1 00:00:01,120 --> 00:00:04,160 Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim 2 00:00:04,200 --> 00:00:09,920 Speaker 1: Fox on Bloomberg Radio. Quite a week for the markets. 3 00:00:10,320 --> 00:00:13,400 Speaker 1: Stocks unable to hold on the SMP five hundred above 4 00:00:14,480 --> 00:00:16,959 Speaker 1: this week and turning and felt going the other way. 5 00:00:17,360 --> 00:00:20,600 Speaker 1: There's a worry about the growth global economy, the Brexit 6 00:00:20,680 --> 00:00:24,000 Speaker 1: vote coming up on June. Poll that suggests the leave, 7 00:00:24,360 --> 00:00:28,240 Speaker 1: the leave vote, the vote to exit the European Union 8 00:00:28,400 --> 00:00:30,000 Speaker 1: is in the lead. And then you've got the bond 9 00:00:30,040 --> 00:00:34,240 Speaker 1: market rally on fire as these concerns that are hurting 10 00:00:34,240 --> 00:00:38,080 Speaker 1: the stock market make investors all the more eager to 11 00:00:38,159 --> 00:00:41,879 Speaker 1: buy safe US treasury paper. Joining us now is Carlos Dominguez, 12 00:00:41,960 --> 00:00:46,559 Speaker 1: co founder, president and chief investment officer at Element Point Advisors. 13 00:00:47,159 --> 00:00:51,760 Speaker 1: He joins us from Miami UH and he also joins 14 00:00:51,840 --> 00:00:54,720 Speaker 1: his company, element Point from a long long career on 15 00:00:54,920 --> 00:01:00,200 Speaker 1: Wall Street Alpine Capital. JP Morgan, a man who who 16 00:01:00,200 --> 00:01:02,080 Speaker 1: has been there and done that for a long time, 17 00:01:02,160 --> 00:01:05,480 Speaker 1: joining us today on Taking Stock. Carlos, welcome, thanks for 18 00:01:05,520 --> 00:01:08,160 Speaker 1: having me the stock market. What do you think is 19 00:01:08,160 --> 00:01:10,280 Speaker 1: this it for the year? Are we gonna say we 20 00:01:10,360 --> 00:01:12,880 Speaker 1: had this nice runback up from the lows that you know, 21 00:01:13,000 --> 00:01:15,279 Speaker 1: the stock market crater at the beginning of year whereries 22 00:01:15,319 --> 00:01:17,840 Speaker 1: over China. Uh we did, we did. Sit here, We're 23 00:01:17,880 --> 00:01:21,680 Speaker 1: gonna move higher? Are we going to head for another correction? Well, look, 24 00:01:22,080 --> 00:01:24,160 Speaker 1: as you mentioned, I've been around a long time, so 25 00:01:24,240 --> 00:01:27,080 Speaker 1: I respect that in the short term the market could 26 00:01:27,080 --> 00:01:31,080 Speaker 1: really do anything. And prior to today, uh, you know, 27 00:01:31,160 --> 00:01:34,720 Speaker 1: the the rally off of February was quite sharp, the 28 00:01:35,080 --> 00:01:38,920 Speaker 1: breath was was broadening out, and uh, you know, it 29 00:01:38,959 --> 00:01:42,760 Speaker 1: remains a pretty unloved market, so I know that, Uh, 30 00:01:42,760 --> 00:01:45,759 Speaker 1: there's a lot of performance anxiety out there, especially amongst 31 00:01:45,760 --> 00:01:47,640 Speaker 1: hedge funds. So I think in the short term, really 32 00:01:47,680 --> 00:01:51,640 Speaker 1: anything can happen. However, we're not we're not traders here, 33 00:01:51,840 --> 00:01:55,960 Speaker 1: and uh you know, our immediate intermediate term outlook is 34 00:01:56,080 --> 00:01:58,960 Speaker 1: very cautious. We think the market here is probably about 35 00:01:59,560 --> 00:02:03,560 Speaker 1: tend of fifteen percent overvalued, given where we are in 36 00:02:03,600 --> 00:02:07,920 Speaker 1: the economic cycle and uh and where current economic conditions are, 37 00:02:08,520 --> 00:02:11,080 Speaker 1: and specifically, I would say, you know, look at the US, 38 00:02:11,240 --> 00:02:13,880 Speaker 1: the use economy is struggling to even you know, sustain 39 00:02:13,960 --> 00:02:18,080 Speaker 1: anything close to two percent growth. We've got a manufacturing 40 00:02:18,360 --> 00:02:21,639 Speaker 1: sector that is is showing no growth. We're near full employment, 41 00:02:22,040 --> 00:02:24,840 Speaker 1: we're starting to see a little bit of accelerating wage pressure, 42 00:02:24,880 --> 00:02:29,520 Speaker 1: which is uh pressuring corporate margins and uh, and you know, 43 00:02:29,720 --> 00:02:32,919 Speaker 1: productivity has been very meek. Actually in the first quarter, 44 00:02:33,000 --> 00:02:36,680 Speaker 1: productivity was negative. So uh. You know, when when you 45 00:02:36,720 --> 00:02:41,040 Speaker 1: take that altogether, it doesn't paint a picture of of 46 00:02:41,120 --> 00:02:44,720 Speaker 1: being too bullish on stocks in the intermediate term. But 47 00:02:44,800 --> 00:02:46,480 Speaker 1: you know, I think you you made reference to it. 48 00:02:46,960 --> 00:02:48,760 Speaker 1: I think the elephant in the room is really what's 49 00:02:48,800 --> 00:02:51,120 Speaker 1: happening in the in the bond market, especially the global 50 00:02:51,120 --> 00:02:55,360 Speaker 1: bond market, which is which is portending slow global growth 51 00:02:55,520 --> 00:02:58,959 Speaker 1: and and an environment where equities will not do very well. 52 00:02:59,400 --> 00:03:02,520 Speaker 1: So let's let's break this down a bit, because the 53 00:03:02,560 --> 00:03:05,000 Speaker 1: reality is there, and you say, as you say, your 54 00:03:05,120 --> 00:03:07,160 Speaker 1: your medium, you're a longer term investor, You're not going 55 00:03:07,200 --> 00:03:08,679 Speaker 1: to worry about the wiggles, but you do want to 56 00:03:08,720 --> 00:03:12,240 Speaker 1: make money for your clients. So at a time like this, 57 00:03:12,960 --> 00:03:15,399 Speaker 1: you know, where do you put your money? What kind 58 00:03:15,400 --> 00:03:19,960 Speaker 1: of stocks do you buy? What do you avoid? Right? So, 59 00:03:20,000 --> 00:03:23,280 Speaker 1: I mean, look, we're multi acid class class investors, but 60 00:03:23,400 --> 00:03:27,960 Speaker 1: when you look at our specific equity allocation, uh, we 61 00:03:28,080 --> 00:03:30,400 Speaker 1: kind of we kind of break the world down into 62 00:03:30,440 --> 00:03:34,200 Speaker 1: what we would consider core holdings. Which are you know, 63 00:03:34,320 --> 00:03:37,680 Speaker 1: names that have sustainable competitive advantage that generally kind of 64 00:03:37,720 --> 00:03:40,840 Speaker 1: grow in a v over time. They're there the names 65 00:03:40,840 --> 00:03:45,840 Speaker 1: that are widely known such as J and J, General Mills, Pepsi, Fiser, 66 00:03:46,840 --> 00:03:50,200 Speaker 1: Honeywells of the world. So though, you know, we have 67 00:03:50,360 --> 00:03:53,680 Speaker 1: an overweight to those names that we call core allocations. 68 00:03:54,240 --> 00:03:58,320 Speaker 1: And then um, we also break up you know, by style. 69 00:03:58,400 --> 00:04:02,320 Speaker 1: We look at value and contrarian names, and then on 70 00:04:02,360 --> 00:04:04,840 Speaker 1: the other side, on the more aggressive side, we look 71 00:04:04,880 --> 00:04:07,920 Speaker 1: at what we call growth and momentum names. And in 72 00:04:07,960 --> 00:04:11,520 Speaker 1: the market like this, we tilt heavily towards value and 73 00:04:11,600 --> 00:04:15,520 Speaker 1: contrarian names. Uh. We also, I should say, have a 74 00:04:16,240 --> 00:04:18,640 Speaker 1: large overweight to cash. And I know, you know, a 75 00:04:18,720 --> 00:04:22,359 Speaker 1: lot of people won't tell their clients to to you know, 76 00:04:22,400 --> 00:04:25,320 Speaker 1: to hold a large cash allocation. But to us, it's 77 00:04:25,360 --> 00:04:29,320 Speaker 1: it's not only uh the ultimate volatility damperer, but it 78 00:04:29,320 --> 00:04:32,160 Speaker 1: it really serves as UH as an you know, has 79 00:04:32,200 --> 00:04:35,200 Speaker 1: given us the opportunity to take advantage of volatility in 80 00:04:35,240 --> 00:04:40,280 Speaker 1: the market, should we see it. Bonds, they've got all 81 00:04:40,400 --> 00:04:43,240 Speaker 1: kinds and a lot of them have slipped into negative territory. 82 00:04:43,600 --> 00:04:47,760 Speaker 1: What about ten jillion dollars worth of bonds around the 83 00:04:47,760 --> 00:04:50,320 Speaker 1: world with negative yields, and of course you've got sovereign 84 00:04:50,320 --> 00:04:53,560 Speaker 1: you've got the governments, you've got corporates. Uh, in the 85 00:04:53,680 --> 00:04:56,159 Speaker 1: US you have nuties which are very popular. What is 86 00:04:56,160 --> 00:05:00,240 Speaker 1: your position on fixed income? So we we we have 87 00:05:00,400 --> 00:05:04,279 Speaker 1: a i'd say a normal allocation of core fixed income. 88 00:05:04,600 --> 00:05:08,080 Speaker 1: Um muni's have have been a large part of our 89 00:05:08,080 --> 00:05:10,880 Speaker 1: client's portfolio. I think on a relative basis, corporates are 90 00:05:10,880 --> 00:05:13,560 Speaker 1: starting to look to look a little more interesting. UM 91 00:05:13,600 --> 00:05:15,120 Speaker 1: I would say where we're a little bit out of 92 00:05:15,160 --> 00:05:19,080 Speaker 1: consensus is that we're we're a longer duration than you know, 93 00:05:19,120 --> 00:05:22,000 Speaker 1: the average advisor would would recommend. And that's just because 94 00:05:22,440 --> 00:05:25,719 Speaker 1: with US rates tenure at one point six five and 95 00:05:25,720 --> 00:05:28,840 Speaker 1: as you mentioned, ten trillion dollars of sovereign bonds globally 96 00:05:28,880 --> 00:05:32,320 Speaker 1: trading at negative rates, we think there's there's downward pressure 97 00:05:32,320 --> 00:05:35,479 Speaker 1: on rates. So uh, you know, we're not afraid to 98 00:05:35,560 --> 00:05:38,240 Speaker 1: hold to hold bonds here, but obviously you know we 99 00:05:38,320 --> 00:05:42,000 Speaker 1: balance that with a larger than normal allocation to cash. 100 00:05:42,200 --> 00:05:45,359 Speaker 1: So what about some of the alternatives do you play 101 00:05:45,400 --> 00:05:48,120 Speaker 1: in that space? The liquid alts is they're called real 102 00:05:48,279 --> 00:05:51,960 Speaker 1: estate reads. Any of that I don't I'm not a 103 00:05:51,960 --> 00:05:55,400 Speaker 1: big fan of liquid alts uh, and uh, you know, 104 00:05:55,440 --> 00:05:58,120 Speaker 1: I'm not a big fan of hedge funds at this time. 105 00:05:59,240 --> 00:06:02,640 Speaker 1: We do like private equity and UM and we're finding 106 00:06:02,920 --> 00:06:08,120 Speaker 1: in private equity there's also some interesting uncorrelated strategies. There's 107 00:06:08,160 --> 00:06:10,440 Speaker 1: one in particular that we've been looking at recently. It's 108 00:06:10,440 --> 00:06:12,880 Speaker 1: a fund that Apollo is going to come out with 109 00:06:13,000 --> 00:06:16,000 Speaker 1: later this year. Uh. This is their third fund. It's 110 00:06:16,000 --> 00:06:19,200 Speaker 1: a life settlements fund, so really just has no correlation 111 00:06:19,320 --> 00:06:22,080 Speaker 1: to the equity market. And that's fund in the prior 112 00:06:22,160 --> 00:06:26,520 Speaker 1: to funds has averaged low double digit net returns to 113 00:06:26,560 --> 00:06:28,960 Speaker 1: the investor. So that that's the kind of stuff that 114 00:06:29,320 --> 00:06:33,520 Speaker 1: seems really interesting to us in this environment. Uh, Commodities anything, 115 00:06:33,520 --> 00:06:40,120 Speaker 1: there very very small allocation to gold. Okay, what about 116 00:06:40,600 --> 00:06:45,920 Speaker 1: overseas markets, what about overseas developed markets? What about emerging markets? 117 00:06:45,960 --> 00:06:49,280 Speaker 1: So uh, we have a very very small allocation of 118 00:06:49,320 --> 00:06:52,960 Speaker 1: emerging markets. Actually, the one I like the most which 119 00:06:53,040 --> 00:06:56,760 Speaker 1: we invest through any t F is Russia. Uh, probably 120 00:06:56,760 --> 00:06:59,479 Speaker 1: because it's the cheapest and most one of the most 121 00:06:59,560 --> 00:07:03,920 Speaker 1: unloved than cheapest emerging markets out there. And really, given 122 00:07:04,040 --> 00:07:08,200 Speaker 1: how crude has bounced back pretty sharply rather than you know, 123 00:07:08,480 --> 00:07:12,920 Speaker 1: chase any US sort of exposure to energy, we'd rather 124 00:07:13,200 --> 00:07:16,480 Speaker 1: we'd rather do that through Russia. So that's where that's 125 00:07:16,480 --> 00:07:20,240 Speaker 1: on the emerging mark side. On the international developed side, uh, 126 00:07:20,360 --> 00:07:22,920 Speaker 1: we do have some you know, some Europe and Japan. 127 00:07:23,120 --> 00:07:25,960 Speaker 1: I prefer to look for managers that focus more on 128 00:07:26,000 --> 00:07:29,080 Speaker 1: the small and mid cap growth when it comes to 129 00:07:29,120 --> 00:07:31,920 Speaker 1: Europe and Japan because I find that, you know, our 130 00:07:32,000 --> 00:07:34,560 Speaker 1: our U S holdings, which tend to be you know, 131 00:07:34,760 --> 00:07:37,520 Speaker 1: very large tap they have, they have a lot of 132 00:07:37,560 --> 00:07:40,360 Speaker 1: exposure to to those economies anyway, So I don't want 133 00:07:40,360 --> 00:07:42,960 Speaker 1: to I don't want that redundant exposure in our portfolios. 134 00:07:43,360 --> 00:07:45,040 Speaker 1: And we do a look through of the names we 135 00:07:45,160 --> 00:07:49,160 Speaker 1: hold and about six of our revenues come from the 136 00:07:49,240 --> 00:07:52,119 Speaker 1: US and thirty five from abroad. Just a quick comment 137 00:07:52,160 --> 00:07:54,520 Speaker 1: on Apple. It's on my mind because the Developers conference 138 00:07:54,560 --> 00:07:57,280 Speaker 1: next week and I talk about individual companies, But what 139 00:07:57,440 --> 00:08:00,680 Speaker 1: is your sense of Apple and that kind of stock 140 00:08:00,760 --> 00:08:02,960 Speaker 1: that was in such great favor for a while and 141 00:08:03,040 --> 00:08:06,960 Speaker 1: now it seems to be flanguished a bit. Well, this 142 00:08:07,040 --> 00:08:09,080 Speaker 1: is the kind of environment where I actually want to 143 00:08:09,080 --> 00:08:12,560 Speaker 1: own a name like Apple. It's generally unloved the you 144 00:08:12,600 --> 00:08:17,400 Speaker 1: know the slow the slow growth environment where where you know, 145 00:08:17,440 --> 00:08:21,520 Speaker 1: the smartphone heavy growth phases over. But it's well known, Uh, 146 00:08:21,600 --> 00:08:24,320 Speaker 1: they've got a lot of cash, they're they're returning their 147 00:08:24,320 --> 00:08:27,640 Speaker 1: cash to shareholders and and the company has shown a 148 00:08:27,760 --> 00:08:30,320 Speaker 1: history of innovation, so you know, to write them off 149 00:08:30,360 --> 00:08:33,800 Speaker 1: at this stage is I think full of gold. Carl's Dominguez, 150 00:08:33,840 --> 00:08:36,280 Speaker 1: thank you so very much. He's co founder, president, chief 151 00:08:36,280 --> 00:08:42,160 Speaker 1: investment officer at Element Point Advisors in Miami. I'm Kathleen Hayes, 152 00:08:42,360 --> 00:08:45,240 Speaker 1: my co host Pim Fox is on assignment this afternoon. 153 00:08:45,280 --> 00:08:48,760 Speaker 1: Movers and Shakers, the market Clothes coming up on Bloomberg Radio.