Wells Fargo's Manley: Sees Earnings Lift, Likes Mid-Caps(Audio)

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This is taking Stock with pim Box and Kathleen Hayes on Bloomberg Radio. Negative interest rates in the credit markets. US Treasury the ten year yielding one pan six seven percent, the thirty years under two and a half percent. What to do with your money? John Manley is the chief equity strategist at Wells Fargo Funds Management, helping to manage two hundred and forty five billion dollars, and he joins us here in the studio. John, thank you very much

for coming in. Thank you for having me. All right, equity strategist. You're getting a lot of calls from people saying, I can't live on my bond income. Can you help me out with some equities? Yeah? Absolutely, It's been going on for a while. And what else are you gonna do? I think it's it's the worst form of investment except for all the others. When it comes to yield, and I think you can they'll buy pretty good, actually pretty high quality companies with a decent yield and some chance

for appreciation and diving an increase in the future. So it's not bad. So I remember, was it year to all classes? In my head? But you know, a year and a half ago, I guess dividend payers, dividend pays, dividend pairs. So everybody jumped in, you know what I mean. And and so now some people would say it's still a good strategy, but maybe it's just a little more expensive to get in. Well, I think, you know, there

are other fish to fry too. I think one of the things that's happened for the last two years that's so amazing to me is that neither stocks nor earnings expectations have gone anywhere in the U S. And I think that's helped the big companies as well as the yield play. I think earnings are starting to lift off a little bit, and if that happens, I think you could see more outperformance in the MidCap sector. So I'm sort of agnostic when it comes to this sort of thing.

I still think for myself being an aging baby when we're you know, large caps are not a bad place to be aging. You're not aging, John Manley, I'm aged. Actually, all right, thanks thanks for setting us straight here, all right. So in that con text, though, is there a change

in the way people view their investments. And the reason I ask you, I want to get to the idea of liquidity because at times of crisis or chaos, liquidity is at a premium, but you don't know you you should have bought it previously, right, Yeah, it's but I like liquidity. I'm not so sure at real crisis moments it matters because if everybody's heading for the door, I don't know if you can make a door big enough.

You've got to be outside for its work. But I think most times, one of the things that I like about stock markets in mid to large cap stocks is you can be wrong and change your mind and get out. And I think that's incredibly important. The idea of being locked into an investment when you know it's gone bad must be a sickening feeling. Yeah, for thirty years, let's say you lend your money to the US government for thirty years or two and a half percent, you've got

to find someone else. If rates go higher, you've got to find someone else that will take that off your hands. Well, you probably will find some much. It depends how much you have to cut the price for them to come on board and so I think, you know, I think one of the things about midcaps that we're finding sort of interesting right now is they're sort of the honors class of small caps, that they have some of the inefficiency of small caps, but they also have some of

the liquidity of large caps. And I think that's that might be that that might not be a bad combination. Off earnings start to do better. So what is the likelihood of earnings doing better? Well, they're starting to lift off a little bit. First of all, I don't believe the theory that they can't go higher. I know profitability levels are very high, but that's happened without a surge in the economy. Usually when the economy gets better, when the economy starts to be a bit more robust here

and around the world, earnings pick up. I think that happens. I just think we come from higher levels this time because other things that are more secular nature of boosted profits, of profitability. So I think it can happen. All right, So you talk about MidCap companies, how do you define MidCap these? You know, it's I I never am good with numbers, so I'll sort of dodge your question as best. I think the wrong business. I'm the intuitive type. You

know what. Sometimes they think numbers give you a false sense of accuracy. I think they're smaller than bigger, they're bigger than small and uh, they sort of fit somewhere in the middle. So I don't have an absolute number. So this is not a mid cap. This is well, if you are are not wealthy, or if you are wealthy, what about diversification? If you if someone comes to you with ten million dollars or five hundred thousand dollars, even

a hundred thousand dollars and not so much. Older people do this, but younger people, I mean, how how would you tell them to diversify? Would you put ten percent in emerging markets and in equities? And if so, what kind? I'm just curious when you look at the money you're the portfolios you're managing, the people you're advising, how do you figure that out? Well, I mean it depends on them. They sort of have to answer the questions themselves. How

much risk coolerant do they have? How much they how about if they want to make as much money as they can and not lose any Well, okay, I think I might buy them dinner and talk about it over that. I you know, obviously those those are predict regalship. You have to take risk to make money, and I think it's a question of balancing. I right now I would be overweight equities, probably with a tilt towards MidCap and outside the US, I mean, probably with a tilt towards Europe,

because I think Big Europe is getting better. Uh. And I have to own some emerging markets. I do in my own account because I feel there's too much potential there. If there is such a thing as a compelling value, I think emerging markets are compelling value. But you don't get compelled right away necessarily. And John, I wonder if you could comment on the notion that more and more of the stock trading that goes on, the prices that we see are influenced by high frequency trading and by

daily moves in and out. That's a very different kind of world than investing your money. That certainly is, and it's not a world that I understand very well or that I want to participate. I understand it, but I don't necessarily want to participate. And I sort of figured that these these trading operations create opportunities for people who are investors, and it requires you have a strong stomach and a sense that you have an idea of what's really going on. So how do I want to describe it?

I think to a degree that the high frequency trading may put a little vibration in the market from time to time. I don't think at the end of the week or the end of the month, and certainly not at the end of the year, it's gonna make any difference to the way I want to invest my money. Though uncertainty Jane Allen is uncertainty, uh to the to a maximum degree. She's uncertain enough to say, you know, will maybe raise rates this year. I think we will,

because I think the economy will pick up. But hey, I I can't tell you. I just see the signs that it could and should, but I've seen signs that it might take longer. Well, you know, I think they call her data dependent or the FED is data dependent. I think that's wonderful. I'm data dependent. When I get an airplane, I know it's supposed to land at three, but half an hour later, I'm not going to insist on getting out over scripton. It's as simple as that.

I'll do it when I think it's safe. She'll raise rates when you think she can do it without adversely affecting the economy. So all my fellow equity strategist who think they know how many times she's going to do it, that's kind of an interesting trick since she doesn't know it herself. Yeah, I'm gonna use that metaphor. I love that. Like sitting on a plane, if the weather is not right,

you don't take off. I think that's great for the fit. Well, I thought also that John is not getting out over Schenectady. If I've done that, well, I hope you've done it with while the plane was on the ground. In that context, though, you can't wait for what the Federal Reserve is or isn't going to do if you're planning for your financial future or for the future of your business. So what do we know. I mean, we don't know how many

times are going to raise rates. But I think to me, the real question is is the Fed going to want to encourage your discourage economic growth from the next twelve to eighteen months. And I think that's a much easier question. They're not going to try and discourage growth. If they try and encourage growth, and they that includes higher rates. It only includes higher rates if they think the economy

can adjust to those rights will not hurt it. So the FED, as far as I'm concerned, is still gonna be pushing money towards the economy in the next year or so. That's at least a supportive factor for stocks, pushing money towards the economy. In other words, they will not raise rates much, if at all, and they won't sell any bonds out of that big, big portfolio bonds. I can't see that the next twelve months. I mean, it's possible, but we'd have a much stronger economy between

now and then I think of it. The Fed's job is to maximize growth and and and minimize inflation, which is sort of the conundrum you gave me earlier in the show. How do you do that? The answer is they try and regulate the economy, and all they can do they can't make is buy things or not buy things, build or not build. All they can do is make the money seem cheaper expensive. Well, I think there's also this minimax theory that the FED and Jennet Ellensama I

think has mentioned it. You minimize the worst these days, mistake you could make, and probably for now, the fed's worst mistake would be raising rates prematurely. John Manley taken off today here at Bloomberg Radio, chief equity strategist Wells Fargo Funds Management. He thinks earnings could pick up. The Fed's going to be some wind at the stock market's back, and those mid caps look pretty darn good to him. Caffeine his pim Fox taking stock on Bloberg Radio