1
00:00:03,080 --> 00:00:06,439
Speaker 1: Global business news twenty four hours a day at Bloomberg

2
00:00:06,480 --> 00:00:09,560
Speaker 1: dot Com, the radio, plus Globo Last and on your radio.

3
00:00:09,840 --> 00:00:14,000
Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters

4
00:00:14,000 --> 00:00:18,000
Speaker 1: on Katherine Cowdery. Technology and healthcare companies are dragging the

5
00:00:18,079 --> 00:00:20,680
Speaker 1: stock market. Lower losses over the past few days have

6
00:00:20,760 --> 00:00:24,040
Speaker 1: wiped out the Dow and SMP five hundreds gains from

7
00:00:24,040 --> 00:00:27,280
Speaker 1: earlier this month. Healthcare companies are declining after some week

8
00:00:27,320 --> 00:00:30,480
Speaker 1: earnings reports. The health ensure Molina Healthcare cut it's full

9
00:00:30,560 --> 00:00:33,519
Speaker 1: year guidance because of higher medical care costs in Ohio

10
00:00:33,600 --> 00:00:36,680
Speaker 1: and Texas and because of pharmacy costs. We check the

11
00:00:36,720 --> 00:00:40,040
Speaker 1: markets every fifteen minutes throughout the trading DAYWN Bloomberg Radio down.

12
00:00:40,040 --> 00:00:43,320
Speaker 1: Industrial leverage is currently down twenty seven points. It's narrowing

13
00:00:43,320 --> 00:00:46,400
Speaker 1: its earlier losses. That's an eighth of a percent down

14
00:00:46,479 --> 00:00:49,360
Speaker 1: right now, trading at seventeen thousand, eight hundred three, SMP

15
00:00:49,440 --> 00:00:51,640
Speaker 1: five hundred down seven points, a third of a percent

16
00:00:51,920 --> 00:00:54,440
Speaker 1: trading at two thousand, sixty eight, and then as DOC

17
00:00:54,560 --> 00:00:56,480
Speaker 1: is down twenty five points, that's a loss of half

18
00:00:56,480 --> 00:00:59,560
Speaker 1: a percent. Trading at forty seven seventy nine. West Texas

19
00:00:59,600 --> 00:01:02,280
Speaker 1: intermedi a crude holding study at forty six oh three

20
00:01:02,320 --> 00:01:05,680
Speaker 1: of barrel spot gold is up twenty eight dollars and

21
00:01:05,760 --> 00:01:09,479
Speaker 1: ounds at twelve and the tenure tragedy of one thirty

22
00:01:09,520 --> 00:01:13,360
Speaker 1: second yield one eight two percent. And that's a Bloomberg

23
00:01:13,400 --> 00:01:16,360
Speaker 1: business flash. Thank you very much, Catherine Calgary. It is

24
00:01:16,400 --> 00:01:18,240
Speaker 1: time now for the e t F report. It is

25
00:01:18,280 --> 00:01:22,880
Speaker 1: brought to you by Columbia University's Executive Technology Management Graduate Program,

26
00:01:22,880 --> 00:01:27,720
Speaker 1: which prepares technology professionals to drive business performance information at

27
00:01:27,920 --> 00:01:32,680
Speaker 1: SPS dot Columbia dot e d U slash tech. Let's

28
00:01:32,680 --> 00:01:36,200
Speaker 1: go to Catherine Calgary. The Bank of Japan's decision is

29
00:01:36,200 --> 00:01:39,280
Speaker 1: stan pat has reverberated an e t F that focus

30
00:01:39,360 --> 00:01:43,200
Speaker 1: on that country and its currency. The currency shares Japan's

31
00:01:43,360 --> 00:01:46,360
Speaker 1: end trust rallied three point three percent, while the Wisdom

32
00:01:46,400 --> 00:01:50,880
Speaker 1: Tree Japan Hedged Equity Fund dropped seven point six What

33
00:01:51,040 --> 00:01:55,360
Speaker 1: to do? Here's David Kotuk, chief investment officer of Cumberland Advisors.

34
00:01:55,560 --> 00:01:58,840
Speaker 1: I think Japan itself is a huge bullish stock market

35
00:01:58,920 --> 00:02:02,880
Speaker 1: story co tux. As Cumberland Advisers uses ets to invest

36
00:02:02,920 --> 00:02:06,600
Speaker 1: in Japan, we actually use five different ETFs to get

37
00:02:06,640 --> 00:02:10,880
Speaker 1: to various combinations of things in the Japanese market. Japan

38
00:02:11,080 --> 00:02:17,080
Speaker 1: is our largest overweight in the international et F strategy

39
00:02:17,160 --> 00:02:20,840
Speaker 1: we apply. Kotak and why he's optimistic about Japan's outlook.

40
00:02:21,160 --> 00:02:24,000
Speaker 1: I look at the Japanese market. I see an equity

41
00:02:24,080 --> 00:02:27,440
Speaker 1: risk premium double lad of the United States, with a

42
00:02:27,480 --> 00:02:30,880
Speaker 1: central bank that's stimulative, and with an economy that is

43
00:02:30,880 --> 00:02:34,160
Speaker 1: going to get an additional injection of defense spending. Ko

44
00:02:34,280 --> 00:02:37,320
Speaker 1: tax says defense spending in Japan could more than double.

45
00:02:37,840 --> 00:02:44,079
Speaker 1: That's your Bloomberg et Ever report. I'm Katherine Cowlery. This

46
00:02:44,480 --> 00:02:47,520
Speaker 1: is taking stock with Kathleen Hayes and Pin Box on

47
00:02:47,600 --> 00:02:52,200
Speaker 1: Bloomberg Radio. Sell in May and go away. Well, so

48
00:02:52,280 --> 00:02:54,519
Speaker 1: far this year, if you invested in the S and

49
00:02:54,600 --> 00:02:58,560
Speaker 1: P five hundred, you've made about nine tenths of a percent.

50
00:02:59,000 --> 00:03:01,720
Speaker 1: Compare that to the Dow Jones industrial average, a gain

51
00:03:01,760 --> 00:03:04,799
Speaker 1: of about two Here to tell us how to improve

52
00:03:04,880 --> 00:03:09,880
Speaker 1: that performances. Sam Stobol is us equity strategist for SNP

53
00:03:10,160 --> 00:03:12,920
Speaker 1: Capital i Q, and he is also the author of

54
00:03:12,960 --> 00:03:16,560
Speaker 1: the book The Seven Rules of Wall Street. Sam Stobo

55
00:03:16,600 --> 00:03:18,880
Speaker 1: always a pleasure. Hey, Pam, good to talk to you.

56
00:03:19,200 --> 00:03:24,560
Speaker 1: Tell us about the SNP five and the selling May

57
00:03:24,800 --> 00:03:29,160
Speaker 1: go away strategy. Well, obviously I've heard about the selling

58
00:03:29,240 --> 00:03:31,800
Speaker 1: May ever since I've picked up my first copy of

59
00:03:31,800 --> 00:03:36,440
Speaker 1: the Stock Traders Almanac, talking about how November through April

60
00:03:36,600 --> 00:03:39,720
Speaker 1: was the strongest six month period of almost seven percent.

61
00:03:40,000 --> 00:03:42,840
Speaker 1: It's going back to World War two, whereas May through

62
00:03:42,920 --> 00:03:46,320
Speaker 1: October was the weakest six month period with an average

63
00:03:46,360 --> 00:03:49,200
Speaker 1: increase of less than one and a half percent. But

64
00:03:49,320 --> 00:03:52,480
Speaker 1: my thought was, well, g one and a half percent annualized,

65
00:03:52,480 --> 00:03:54,320
Speaker 1: there is a lot better than you would get in cash.

66
00:03:54,760 --> 00:03:57,400
Speaker 1: There must be a better way than actually selling in

67
00:03:57,480 --> 00:04:00,720
Speaker 1: May and going away. And I actually own that you

68
00:04:00,800 --> 00:04:05,120
Speaker 1: are better off rotating than you are retreating. Um. So

69
00:04:05,200 --> 00:04:08,000
Speaker 1: I looked at five different strategies. Being in the market

70
00:04:08,040 --> 00:04:11,920
Speaker 1: all year long, um being in stocks from November through April,

71
00:04:11,960 --> 00:04:15,200
Speaker 1: but then selling and going into cash, being in the

72
00:04:15,240 --> 00:04:18,159
Speaker 1: market November through April, but then being in the Barclays

73
00:04:18,279 --> 00:04:22,320
Speaker 1: agg made through October, the SMP, low volatility, and just

74
00:04:22,360 --> 00:04:24,200
Speaker 1: a second, when you talk about Barkley ZAG, I just

75
00:04:24,200 --> 00:04:26,479
Speaker 1: want to make sure that we're talking about the Barkley's

76
00:04:26,520 --> 00:04:30,480
Speaker 1: Aggregate Bond Index right, That is correct. So if an

77
00:04:30,520 --> 00:04:32,919
Speaker 1: investor wanted to follow along with an e t F

78
00:04:33,000 --> 00:04:36,120
Speaker 1: it would be a g G that would replicate that.

79
00:04:36,520 --> 00:04:39,280
Speaker 1: And then finally you talked about the smart beta shift.

80
00:04:39,360 --> 00:04:40,599
Speaker 1: I'll have to ask you about that. And then you

81
00:04:40,600 --> 00:04:44,839
Speaker 1: said sector rotation. What what did you discover for strategy

82
00:04:44,920 --> 00:04:47,839
Speaker 1: number one? The idea of staying the course. Staying the

83
00:04:47,880 --> 00:04:50,000
Speaker 1: course was not as bad as you would think. The

84
00:04:50,200 --> 00:04:57,360
Speaker 1: compound annual total return since was nine point nine um.

85
00:04:57,600 --> 00:05:01,560
Speaker 1: You ended up getting your standard deviation of eighteen um.

86
00:05:02,040 --> 00:05:04,839
Speaker 1: You had a very good year up thirty eight percent,

87
00:05:04,960 --> 00:05:07,760
Speaker 1: and also a very bad year down thirty seven percent,

88
00:05:08,200 --> 00:05:11,080
Speaker 1: being in two thousand and eight. So that was the benchmark,

89
00:05:11,160 --> 00:05:14,760
Speaker 1: the hurdle against which the other strategies were measured. All right,

90
00:05:14,839 --> 00:05:17,719
Speaker 1: tell us now about cashing out. Let's say you actually

91
00:05:18,040 --> 00:05:20,520
Speaker 1: cashed out and sold everything in May and then we're

92
00:05:20,560 --> 00:05:25,839
Speaker 1: fully invested from November the first of the following year. Well, indeed,

93
00:05:25,880 --> 00:05:29,360
Speaker 1: you saw your volatility go down, the standard deviation went

94
00:05:29,400 --> 00:05:32,480
Speaker 1: from eighteen down to ten and a half. Your worst

95
00:05:32,560 --> 00:05:36,200
Speaker 1: year went from thirty minus thirty seven percent to minus

96
00:05:36,279 --> 00:05:39,640
Speaker 1: ten percent. But you paid for it because instead of

97
00:05:39,640 --> 00:05:43,320
Speaker 1: getting a nine point nine percent compound total return, you've

98
00:05:43,360 --> 00:05:47,680
Speaker 1: got eight point nine percent. Uh. And so as a result. Yes,

99
00:05:47,760 --> 00:05:50,320
Speaker 1: you you get for what what you pay for. And

100
00:05:50,600 --> 00:05:54,599
Speaker 1: if you're looking for low volatility, then you took a

101
00:05:54,839 --> 00:06:00,040
Speaker 1: lower return. So Sam, if you're planning to organize a

102
00:06:00,080 --> 00:06:02,320
Speaker 1: Memorial Day holidaying, before you do so, you say, you

103
00:06:02,360 --> 00:06:04,480
Speaker 1: know what I'm gonna put my cash, I'm gonna take

104
00:06:04,480 --> 00:06:06,000
Speaker 1: it out of the stock market. I'm gonna put it

105
00:06:06,040 --> 00:06:09,719
Speaker 1: in the Barkney's Aggregate Bond Index. How do you do? Then? Um?

106
00:06:09,800 --> 00:06:12,440
Speaker 1: The Then actually the number start looking pretty good. The

107
00:06:12,600 --> 00:06:15,599
Speaker 1: instead of nine point nine for the SMP all year long,

108
00:06:16,080 --> 00:06:20,039
Speaker 1: you've got eleven point three percent. By engaging in this

109
00:06:20,160 --> 00:06:25,960
Speaker 1: semi annual rotation, UM, you ended up seeing a fairly

110
00:06:26,040 --> 00:06:31,320
Speaker 1: low volatility reading, going from eighteen down to twelve. Your

111
00:06:31,400 --> 00:06:34,480
Speaker 1: worst year, instead of being minus thirty seven for the SMP,

112
00:06:35,000 --> 00:06:38,880
Speaker 1: was minus fourteen. UM. But you still only beat the

113
00:06:38,920 --> 00:06:42,920
Speaker 1: market percent of the time, so you still in a

114
00:06:43,000 --> 00:06:45,960
Speaker 1: sense had a batting average that was less than fifty.

115
00:06:46,760 --> 00:06:49,840
Speaker 1: All right, So we move on from the bond index

116
00:06:50,080 --> 00:06:54,560
Speaker 1: to what is called smart beta. What is smart beta? Well,

117
00:06:54,600 --> 00:07:00,000
Speaker 1: smart beta is when you engage in different screening technique

118
00:07:00,120 --> 00:07:02,520
Speaker 1: to try to come up with returns that exceed that

119
00:07:02,920 --> 00:07:05,560
Speaker 1: for the S and P file five hundred, while at

120
00:07:05,560 --> 00:07:10,280
Speaker 1: the same time probably having lower volatility. Sp l V

121
00:07:11,000 --> 00:07:14,560
Speaker 1: is the S and P five hundred Low Volatility Index,

122
00:07:14,880 --> 00:07:18,880
Speaker 1: which contains the one hundred stocks with the lowest trailing

123
00:07:18,960 --> 00:07:23,640
Speaker 1: twelve month volatility, and this grouping gets reviewed every quarter,

124
00:07:24,160 --> 00:07:27,440
Speaker 1: so it in a sense is a defensive approach of

125
00:07:27,560 --> 00:07:31,600
Speaker 1: owning equities. And by using that in place of bonds

126
00:07:31,720 --> 00:07:35,040
Speaker 1: or cash in then May through October period, you ended

127
00:07:35,120 --> 00:07:39,120
Speaker 1: up with a near twelve percent compound total return. You

128
00:07:39,240 --> 00:07:42,200
Speaker 1: beat the market fifty six percent of the time. You

129
00:07:42,320 --> 00:07:45,720
Speaker 1: still had lower volatility. Uh and instead of getting in

130
00:07:45,800 --> 00:07:49,000
Speaker 1: minus thirty seven in two thousand and eight, you've got

131
00:07:49,000 --> 00:07:53,960
Speaker 1: a minus twenty five, so second best but not the

132
00:07:54,000 --> 00:07:56,840
Speaker 1: top of the heap. How about if you just let

133
00:07:56,880 --> 00:08:02,960
Speaker 1: it rotate into such industry says Consumer Staples and Healthcare. Well,

134
00:08:03,040 --> 00:08:05,800
Speaker 1: interestingly enough, I guess when the going gets tough, the

135
00:08:05,920 --> 00:08:09,160
Speaker 1: tough go eating, smoking, and drinking, and if they overdo it,

136
00:08:09,200 --> 00:08:11,760
Speaker 1: they have to go to the doctor. Works perfectly made

137
00:08:11,760 --> 00:08:17,520
Speaker 1: through October because this rotationary strategy gained more than thirteen percent,

138
00:08:18,000 --> 00:08:21,440
Speaker 1: It beat the market six of the time with also

139
00:08:21,520 --> 00:08:26,960
Speaker 1: a very low standard deviation. And amazingly, this stock portfolio

140
00:08:27,360 --> 00:08:30,520
Speaker 1: over the past twenty five years. Its worst year was

141
00:08:30,600 --> 00:08:34,720
Speaker 1: two thousand and eight, down twenty one versus thirty seven

142
00:08:34,840 --> 00:08:37,320
Speaker 1: for the stock market as a whole. What's the most

143
00:08:37,320 --> 00:08:41,840
Speaker 1: efficient way to employ that strategy? It would be using

144
00:08:42,200 --> 00:08:47,560
Speaker 1: UH the e t s of x LP for consumer staples,

145
00:08:47,760 --> 00:08:51,720
Speaker 1: x l V for healthcare UH, and then using sp

146
00:08:52,160 --> 00:08:55,559
Speaker 1: Y for the sm P five hundred. What's also interesting

147
00:08:55,760 --> 00:08:59,640
Speaker 1: is that this selling may strategy rotating to different sectors

148
00:09:00,160 --> 00:09:04,200
Speaker 1: is not only a good strategy for large tap stocks,

149
00:09:04,240 --> 00:09:07,760
Speaker 1: but for the equal weight SMP five hundred the small

150
00:09:07,800 --> 00:09:11,600
Speaker 1: cap six hundred UM. So you could look to those

151
00:09:11,679 --> 00:09:15,720
Speaker 1: indices from Googgenheim as well as from power Shares UH

152
00:09:15,840 --> 00:09:20,240
Speaker 1: to get the ticker symbols, and the rotation effect has

153
00:09:20,280 --> 00:09:23,719
Speaker 1: a similar three to four hundred basis points about performance

154
00:09:23,760 --> 00:09:26,880
Speaker 1: per year. We're speaking with Sam stoval. He is US

155
00:09:26,920 --> 00:09:31,200
Speaker 1: equity strategist SMP A Global Market Intelligence also the author

156
00:09:31,240 --> 00:09:35,920
Speaker 1: of the Seven Rules of Wall Street. Sam Stovall looking

157
00:09:35,960 --> 00:09:38,520
Speaker 1: at the performance as we started this segment, looking at

158
00:09:38,520 --> 00:09:41,400
Speaker 1: the SMP five hundred, a gain of nine tenths of

159
00:09:41,440 --> 00:09:44,560
Speaker 1: a percent. If you've yet to hit your benchmark as

160
00:09:44,600 --> 00:09:47,640
Speaker 1: an investment manager so far, this year. What are the

161
00:09:47,720 --> 00:09:51,760
Speaker 1: chances do you believe that you'll actually accomplish that by

162
00:09:51,760 --> 00:09:55,800
Speaker 1: the end of Well, I think this is definitely going

163
00:09:55,840 --> 00:09:58,800
Speaker 1: to be a challenging year. It is the eighth year

164
00:09:58,840 --> 00:10:01,680
Speaker 1: of this bull market since World War Two. What I

165
00:10:01,720 --> 00:10:04,720
Speaker 1: did was I counted up the number of one percent

166
00:10:04,920 --> 00:10:09,679
Speaker 1: days in counting in bullmarket years, and on average, we've

167
00:10:09,720 --> 00:10:12,920
Speaker 1: got sixty five in the year that we just concluded, Well,

168
00:10:13,320 --> 00:10:15,720
Speaker 1: we have eighty five to look forward to as the

169
00:10:15,760 --> 00:10:20,200
Speaker 1: average for this year, so high volatility. I think we

170
00:10:20,280 --> 00:10:24,319
Speaker 1: need to see an improvement in earnings expectations. We started

171
00:10:24,320 --> 00:10:27,640
Speaker 1: the year thinking that the SMP would post a seven

172
00:10:27,679 --> 00:10:31,280
Speaker 1: and a half percent increase in operating earnings. Now that

173
00:10:31,480 --> 00:10:35,160
Speaker 1: estimate is less than one half of one percent, So

174
00:10:35,280 --> 00:10:37,240
Speaker 1: I think things need to turn around. We need to

175
00:10:37,240 --> 00:10:41,559
Speaker 1: see an improvement in the earnings projections because while inflation

176
00:10:41,640 --> 00:10:46,719
Speaker 1: remains fairly low, valuations remain fairly high, and you can

177
00:10:46,720 --> 00:10:50,400
Speaker 1: only have high valuations when inflation remains low and earnings

178
00:10:50,400 --> 00:10:53,199
Speaker 1: are on the rise. Thank you very much. Sam Stovall

179
00:10:53,520 --> 00:10:57,240
Speaker 1: is u S Secuity Strategist for SMP Global Market Intelligence,

180
00:10:57,760 --> 00:11:00,840
Speaker 1: SMP Capital i Q, also the author of the Seven

181
00:11:01,080 --> 00:11:04,280
Speaker 1: Rules of Wall Street. If you're listening to taking Stock

182
00:11:04,320 --> 00:11:07,160
Speaker 1: on Bloomberg Radio, I'm pim Fox to take it through

183
00:11:07,160 --> 00:11:09,200
Speaker 1: to the close. Next on Bloomberg Radio,