00 a. M. In many cases and even a few people are in earlier than that. Our days start early. Bills there early in the morning with us and continues to be one of the people that tends to be the latest going home. Thats whats so exciting about working at the firm. I have been there 15 years now. Bill is always engaged. All the portfolios are guided by our investment process and thats again i hope one of the values, one of the values we bring to the table. Let me turn to our audience member who will ask a question. Introduce yourself and if you will direct your question to anyone in particular. Michelle ward, an analyst at morningstar. My question is for dan. You have a little over half your portfolio invested in nonagency mortgages. Curious what you find so compelling about that area of the market. Sure. We have liked nonagency mortgages for quite some time now. The reason behind that is that we as a firm have been very optimistic about the u. S. Housing recovery. These assets have been nice because they have been very well insulated from the rising Interest Rates elsewhere, they have actually acted like equities in terms of the recovery. Thats a sector we still like. Its a sector thats performed real well so expect reduced exposure over time but still a sector we find attractive. Scott, last question. So the market is on a tear today. I think the dow is up 450 points. We may be looking at an all time high. Steve, valuation is a question on everybodys mind right now. Are you finding attractive ideas in the stock market overall . What do you think . What does your team think in terms of valuation . By virtue of the cash which is a byproduct of our investment process, not a top down decision, i think it answers the question. We dont find a lot that meets our risk rewards. Doesnt mean the markets not going higher any time soon but our goal is to be opportunistic. We look across the companys capital structure from the common stock to preferred to junior to senior debt, to other debt we own, other classes like high yield bonds or practically no high yield bonds today in the portfolio. We also own a number of private opportunities like real estate and other types of things. We are finding some things to do but i certainly wouldnt argue the world is ripe with opportunity for the way we invest. Thank you very much, gentlemen. Scott, thank you very much. Thank you to the studio audience here at morningstar. Meanwhile, that will pretty much wrap it up from here. I will join you at the end of the show. Back to you for now, sara eisen. Great stuff. Love that tidbit about bill gross. General motors doing something it hasnt done in six years. Forget walmart. Unions now taking aim at amazon and is today a defining day for apple . Those stories next. Constipati, diarrhea, gas, bloating . Yes one Phillips Colon Health probiotic cap each day helps defend against these digestive issues. With three strains of good bacteria. [ Phillips Lady ] live the regular life. Phillips. [ Phillips Lady ] live the regular life. voseeker of the sublime. Ro. You can separate runway ridiculousness. From fashion that flies off the shelves. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. And only national is ranked highest in car rental Customer Satisfaction by j. D. Power. natalie ooooh, i like your style. vo so do we, business pro. So do we. Go national. Go like a pro. If you have a business idea, we have a personalized legal solution thats right for you. With easy stepbystep guidance, were here to help you turn your dream into a reality. Start your Business Today with legalzoom. Were here to help you turn your dream into a reality. Im bethand im michelle. And we own the paper cottage. Its a stationery and gifts store. Anything we purchase for the paper cottage goes on our ink card. So you can manage your business expenses and access them online instantly with the Game Changing app from ink. We didnt get into business to spend time managing receipts, thats why we have ink. We like being in business because we like being creative, we like interacting with people. So you have time to focus on the things you love. Ink from chase. So you can. Mary barr takes over at a new ceo today. The company paying 30 cents a share beginning march 28th. Amazon struggling today. Workers at a delaware warehouse voting on becoming the first ever group of u. S. Amazon employees to be represented by a labor union. And apple trading higher. Ceo tim cook speaking exclusively to cnbc, calling the deal with china mobile a quote, watershed day for apple. Separately, apple agreeing to pay 32 million to settle a federal trade Commission Complaint over a loophole that once allowed children to make purchases without their parents consent. Moments away from breaking news on the health of the u. S. Economy. Dont go anywhere. Maybe major market mover on an already up day. Stacys mom has got it goin on stacys mom has got it goin on stacys mom has got it goin on [ male announcer ] the beautifully practical and practically beautiful cadillac srx. Lease this 2014 cadillac srx for around 319 a month with premium Care Maintenance included. [ bell ringing, applause ] five tech stocks with more than a 10 . Change in aftermarket trading. All the tech stocks with a market cap. Of at least 50 billion. Are up on the day. 12 lowvolume stocks. Breaking into 52week highs. Six upcoming earnings plays. That recently gapped up. [ male announcer ] now the world is your trading floor. Get realtime market scanning wherever you are with the mobile trader app. From td ameritrade. Theres nothing like being your own boss and my customers are really liking your flat rate shipping. Fedex one rate. Really makes my life easier. Maybe a promotion is in order. Good news. I got a new title. And a raise . Management couldnt make that happen. [ male announcer ] introducing fedex one rate. Simple, flat rate shipping with the reliability of fedex. Moments away from breaking news on the health of the u. S. Economy. It is a strong day on wall street. Back in the green. Take a look at the dow, up 107 points off the session highs, still higher. S p 500 not far from intraday record highs. Tyler mathisen, nice backdrop for you in terms of stock Market Action for the morningstar conference. Absolutely. There is so much going on and these managers have really turned in performances in 2013 and continuing into 2014 that set them apart. They are really the people you want to look at because their risk adjusted returns are sometimes even better than their gross overall returns. Scott, thank you again. Thank you for being here. Sara, back to you. Sounds like they are still pretty bullish on the u. S. Economy heading into 2014. Well see what the beige book says in just seconds. That does it for power lunch. Street signs begins right now. We are a bit early today because we have breaking news. The Federal Reserve set to be released in a few seconds. Now that the taper is on, what are the feds 12 districts saying about their economies . We will find out. Plus, we asked what could be done to keep america growing and what the single most dangerous thing may just be to the american economy. The dow is having another big day. We got lots of other news ahead. Right now, weve got to get to the breaking news. Its called the beige book but it is usually not as boring as the name implies. The beige book saying that the economy expanded at a moderate pace with some districts seeing what it describes as a pickup in growth. Retail sales gained in most districts. The holiday sales were on plan or even a bit up. This is a collection of economic information from the 12 fed reserve districts. The real estate markets continued on balance to improve with home prices up in 7 of 12 districts. Real estate loans however declined in five districts, mostly the result of refinancing activity declines. A few activities report slowing in home sales construction but that was not the majority. Banking loan volumes mostly unchanged when it came to real estate and