Latest / Bloomberg Intelligence / Mainstay's Kudla Favors Tech in a Rate Hike Environment (Audio)

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Mainstay's Kudla Favors Tech in a Rate Hike Environment (Audio) · Bloomberg Intelligence

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  Speaker 1: on Katherine Cowdery. The stock market is adding to this
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  Speaker 1: Thank you, yes Vaneck the exchange traded funds. I was
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  Speaker 1: actually looking at it exchange traded fund right now looking
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  Speaker 1: at those closed and bond funds. M. Vanneck Vector's et
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  Speaker 1: f s. Expect more from your muni's target tax exempting,
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  Speaker 1: combined maturity and credit quality, all with low cost e
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  Speaker 1: t f s. Visit vanak dot com slash Muni Vanack
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  Speaker 1: access the opportunities. Let's go to Catherine Cowdery for our
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  Speaker 1: e t F report. Bond dealers maybe using an e
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  Speaker 1: t F as a kind of secondary balance sheet. Lisa A.
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  Speaker 1: Brahma Witz wrote the column for Bloomberg Gadfly. Basically, this
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  Speaker 1: is all adding up to people thinking that the dealers
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  Speaker 1: are using these e t f s as if they're
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  Speaker 1: their own inventories. Abrahma Witz points to the recent volatile
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  Speaker 1: in the biggest junk bond e t F h y
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  Speaker 1: G or the I Shares I box high yield corporate
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  Speaker 1: bond fund. She notes that it's experienced record breaking daily withdrawals,
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  Speaker 1: even though the broader market has encountered relatively little turbulence.
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  Speaker 1: According to Abramowitz, in an environment where banks have stepped
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  Speaker 1: back as counterparties, e t f s have become a
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  Speaker 1: convenient solution for some dealers. They're saying, look, we'll take
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  Speaker 1: a client's money, We'll use it to buy shares of
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  Speaker 1: this e t F. You can redeem the shares in
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  Speaker 1: kind for the underlying security. So basically you give them
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  Speaker 1: the shares and then you get a whole bunch of bonds,
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  Speaker 1: and then they sell those bonds to their clients. In
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  Speaker 1: other words, some dealers are relying on h y G
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  Speaker 1: as an easy source of bonds when clients want them.
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  Speaker 1: That's your Bloomberg ETF report. I'm Katherine Cowderie. You're listening
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  Speaker 1: to Taking Stock with Bill Box and Katholeen Hayes on
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  Speaker 1: Bloomberg Radio, taking stock of the stock market, the bond market,
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  Speaker 1: e t f s and more. As we head into
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  Speaker 1: the Memorial Day weekend and the official start of summer,
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  Speaker 1: how does the second half of the year look for investors?
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  Speaker 1: What can you do with your money to make sure
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  Speaker 1: you make a little money over the rest of the year.
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  Speaker 1: Let's put all these questions to Dave Coula. He's CEO
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  Speaker 1: and chief investment strategy strategist at main Stay Capital Management. Dave,
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  Speaker 1: I'm glad you could find some time for us. Is
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  Speaker 1: uh you get ready for the three day weekend? Absolutely?
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  Speaker 1: Good afternoon, Kathleen. So I know that even though you
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  Speaker 1: are probably thinking about I don't know, barbecues and all
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  Speaker 1: the rest of it, you were listening to Janet Yellen's
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  Speaker 1: conversation at Radcliffe Harvard University with the Harvard economist Greg
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  Speaker 1: Mancute this afternoon. I think a lot of traders were
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  Speaker 1: surprised that Gregg asked the obvious question, how does the
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  Speaker 1: economy look to you right now? And what about the
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  Speaker 1: metis coming up? What about rate hikes? She said, it's
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  Speaker 1: appropriate to do another rate hike if the incoming data
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  Speaker 1: support it. What do you take away from that? Well,
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  Speaker 1: she was pretty direct in the way that she answered
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  Speaker 1: that question, but it it confirmed what I think a
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  Speaker 1: lot of people in thinking more recently that June or
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  Speaker 1: July are on the table for a probable rate hike. Uh,
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  Speaker 1: It'll either be June or July. If they want to
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  Speaker 1: wait past the Brexit vote. But you know, that's I
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  Speaker 1: think being mostly being priced in. FED futures have risen
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  Speaker 1: a lot in terms of predicting that as either June
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  Speaker 1: or July, and that's our expectation. We'll get a we'll
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  Speaker 1: get a hike in June or July. David, what does
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  Speaker 1: it tell you about the tone of the investors if
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  Speaker 1: everything seems to hang on whether the Federal Reserve raises
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  Speaker 1: interest rates five basis points? Is that any way to
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  Speaker 1: run a portfolio well, tim The The unfortunate thing about
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  Speaker 1: the environment we're in is, you know, it is a
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  Speaker 1: like it or not, it's it's been largely a FED
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  Speaker 1: fueled UH stock market. If if you look at the
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  Speaker 1: volatility that we've had in the first quarter and really
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  Speaker 1: over the past several quarters, UH, it seems that, you know,
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  Speaker 1: as we look at it and analyze it, it tends
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  Speaker 1: to be fundamental. Is a hard look at fundamentals that
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  Speaker 1: send the market down and then the federal central banks
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  Speaker 1: that come in and prop the market back up. And
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  Speaker 1: we had a very good example that in the first quarter,
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  Speaker 1: not just our FED, but what was going on in
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  Speaker 1: Europe and maybe to a lesser extent Japan, but uh
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  Speaker 1: it has become a very important dynamic in terms of
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  Speaker 1: the financial markets and specifically stocks. So, Dave, when we
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  Speaker 1: have talked to you over the last few months, your
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  Speaker 1: position had been for sometime you're pretty bolish on stocks.
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  Speaker 1: You turn much more cautious. Where are you now when
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  Speaker 1: you when you look at the stock market and the
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  Speaker 1: prospects for further gains, for treading water or actually some
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  Speaker 1: kind of crustioner sell off. But if we look at
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  Speaker 1: where we are and where we've come from, we're now
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  Speaker 1: in the eighth year of the second longest bowl market
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  Speaker 1: in the history of stocks. You can't go further probably,
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  Speaker 1: uh in. And as we've been talking about, you know,
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  Speaker 1: people ask the question, are we still in a secular
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  Speaker 1: bull market? There was a question, did may have last
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  Speaker 1: year start a new bear market? Well, we're only a
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  Speaker 1: couple of percent away from new highs, so we might
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  Speaker 1: start the clock over on that anyway. But but what
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  Speaker 1: we believe is we're in this trading range and it's
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  Speaker 1: and it's larger that tug of war between the Fed
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  Speaker 1: and fundamentals, as we like to say, and then trading
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  Speaker 1: range of the last two years has been five we're
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  Speaker 1: bumping up against on the S and P five hundred
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  Speaker 1: right now, so we're at high end of that trading range.
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  Speaker 1: And so we think for that reason, uh, it makes
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  Speaker 1: sense for investors to look at their portfolio. UH, look
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  Speaker 1: at the games, you know, with this run back up
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  Speaker 1: and with this run over the past seven years plus.
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  Speaker 1: Uh and and a little bit of caution we think
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  Speaker 1: is prudent. At this point. We're long into this bull
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  Speaker 1: market and we're at the top end of the trading
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  Speaker 1: range we've had the last two years. So David, you're
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  Speaker 1: looking for any beat up assets. I mean, for example,
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  Speaker 1: are you looking for any oil or energy companies to
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  Speaker 1: add to the portfolio. Well, I think some of the
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  Speaker 1: areas that are interesting in this environment that are still
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  Speaker 1: on the higher beta side. One is technology. Uh. And
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  Speaker 1: it's interesting to know people think about financials, which are
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  Speaker 1: also interesting through here with the with the feed hiking rates.
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  Speaker 1: As net interest margin improves, they become more attractive. But
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  Speaker 1: actually technology is the sector that tends to do the
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  Speaker 1: best of all the industry sectors when the feed is
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  Speaker 1: hiking rates. The reason for that is it's usually uh,
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  Speaker 1: in coincidentally or accompanied by a strong economy. When we
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  Speaker 1: have a strong economy, we've got capex cycles underway, which
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  Speaker 1: is good for technology. Is industry is UH spending that money?
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  Speaker 1: So technology for higher beta names. We like financials attractive
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  Speaker 1: through here, but you know, still looking for those areas
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  Speaker 1: we diversify into to reduce risk and overall volatility in
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  Speaker 1: the portfolio as well. A guess on A today is
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  Speaker 1: very keen on closed and bond funds, some of them
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  Speaker 1: yielding about ten Is that something that you are watching
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  Speaker 1: investing in, Well, we're typically using more E t F
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  Speaker 1: E T N s, open end funds. We'll look at
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  Speaker 1: closed and we'll look at close to in bond funds,
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  Speaker 1: you know where they are relative to trading in A
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  Speaker 1: at a premium. From time to time. We do like
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  Speaker 1: in the area bonds. We still like preferred treasury inflation
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  Speaker 1: protected securities look good through here, and even e M
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  Speaker 1: debt has struggled a little bit more recently. But what
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  Speaker 1: we've seen is is in the pullbacks we move on
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  Speaker 1: to UH two more strength. So there's certainly some areas
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  Speaker 1: areas within bonds with the threat of the FED raising
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  Speaker 1: rates that are attractive, and that's because sovereign debt around
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  Speaker 1: the world. Is the yields are so low that will
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  Speaker 1: continue to put pressure on bonds here in the US
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  Speaker 1: on the intermediate long end of the curve. David, you
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  Speaker 1: have any interest in investing in gold or gold mining shares.
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  Speaker 1: We've had some positions in both gold and gold mining
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  Speaker 1: shares over the past several months. Gold bullion g l
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  Speaker 1: D is h F. You used to play that directly. Uh,
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  Speaker 1: it's you know, the problem with with gold we've seen
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  Speaker 1: over the past week or several days here. Uh. You know,
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  Speaker 1: when when the FED funds rate is at zero, industrates
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  Speaker 1: are near zero, bonds are yielding near zero, it's okay
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  Speaker 1: to hold a brick of gold that has no yield.
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  Speaker 1: But as we look towards yields increasing, the Fed raising rates,
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  Speaker 1: yields increasing on bonds, Uh, they don't look quite as attractive.
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  Speaker 1: But is a diversifier and a portfolio. Precious metals from
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  Speaker 1: time to time make a lot of sense because they
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  Speaker 1: have a low or even negative correlation with stocks and
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  Speaker 1: low correlation with bonds. Uh. So you know, we think
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  Speaker 1: in light doses that can make sense from time to time.
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  Speaker 1: So as for any particular ets, any fund that you
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  Speaker 1: think is of one people could take a look at. Now,
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  Speaker 1: what is a good prospect? Give us a couple of
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  Speaker 1: you have them? Sure? So one way, Like I talked
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  Speaker 1: about reads, you know in the areas of financials and
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  Speaker 1: reads Global X super Dividend Read which is s R
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  Speaker 1: E t UM. We we like reads through here we
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  Speaker 1: have a high dividing, high yielding red with its dividen
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  Speaker 1: yield currently at about seven, diversification geographically, and again reads
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  Speaker 1: are a good bond proxy without raids going up quickly.
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  Speaker 1: We think reads continue to look good UM and and
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  Speaker 1: we like as we said, uh, you know an easy
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  Speaker 1: way to play technology XLT, Financials XLF. We think that
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  Speaker 1: there's an opportunity there. Thank you very much for spending
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  Speaker 1: time with us. David Kudla he is the founder and
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  Speaker 1: the chief executive officer and chief investment strategist for Mainstay
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  Speaker 1: Capital Management is based in Troy, Michigan, helping to manage
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  Speaker 1: more than two billion dollars of customer assets, and you
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  Speaker 1: can follow him on Twitter at David Underscore Kudla k
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  Speaker 1: U d l A. You're listening to Taking Stock, I'm
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  Speaker 1: pim Fox, my co host Kathleen Hayes, and we take
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  Speaker 1: you through to the close of trading. Next