WEBVTT - Beaconcrest's Divney Is Avoiding Retail, But Likes Coach(Audio) 0:00:03.320 --> 0:00:06.720 Global business news twenty four hours a day. If Bloomberg 0:00:06.760 --> 0:00:09.840 dot Com the radio plus mobile act and on your radio. 0:00:10.119 --> 0:00:14.160 This is a Bloomberg business flag from Bloomberg World Headquarters. 0:00:14.240 --> 0:00:18.680 I'm Charlie Pellett's stocks fluctuating, the dollar rallies, treasuries plunge, 0:00:18.720 --> 0:00:21.440 an indication of the Federal Reserve may raise rates as 0:00:21.480 --> 0:00:24.840 early as June was weighed against signs the world's largest 0:00:24.880 --> 0:00:29.680 economy is gaining momentum. SMP five hundred index down two points, 0:00:29.680 --> 0:00:32.440 a drop there of point one percent. The SMP had 0:00:32.520 --> 0:00:35.920 been higher heading into today's minutes, NAS dank holding onto 0:00:35.960 --> 0:00:38.720 a gain of fifteen points, up three tents of one percent. 0:00:39.000 --> 0:00:41.920 Town Industrials down thirty had dropped there of two tents 0:00:41.920 --> 0:00:44.680 of one percent. We've got the tenure down twenty seven 0:00:44.680 --> 0:00:47.000 thirty seconds. Looking at the yield of one point eight 0:00:47.040 --> 0:00:50.600 six percent. Gold down eighteen dollars, the ounce to twelve 0:00:50.600 --> 0:00:53.280 fifty eight, a drop of one point four percent. West 0:00:53.320 --> 0:00:56.720 Texas Intermedia crewed down forty five cents, a drop there 0:00:56.760 --> 0:01:00.640 of point nine percent. W t I eighty six barrel. 0:01:00.840 --> 0:01:04.560 I'm Charlie Peloton. That's a Bloomberg Business flash. Thank you 0:01:04.680 --> 0:01:07.039 very much. Charlie Bella, it is time now for the 0:01:07.040 --> 0:01:08.640 e t F Report. It is brought to you by 0:01:08.680 --> 0:01:12.160 Vanach Vector's et F s. Expect more from your muni's 0:01:12.400 --> 0:01:16.400 target tax exempting income by maturity and credit quality, all 0:01:16.480 --> 0:01:19.600 with low cost e t F s. Visit vanak dot 0:01:19.640 --> 0:01:24.760 com slash Muni Vanek access the opportunities. Let's go to 0:01:24.800 --> 0:01:28.080 Catherine Cawdary for the e t F Report. The sea 0:01:28.200 --> 0:01:31.320 change from high cost to low cost investments can be 0:01:31.440 --> 0:01:34.679 seen in the growing popularity of Charles Schwab's a t S. 0:01:35.080 --> 0:01:40.000 Bloomberg intelligence analyst Eric Beltuna says, nineteen of Schwabs have 0:01:40.160 --> 0:01:42.560 taken in money this year. That is hard to believe. 0:01:42.720 --> 0:01:45.640 Right again, it shows you that you know, Schwab is 0:01:45.640 --> 0:01:48.520 getting money through robo advisors and through people who are 0:01:48.560 --> 0:01:51.040 at allocating. You could argue that s dumb money, but 0:01:51.080 --> 0:01:52.960 you could argue that smart too, because it's going in 0:01:53.000 --> 0:01:56.240 and buying everything. Um sometimes when it's down, which is good, 0:01:56.280 --> 0:01:59.560 you get cheaper prices. Valtuna says Schwab has attracted four 0:01:59.640 --> 0:02:02.360 to five billion dollars and inflows into its e t s. 0:02:02.360 --> 0:02:06.160 This here including into its newest suite, a smart Beta products. 0:02:06.200 --> 0:02:09.040 For Schwab to start taking your money in smart Beta, 0:02:09.240 --> 0:02:11.040 that's a big deal because smart beat has always been 0:02:11.080 --> 0:02:13.440 the area we can charge a little more, but Schwab's 0:02:13.760 --> 0:02:16.920 products are dirt cheap. So it's interesting to see if 0:02:17.000 --> 0:02:20.160 that fee war, you know, and Schwab getting in collecting 0:02:20.200 --> 0:02:22.720 assets will affect Smart Beta. So far, there is some 0:02:23.560 --> 0:02:25.960 there's some evidence of that. Four of schwab six new 0:02:26.000 --> 0:02:29.560 fundamental index ets have an expense ratio of thirty two 0:02:29.560 --> 0:02:34.560 basis points. That's your Bloomberg ETF report. I'm Katherine Cowdery. 0:02:35.320 --> 0:02:38.320 You're listening to Taking Stock with Kathleen Hayes and Pim 0:02:38.400 --> 0:02:42.560 Fox on Bloomberg Radio. I had a nice little rally 0:02:42.600 --> 0:02:45.920 going in stocks today until the FED released the minutes 0:02:46.040 --> 0:02:49.320 of its April meeting at two o'clock Wall Street time. 0:02:49.919 --> 0:02:54.160 Stocks sliding after the minutes revealed the Feder reserve that 0:02:54.360 --> 0:02:58.399 is ready willing and able to raise rates in its 0:02:58.440 --> 0:03:02.520 meeting in June if the continue to support this move. 0:03:02.560 --> 0:03:05.720 It doesn't seem like this is a symmetric question. It 0:03:05.800 --> 0:03:07.760 seems like the Fed is poised just waiting to see 0:03:07.800 --> 0:03:10.560 if the data is supported. What does this mean for stocks? 0:03:10.560 --> 0:03:13.440 Not just today but down the road for bonds as well. 0:03:13.600 --> 0:03:15.920 Happy to welcome back to the show. Kevin Divney, chief 0:03:15.919 --> 0:03:21.400 investment Officer Beacon Crest Capital Management in Boston. So, Kevin, 0:03:21.480 --> 0:03:24.240 first of all, your take on the minutes looks like 0:03:24.280 --> 0:03:28.320 the treasury market, the US bond market was not positioned 0:03:28.480 --> 0:03:33.440 for minutes that sounded this hawk ish. I guess definitely 0:03:33.440 --> 0:03:36.119 good to be with you. The market was clearly surprised, 0:03:36.160 --> 0:03:38.600 But also I thought it was interesting how so much 0:03:38.600 --> 0:03:40.840 of the said minutes were explaining what they thought the 0:03:40.880 --> 0:03:43.440 market thought about their last comments. So I think that's 0:03:43.480 --> 0:03:46.160 something else that's been happening here. The said is sort 0:03:46.200 --> 0:03:48.920 of responding too much to the capital markets in in 0:03:48.960 --> 0:03:51.440 the short term. But I think the good news is 0:03:51.480 --> 0:03:54.160 for investors looking at equity markets not so much. What's 0:03:54.200 --> 0:03:58.360 happening today is that the exiting of the stimulative policies, 0:03:58.400 --> 0:04:01.840 in our view, is a positive thing they've done. There's 0:04:01.880 --> 0:04:05.000 long term unintended consequences, and I think we're transitioning to 0:04:05.040 --> 0:04:07.720 a point where we could be more of a normal 0:04:07.800 --> 0:04:12.880 operating environment for stocks. Kevin Tiffany talk about the death 0:04:13.080 --> 0:04:15.520 of beta. First, you got to tell me what it is, 0:04:15.760 --> 0:04:17.560 and then tell me what happens when it has a 0:04:17.600 --> 0:04:22.719 stake through its heart. Well, what we've seen, obviously since 0:04:22.839 --> 0:04:25.960 the QUEUEI really exited in the end of FEEN is 0:04:26.000 --> 0:04:27.960 sort of a flat the sideways market with a lot 0:04:27.960 --> 0:04:30.719 of alatility. So a lot of equity investors are not 0:04:30.800 --> 0:04:33.839 feeling that's good. They were feeling very good after we 0:04:33.920 --> 0:04:36.360 had the zero interest rate policy and watching this set 0:04:36.400 --> 0:04:39.240 and seeing the market recover and you know, this STIMULTI 0:04:39.320 --> 0:04:43.160 policy we're about. The benefits from the stimulus really went 0:04:43.200 --> 0:04:46.279 to the capital markets, maybe went to the real economy. 0:04:46.640 --> 0:04:50.000 So what has happened across multiple equity strategies, whether you 0:04:50.080 --> 0:04:54.760 call it hedge funds, traditional mutual funds, traditional strategies, it's 0:04:54.800 --> 0:04:57.920 been very difficult for them to generate alpha because they've 0:04:57.920 --> 0:04:59.920 been relying so much on the beta for the last 0:05:00.120 --> 0:05:02.400 x years or so. So now I think what we're 0:05:02.400 --> 0:05:06.760 seeing is stocks being priced more on the underlying fundamentals, 0:05:06.800 --> 0:05:10.080 more of the individual characteristics of the company, not so 0:05:10.160 --> 0:05:12.440 much the group as a whole. And that's a very 0:05:12.520 --> 0:05:15.239 very healthy thing because one, it's how the capital markets 0:05:15.240 --> 0:05:17.960 are supposed to function to allocate capital, and two, for 0:05:18.080 --> 0:05:21.080 active management strategies, that's the environment that we want to 0:05:21.080 --> 0:05:23.640 see because we're buying fundamentals. We're not trying to buy 0:05:23.680 --> 0:05:30.400 the whole market generally, So you see um a margin contraction. 0:05:30.480 --> 0:05:36.200 Now you see market arrange bound stock market, it's it's 0:05:36.279 --> 0:05:40.280 not exactly maybe realistic, but not necessarily the most positive 0:05:40.320 --> 0:05:41.960 I think to a lot of people who just want 0:05:41.960 --> 0:05:44.000 to jump in and buy stocks, there are ways to 0:05:44.040 --> 0:05:46.680 make money at a time like this, where do we start? 0:05:47.400 --> 0:05:49.080 There are ways to make money. I think that's the 0:05:49.120 --> 0:05:51.800 one message people can't forget. There's plenty of opportunities in 0:05:52.120 --> 0:05:55.599 the stock markets. One on the interest rates that I 0:05:55.600 --> 0:05:57.720 think if you look at the ten year yield and 0:05:57.880 --> 0:06:00.760 just very quickly as the backdrop we're operating, and the 0:06:00.800 --> 0:06:03.560 tenure yields very highly correlated to nominal GDP. If you 0:06:03.600 --> 0:06:05.600 go back to nineteen fifty nine, I think the R 0:06:05.640 --> 0:06:08.000 squares like point three five, which means it's positive. So 0:06:08.000 --> 0:06:09.920 now we have a ten year going up hopefully it's 0:06:09.920 --> 0:06:13.520 going to be reflective of and and the economy growing. Also, 0:06:13.600 --> 0:06:16.160 I think that when you look at the earnings productivity 0:06:16.240 --> 0:06:18.960 that happened, which was very very impressive in this last 0:06:19.120 --> 0:06:21.680 expansion of recovery, wherever we want to call it is 0:06:21.720 --> 0:06:24.039 that we heat, we hit peak margins again, and every 0:06:24.080 --> 0:06:26.880 time we go through a recession, margins contract. But we've 0:06:26.880 --> 0:06:29.280 seen this cycle in the United States which is very impressive. 0:06:29.400 --> 0:06:31.919 Is each cycle we hit a new peak, and we 0:06:32.000 --> 0:06:34.960 got to that about a year ago. Now we're contracting 0:06:35.000 --> 0:06:37.880 part of that. You could allocate the energy um and 0:06:38.000 --> 0:06:40.000 now what you've seen what that also led to is 0:06:40.080 --> 0:06:42.479 multiple expansion. So what are we left with after this 0:06:42.600 --> 0:06:45.360 interst rate policy with us? It's an expensive looking market 0:06:45.720 --> 0:06:48.599 was contracting multiples and people use a lot of that 0:06:48.640 --> 0:06:51.040 cheap money to buy back stock, which really drove up 0:06:51.040 --> 0:06:54.200 the multiples as well and kept earnings growing, maybe not organically. 0:06:54.640 --> 0:06:57.599 So now investors have been paying for value this year, 0:06:57.680 --> 0:07:01.560 so tilting towards value strategies or company with better earnings visibility, 0:07:01.920 --> 0:07:03.800 and even as we saw some of the moves from 0:07:04.200 --> 0:07:07.120 other investors going into technology, seeing there as a value 0:07:07.320 --> 0:07:10.600 trade this week is attractive. But the long cycle businesses 0:07:10.640 --> 0:07:13.920 and those with good good visibility and good free cash 0:07:13.960 --> 0:07:16.400 flow yields is what we're really looking at and what 0:07:16.440 --> 0:07:18.160 our screens are telling us where we want to point 0:07:18.160 --> 0:07:23.400 new money. Kevin, let's talk specifically about handbags and wallets 0:07:23.440 --> 0:07:26.720 and shoes and watches and jewelry and all kinds of 0:07:26.920 --> 0:07:29.520 leather goods from Coach, because I want to get your 0:07:29.560 --> 0:07:32.800 thoughts on Coach. The shares are of about fourteen percent 0:07:32.960 --> 0:07:34.680 so far this year. It pays a dividend of a 0:07:34.680 --> 0:07:37.720 little bit more than three and a half percent. Well, 0:07:37.720 --> 0:07:39.560 that's a very unique thing to get a dividend that 0:07:39.640 --> 0:07:42.120 high in that space, and that's one thing. Another replacement 0:07:42.120 --> 0:07:44.240 for these low yields is looking for dividends. So that's 0:07:44.240 --> 0:07:46.640 a sub part of the story for us. But retail 0:07:46.680 --> 0:07:49.280 has been very treacherous, But there are positive stories out 0:07:49.280 --> 0:07:51.560 there and what Coach has been able to do. Even 0:07:51.600 --> 0:07:53.560 they had some competitive threats come in in the last 0:07:53.600 --> 0:07:56.640 three or five years, they continue to reinvent, they continue 0:07:56.640 --> 0:07:59.560 to keep the brand. They have an underlying recognition. Obviously, 0:08:00.080 --> 0:08:01.760 you have to come up with new ideas all the time, 0:08:01.760 --> 0:08:03.640 and they were willing to do that. Plus, on a 0:08:03.720 --> 0:08:07.120 valuation basis, I think when you have an established leader 0:08:07.280 --> 0:08:09.480 like a Coach, when it looks cheap, you can buy 0:08:09.560 --> 0:08:12.520 without really having to worry too much about it. Um 0:08:12.640 --> 0:08:15.600 retail in general, our view is it's very treacherous. You 0:08:15.640 --> 0:08:17.720 have to be very specific, and I would not buy 0:08:17.760 --> 0:08:21.760 the group right now because there's very powerful creative destruction 0:08:21.840 --> 0:08:25.960 happening in the retail sector right now. What about the 0:08:26.120 --> 0:08:29.720 technology space broadly? And I guess maybe more particularly, would 0:08:29.800 --> 0:08:32.319 you be on board with the the two people who 0:08:32.320 --> 0:08:34.760 work for Warren Buffett Berkshire halfway now who pumped a 0:08:34.880 --> 0:08:40.520 billion bucks into Apple recently well out of So what 0:08:40.720 --> 0:08:42.920 is Apple is now a value stock? I think that's 0:08:43.320 --> 0:08:45.320 a question. I mean, when it's a group, it's I 0:08:45.320 --> 0:08:47.520 wouldn't buy it as a quote unquot growth stock. I think, 0:08:47.559 --> 0:08:49.240 you know, we sort of pique that when you see 0:08:49.280 --> 0:08:53.000 the unit sales, especially in China, affecting the top line 0:08:53.000 --> 0:08:56.040 growth for Apple. But is there value? They're sure, and 0:08:56.040 --> 0:08:58.559 and then deploying money like that clearly as a lot 0:08:58.679 --> 0:09:01.760 there very long horizon investors. They're not going to accept 0:09:01.760 --> 0:09:04.000 that trade anytime soon. So I think that's a positive 0:09:04.040 --> 0:09:06.480 for a long horizon in general, though, I think the 0:09:06.520 --> 0:09:09.920 trans in tech, you want to exploit our continued broadband 0:09:09.960 --> 0:09:13.320 to the home, continued mobility, that continued bandwidth that we're 0:09:13.320 --> 0:09:16.880 doing everywhere, and that really is more of the unknown 0:09:17.000 --> 0:09:19.880 mid cap and small cap companies that that seem to 0:09:19.880 --> 0:09:23.479 have a technology advantage of you will either be acquired 0:09:23.520 --> 0:09:25.760 by one of the large guys or they can really 0:09:25.760 --> 0:09:28.439 take share in a very very fast way. But you know, 0:09:28.520 --> 0:09:31.800 multiples are still high in tech in general and profits. 0:09:31.800 --> 0:09:34.040 Really that's one of the fastest declining sectors we're seeing 0:09:34.080 --> 0:09:36.520 right now, at least within the SMP five hundred um. 0:09:36.559 --> 0:09:40.239 But still the innovation and combining that with a good valuation, 0:09:40.280 --> 0:09:43.240 it's a place I would be deploying capital, and technology 0:09:43.280 --> 0:09:45.200 makes a big makes up a big component of our 0:09:45.240 --> 0:09:48.520 portfolios today. How about the can I interest you, Kevin 0:09:48.720 --> 0:09:52.960 in some shares of LB Foster and Company. They've lost 0:09:53.000 --> 0:09:55.760 about fifteen percent of their value so far this year. 0:09:55.840 --> 0:09:58.480 What do you like or don't like about this Pittsburgh 0:09:58.800 --> 0:10:02.560 based company. Well, one, it's in Pittsburgh. We'd like to 0:10:02.600 --> 0:10:05.440 avoid crowded trades, and we'd like to find companies that 0:10:05.760 --> 0:10:09.160 have an attractive valuation and are under followed by Wall 0:10:09.200 --> 0:10:11.840 Street at least when we start to enter them. Uh, 0:10:11.880 --> 0:10:14.199 they're a MidCap company with a good balance sheet, a 0:10:14.320 --> 0:10:18.360 long term management in place, and they're just repeating success 0:10:18.400 --> 0:10:20.800 over and over again. So in that sense, when you 0:10:20.800 --> 0:10:22.880 can deploy capital like that. That was what I would 0:10:22.880 --> 0:10:25.840 call a more longer horizon holding. And you could probably 0:10:25.840 --> 0:10:28.120 be much more patient than when we talked about coach. 0:10:28.160 --> 0:10:30.040 When you make some money and coach, you may want 0:10:30.040 --> 0:10:31.800 to be kind of pulling that back because that tends 0:10:31.840 --> 0:10:34.120 to get a lot of the a lot of the 0:10:34.200 --> 0:10:37.600 chatter from the street when stocks like that do well. 0:10:37.640 --> 0:10:40.000 Thank you very much for spending time with us. Kevin 0:10:40.120 --> 0:10:45.160 Divney is the chief investment officer for becon Crest Capital Management, 0:10:45.520 --> 0:10:50.800 joining us from Boston home to Bloomberg twelve hundred and Uh. Well, Kathleen, 0:10:50.840 --> 0:10:52.520 we're going to take it into the clothes on a 0:10:52.600 --> 0:10:55.600 day when we've learned a little bit more, perhaps about 0:10:55.600 --> 0:10:59.240 the Federal Reserves thinking process. We certainly have him. I 0:10:59.240 --> 0:11:02.400 mean that when we had three FED officials in the hotels, 0:11:02.440 --> 0:11:05.040 it was a live meeting in June. In our recent interviews, 0:11:05.200 --> 0:11:06.880 I guess they met what they were saying and a 0:11:06.880 --> 0:11:09.760 lot of other people on them. He agree, you're listening 0:11:09.800 --> 0:11:11.880 to taking Stock on Bloomberg Radio.