Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
Speaker 1: Fox on Bloomberg Radio. Quite a week for the markets.
Speaker 1: Stocks unable to hold on the SMP five hundred above
Speaker 1: this week and turning and felt going the other way.
Speaker 1: There's a worry about the growth global economy, the Brexit
Speaker 1: vote coming up on June. Poll that suggests the leave,
Speaker 1: the leave vote, the vote to exit the European Union
Speaker 1: is in the lead. And then you've got the bond
Speaker 1: market rally on fire as these concerns that are hurting
Speaker 1: the stock market make investors all the more eager to
Speaker 1: buy safe US treasury paper. Joining us now is Carlos Dominguez,
Speaker 1: co founder, president and chief investment officer at Element Point Advisors.
Speaker 1: He joins us from Miami UH and he also joins
Speaker 1: his company, element Point from a long long career on
Speaker 1: Wall Street Alpine Capital. JP Morgan, a man who who
Speaker 1: has been there and done that for a long time,
Speaker 1: joining us today on Taking Stock. Carlos, welcome, thanks for
Speaker 1: having me the stock market. What do you think is
Speaker 1: this it for the year? Are we gonna say we
Speaker 1: had this nice runback up from the lows that you know,
Speaker 1: the stock market crater at the beginning of year whereries
Speaker 1: over China. Uh we did, we did. Sit here, We're
Speaker 1: gonna move higher? Are we going to head for another correction? Well, look,
Speaker 1: as you mentioned, I've been around a long time, so
Speaker 1: I respect that in the short term the market could
Speaker 1: really do anything. And prior to today, uh, you know,
Speaker 1: the the rally off of February was quite sharp, the
Speaker 1: breath was was broadening out, and uh, you know, it
Speaker 1: remains a pretty unloved market, so I know that, Uh,
Speaker 1: there's a lot of performance anxiety out there, especially amongst
Speaker 1: hedge funds. So I think in the short term, really
Speaker 1: anything can happen. However, we're not we're not traders here,
Speaker 1: and uh you know, our immediate intermediate term outlook is
Speaker 1: very cautious. We think the market here is probably about
Speaker 1: tend of fifteen percent overvalued, given where we are in
Speaker 1: the economic cycle and uh and where current economic conditions are,
Speaker 1: and specifically, I would say, you know, look at the US,
Speaker 1: the use economy is struggling to even you know, sustain
Speaker 1: anything close to two percent growth. We've got a manufacturing
Speaker 1: sector that is is showing no growth. We're near full employment,
Speaker 1: we're starting to see a little bit of accelerating wage pressure,
Speaker 1: which is uh pressuring corporate margins and uh, and you know,
Speaker 1: productivity has been very meek. Actually in the first quarter,
Speaker 1: productivity was negative. So uh. You know, when when you
Speaker 1: take that altogether, it doesn't paint a picture of of
Speaker 1: being too bullish on stocks in the intermediate term. But
Speaker 1: you know, I think you you made reference to it.
Speaker 1: I think the elephant in the room is really what's
Speaker 1: happening in the in the bond market, especially the global
Speaker 1: bond market, which is which is portending slow global growth
Speaker 1: and and an environment where equities will not do very well.
Speaker 1: So let's let's break this down a bit, because the
Speaker 1: reality is there, and you say, as you say, your
Speaker 1: your medium, you're a longer term investor, You're not going
Speaker 1: to worry about the wiggles, but you do want to
Speaker 1: make money for your clients. So at a time like this,
Speaker 1: you know, where do you put your money? What kind
Speaker 1: of stocks do you buy? What do you avoid? Right? So,
Speaker 1: I mean, look, we're multi acid class class investors, but
Speaker 1: when you look at our specific equity allocation, uh, we
Speaker 1: kind of we kind of break the world down into
Speaker 1: what we would consider core holdings. Which are you know,
Speaker 1: names that have sustainable competitive advantage that generally kind of
Speaker 1: grow in a v over time. They're there the names
Speaker 1: that are widely known such as J and J, General Mills, Pepsi, Fiser,
Speaker 1: Honeywells of the world. So though, you know, we have
Speaker 1: an overweight to those names that we call core allocations.
Speaker 1: And then um, we also break up you know, by style.
Speaker 1: We look at value and contrarian names, and then on
Speaker 1: the other side, on the more aggressive side, we look
Speaker 1: at what we call growth and momentum names. And in
Speaker 1: the market like this, we tilt heavily towards value and
Speaker 1: contrarian names. Uh. We also, I should say, have a
Speaker 1: large overweight to cash. And I know, you know, a
Speaker 1: lot of people won't tell their clients to to you know,
Speaker 1: to hold a large cash allocation. But to us, it's
Speaker 1: it's not only uh the ultimate volatility damperer, but it
Speaker 1: it really serves as UH as an you know, has
Speaker 1: given us the opportunity to take advantage of volatility in
Speaker 1: the market, should we see it. Bonds, they've got all
Speaker 1: kinds and a lot of them have slipped into negative territory.
Speaker 1: What about ten jillion dollars worth of bonds around the
Speaker 1: world with negative yields, and of course you've got sovereign
Speaker 1: you've got the governments, you've got corporates. Uh, in the
Speaker 1: US you have nuties which are very popular. What is
Speaker 1: your position on fixed income? So we we we have
Speaker 1: a i'd say a normal allocation of core fixed income.
Speaker 1: Um muni's have have been a large part of our
Speaker 1: client's portfolio. I think on a relative basis, corporates are
Speaker 1: starting to look to look a little more interesting. UM
Speaker 1: I would say where we're a little bit out of
Speaker 1: consensus is that we're we're a longer duration than you know,
Speaker 1: the average advisor would would recommend. And that's just because
Speaker 1: with US rates tenure at one point six five and
Speaker 1: as you mentioned, ten trillion dollars of sovereign bonds globally
Speaker 1: trading at negative rates, we think there's there's downward pressure
Speaker 1: on rates. So uh, you know, we're not afraid to
Speaker 1: hold to hold bonds here, but obviously you know we
Speaker 1: balance that with a larger than normal allocation to cash.
Speaker 1: So what about some of the alternatives do you play
Speaker 1: in that space? The liquid alts is they're called real
Speaker 1: estate reads. Any of that I don't I'm not a
Speaker 1: big fan of liquid alts uh, and uh, you know,
Speaker 1: I'm not a big fan of hedge funds at this time.
Speaker 1: We do like private equity and UM and we're finding
Speaker 1: in private equity there's also some interesting uncorrelated strategies. There's
Speaker 1: one in particular that we've been looking at recently. It's
Speaker 1: a fund that Apollo is going to come out with
Speaker 1: later this year. Uh. This is their third fund. It's
Speaker 1: a life settlements fund, so really just has no correlation
Speaker 1: to the equity market. And that's fund in the prior
Speaker 1: to funds has averaged low double digit net returns to
Speaker 1: the investor. So that that's the kind of stuff that
Speaker 1: seems really interesting to us in this environment. Uh, Commodities anything,
Speaker 1: there very very small allocation to gold. Okay, what about
Speaker 1: overseas markets, what about overseas developed markets? What about emerging markets?
Speaker 1: So uh, we have a very very small allocation of
Speaker 1: emerging markets. Actually, the one I like the most which
Speaker 1: we invest through any t F is Russia. Uh, probably
Speaker 1: because it's the cheapest and most one of the most
Speaker 1: unloved than cheapest emerging markets out there. And really, given
Speaker 1: how crude has bounced back pretty sharply rather than you know,
Speaker 1: chase any US sort of exposure to energy, we'd rather
Speaker 1: we'd rather do that through Russia. So that's where that's
Speaker 1: on the emerging mark side. On the international developed side, uh,
Speaker 1: we do have some you know, some Europe and Japan.
Speaker 1: I prefer to look for managers that focus more on
Speaker 1: the small and mid cap growth when it comes to
Speaker 1: Europe and Japan because I find that, you know, our
Speaker 1: our U S holdings, which tend to be you know,
Speaker 1: very large tap they have, they have a lot of
Speaker 1: exposure to to those economies anyway, So I don't want
Speaker 1: to I don't want that redundant exposure in our portfolios.
Speaker 1: And we do a look through of the names we
Speaker 1: hold and about six of our revenues come from the
Speaker 1: US and thirty five from abroad. Just a quick comment
Speaker 1: on Apple. It's on my mind because the Developers conference
Speaker 1: next week and I talk about individual companies, But what
Speaker 1: is your sense of Apple and that kind of stock
Speaker 1: that was in such great favor for a while and
Speaker 1: now it seems to be flanguished a bit. Well, this
Speaker 1: is the kind of environment where I actually want to
Speaker 1: own a name like Apple. It's generally unloved the you
Speaker 1: know the slow the slow growth environment where where you know,
Speaker 1: the smartphone heavy growth phases over. But it's well known, Uh,
Speaker 1: they've got a lot of cash, they're they're returning their
Speaker 1: cash to shareholders and and the company has shown a
Speaker 1: history of innovation, so you know, to write them off
Speaker 1: at this stage is I think full of gold. Carl's Dominguez,
Speaker 1: thank you so very much. He's co founder, president, chief
Speaker 1: investment officer at Element Point Advisors in Miami. I'm Kathleen Hayes,
Speaker 1: my co host Pim Fox is on assignment this afternoon.
Speaker 1: Movers and Shakers, the market Clothes coming up on Bloomberg Radio.