Mainstay's Kudla Favors Tech in a Rate Hike Environment (Audio)

in the coming months. She stopped short of giving an explicit hint that the Central Bank will act in June. The dollar extended its largest monthly game, which, like the markets, every fifteen minutes throughout the trading day. DAL Industrial average is currently up thirty eight points to tens of a

percent at seventeen thousand, eight hundred sixty six. SMP five up eight points four tens of a percent to two thousand, ninety eight, NAZDAC higher by twenty seven, I gained a half per centence treating at forty nine West Texas intermediate crude oil up three cents of barrel at fifty spout goal down eleven dollars forty cents announced at twelve eleven thirty ten year treasury down six thirty seconds with the yield of one point eight five And that's a Bloomberg

business flash. It is time now for the t report. Thank you, yes Vaneck the exchange traded funds. I was actually looking at it exchange traded fund right now looking at those closed and bond funds. M. Vanneck Vector's et f s. Expect more from your muni's target tax exempting, combined maturity and credit quality, all with low cost e t f s. Visit vanak dot com slash Muni Vanack access the opportunities. Let's go to Catherine Cowdery for our e t F report. Bond dealers maybe using an e

t F as a kind of secondary balance sheet. Lisa A. Brahma Witz wrote the column for Bloomberg Gadfly. Basically, this is all adding up to people thinking that the dealers are using these e t f s as if they're their own inventories. Abrahma Witz points to the recent volatile in the biggest junk bond e t F h y G or the I Shares I box high yield corporate

bond fund. She notes that it's experienced record breaking daily withdrawals, even though the broader market has encountered relatively little turbulence. According to Abramowitz, in an environment where banks have stepped back as counterparties, e t f s have become a convenient solution for some dealers. They're saying, look, we'll take a client's money, We'll use it to buy shares of this e t F. You can redeem the shares in

kind for the underlying security. So basically you give them the shares and then you get a whole bunch of bonds, and then they sell those bonds to their clients. In other words, some dealers are relying on h y G as an easy source of bonds when clients want them. That's your Bloomberg ETF report. I'm Katherine Cowderie. You're listening to Taking Stock with Bill Box and Katholeen Hayes on Bloomberg Radio, taking stock of the stock market, the bond market,

e t f s and more. As we head into the Memorial Day weekend and the official start of summer, how does the second half of the year look for investors? What can you do with your money to make sure you make a little money over the rest of the year. Let's put all these questions to Dave Coula. He's CEO and chief investment strategy strategist at main Stay Capital Management. Dave, I'm glad you could find some time for us. Is uh you get ready for the three day weekend? Absolutely?

Good afternoon, Kathleen. So I know that even though you are probably thinking about I don't know, barbecues and all the rest of it, you were listening to Janet Yellen's conversation at Radcliffe Harvard University with the Harvard economist Greg Mancute this afternoon. I think a lot of traders were surprised that Gregg asked the obvious question, how does the economy look to you right now? And what about the

metis coming up? What about rate hikes? She said, it's appropriate to do another rate hike if the incoming data support it. What do you take away from that? Well, she was pretty direct in the way that she answered that question, but it it confirmed what I think a lot of people in thinking more recently that June or July are on the table for a probable rate hike. Uh, It'll either be June or July. If they want to wait past the Brexit vote. But you know, that's I

think being mostly being priced in. FED futures have risen a lot in terms of predicting that as either June or July, and that's our expectation. We'll get a we'll get a hike in June or July. David, what does it tell you about the tone of the investors if everything seems to hang on whether the Federal Reserve raises

interest rates five basis points? Is that any way to run a portfolio well, tim The The unfortunate thing about the environment we're in is, you know, it is a like it or not, it's it's been largely a FED fueled UH stock market. If if you look at the volatility that we've had in the first quarter and really over the past several quarters, UH, it seems that, you know, as we look at it and analyze it, it tends

to be fundamental. Is a hard look at fundamentals that send the market down and then the federal central banks that come in and prop the market back up. And we had a very good example that in the first quarter, not just our FED, but what was going on in Europe and maybe to a lesser extent Japan, but uh it has become a very important dynamic in terms of

the financial markets and specifically stocks. So, Dave, when we have talked to you over the last few months, your position had been for sometime you're pretty bolish on stocks. You turn much more cautious. Where are you now when you when you look at the stock market and the prospects for further gains, for treading water or actually some kind of crustioner sell off. But if we look at where we are and where we've come from, we're now in the eighth year of the second longest bowl market

in the history of stocks. You can't go further probably, uh in. And as we've been talking about, you know, people ask the question, are we still in a secular bull market? There was a question, did may have last year start a new bear market? Well, we're only a couple of percent away from new highs, so we might

start the clock over on that anyway. But but what we believe is we're in this trading range and it's and it's larger that tug of war between the Fed and fundamentals, as we like to say, and then trading range of the last two years has been five we're bumping up against on the S and P five hundred right now, so we're at high end of that trading range. And so we think for that reason, uh, it makes

sense for investors to look at their portfolio. UH, look at the games, you know, with this run back up and with this run over the past seven years plus. Uh and and a little bit of caution we think is prudent. At this point. We're long into this bull market and we're at the top end of the trading range we've had the last two years. So David, you're looking for any beat up assets. I mean, for example, are you looking for any oil or energy companies to

add to the portfolio. Well, I think some of the areas that are interesting in this environment that are still on the higher beta side. One is technology. Uh. And it's interesting to know people think about financials, which are also interesting through here with the with the feed hiking rates. As net interest margin improves, they become more attractive. But actually technology is the sector that tends to do the best of all the industry sectors when the feed is

hiking rates. The reason for that is it's usually uh, in coincidentally or accompanied by a strong economy. When we have a strong economy, we've got capex cycles underway, which is good for technology. Is industry is UH spending that money? So technology for higher beta names. We like financials attractive through here, but you know, still looking for those areas we diversify into to reduce risk and overall volatility in

the portfolio as well. A guess on A today is very keen on closed and bond funds, some of them yielding about ten Is that something that you are watching investing in, Well, we're typically using more E t F E T N s, open end funds. We'll look at closed and we'll look at close to in bond funds, you know where they are relative to trading in A at a premium. From time to time. We do like

in the area bonds. We still like preferred treasury inflation protected securities look good through here, and even e M debt has struggled a little bit more recently. But what we've seen is is in the pullbacks we move on to UH two more strength. So there's certainly some areas areas within bonds with the threat of the FED raising rates that are attractive, and that's because sovereign debt around the world. Is the yields are so low that will continue to put pressure on bonds here in the US

on the intermediate long end of the curve. David, you have any interest in investing in gold or gold mining shares. We've had some positions in both gold and gold mining shares over the past several months. Gold bullion g l D is h F. You used to play that directly. Uh, it's you know, the problem with with gold we've seen

over the past week or several days here. Uh. You know, when when the FED funds rate is at zero, industrates are near zero, bonds are yielding near zero, it's okay to hold a brick of gold that has no yield. But as we look towards yields increasing, the Fed raising rates, yields increasing on bonds, Uh, they don't look quite as attractive. But is a diversifier and a portfolio. Precious metals from time to time make a lot of sense because they have a low or even negative correlation with stocks and

low correlation with bonds. Uh. So you know, we think in light doses that can make sense from time to time. So as for any particular ets, any fund that you think is of one people could take a look at. Now, what is a good prospect? Give us a couple of you have them? Sure? So one way, Like I talked about reads, you know in the areas of financials and reads Global X super Dividend Read which is s R

E t UM. We we like reads through here we have a high dividing, high yielding red with its dividen yield currently at about seven, diversification geographically, and again reads are a good bond proxy without raids going up quickly. We think reads continue to look good UM and and we like as we said, uh, you know an easy way to play technology XLT, Financials XLF. We think that there's an opportunity there. Thank you very much for spending

time with us. David Kudla he is the founder and the chief executive officer and chief investment strategist for Mainstay Capital Management is based in Troy, Michigan, helping to manage more than two billion dollars of customer assets, and you can follow him on Twitter at David Underscore Kudla k U d l A. You're listening to Taking Stock, I'm pim Fox, my co host Kathleen Hayes, and we take you through to the close of trading. Next