WEBVTT - Mainstay's Kudla Sees Emerging Equities as Top Performer(Audio) 0:00:03.240 --> 0:00:06.600 Global business news twenty four hours a day at Bloomberg 0:00:06.640 --> 0:00:09.720 dot Com, the radio, plus Globo laps and on your radio. 0:00:10.039 --> 0:00:14.160 This is a Bloomberg Business Flash from Bloomberg World Headquarters 0:00:14.160 --> 0:00:16.840 on Katherine Connery. Stocks are little change, heading for their 0:00:16.880 --> 0:00:19.720 best week in nine months and gaining for a fourth 0:00:19.720 --> 0:00:22.759 straight session. There's optimism about the U S economy and 0:00:22.800 --> 0:00:25.440 about signals from central banks that they'll continue to stave 0:00:25.480 --> 0:00:28.720 off fallout from Britain's decision to leave the European Union. 0:00:29.080 --> 0:00:31.240 We check their markets every fifteen minutes throughout the trading 0:00:31.280 --> 0:00:33.960 day on Bloomberg Radio. Down Industrial Average is up twenty 0:00:34.000 --> 0:00:36.400 seven points an eighth of a percent, his rating at 0:00:36.440 --> 0:00:39.839 seventeen thousand, nine hundred fifty six. SMP five founded up 0:00:39.880 --> 0:00:42.160 five points a quarter percent at twenty one o three. 0:00:42.479 --> 0:00:44.960 Then AzaC is up twenty one points at nearly half 0:00:44.960 --> 0:00:48.440 a percent, trading at forty sixty four. West Texas Intermedia 0:00:48.479 --> 0:00:50.440 Crude oil at the eighty three cents of barrel, one 0:00:50.479 --> 0:00:53.600 point seven percent at forty nine sixteen. Spout gold is 0:00:53.640 --> 0:00:57.279 up twenty four dollars twenty cents announced at thirteen eighty ten. 0:00:57.320 --> 0:00:59.440 Year Treasury up seven thirty seconds with the yield of 0:00:59.480 --> 0:01:02.200 one point four four which has sent and updating one 0:01:02.240 --> 0:01:05.240 of our top stories. Local authorities say as many as 0:01:05.240 --> 0:01:08.240 a group of nine gunmen attacked a restaurant popular with 0:01:08.319 --> 0:01:12.760 foreigners in a diplomatomatic zone of the Bangladeshi capital. U 0:01:12.840 --> 0:01:15.679 s State Department spokesman says that all American citizens that 0:01:15.720 --> 0:01:18.240 are under the authority of the Diplomatic Chief of Mission 0:01:18.280 --> 0:01:21.000 Nan Dhaka have been accounted for and we're not involved 0:01:21.000 --> 0:01:23.800 in the incident. The department is still checking on private 0:01:23.800 --> 0:01:26.640 American citizens who may have been in the area. And 0:01:26.720 --> 0:01:31.120 that's a bloomberg business flash. Thank you for investing in Europe, 0:01:31.120 --> 0:01:33.480 and first of all, thanks to Catherine Cartery. Certainly a 0:01:33.480 --> 0:01:36.280 lot of people are asking that question after the big 0:01:36.360 --> 0:01:39.080 Brexit vote. Well, if you are, you're going to want 0:01:39.080 --> 0:01:41.959 to hear this. Catherine Cartery is back with today's et 0:01:42.080 --> 0:01:45.440 F report, one of last year's most popular e t 0:01:45.600 --> 0:01:48.280 F trade has become a disappointment in the first half 0:01:48.320 --> 0:01:52.160 of sixteen. That's the word from Todd Rosenbooth, director of 0:01:52.240 --> 0:01:56.160 et F Research at SMP Global Market Intelligence. Europe has 0:01:56.160 --> 0:01:59.240 been a very poor place to invest in the first 0:01:59.240 --> 0:02:02.920 half of them and sixteen, and it was even before 0:02:03.040 --> 0:02:06.680 the Bridget vote was coming to pass. Rosen Blues takes 0:02:06.680 --> 0:02:09.080 a look at just how disappointing that trade has been 0:02:09.080 --> 0:02:13.000 this year. Most European equity ETFs for down uh, you know, 0:02:13.320 --> 0:02:16.680 mid mid single digits Stephen double digits in the first 0:02:16.680 --> 0:02:20.239 half of the year because of weakness in the local economy, 0:02:20.360 --> 0:02:24.359 because of the strengthening of the euro. Rosenblues says, there 0:02:24.360 --> 0:02:27.519 are also some industry groups that have underperformed the broader market. 0:02:27.880 --> 0:02:31.320 His example, financial shares as interest rates have remained low. 0:02:31.720 --> 0:02:35.160 That financials the like sector spider fund or XLF has 0:02:35.160 --> 0:02:37.600 fallen four point six percent since the start of the year, 0:02:37.840 --> 0:02:40.919 as the SMP five hundred has gained two point seven percent. 0:02:41.520 --> 0:02:46.440 That's your Bloomberg ETF report. I'm Catherine Colderie. You're listening 0:02:46.440 --> 0:02:49.440 to Taking Stock with Kathleen Mays and Pim Fox on 0:02:49.520 --> 0:02:54.960 Bloomberg Ring. A week ago, stocks were plunging in US 0:02:55.040 --> 0:02:57.680 and around the world after UK voted to leave the 0:02:57.720 --> 0:03:01.720 European Union. A week later, the stock market capping off 0:03:01.840 --> 0:03:03.960 four days of gains. No not quite as big as 0:03:04.000 --> 0:03:05.880 earlier in the week. It seems on a much sounder 0:03:05.880 --> 0:03:10.239 footing sp getting back around the level. Where do we 0:03:10.280 --> 0:03:12.920 go from here? Is this just a temporary bounce back 0:03:13.040 --> 0:03:15.560 or have stocks weather to storm and are they ready 0:03:15.720 --> 0:03:19.839 to focus once again on US and global fundamentals and 0:03:20.080 --> 0:03:23.360 maybe make some gains. Well, let's put that question to 0:03:23.520 --> 0:03:27.600 our next guest, David Coudla. He is CEO and chief 0:03:27.639 --> 0:03:32.440 investment strategist at Mainstay Capital Management and he's joining us 0:03:32.680 --> 0:03:36.839 from Michigan. Dave, Welcome back, Kathleen. So the dust has 0:03:36.840 --> 0:03:39.120 settled on Brexit? Is it time to just say, well, 0:03:39.120 --> 0:03:41.120 we'll put that on a on a very back burner 0:03:41.160 --> 0:03:43.880 and look at something else. Now for stocks, you know, 0:03:43.920 --> 0:03:46.400 it may seem that way. Uh. We if you look 0:03:46.440 --> 0:03:49.400 back over the past week, Uh, we had the big, 0:03:49.520 --> 0:03:53.240 big draw down on Friday and Monday, and we've recovered 0:03:53.520 --> 0:03:59.120 about depending on the index. But the real impact of Brexit, 0:03:59.200 --> 0:04:03.480 which we think is much more severe for Europe and 0:04:03.880 --> 0:04:07.760 specifically the UK, has months and years to play out. 0:04:07.920 --> 0:04:11.920 The impact on the US we always expected to be small, 0:04:12.560 --> 0:04:15.480 almost negligible anyway, except how it might affect some of 0:04:15.480 --> 0:04:20.640 our exporters if European economy uh does slow further because 0:04:20.720 --> 0:04:24.599 of it, and UK potentially even going into recession second 0:04:24.640 --> 0:04:28.000 part of this year. Well, apart from the stock side 0:04:28.000 --> 0:04:29.360 of it and how companies are going to do it, 0:04:29.400 --> 0:04:31.000 seems to me we have to also look at the 0:04:31.040 --> 0:04:34.560 bond market because the the impact of Brexit on the 0:04:34.600 --> 0:04:37.880 bond market potentially is somewhat more lasting. We've had the 0:04:37.920 --> 0:04:40.719 drop in the third year bond now to the lowest 0:04:40.800 --> 0:04:45.119 yield ever. We've got, uh, the ECB talking about buying 0:04:45.560 --> 0:04:48.240 more bonds in a sense, even lesser quality bonds. I 0:04:48.279 --> 0:04:51.360 guess you'd say Spanish bonds are railing up. This big 0:04:51.440 --> 0:04:54.760 drop in bond yields around the US and in the world. 0:04:55.320 --> 0:04:57.800 What does that mean for investors? And again, Davi, is 0:04:57.800 --> 0:05:00.680 it something that's going to persist long after the dust 0:05:00.720 --> 0:05:03.719 settles on the fall up from the stock market. Yeah, 0:05:03.880 --> 0:05:06.839 we think that yields are low and are going to 0:05:06.920 --> 0:05:10.080 be low and even lower if we look at what's happening, 0:05:10.200 --> 0:05:11.920 you know, it's not even as much about the FED 0:05:11.960 --> 0:05:14.840 when we get out on the intermediate term and long, uh, 0:05:15.000 --> 0:05:18.839 the long into the curve. We have in Japan their 0:05:18.839 --> 0:05:23.120 massive quantitative easing program, in Europe their massive quantitative easing 0:05:23.240 --> 0:05:27.560 program that will probably become more massive with the e 0:05:27.640 --> 0:05:30.320 C b looking at how do they compensate for the 0:05:30.360 --> 0:05:33.920 adverse impact of Brexit on the UK. So we see 0:05:33.960 --> 0:05:37.400 these yields that went low to zero and even negative 0:05:38.160 --> 0:05:42.080 twelve trillion in sovereign debt with the negative yield globally. 0:05:42.720 --> 0:05:45.760 And so when we look at our tenure, our tenure 0:05:46.240 --> 0:05:49.679 at when it was at one point three four this morning, 0:05:49.680 --> 0:05:54.640 that record low still looks attractive compared to sovereign debt 0:05:54.680 --> 0:05:58.000 around the world. That's that's a lot lower or even negative. 0:05:59.600 --> 0:06:04.320 Now when it comes to the global impact, then is 0:06:04.360 --> 0:06:07.560 it mainly focused in the UK? Would you say, you know, don't, 0:06:07.560 --> 0:06:10.800 don't really bother unless you want to find individual shining stars. OK, 0:06:11.000 --> 0:06:13.000 just avoid the UK for now. But the rest of 0:06:13.000 --> 0:06:16.200 the world looks okay to you. I would I would 0:06:16.240 --> 0:06:19.400 avoid all of Europe for now. I would avoid in 0:06:19.440 --> 0:06:22.680 the UK. There may be mega cap stocks that do 0:06:22.800 --> 0:06:25.719 well because of the currency falling in value so much. 0:06:26.600 --> 0:06:31.080 The multinational conglomerates are exporters from the UK. But overall, uh, 0:06:31.120 --> 0:06:33.520 you know, we we heard Carney come out the Bank 0:06:33.520 --> 0:06:37.320 of England governor and talk about uh really reversing course, 0:06:37.560 --> 0:06:40.880 you know six months ago, ten months ago. Uh, England, 0:06:40.920 --> 0:06:42.720 like the U s we're looking at when they would 0:06:42.720 --> 0:06:46.640 tighten monetary policy, they're now going to reverse course to 0:06:46.640 --> 0:06:51.040 to UH try to abate the negative impacts of Brexit. 0:06:51.400 --> 0:06:53.360 The UK in general is going to be dealing with 0:06:53.400 --> 0:06:57.680 the impact of Brexit. Japan we've we've stayed away from 0:06:57.720 --> 0:07:00.960 for a while. We really think that in general for 0:07:01.120 --> 0:07:06.400 international diversification, for investors, avoid developed markets, Avoid Europe, avoid Japan, 0:07:06.880 --> 0:07:09.840 look to emerging markets. That's where we believe the opportunity 0:07:09.920 --> 0:07:13.280 is now. Auto companies a Big three reported and you 0:07:13.320 --> 0:07:15.520 have a lot of clients, of course who worked in 0:07:15.560 --> 0:07:19.480 the auto industry over the years. Um the question, of course, 0:07:19.520 --> 0:07:23.040 have auto sales peaked after a very strong would you 0:07:23.040 --> 0:07:25.040 invest any in any of the Big three or any 0:07:25.040 --> 0:07:27.920 of the big global auto companies. We're neutral on the 0:07:27.960 --> 0:07:32.040 automakers at this point. We think that in this sales cycle, 0:07:32.520 --> 0:07:35.560 sales will remain strong. We're on track for seventeen million 0:07:35.640 --> 0:07:42.680 vehicles still in in the US plus units, but sales 0:07:42.680 --> 0:07:46.960 of plateaued, and we're neutral on the automakers at this point. 0:07:47.640 --> 0:07:51.520 Ford had a had a good June sales month. GM 0:07:51.560 --> 0:07:54.520 had a great first half, their best first half of 0:07:54.640 --> 0:07:58.160 five percent sales growth, best in a decade. But we're 0:07:58.280 --> 0:08:02.240 at that peak in a cycle sales of plateau, so 0:08:02.320 --> 0:08:05.040 we're neutral on the automakers from here. So Dave, let's 0:08:05.080 --> 0:08:07.680 look at some things that you are positive on, and 0:08:07.840 --> 0:08:11.000 let's start with a Fidelity New Markets income fund. What 0:08:11.120 --> 0:08:12.840 is it and why do you like it? Okay? So 0:08:12.880 --> 0:08:16.040 Fidelity New Markets Income. Uh. This is a Fidelity fund 0:08:16.040 --> 0:08:18.800 that's been managed by John Carlson for more than twenty 0:08:18.880 --> 0:08:21.960 years and he's done a great job with it. Essentially 0:08:22.000 --> 0:08:24.960 invest in the emerging market debt and as we talked 0:08:24.960 --> 0:08:28.320 about with low yields around the world, with the concern 0:08:28.360 --> 0:08:31.840 about the same concerns about the economy in Europe, the 0:08:31.840 --> 0:08:35.800 economy here. So we have those concerns about junk bonds, 0:08:35.880 --> 0:08:38.959 distressed debt, typical high yield debt, we can go to 0:08:39.040 --> 0:08:41.880 emerging markets debt as a place to get that high 0:08:41.920 --> 0:08:44.959 yield New markets income. Fidelity New Markets Income yields about 0:08:45.000 --> 0:08:49.520 six percent. With all this easy money policy driving rates down, 0:08:50.000 --> 0:08:52.360 people seeking yield are going to a fund like this. 0:08:52.600 --> 0:08:54.679 The other thing that's interesting this fund is available in 0:08:54.720 --> 0:08:56.400 a lot of four one K plans. We just talked 0:08:56.440 --> 0:08:59.679 about general motors. Uh, it's our top holding in our 0:08:59.720 --> 0:09:04.520 growth portfolios. Opportunistically, the fund is up twelve percent this year, 0:09:04.640 --> 0:09:07.240 certainly out performing a lot of the equity funds and 0:09:07.280 --> 0:09:09.360 doing it with about two thirds of the level of 0:09:09.440 --> 0:09:12.720 volatility of those funds over time. Now you're getting increasingly 0:09:12.800 --> 0:09:14.840 positive on emerging market equities. I think there's a lot 0:09:14.880 --> 0:09:17.120 of people are wondering if they could jump on that bandwagon, 0:09:17.480 --> 0:09:19.160 if they want to do that. First of all, why 0:09:19.200 --> 0:09:22.640 and what do you recommend buying? Well? With the easy 0:09:22.679 --> 0:09:25.760 money policy, we know that emerging markets, a lot of 0:09:25.800 --> 0:09:29.559 emerging market countries, especially those with current account deficits, live 0:09:29.600 --> 0:09:32.640 and diet for capital flows. UH money will get even 0:09:32.679 --> 0:09:35.079 easier in Europe, it will continue to be so in Japan. 0:09:35.840 --> 0:09:38.320 We now think the FED is on hold probably through 0:09:38.320 --> 0:09:40.160 the end of this year, which is a lot different 0:09:40.160 --> 0:09:42.280 outlook than many people had at the beginning of the year. 0:09:42.640 --> 0:09:46.280 But we're facing the reality of these global worries. So 0:09:47.200 --> 0:09:51.560 that makes that's good for emerging market equities, and we 0:09:51.679 --> 0:09:55.600 expect that emerging market equities to be top performers this year. 0:09:56.520 --> 0:10:00.800 Gold what do you like there? Well? With the again, 0:10:00.840 --> 0:10:03.319 the the uncertainty we have in the markets, and if 0:10:03.320 --> 0:10:06.840 you take last Friday when we had the US market 0:10:06.840 --> 0:10:10.080 depending on the index down three and a half to five, 0:10:11.640 --> 0:10:14.840 Japan down eight percent, Europe down more than eight percent. 0:10:14.920 --> 0:10:18.360 That day gold gold boy in g l D was 0:10:18.440 --> 0:10:21.000 up four and a half percent. And so we get 0:10:21.040 --> 0:10:25.440 that low correlation with stocks and bonds and even a 0:10:25.440 --> 0:10:28.280 negative correlation at time, so we can help diversifier portfolio 0:10:28.720 --> 0:10:31.400 and again with yields so low. You we know gold 0:10:31.480 --> 0:10:34.160 is as a speculative investment. It has no dividend yield, 0:10:34.240 --> 0:10:37.640 it has no pe ratio, but we considered a store 0:10:37.679 --> 0:10:40.720 of value and a diversifier in our portfolio. When bonds 0:10:40.760 --> 0:10:44.360 aren't providing much of a yield, it doesn't feel is bad. 0:10:44.400 --> 0:10:46.439 It doesn't hurt as much to hold gold that has 0:10:46.480 --> 0:10:48.679 no yield, except I have metal in my hand rather 0:10:48.720 --> 0:10:51.559 than a piece of paper. Dove Coola, thanks so much. 0:10:51.600 --> 0:10:55.319 Have a great Fourth of July weekend. To thank you. Kathleen, founder, 0:10:55.440 --> 0:11:00.840 CEO and chief investment Strategies at Mainstay Capital Management in Freud, Michigan, 0:11:00.880 --> 0:11:04.760 with some two billion dollars of assets under management. I'm 0:11:04.840 --> 0:11:07.640 Kathleen Hayes, my co host PIM Fox on vacation this week. 0:11:07.679 --> 0:11:10.680 We'll be greeting him back on Tuesday. This is taking Stock, 0:11:11.080 --> 0:11:12.280 this is Bloomberg.