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Mainstay's Kudla Sees Emerging Equities as Top Performer(Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters
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  Speaker 1: on Katherine Connery. Stocks are little change, heading for their
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  Speaker 1: that's a bloomberg business flash. Thank you for investing in Europe,
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  Speaker 1: and first of all, thanks to Catherine Cartery. Certainly a
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  Speaker 1: lot of people are asking that question after the big
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  Speaker 1: Brexit vote. Well, if you are, you're going to want
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  Speaker 1: to hear this. Catherine Cartery is back with today's et
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  Speaker 1: F report, one of last year's most popular e t
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  Speaker 1: F trade has become a disappointment in the first half
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  Speaker 1: of sixteen. That's the word from Todd Rosenbooth, director of
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  Speaker 1: et F Research at SMP Global Market Intelligence. Europe has
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  Speaker 1: been a very poor place to invest in the first
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  Speaker 1: half of them and sixteen, and it was even before
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  Speaker 1: the Bridget vote was coming to pass. Rosen Blues takes
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  Speaker 1: a look at just how disappointing that trade has been
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  Speaker 1: this year. Most European equity ETFs for down uh, you know,
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  Speaker 1: mid mid single digits Stephen double digits in the first
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  Speaker 1: half of the year because of weakness in the local economy,
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  Speaker 1: because of the strengthening of the euro. Rosenblues says, there
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  Speaker 1: are also some industry groups that have underperformed the broader market.
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  Speaker 1: His example, financial shares as interest rates have remained low.
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  Speaker 1: That financials the like sector spider fund or XLF has
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  Speaker 1: fallen four point six percent since the start of the year,
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  Speaker 1: as the SMP five hundred has gained two point seven percent.
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  Speaker 1: That's your Bloomberg ETF report. I'm Catherine Colderie. You're listening
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  Speaker 1: to Taking Stock with Kathleen Mays and Pim Fox on
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  Speaker 1: Bloomberg Ring. A week ago, stocks were plunging in US
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  Speaker 1: and around the world after UK voted to leave the
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  Speaker 1: European Union. A week later, the stock market capping off
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  Speaker 1: four days of gains. No not quite as big as
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  Speaker 1: earlier in the week. It seems on a much sounder
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  Speaker 1: footing sp getting back around the level. Where do we
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  Speaker 1: go from here? Is this just a temporary bounce back
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  Speaker 1: or have stocks weather to storm and are they ready
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  Speaker 1: to focus once again on US and global fundamentals and
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  Speaker 1: maybe make some gains. Well, let's put that question to
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  Speaker 1: our next guest, David Coudla. He is CEO and chief
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  Speaker 1: investment strategist at Mainstay Capital Management and he's joining us
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  Speaker 1: from Michigan. Dave, Welcome back, Kathleen. So the dust has
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  Speaker 1: settled on Brexit? Is it time to just say, well,
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  Speaker 1: we'll put that on a on a very back burner
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  Speaker 1: and look at something else. Now for stocks, you know,
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  Speaker 1: it may seem that way. Uh. We if you look
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  Speaker 1: back over the past week, Uh, we had the big,
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  Speaker 1: big draw down on Friday and Monday, and we've recovered
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  Speaker 1: about depending on the index. But the real impact of Brexit,
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  Speaker 1: which we think is much more severe for Europe and
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  Speaker 1: specifically the UK, has months and years to play out.
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  Speaker 1: The impact on the US we always expected to be small,
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  Speaker 1: almost negligible anyway, except how it might affect some of
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  Speaker 1: our exporters if European economy uh does slow further because
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  Speaker 1: of it, and UK potentially even going into recession second
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  Speaker 1: part of this year. Well, apart from the stock side
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  Speaker 1: of it and how companies are going to do it,
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  Speaker 1: seems to me we have to also look at the
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  Speaker 1: bond market because the the impact of Brexit on the
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  Speaker 1: bond market potentially is somewhat more lasting. We've had the
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  Speaker 1: drop in the third year bond now to the lowest
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  Speaker 1: yield ever. We've got, uh, the ECB talking about buying
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  Speaker 1: more bonds in a sense, even lesser quality bonds. I
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  Speaker 1: guess you'd say Spanish bonds are railing up. This big
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  Speaker 1: drop in bond yields around the US and in the world.
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  Speaker 1: What does that mean for investors? And again, Davi, is
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  Speaker 1: it something that's going to persist long after the dust
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  Speaker 1: settles on the fall up from the stock market. Yeah,
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  Speaker 1: we think that yields are low and are going to
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  Speaker 1: be low and even lower if we look at what's happening,
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  Speaker 1: you know, it's not even as much about the FED
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  Speaker 1: when we get out on the intermediate term and long, uh,
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  Speaker 1: the long into the curve. We have in Japan their
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  Speaker 1: massive quantitative easing program, in Europe their massive quantitative easing
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  Speaker 1: program that will probably become more massive with the e
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  Speaker 1: C b looking at how do they compensate for the
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  Speaker 1: adverse impact of Brexit on the UK. So we see
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  Speaker 1: these yields that went low to zero and even negative
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  Speaker 1: twelve trillion in sovereign debt with the negative yield globally.
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  Speaker 1: And so when we look at our tenure, our tenure
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  Speaker 1: at when it was at one point three four this morning,
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  Speaker 1: that record low still looks attractive compared to sovereign debt
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  Speaker 1: around the world. That's that's a lot lower or even negative.
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  Speaker 1: Now when it comes to the global impact, then is
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  Speaker 1: it mainly focused in the UK? Would you say, you know, don't,
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  Speaker 1: don't really bother unless you want to find individual shining stars. OK,
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  Speaker 1: just avoid the UK for now. But the rest of
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  Speaker 1: the world looks okay to you. I would I would
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  Speaker 1: avoid all of Europe for now. I would avoid in
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  Speaker 1: the UK. There may be mega cap stocks that do
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  Speaker 1: well because of the currency falling in value so much.
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  Speaker 1: The multinational conglomerates are exporters from the UK. But overall, uh,
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  Speaker 1: you know, we we heard Carney come out the Bank
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  Speaker 1: of England governor and talk about uh really reversing course,
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  Speaker 1: you know six months ago, ten months ago. Uh, England,
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  Speaker 1: like the U s we're looking at when they would
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  Speaker 1: tighten monetary policy, they're now going to reverse course to
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  Speaker 1: to UH try to abate the negative impacts of Brexit.
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  Speaker 1: The UK in general is going to be dealing with
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  Speaker 1: the impact of Brexit. Japan we've we've stayed away from
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  Speaker 1: for a while. We really think that in general for
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  Speaker 1: international diversification, for investors, avoid developed markets, Avoid Europe, avoid Japan,
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  Speaker 1: look to emerging markets. That's where we believe the opportunity
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  Speaker 1: is now. Auto companies a Big three reported and you
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  Speaker 1: have a lot of clients, of course who worked in
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  Speaker 1: the auto industry over the years. Um the question, of course,
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  Speaker 1: have auto sales peaked after a very strong would you
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  Speaker 1: invest any in any of the Big three or any
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  Speaker 1: of the big global auto companies. We're neutral on the
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  Speaker 1: automakers at this point. We think that in this sales cycle,
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  Speaker 1: sales will remain strong. We're on track for seventeen million
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  Speaker 1: vehicles still in in the US plus units, but sales
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  Speaker 1: of plateaued, and we're neutral on the automakers at this point.
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  Speaker 1: Ford had a had a good June sales month. GM
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  Speaker 1: had a great first half, their best first half of
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  Speaker 1: five percent sales growth, best in a decade. But we're
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  Speaker 1: at that peak in a cycle sales of plateau, so
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  Speaker 1: we're neutral on the automakers from here. So Dave, let's
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  Speaker 1: look at some things that you are positive on, and
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  Speaker 1: let's start with a Fidelity New Markets income fund. What
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  Speaker 1: is it and why do you like it? Okay? So
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  Speaker 1: Fidelity New Markets Income. Uh. This is a Fidelity fund
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  Speaker 1: that's been managed by John Carlson for more than twenty
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  Speaker 1: years and he's done a great job with it. Essentially
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  Speaker 1: invest in the emerging market debt and as we talked
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  Speaker 1: about with low yields around the world, with the concern
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  Speaker 1: about the same concerns about the economy in Europe, the
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  Speaker 1: economy here. So we have those concerns about junk bonds,
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  Speaker 1: distressed debt, typical high yield debt, we can go to
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  Speaker 1: emerging markets debt as a place to get that high
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  Speaker 1: yield New markets income. Fidelity New Markets Income yields about
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  Speaker 1: six percent. With all this easy money policy driving rates down,
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  Speaker 1: people seeking yield are going to a fund like this.
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  Speaker 1: The other thing that's interesting this fund is available in
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  Speaker 1: a lot of four one K plans. We just talked
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  Speaker 1: about general motors. Uh, it's our top holding in our
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  Speaker 1: growth portfolios. Opportunistically, the fund is up twelve percent this year,
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  Speaker 1: certainly out performing a lot of the equity funds and
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  Speaker 1: doing it with about two thirds of the level of
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  Speaker 1: volatility of those funds over time. Now you're getting increasingly
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  Speaker 1: positive on emerging market equities. I think there's a lot
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  Speaker 1: of people are wondering if they could jump on that bandwagon,
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  Speaker 1: if they want to do that. First of all, why
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  Speaker 1: and what do you recommend buying? Well? With the easy
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  Speaker 1: money policy, we know that emerging markets, a lot of
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  Speaker 1: emerging market countries, especially those with current account deficits, live
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  Speaker 1: and diet for capital flows. UH money will get even
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  Speaker 1: easier in Europe, it will continue to be so in Japan.
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  Speaker 1: We now think the FED is on hold probably through
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  Speaker 1: the end of this year, which is a lot different
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  Speaker 1: outlook than many people had at the beginning of the year.
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  Speaker 1: But we're facing the reality of these global worries. So
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  Speaker 1: that makes that's good for emerging market equities, and we
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  Speaker 1: expect that emerging market equities to be top performers this year.
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  Speaker 1: Gold what do you like there? Well? With the again,
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  Speaker 1: the the uncertainty we have in the markets, and if
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  Speaker 1: you take last Friday when we had the US market
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  Speaker 1: depending on the index down three and a half to five,
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  Speaker 1: Japan down eight percent, Europe down more than eight percent.
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  Speaker 1: That day gold gold boy in g l D was
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  Speaker 1: up four and a half percent. And so we get
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  Speaker 1: that low correlation with stocks and bonds and even a
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  Speaker 1: negative correlation at time, so we can help diversifier portfolio
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  Speaker 1: and again with yields so low. You we know gold
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  Speaker 1: is as a speculative investment. It has no dividend yield,
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  Speaker 1: it has no pe ratio, but we considered a store
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  Speaker 1: of value and a diversifier in our portfolio. When bonds
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  Speaker 1: aren't providing much of a yield, it doesn't feel is bad.
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  Speaker 1: It doesn't hurt as much to hold gold that has
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  Speaker 1: no yield, except I have metal in my hand rather
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  Speaker 1: than a piece of paper. Dove Coola, thanks so much.
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  Speaker 1: Have a great Fourth of July weekend. To thank you. Kathleen, founder,
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  Speaker 1: CEO and chief investment Strategies at Mainstay Capital Management in Freud, Michigan,
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  Speaker 1: with some two billion dollars of assets under management. I'm
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  Speaker 1: Kathleen Hayes, my co host PIM Fox on vacation this week.
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  Speaker 1: We'll be greeting him back on Tuesday. This is taking Stock,
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  Speaker 1: this is Bloomberg.