Beaconcrest's Divney Is Avoiding Retail, But Likes Coach(Audio)

a drop there of point one percent. The SMP had been higher heading into today's minutes, NAS dank holding onto a gain of fifteen points, up three tents of one percent. Town Industrials down thirty had dropped there of two tents of one percent. We've got the tenure down twenty seven thirty seconds. Looking at the yield of one point eight six percent. Gold down eighteen dollars, the ounce to twelve

fifty eight, a drop of one point four percent. West Texas Intermedia crewed down forty five cents, a drop there of point nine percent. W t I eighty six barrel. I'm Charlie Peloton. That's a Bloomberg Business flash. Thank you very much. Charlie Bella, it is time now for the e t F Report. It is brought to you by Vanach Vector's et F s. Expect more from your muni's target tax exempting income by maturity and credit quality, all with low cost e t F s. Visit vanak dot

com slash Muni Vanek access the opportunities. Let's go to Catherine Cawdary for the e t F Report. The sea change from high cost to low cost investments can be seen in the growing popularity of Charles Schwab's a t S. Bloomberg intelligence analyst Eric Beltuna says, nineteen of Schwabs have taken in money this year. That is hard to believe. Right again, it shows you that you know, Schwab is getting money through robo advisors and through people who are

at allocating. You could argue that s dumb money, but you could argue that smart too, because it's going in and buying everything. Um sometimes when it's down, which is good, you get cheaper prices. Valtuna says Schwab has attracted four to five billion dollars and inflows into its e t s. This here including into its newest suite, a smart Beta products.

For Schwab to start taking your money in smart Beta, that's a big deal because smart beat has always been the area we can charge a little more, but Schwab's products are dirt cheap. So it's interesting to see if that fee war, you know, and Schwab getting in collecting assets will affect Smart Beta. So far, there is some there's some evidence of that. Four of schwab six new fundamental index ets have an expense ratio of thirty two

basis points. That's your Bloomberg ETF report. I'm Katherine Cowdery. You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. I had a nice little rally going in stocks today until the FED released the minutes of its April meeting at two o'clock Wall Street time. Stocks sliding after the minutes revealed the Feder reserve that is ready willing and able to raise rates in its meeting in June if the continue to support this move.

It doesn't seem like this is a symmetric question. It seems like the Fed is poised just waiting to see if the data is supported. What does this mean for stocks? Not just today but down the road for bonds as well. Happy to welcome back to the show. Kevin Divney, chief investment Officer Beacon Crest Capital Management in Boston. So, Kevin, first of all, your take on the minutes looks like the treasury market, the US bond market was not positioned

for minutes that sounded this hawk ish. I guess definitely good to be with you. The market was clearly surprised, But also I thought it was interesting how so much of the said minutes were explaining what they thought the market thought about their last comments. So I think that's something else that's been happening here. The said is sort of responding too much to the capital markets in in the short term. But I think the good news is

for investors looking at equity markets not so much. What's happening today is that the exiting of the stimulative policies, in our view, is a positive thing they've done. There's long term unintended consequences, and I think we're transitioning to a point where we could be more of a normal operating environment for stocks. Kevin Tiffany talk about the death of beta. First, you got to tell me what it is, and then tell me what happens when it has a

stake through its heart. Well, what we've seen, obviously since the QUEUEI really exited in the end of FEEN is sort of a flat the sideways market with a lot of alatility. So a lot of equity investors are not feeling that's good. They were feeling very good after we had the zero interest rate policy and watching this set and seeing the market recover and you know, this STIMULTI policy we're about. The benefits from the stimulus really went to the capital markets, maybe went to the real economy.

So what has happened across multiple equity strategies, whether you call it hedge funds, traditional mutual funds, traditional strategies, it's been very difficult for them to generate alpha because they've been relying so much on the beta for the last x years or so. So now I think what we're seeing is stocks being priced more on the underlying fundamentals, more of the individual characteristics of the company, not so

much the group as a whole. And that's a very very healthy thing because one, it's how the capital markets are supposed to function to allocate capital, and two, for active management strategies, that's the environment that we want to see because we're buying fundamentals. We're not trying to buy the whole market generally, So you see um a margin contraction.

Now you see market arrange bound stock market, it's it's not exactly maybe realistic, but not necessarily the most positive I think to a lot of people who just want to jump in and buy stocks, there are ways to make money at a time like this, where do we start? There are ways to make money. I think that's the one message people can't forget. There's plenty of opportunities in

the stock markets. One on the interest rates that I think if you look at the ten year yield and just very quickly as the backdrop we're operating, and the tenure yields very highly correlated to nominal GDP. If you go back to nineteen fifty nine, I think the R squares like point three five, which means it's positive. So now we have a ten year going up hopefully it's

going to be reflective of and and the economy growing. Also, I think that when you look at the earnings productivity that happened, which was very very impressive in this last expansion of recovery, wherever we want to call it is that we heat, we hit peak margins again, and every time we go through a recession, margins contract. But we've seen this cycle in the United States which is very impressive. Is each cycle we hit a new peak, and we got to that about a year ago. Now we're contracting

part of that. You could allocate the energy um and now what you've seen what that also led to is multiple expansion. So what are we left with after this interst rate policy with us? It's an expensive looking market was contracting multiples and people use a lot of that cheap money to buy back stock, which really drove up the multiples as well and kept earnings growing, maybe not organically.

So now investors have been paying for value this year, so tilting towards value strategies or company with better earnings visibility, and even as we saw some of the moves from other investors going into technology, seeing there as a value trade this week is attractive. But the long cycle businesses and those with good good visibility and good free cash flow yields is what we're really looking at and what our screens are telling us where we want to point

new money. Kevin, let's talk specifically about handbags and wallets and shoes and watches and jewelry and all kinds of leather goods from Coach, because I want to get your thoughts on Coach. The shares are of about fourteen percent so far this year. It pays a dividend of a little bit more than three and a half percent. Well, that's a very unique thing to get a dividend that high in that space, and that's one thing. Another replacement for these low yields is looking for dividends. So that's

a sub part of the story for us. But retail has been very treacherous, But there are positive stories out there and what Coach has been able to do. Even they had some competitive threats come in in the last three or five years, they continue to reinvent, they continue to keep the brand. They have an underlying recognition. Obviously, you have to come up with new ideas all the time,

and they were willing to do that. Plus, on a valuation basis, I think when you have an established leader like a Coach, when it looks cheap, you can buy without really having to worry too much about it. Um retail in general, our view is it's very treacherous. You have to be very specific, and I would not buy the group right now because there's very powerful creative destruction happening in the retail sector right now. What about the

technology space broadly? And I guess maybe more particularly, would you be on board with the the two people who work for Warren Buffett Berkshire halfway now who pumped a billion bucks into Apple recently well out of So what is Apple is now a value stock? I think that's a question. I mean, when it's a group, it's I wouldn't buy it as a quote unquot growth stock. I think, you know, we sort of pique that when you see the unit sales, especially in China, affecting the top line

growth for Apple. But is there value? They're sure, and and then deploying money like that clearly as a lot there very long horizon investors. They're not going to accept

that trade anytime soon. So I think that's a positive for a long horizon in general, though, I think the trans in tech, you want to exploit our continued broadband to the home, continued mobility, that continued bandwidth that we're doing everywhere, and that really is more of the unknown mid cap and small cap companies that that seem to have a technology advantage of you will either be acquired by one of the large guys or they can really

take share in a very very fast way. But you know, multiples are still high in tech in general and profits. Really that's one of the fastest declining sectors we're seeing right now, at least within the SMP five hundred um. But still the innovation and combining that with a good valuation, it's a place I would be deploying capital, and technology makes a big makes up a big component of our portfolios today. How about the can I interest you, Kevin

in some shares of LB Foster and Company. They've lost about fifteen percent of their value so far this year. What do you like or don't like about this Pittsburgh based company. Well, one, it's in Pittsburgh. We'd like to avoid crowded trades, and we'd like to find companies that have an attractive valuation and are under followed by Wall

Street at least when we start to enter them. Uh, they're a MidCap company with a good balance sheet, a long term management in place, and they're just repeating success over and over again. So in that sense, when you can deploy capital like that. That was what I would call a more longer horizon holding. And you could probably be much more patient than when we talked about coach.

When you make some money and coach, you may want to be kind of pulling that back because that tends to get a lot of the a lot of the chatter from the street when stocks like that do well. Thank you very much for spending time with us. Kevin Divney is the chief investment officer for becon Crest Capital Management, joining us from Boston home to Bloomberg twelve hundred and Uh. Well, Kathleen, we're going to take it into the clothes on a day when we've learned a little bit more, perhaps about

the Federal Reserves thinking process. We certainly have him. I mean that when we had three FED officials in the hotels, it was a live meeting in June. In our recent interviews, I guess they met what they were saying and a lot of other people on them. He agree, you're listening to taking Stock on Bloomberg Radio.