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