RBC's Golub on Investing in a Slow Growth Environment (Audio)

Equities recovering after a five day retreat. The pound erased losses after the death of a UK lawmaker coincided with diminished odds Britain will elect to leave the European Union. Down industrials of one two points, gaining six tenths of one percent, as stack of eight gain of two tenths of one percent. Ten year yield one point five seven percent, Gold down four to twelve eighty four, a drop of

three tenths of one percent. We are now looking at a four point one percent drop in West Texas intermediate crewed down almost two dollars of barrel to forty six dollars and four cents. I'm Charlie Pellett. That's a Bloombird Business slash. Thank you very much, Charlie Pellett. It's time

now for the e t F Report. It is brought to you by Vaneck Vectors et F s. Expect more from your muni's target tax exempt income by maturity and credit quality, all with low cost e t F s. Visit vanek dot com slash Muni Vanek access the opportunities. Let's go to Katherine Cowdery and our e t F report. E t F investors are no longer dancing around the federalis or that's the word from Bloomberg Intelligence analyst Eric Beltunis. He says e t F flows indicate investors focus has changed.

Instead of looking to spaed proof their portfolio, they're looking to stockproof it. And the evidence comes in a few places. One we've seen inverse stock ets taken six billion dollars. That's way more than normal. The ones that go short treasuries they've taken in they've actually lost money. So that clearly says people are looking to hedge on stocks, not rising rates. Baltni says there's also increased interest and so

called low volatility ets, which seems to minimize volatility. A final example, Beltoona sites a bond market where aggregate bond ETFs have led all bond categories with a combined fifteen point six billion dollars in new cash. He says, that's an indication that investors are rebalancing their portfolios as they trim their core stock position. That's your Bloomberg ETF report. I'm Catherine Cowlery. This is taking stock with Kathleen Hayes

and Prim Fox on Bloomberg Radio. Conventional wisdom holds that the stock market would like to hear about an easier FED, a FED that's going to go much more slower when it comes to raising interest rates. Our next guest points out, in fact, that when we're in a very low rate environment, arising rates could be good for stocks, helping the banks

with their net interest margins. For example. In fact, the last couple of days, we've seen a pullback and energy shares because Janet Yellen signal the FED is going to go very very slower, even slower than we thought, perhaps on raising rates. Jonathan Golivers back. He's chief US market strategist for RBC Capital Markets based right here in New

York City. So John, let's start with this, were you surprised by Janet Yellin's comments at the press conference, maybe there's some long term economic problems that aren't going away. And then at the right out of the gate at two o'clock, the forecast the dots suggesting, hey, more and more FED officials only see one rate heck this year. Well, I think the reality is that we are in a

slower economy on a long term secular basis. So this three and a half percent GDP number that we experience for the fifty years up until the financial crisis is probably not a trend that we're going to see um going forward. And and it's taken the FED awhile and you've seen this not with the FED, with the I m F and other forecasters, that it's taken them a while to actually lower that number back towards something closer

to a trend of two percent, which is reality. And I think the FET is just reflecting that in in their comments about growth UM as far as do I you know one meeting versus UM two meetings? If if if we are at a sub five percent UM, employ unemployment is below five and corese c P I, which just came out today is running a two point two. We are so close to the exact numbers that the FETE is looking for under their mandate that unless there's

some real global instability, they really should be obligated. But I just have to jump in because you know that the c p I you're over here is not their their key measure. It's the PC, which measures inflation somewhat differently, and that is that is down closer on the headline to one. It's as higher on the core maybe one

point seven, one eight. But the c p I isn't really their main target, right, So, and you can't look at the So if you look at the the the the PC, which is what the FED looks like, and you said it's it's in the in the high ones. Again, you're so close to two percent number. There is no such thing is as economic nirvana. There's no such thing is exactly perfect. But if you're running inflation of even just with the Fed's measure just under two and unemployment

under five, you just you should have higher rates. And so as we move through the year, if we get through these concerns about Brexit and other things, and volatility drifts down a little bit lower, UM, I think the FED is going to really be forced to take to continue to gradually raise rates. I don't know why, Jonathan, but that made me think of a nods as good as a wink to a blind bat. In other words, you just have to deal with things as they are.

I don't know whether I can test you on pop your culture, but remember that scene some Monty Python sketch in which you're sitting in the prison cell and you get those weighty, blurry lines that take you off into Nirvana, and then you realize, no, no, you're not really in nirvana. You're really still in the cell. If you're still in

the cell, how can you get out? Now? What are you recommending to investors to put their money in two investments or assets that will yield more than just let's say one and a half to two, right, So the first thing is if IF, and it's the way I look at it when you when companies. Right now in the US, the SMP is returning to shareholders in dividends plus buybacks. They're returning about four point seven percent capital

back to shareholders. If you compare that to sub one six, which is what you're getting on a treasury bond or or whatever you get on IMMUNI, that is an extraordinarily attractive return of capital. It is much more attractive than European stocks. It's more attractive than bonds. And I think it's why even in a really low growth environment, stocks are still going to be a you know, maybe not a fantastic place to be, but a better alternative than anything else. And US stock should be the best on

a global basis. So, uh, what kind of stocks? How do I invest and make money in a slow growth environment? Right? So there's in in simple terms, companies that are growth companies should do better in a slow growth environment than traditional value companies. UM and we're looking for and it's really kind of multiple buckets of growth. But the first is the ones that we hear about, the fangs and the biotechs and and those companies that have some kind

of UM unique brand or intellectual property. Those should be the most attractive companies. Interestingly, healthcare, the fundamentals are fantastic. There's concerns about the impact of the elect Michael on that, so that's holding it down, but fundamentally it looks attractive.

There's another category of companies that are not as compelling in their growth but they're stable and visible that you know, the kind of companies that you can depend on them as companies that are in what I would call business services, those would be companies that hallway store, a company like a Syntas that that you know, makes uniforms, and those kind of companies. Again, not high growth rate companies, but

stable growth companies. And they've done extremely well over the last several years, and I think that category will continue to do well. Jonathan, what about investing in energy companies? Is that in the context of the most unloved asset class right now? What is the most unloved asset class? Well, well, there's there's no question the most unloved asset class right

now is the health care sector. You know, these these companies are down substantially and yet they have the fastest growth rates, the best, the best fundamentals, and it's it's all about election related concerns. The energy stocks while they've h well, when you know they've they've they've been up there in the last few months as we've you know, as we've got over all those concerns that we had in January and February about are we going into recession

when we all realize that we're not. You had a big rally in many of those materials and energy related companies, and in a in a strange way, they look actually quite expensive. Just a quick comment on bonds in this world where more and more yields are negative and there's there's this redheart rolley continues with you know, who knows the bubble or what's going to happen? Just stay away from bonds. Is there any kind of fixed income that

looks good? You know? I the only way to make you know, money and bonds right now is for interest rates to just continue to go lower. And what most bond investors um people who aren't bond you know, mutual funds and portfolios, they're they're focusing more on taking credit risk, you know, the investing in corporates, corporates or mortgages or

other instruments like that as opposed to treasuries. If you're a global bond investor, I mean you have a zero interest rate on Swiss government bonds out so I think seventeen years um. Japanese bonds I think are zero interest right out to fifteen years. German paper is hovering right or round zero out to ten. It's it's really a an extraordinary period and very very uncomfortable for people who

depend on, you know, interest rate instruments to the safe retirement. Jonathan, you don't paint a pretty picture at least in the credit market. Is there anything that you have to offer in terms of gold and commodities? Well, well, first, in terms of not painting a pretty picture, I think that that you know, interest rates are not a loan or not going to provide it. But if you look at in the current economic environment, either there's there's very low

corporate defaults. If you if you're investing in higher yield you know, debtor or corporate credit there there there their loans are performing extremely well. So if you are taking that credit risk, you are likely to be well rewarded. So there are places that that you can go gold. I'm never a fan of gold because the one end instrument you know never returns you a dividend is is

a bar gold. Thank you very much, Jonathan goll have always returning with the information and insight, Chief US market strategist, RBC Capital Markets. We're going to take you through to the close on Wall Street right now. This is Bloomberg Radio