The World Outside Tech Stocks

but his birthday is actually in July. Oh, it's an anniversary, okay. But Katrick was a big scam, wasn't you. Didn't you think you were picking up like a hairless cat and you got this Harry cat instead. It's true, it's true. So Katrick is a Russian Peter Bald and for listeners unfamiliar,

that's one of the hairless cat breeds. And uh, we got him from a breeder in Western Canada and she told her she sent us some baby pictures and he has some funs and she was like, don't worry, he's gonna lose seventy percent of his hair once he starts to grow up. And uh, I mean we're five years in and it hasn't happened. But fingers crossed, all right, all right, good. Once you have it, you don't want to lose it. I would not want to lose my hair,

I'll tell you that. But anyway, Uh, this week on the show, yet, we're record highs for benchmark US equity indexes. This despite some of the deadliest days yet of the coronavirus. So what about that rotation we've all been hearing about, from stay at home winners to the reopening stocks. We'll talk to a strategist about what she's advising clients for the rest of the year and next year, and of course we will close out the show with our tradition.

The craziest thing I saw in markets this week, Katie, I trust you came prepared. No offense to Sarah, but she sets a pretty low standard. I think you can think, I think you can out to We're pretty easily. I'm just gonna I'm just gonna throw that out there. I'm just kidding Sarah. But anyway, let's get to this week's guest. We're very happy to have her on the show for the first time. She is a senior wealth strategy associate

at UBS Private Wealth Management. Her name is Jacqueline Reman. Jacqueline, welcome to the show. Thanks my thanks Katie, it's great to be here. Thank you for having me so, Jacqueline, I'm trying to picture what it's like to be a strategist at a at a wealth management shop these days. There must be a lot of confused clients, you know. I picture people saying, well, what should I do by Tesla and bitcoin? And or buy a Tesla and filled up with bitcoin? But I'm just curious, you know, it's

such a weird market this year. We've obviously had the recession and yet this raging bowl market. What are the clients? What's top of mind for for your clients these days? Are they worried about this euphorian the market? Were they all in ready to sort of power the market higher, ready to take risk? Yeah, and that's a great question.

I know right now, our clients are really you know, looking at the economic data that we're seeing and seeing what's going on with the markets, and it causes confusion because, like you said, record number of COVID cases that we're experiencing right now, record hospitalizations, we're hearing about high unemployment, and it's hard to understand how that's happening, and yet the market's hitting record has So what we talked to our clients about is how important it is to really

decouple that economic data from what we're seeing with the markets. We know that the markets forward looking, it's looking to a vaccine already being out and widely distributed by the second quarter of one and the economy really reopening in the third quarter. So the economy is a lacking indicator, which we know, so that data hasn't caught up to the forward looking reality that the market is trading on.

So we're really telling clients to, you know, remember to keep that separate and to understand that it makes sense that they're fearful with everything that's going on with coronavirus. That being said, you know, the market's trading positively on the news that the vaccine will be out by the end of the second quarter, and you know, we're we're looking ahead to that. So Jacqueline, I want to ask, you know, we make the point that the economic recovery

and the market recovery are separate things. But you know, do you worry that the markets are looking ahead too much? And I mean, for example, small caps had their best month ever in November, value had its best month ever. Is there a risk that we get to and all the good news has already priced in? You know, we're not seeing that. You know, what we're doing right now is really looking at what got us to where we are and knowing that what got us here and won't

get us there. So what we're looking at is making adjustments in the portfolio for that next leg. We do like small and mid caps. We do think that they are cyclical and have further room to grow as the economy reopens um. And then we're also being selective in what sectors were overweighting within the portfolio, like consumer discretionary, healthcare, financials, and industrial. So obviously then the big, the big elephant in the room is tech. You know, I wonder to

be what I worry about. I tend to worry a lot, so maybe I I overworry. Uh as you get older, you uh, maybe you worry too much. But it's hard to me for me to imagine this sort of rotation into the cyclical consumer, financial, industrial type of stocks and out of tech without kind of a nasty looking market

from the thirty thousand foot index level. You know, how how do you rotate out of Apple and Amazon and into you know, I don't know, airlines and that sort of thing without sort of having a nasty day in the market with the you know, selling off these big mega cap names, is that a risk or is it going to be sort of more of a mild you know, take a little profit on tech and and and take a flyer on some of the cyclical names that we won't necessarily ever put at risk that these record levels

for indexes. Do you think, you know, I think the second part of what you said, Mike is exactly it. In our portfolios, we're not eliminating tech all together. We we like tech within our tech space. We're adding certain spaces that are more cyclical, like digital transformation, the five G enabling technologies, cyber security. But that doesn't mean we're removing those mega cap tech names. Were definitely you know,

still keeping them within the portfolio. And what we know is we we see that historically when there's a ten or twelve percent pull back in tech, like we saw this fall. We know that it's usually followed by a twenty percent or even higher rebound within the next six months. So um, yeah, we were keeping tech in the portfolio for sure. I want to follow up on Mike's question, drill down a little bit more on where tech fits

into the rotation. It felt like in the really early innings, you know, right after we got that fiser and buy in tech news that it turned into cell tech And I'm just curious to know the next stage of the reopening trade. What does it look like. Is that it is an economic recovery where growth is rebounding. Is that necessarily bad news for the tech sector. Yeah, we don't. We don't see that as bad news at all. We

don't see them as being overpriced. We think that it's appropriately valued, largely given what the expectations are for future cash flow and also given how low rates are. And we yeah, we don't see that as a bad thing at all, you know, Jacqueline. One interesting preference from you guys as mid cap It's it's interesting you don't often hear people talk about midcaps, perhaps as much as they should. I mean, I guess if you want to sort of

take advantage of that size factor. Everyone goes from one one end of the spectrum to the other, mayither mega caps or small caps. Is that part of it? Is? Is midcaps just sort of a forgotten space that that you know, maybe there's not a lot of ETFs that track it. There's you know, I don't think there's any futures on any of the MidCap indexes. It's just kind of this forgotten corner of the market that maybe gets overlooked.

Is that part of it? Yeah? I think so. And we know at we've seen that they've lagged large caps largely this year. We know that they're more cyclical in nature, and we think that they're going to really be a beneficiary of the further stimulus that we're expecting to come in the coming weeks and the broader economic recovery as well.

And to follow up on the stimulus package, I mean, it feels like the New trade wards just back and forth on the stimulus headlines, and I mean I'm wondering does the size of the stimulus package matter this week or matter to markets at this point, whether it's five

hundred billion like McConnell's pushing or nine hundred billion. I mean, does it matter or do markets just want to see something at this point, some sort of fiscal bridge to when we actually do start to see the vaccine being distributed.

What we think is just you know, knowing, like you said, that there will be a stimulus package, regardless of the size, will be viewed as a positive, and like you said, going back and forth on the size, whether it's five dred billion or you know, closer to a trillion or I know they're saying nine twelve billion right now, and just knowing that that has been passed, I think we'll allow consumers to breathe a sigh of relief and will be a positive for the markets. It kind of reminds

me of the trade war last year. You know, progress in the trade were more progress today. It's it's a similar story. It's almost like the talk of it and the anticipation of it almost feels like what really gets people excited. I wonder, you know, if it turns into a sort of a show me, show me the results now afterwards. So um, I think it's gonna be interesting

to see how that all pens out. Katie, I wanted to ask you about a prettytioning story you had out this week too about obviously everyone is gearing up were Tesla to be added to the SMP. Some interesting stats. They're about so much alpha being generated for fund managers by owning Tesla that guess what, once it joins the index, that's all gone. Walk us through what that story was about.

I think that's a sort of an overlooked interesting thing about active management is how one way to beat the index is this stellar, incredible stock that is fifth the sixth biggest company in the country now and is not in the index. What what did you learn reputting that story? Yeah, so an interesting second derivative of Tesla being added to the index is that it's kind of taking away as secret weapon for you know, a lucky set of active managers.

So we crushed the numbers and we looked at two hundred and fifteen with at least five hundred million in assets. We found that just twenty one of them hold Tesla, and the ones that do, again, they are benchmark to the SMP five hundred, I should say that, and just twenty one of them hold Tesla, and of that or eating the benchmark, which can pretty much be tied back to the fact that Tesla is up five percent this year. I mean, it just seems to keep growing. So, I

mean active has had a hard year in general. I mean, first you had the SMP five hundred being dragged higher by just a handful of really five megacap tech names, and it's hard to beat the benchmark if you're not overweight those names. And now for the ones that had found this edge in Tesla that could potentially, you know, be taken away. It is said to be taken away

on December one. So we spoke to Matt Bartolini at St Street Global Advisors, who said that, really, this just creates another hurdle, another headache for active managers looking, you know, just to outperform in what has just feels like it was going straight up the SMP five hundred up until August. Really, yeah, Jacklin, I'm curious how from you know, a professional on the wealth management side of the business, how off been to these sort of phenomenal, high flying story stocks like that

get brought up in conversation. I just picture a lot of clients calling you guys up and being like, put it all in Tesla, put it all in Tesla, or put it all Nickli whatever the hot stock of the week is is that you know, I am I making that up? Or is that sort of a common discussion you guys have with clients, Well, you know our clients.

The way that we work with clients is that we do goals based investing, So our entire investment process is based around a financial plan and then from there we're setting an acid allocation and making sectors security selections based on where we see things going long term. So we don't really talk as much about single stock as we talk about sectors acid allocation and how that fits in

with the plan. So, you know, typically no, but when you hear a story like that that gets a lot of attraction on the news, of course, yeah, it comes up in conversation certainly. So I'm noticing in your notes, Uh, you s has a June SP target of about thirty eight hundred, about six point five percent gain. I guess from you know, it's it's hard to say these days that that could be. We could be there by the end of the day, So you know, walk us through how we get there. Is it a slow grind higher

do you think? Or are we gonna see uh some more about And the reason I ask is I keep my eye on the VIX, And I've noticed that twenty level on the VIX, which you know, two thousand nineteen was almost unspeakably high number. Um, it really seems to be the floor now, um for the VIX. I'm guessing there is people embracing this rally, embracing these new record highs, but certainly not doing it without a little bit of an insurance policy, uh, to to sort of accommodate to

go along with it. What's your outlook for for violatility? Is it gonna be a rocky road to get to that thirty eight hundred target by the middle of next year? Uh? You know, it is going to be a nail biter.

Do you think you know where we are expecting some volatility, namely around what's happening with the pandemic and to the extent there's a second we've we're not for seeing any national shutdowns, but certainly depending on the direction of the numbers, you know, regional shutdowns and pull backs, and believe that the market will be impacted by that and will experience volatility until that vaccine comes out, and then more short term to volatility around the stimulus package and whether it

will pass before Congress goes on that Christmas break and I want to circle back. You made an interesting point earlier when we were talking about tech that you know, you're looking at the more cyclical areas of tech, and I was hoping you could elaborate a little bit on that. You know, what is considered a cyclical area within tech? Would you say, yeah, so we're looking at five G cyber security, a r VR, telesurgery, the idea of autonomous driving,

those as more cyclical five G enebling technology themes. Yeah. Five G I think is is uh the big game changer obviously, And I it's interesting because I you know, I do think it will take a little while to see who the how the winners and losers shake out. But I mean, I guess there's there's enough known about Okay, this chip maker, that chip maker, you know, this this

device maker, you know. It all boils down to me, you know, when we talk about this rotation and whether you consider it, consider it a value growth rotation or a size rotation or stay at home to to reopening whatever it is, it seems to me like it's it's bound to have an expiration date. It's hard for me to picture a market where tech is not the star

of the show over the long term. You know, maybe we'll have value outperform even for all of the rest of the year, half and next year, but it's hard for me to ever see tech not being that that star of the equities show. After that, once life's back to normal, we kind of mean revert on valuations of the sectors that got hit the worst by COVID. I mean, it's not a safe assumption. Do you think, you know, we'll all end up sort of rotating back to tech eventually? Yeah?

I think so. And I think that you know, almost all sectors have a tech component now right, We're talking about financial technology and fintech and contactless and mobile payments, health technology, green energy, and green tech. So I think, you know, through this next decade that becomes more and more of a reality as tech enters all the different sectors. You know what I was wondering, point if you could help me understand what's going on in the bond market

at all. It feels like this reflation, this reopening trade, whatever you want to call it, has really been embraced by stock traders, but bond traders it feels like a really a pessimistic bunch. You know, the tenure treasury yield keeps testing one percent and it just keeps failing. It feels like, so, I mean, is that really just Fed expectations or I mean, is it safe to say that

the bond market is a little more pessimistic. Yeah, I know, we're expecting that the FED is going to keep rates near zero through so we are expecting that low for longer interest rate. And what we're doing in our portfolios really is looking for you through dividend paying stocks like in the financial space for instance, or in healthcare, to try and increase that that yield in the portfolio. Oh

that's interesting. So in general more risky allocation. Do you think if if you consider dividend stocks, maybe not as risky as as other equities, But is it an active reduction of sort of that theoretical sixty allocation? I mean, I'm sure you don't all allocate exactly to sixty forty, but but you know, using that as a baseline, is there kind of this this you know, different strategy now too, he's up on treasuries. I can't imagine anyone just holding

onto a treasury right now. I'm just gonna throw that out there. I don't, I don't, I don't get it. So is you know, is we definitely think there's a place for them in within the portfolio for sure, but we for for fixed income. But yeah, I'm looking for yield. We're we're doing so often in with dividend paying stocks in those sectors interesting and I mean in terms of where to find safety. I mean you make the point that in looking for yield, maybe treasuries aren't the place.

But I mean, especially the last few months, there's been a lot of back and forth on whether treasuries are serving their purpose within portfolios at all, whether they are still a good hedge for equity risk. I know there were a few instances in October or September, it's hard to remember where um, you know, treasury is really barely budged even when stocks were falling out of bed. I mean, do you is that still the buffer was? Yeah? I think so to some extent. Yeah, we like them in

the portfolio for that reason. We also are using tips um corporate investment grade bonds and like I said, the dividend stocks as well. And then in terms of you know, safety and having that hedge, we also you know, like gold for that reason as well. All Right, safety is one thing, Katie, but what the people want is the crazy. It's not the safest thing I heard in markets this week. Stand clear of the craziest things we saw in markets this week. So let's start with you. I wanna, I

want to see how your crazy thing game is. Okay, time to shine. Well. I know that you checked in on Bill Gross and his fight with his neighbor a few weeks ago, but now it's being tried in the court of law, so I want to bring you a few updates. And of course this is connected to markets because Bill Gross was the bond King, but his neighbor and again they're in a fight over his sculpture outside Bill Gross's house. Bill Gross blasted the Giligan Island scheme.

It sounds very very dramatic, very fun um. But it's a glass sculpture that that mysteriously keeps breaking and uh, you know, I usually it's nice looking. I could understand how maybe you don't want it on your property line. I'm not sure what the exact spot is, but it looks pretty nice from what I saw on the internet. Yeah, well you had to put up a giant net around it. Too, which I don't think the neighbor appreciated blocking his view of the Pacific. So true, But yeah, catch us up

on the court drama. This is this is like a courtroom drama here. I love it. Well. The neighbor testified in court this week that Bill Gross is an angry billionaire with a short fuse, and that's the money manager actually offered his condolences. Bill Gross offered his condolences to the neighbor when he moved in. But the angry billionaire things. I don't know if it's the best put down I've ever heard, because I would love to be any type

of billionaire, truly angry or not. Right, right, you think the anger level would subside a little bit as you became a billionaire, But I guess I guess maybe not. So Hey, Bill Gross is still living his life the white Bill Gross. He's fit. I'm a I'm all flu but I we'll have to keep checking back on this story as it progressive. One of my favorites for the year. Alright, Jaqueline, no pressure on you, but I'm sure they warned you

of our gimmick here, and hopefully you can't prepare it. Okay, Yes, I did, and it's a different type of crazy, I would say. So my craziest thing this week was seeing that the TAO was up over eleven point eight four percent in November, the best one month performance since January seven. It is pretty crazy. Some sometimes the crazy this year, the craziest things are the things staring You're right at the in the face, which is totally true. Eleven in

a month, I mean. And of course, once you hear that seven comparison, uh, people may take that a little bit too far. I wasn't alive, so that's pretty oh man, what the heck? All right, Well, I was an awkward teenager, so we're equal, I guess. But all right, and I was an awkward teenager in the suburbs of Philadelphia, which is a good uh segue to my crazy thing, which is about Black Friday, which I think for gauging the health of those consumer stocks. Jacqueline, I've just seen one

of the most important days of the year. Everyone curious this Black Friday would would flesh out the question though, and and I don't have a price, is right? We often play prices right with this segment, but I I will pose the question to each of you and see if you get it right. Who knows where the term black Friday came from? Gither Katie, No, not Clo. I

don't know, Jack. But tractually, I had always heard that it was the day it was such a big day for retailers, that it was the day they went from the red ink to the black ink, I guess, meaning profitable for their say. Not so, says The New York Times. Rather, the New York Times attempts to pin it on Philadelphia sports fans. And this is where I get really offended, because my homeland of Philadelphia has a very bad reputation

for our sports fans. I think it largely comes from the New York media, though, because it's such a powerful media and rivals of our Philadelphia teams. I'm just gonna throw that out there. But according to The New York Times, his historians quote unquote, they're not they're not attributing att any specific historian. Certainly was not a University of penn historian,

I bet. But historians say it originated in Philadelphia in the nineteen sixties, when throngs of shoppers and tourists would just say end on the city on the day between

Thanksgiving and the Army Navy football game. The Army Navy game was traditionally played on Saturday after Thanksgiving, So what they're saying is this mob of angry Philadelphia sports fans would invade the city on the Friday after Thanksgiving, and the Philadelphia Police took to calling the day Black Friday because officers had to work long hours and deal with bad traffic, bad weather. Another quote crowd related act miseries. I don't know. I'm not sure. I'm I might write

a letter to the New York Times. I'm not sure I buy this. I think this is just another attempt to blaspheme the good sports fans of Philadelphia. You think Katie as as a as a Jersey resident, or at least a Jersey native. Jersey I need you on board with this campaign. I know you're north, You're north of the Jersey Mayson Dixe line, but still aspiring New Jersey resident. I don't know. I I do think it sounds like

a bit of a stretch. I'm not trying to start beef with the New York Times, so maybe don't see see me on that email. But Jackline, what was what was your impression of black Fridays. Its big of a deal as it used to be when you're trying to analyze consumer trends, or is this this year is such a crazy year that it's kind of a right off, you know it is. It is certainly a big deal. And the whole holiday season is too, so you know, looking looking at the rest of the year and seeing

how that all pans out. And I know too, a lot of the big the big consumer discustion and companies are starting way earlier, you know, even in October with their sales and pushing for the season. So to be seen, yeah, to be to be determined. Well, we'll have to leave it at that. As I go and dash off and angry letters to the New York Times, I'm just they're probably right. I mean, we we fill These fans deserve

everything they throwed us, I guess. But that one hit a nerve, not as big of a nerve as Katie hit By saying she was not alive during that one hurts too, But Mike I wasn't either an honor of it in but I was, Man, you millennials, I'm shaking my now. I'm a big fan of the millennial generation. I'd liked. I consider myself sort of an honorary millennial, so yeah, we'll take you. We'll take you. I love

avocado toast, so I've got anyway. Jacqueline Remen of ups Private Wealth, We thank you so much for joining the show. Thank you, thanks for having me. What Goes Up will be back next week. Until then, you can find us on the Bloomberg Terminal, website and app where wherever you get your podcasts. We'd like it if you took time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter. Follow me at Reaganonymous, follow Sarah at Sarah Ponzac,

and Katie greifeld Is at k Greyfeld. You can also follow Bloomberg Podcasts at at Podcasts. And thank you to Charlie Pellog of Bloomberg Radio and the voice of the NYC Subway System. What Goes Up is produced by Jordan's Gas Pouret. The head of Bloomberg Podcast is Francesco Leavy. Thanks for listening. To see you next time.