Latest / Bloomberg Intelligence / Wells Fargo's Manley: Sees Earnings Lift, Likes Mid-Caps(Audio)

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Wells Fargo's Manley: Sees Earnings Lift, Likes Mid-Caps(Audio) · Bloomberg Intelligence

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  Speaker 1: This is taking Stock with pim Box and Kathleen Hayes
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  Speaker 1: on Bloomberg Radio. Negative interest rates in the credit markets.
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  Speaker 1: US Treasury the ten year yielding one pan six seven percent,
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  Speaker 1: the thirty years under two and a half percent. What
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  Speaker 1: to do with your money? John Manley is the chief
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  Speaker 1: equity strategist at Wells Fargo Funds Management, helping to manage
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  Speaker 1: two hundred and forty five billion dollars, and he joins
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  Speaker 1: us here in the studio. John, thank you very much
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  Speaker 1: for coming in. Thank you for having me. All right,
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  Speaker 1: equity strategist. You're getting a lot of calls from people saying,
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  Speaker 1: I can't live on my bond income. Can you help
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  Speaker 1: me out with some equities? Yeah? Absolutely, It's been going
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  Speaker 1: on for a while. And what else are you gonna do?
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  Speaker 1: I think it's it's the worst form of investment except
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  Speaker 1: for all the others. When it comes to yield, and
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  Speaker 1: I think you can they'll buy pretty good, actually pretty
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  Speaker 1: high quality companies with a decent yield and some chance
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  Speaker 1: for appreciation and diving an increase in the future. So
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  Speaker 1: it's not bad. So I remember, was it year to
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  Speaker 1: all classes? In my head? But you know, a year
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  Speaker 1: and a half ago, I guess dividend payers, dividend pays,
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  Speaker 1: dividend pairs. So everybody jumped in, you know what I mean.
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  Speaker 1: And and so now some people would say it's still
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  Speaker 1: a good strategy, but maybe it's just a little more
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  Speaker 1: expensive to get in. Well, I think, you know, there
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  Speaker 1: are other fish to fry too. I think one of
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  Speaker 1: the things that's happened for the last two years that's
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  Speaker 1: so amazing to me is that neither stocks nor earnings
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  Speaker 1: expectations have gone anywhere in the U S. And I
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  Speaker 1: think that's helped the big companies as well as the
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  Speaker 1: yield play. I think earnings are starting to lift off
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  Speaker 1: a little bit, and if that happens, I think you
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  Speaker 1: could see more outperformance in the MidCap sector. So I'm
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  Speaker 1: sort of agnostic when it comes to this sort of thing.
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  Speaker 1: I still think for myself being an aging baby when
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  Speaker 1: we're you know, large caps are not a bad place
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  Speaker 1: to be aging. You're not aging, John Manley, I'm aged. Actually,
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  Speaker 1: all right, thanks thanks for setting us straight here, all right.
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  Speaker 1: So in that con text, though, is there a change
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  Speaker 1: in the way people view their investments. And the reason
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  Speaker 1: I ask you, I want to get to the idea
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  Speaker 1: of liquidity because at times of crisis or chaos, liquidity
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  Speaker 1: is at a premium, but you don't know you you
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  Speaker 1: should have bought it previously, right, Yeah, it's but I
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  Speaker 1: like liquidity. I'm not so sure at real crisis moments
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  Speaker 1: it matters because if everybody's heading for the door, I
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  Speaker 1: don't know if you can make a door big enough.
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  Speaker 1: You've got to be outside for its work. But I
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  Speaker 1: think most times, one of the things that I like
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  Speaker 1: about stock markets in mid to large cap stocks is
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  Speaker 1: you can be wrong and change your mind and get out.
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  Speaker 1: And I think that's incredibly important. The idea of being
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  Speaker 1: locked into an investment when you know it's gone bad
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  Speaker 1: must be a sickening feeling. Yeah, for thirty years, let's
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  Speaker 1: say you lend your money to the US government for
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  Speaker 1: thirty years or two and a half percent, you've got
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  Speaker 1: to find someone else. If rates go higher, you've got
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  Speaker 1: to find someone else that will take that off your hands. Well,
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  Speaker 1: you probably will find some much. It depends how much
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  Speaker 1: you have to cut the price for them to come
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  Speaker 1: on board and so I think, you know, I think
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  Speaker 1: one of the things about midcaps that we're finding sort
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  Speaker 1: of interesting right now is they're sort of the honors
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  Speaker 1: class of small caps, that they have some of the
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  Speaker 1: inefficiency of small caps, but they also have some of
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  Speaker 1: the liquidity of large caps. And I think that's that
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  Speaker 1: might be that that might not be a bad combination.
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  Speaker 1: Off earnings start to do better. So what is the
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  Speaker 1: likelihood of earnings doing better? Well, they're starting to lift
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  Speaker 1: off a little bit. First of all, I don't believe
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  Speaker 1: the theory that they can't go higher. I know profitability
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  Speaker 1: levels are very high, but that's happened without a surge
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  Speaker 1: in the economy. Usually when the economy gets better, when
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  Speaker 1: the economy starts to be a bit more robust here
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  Speaker 1: and around the world, earnings pick up. I think that happens.
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  Speaker 1: I just think we come from higher levels this time
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  Speaker 1: because other things that are more secular nature of boosted profits,
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  Speaker 1: of profitability. So I think it can happen. All right,
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  Speaker 1: So you talk about MidCap companies, how do you define
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  Speaker 1: MidCap these? You know, it's I I never am good
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  Speaker 1: with numbers, so I'll sort of dodge your question as best.
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  Speaker 1: I think the wrong business. I'm the intuitive type. You
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  Speaker 1: know what. Sometimes they think numbers give you a false
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  Speaker 1: sense of accuracy. I think they're smaller than bigger, they're
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  Speaker 1: bigger than small and uh, they sort of fit somewhere
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  Speaker 1: in the middle. So I don't have an absolute number.
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  Speaker 1: So this is not a mid cap. This is well,
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  Speaker 1: if you are are not wealthy, or if you are wealthy,
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  Speaker 1: what about diversification? If you if someone comes to you
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  Speaker 1: with ten million dollars or five hundred thousand dollars, even
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  Speaker 1: a hundred thousand dollars and not so much. Older people
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  Speaker 1: do this, but younger people, I mean, how how would
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  Speaker 1: you tell them to diversify? Would you put ten percent
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  Speaker 1: in emerging markets and in equities? And if so, what kind?
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  Speaker 1: I'm just curious when you look at the money you're
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  Speaker 1: the portfolios you're managing, the people you're advising, how do
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  Speaker 1: you figure that out? Well, I mean it depends on them.
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  Speaker 1: They sort of have to answer the questions themselves. How
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  Speaker 1: much risk coolerant do they have? How much they how
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  Speaker 1: about if they want to make as much money as
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  Speaker 1: they can and not lose any Well, okay, I think
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  Speaker 1: I might buy them dinner and talk about it over that.
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  Speaker 1: I you know, obviously those those are predict regalship. You
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  Speaker 1: have to take risk to make money, and I think
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  Speaker 1: it's a question of balancing. I right now I would
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  Speaker 1: be overweight equities, probably with a tilt towards MidCap and
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  Speaker 1: outside the US, I mean, probably with a tilt towards Europe,
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  Speaker 1: because I think Big Europe is getting better. Uh. And
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  Speaker 1: I have to own some emerging markets. I do in
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  Speaker 1: my own account because I feel there's too much potential there.
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  Speaker 1: If there is such a thing as a compelling value,
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  Speaker 1: I think emerging markets are compelling value. But you don't
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  Speaker 1: get compelled right away necessarily. And John, I wonder if
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  Speaker 1: you could comment on the notion that more and more
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  Speaker 1: of the stock trading that goes on, the prices that
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  Speaker 1: we see are influenced by high frequency trading and by
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  Speaker 1: daily moves in and out. That's a very different kind
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  Speaker 1: of world than investing your money. That certainly is, and
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  Speaker 1: it's not a world that I understand very well or
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  Speaker 1: that I want to participate. I understand it, but I
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  Speaker 1: don't necessarily want to participate. And I sort of figured
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  Speaker 1: that these these trading operations create opportunities for people who
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  Speaker 1: are investors, and it requires you have a strong stomach
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  Speaker 1: and a sense that you have an idea of what's
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  Speaker 1: really going on. So how do I want to describe it?
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  Speaker 1: I think to a degree that the high frequency trading
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  Speaker 1: may put a little vibration in the market from time
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  Speaker 1: to time. I don't think at the end of the
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  Speaker 1: week or the end of the month, and certainly not
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  Speaker 1: at the end of the year, it's gonna make any
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  Speaker 1: difference to the way I want to invest my money.
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  Speaker 1: Though uncertainty Jane Allen is uncertainty, uh to the to
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  Speaker 1: a maximum degree. She's uncertain enough to say, you know,
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  Speaker 1: will maybe raise rates this year. I think we will,
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  Speaker 1: because I think the economy will pick up. But hey,
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  Speaker 1: I I can't tell you. I just see the signs
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  Speaker 1: that it could and should, but I've seen signs that
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  Speaker 1: it might take longer. Well, you know, I think they
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  Speaker 1: call her data dependent or the FED is data dependent.
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  Speaker 1: I think that's wonderful. I'm data dependent. When I get
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  Speaker 1: an airplane, I know it's supposed to land at three,
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  Speaker 1: but half an hour later, I'm not going to insist
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  Speaker 1: on getting out over scripton. It's as simple as that.
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  Speaker 1: I'll do it when I think it's safe. She'll raise
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  Speaker 1: rates when you think she can do it without adversely
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  Speaker 1: affecting the economy. So all my fellow equity strategist who
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  Speaker 1: think they know how many times she's going to do it,
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  Speaker 1: that's kind of an interesting trick since she doesn't know
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  Speaker 1: it herself. Yeah, I'm gonna use that metaphor. I love that.
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  Speaker 1: Like sitting on a plane, if the weather is not right,
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  Speaker 1: you don't take off. I think that's great for the fit. Well,
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  Speaker 1: I thought also that John is not getting out over Schenectady.
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  Speaker 1: If I've done that, well, I hope you've done it
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  Speaker 1: with while the plane was on the ground. In that context, though,
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  Speaker 1: you can't wait for what the Federal Reserve is or
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  Speaker 1: isn't going to do if you're planning for your financial
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  Speaker 1: future or for the future of your business. So what
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  Speaker 1: do we know. I mean, we don't know how many
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  Speaker 1: times are going to raise rates. But I think to me,
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  Speaker 1: the real question is is the Fed going to want
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  Speaker 1: to encourage your discourage economic growth from the next twelve
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  Speaker 1: to eighteen months. And I think that's a much easier question.
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  Speaker 1: They're not going to try and discourage growth. If they
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  Speaker 1: try and encourage growth, and they that includes higher rates.
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  Speaker 1: It only includes higher rates if they think the economy
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  Speaker 1: can adjust to those rights will not hurt it. So
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  Speaker 1: the FED, as far as I'm concerned, is still gonna
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  Speaker 1: be pushing money towards the economy in the next year
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  Speaker 1: or so. That's at least a supportive factor for stocks,
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  Speaker 1: pushing money towards the economy. In other words, they will
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  Speaker 1: not raise rates much, if at all, and they won't
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  Speaker 1: sell any bonds out of that big, big portfolio bonds.
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  Speaker 1: I can't see that the next twelve months. I mean,
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  Speaker 1: it's possible, but we'd have a much stronger economy between
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  Speaker 1: now and then I think of it. The Fed's job
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  Speaker 1: is to maximize growth and and and minimize inflation, which
• 10:30
  Speaker 1: is sort of the conundrum you gave me earlier in
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  Speaker 1: the show. How do you do that? The answer is
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  Speaker 1: they try and regulate the economy, and all they can
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  Speaker 1: do they can't make is buy things or not buy things,
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  Speaker 1: build or not build. All they can do is make
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  Speaker 1: the money seem cheaper expensive. Well, I think there's also
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  Speaker 1: this minimax theory that the FED and Jennet Ellensama I
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  Speaker 1: think has mentioned it. You minimize the worst these days,
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  Speaker 1: mistake you could make, and probably for now, the fed's
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  Speaker 1: worst mistake would be raising rates prematurely. John Manley taken
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  Speaker 1: off today here at Bloomberg Radio, chief equity strategist Wells
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  Speaker 1: Fargo Funds Management. He thinks earnings could pick up. The
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  Speaker 1: Fed's going to be some wind at the stock market's back,
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  Speaker 1: and those mid caps look pretty darn good to him.
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  Speaker 1: Caffeine his pim Fox taking stock on Bloberg Radio