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Big tech will continue to see ‘strong results’ despite government intervention: Strategist

Stocks are rising as tech shares gain back some losses. John Hancock Investment Management Co-Chief Investment Strategist Matt Miskin joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: As we see tech stocks today back here in the US enjoying an unusual turn of events in terms of kind of that relative rotation in the cyclicals here. So with that question, want to turn to our first guest today, Matt Miskin is John Hancock Investment Management Co-Chief Investment Strategist. And Matt, when we're looking at this, obviously, it seems as though a switch has been flipped when we got that vaccine news, a lot of investors looking forward to what could be a return to normal in 2021. But as Akiko was talking about here, this question mark hanging over tech giants heads not unusual, not unique to what we're seeing in China, what we're seeing here in the US. Talk to me about how investors should be looking at that question as they maybe shape up portfolios for next year.

MATT MISKIN: Yeah, we do think that the technology companies, from a fundamental standpoint, still have a lot going for them. So the return on equity, the margins are great, they're seeing growth this year in a world where growth is really hard to come by. You do have this overhang as it relates to regulatory concerns. The question becomes, if the government does intervene in the technology space, how did they break them up, and is that really the most optimal way?

I mean, go back to the AT&T days where the baby bells were broken up, and then they came back together. Microsoft has been under scrutiny for years, and it's been hard to come up with a better solution than what the capital markets or the free markets propose. But this is a shot across the bow on a global basis coming out of China about the regulatory stance of governments and some of these huge tech companies.

AKIKO FUJITA: I mean, to that point, Matt, the difference between what happened during Microsoft and what's happening now is that global crackdown that we're seeing. We're talking about China today, US as well, but just yesterday, it was European regulators that came out and pressed charges against Amazon for what they deemed their antitrust or anti-competitive behavior. So how do you factor that into to where some of these big tech names are trading right now? We've heard over and over over the last few months, a lot of our guests say, look, that is something that's happening down the road, that's not going to be weighing on shares. Has that calculation shifted, you think?

MATT MISKIN: Not in our view. We actually see that the tech companies will continue to see, you know, strong results. If you're trying to use government intervention into your process, it is one that has been failed investors over and over again. And you know, I mean, you look in the US right now, the fact that it is most likely gridlock suggests they're probably not going to agree on anything. And if that is the case, more likely than not, the government is on the sidelines as it relates to the markets.

What's happening in Europe and in Amazon, you know, I mean, Europe has come after other tech companies as it relates to taxes. At the end of the day, those companies have survived and bounced back from these headline risks and these risks before. You know, you look across the equity spectrum, and you're trying to find the best businesses right now with good free cash flow. That brings you to tech, so we continue to like this sector, even though there's been a mini rotation out of it just in the last couple of weeks.

ZACK GUZMAN: Yeah, I'm glad you're saying mini rotation. One of the questions we've been trying to parse out over the last couple of days here on Yahoo Finance Live is really looking into whether or not that kind of rotation is coming more from maybe people who have been more focused on growth or just coming from the fact that you got $4.5 trillion sitting on the sidelines here to maybe look at some of those beaten down cyclical stocks. So when you're looking at those relative opportunities across sectors, which ones are you really liking and kind of advising clients here to take a look?

MATT MISKIN: Yeah, so I mean, you don't need to be one or the other. I feel like nowadays, you know, we just got past the election, and now it almost seems that an investor has to either be the reopening trade or the longer duration tech trade. In our view, you want to have both in the portfolio. So in our view, though, you want to have about 2/3 the longer duration, the technology, the quality stocks, and about a third to the reopening, and the way that we're playing that is industrials.

Out of all the cyclical sectors, we see industrials cheap, we see the earnings recovery developing, and they don't need higher interest rates to continue to outperform. So you've got to have both in the portfolio. You want to right size it. We actually prefer biasing more to that quality tech engine. But you know, you don't want to just say you're one or the other, because in time, both these catalysts will likely unfold, and you want to have both in your portfolio.

AKIKO FUJITA: Matt, where do the travel names fit into your allocation? We've seen some of those stocks rally over the last few days, the airlines, the cruise liners, and yet, the outlook seems so uncertain, especially because we're going through what some have called this third wave in the virus. That's got to be concerning for airlines too. I mean, do you think that investors should be buying into these stocks right now?

MATT MISKIN: I mean, we would be much more diversified. So if you look at, for example, the industrial complex and mid-caps in particular, there are some of those airlines. So Southwest is in there. There's other ones in the mid-cap complex. You're going to want to pick the ones you think are going to survive this and make it through. There's probably going to be consolidation in some of these industries. But if you think about a broad portfolio of these industrial companies, there's a lot of different verticals across conglomerates.

There's more in terms of, I mean, there's airlines, there's transports, there's different ways to play it. We wouldn't be overexposed to it, but if it's in a broader portfolio context, I think it's fine. You know, you're basically putting a call option on a vaccine in the next couple of years on some of these industrial companies. You might have to be patient, but we do think it's a good part of your portfolio for that longer term reopening trade.

ZACK GUZMAN: Yeah, and there's also that risk in some of these companies maybe diluting the upside here with more share offerings to try and whether that short term. We saw that I think cruise operators yesterday. But I wanted to get your take on Goldman's call too, because you know, I mentioned it off the top, but they boosted their year end forecast, and especially pointing to a 16% potential return for 2021. How much of an important role should investors be placing on the Fed and the fact that they seem to be increasingly accommodating when it comes to maybe, you know, letting this rally run a little bit longer than I think a lot of people expected when this all first started.

MATT MISKIN: Yeah, I mean, I see a lot of upgrades across the sell side right now, and there's nothing like price to increase sentiment. You know, now that everything seems awesome, we just came off a week of somehow managing through a election with little volatility. In fact, you know, the market went up. Then we get vaccine news, and then you get all these upgrades, and we wouldn't chase that here.

Yes, the Fed is going to be supportive, but it's hard to get incremental support out of the Fed. They've already done so much in 2020. $3 trillion on the balance sheet, cut interest rates to zero, how much more can they really add next year? To us, that means you've got to go and find the businesses that have the fundamental support, the cash flow growth in next year, and it goes back to that balanced portfolio of reopening trade and longer duration trade. That longer duration trade is OK in our view, because the Fed's probably going to be unchanged for many quarters to come.

ZACK GUZMAN: Yeah, hard to think of more catalysts that are coming through on the Fed front. But Matt Miskin, John Hancock Investment Management Co-Chief Investment Strategist, appreciate you coming on to share that with us today. Be well.