Don't 'run away' from tech, but do broaden out: Strategist
Yahoo Finance Live revisits the calls made at the end of last year to see which hold up and which are in need of repositioning. Laffer Tengler Investments CEO & CIO Nancy Tengler and Great Hill Capital Chairman and Managing Member Thomas Hayes join Yahoo Finance to revisit and update last year's calls.
Hayes outlines his market strategy amid a surging market: "We've been publicly bullish nonstop for a year and a half, and we've recently become more cautious. We're up 17 out of the last 21 weeks. No 2% pullback in the last 100 trading days. So, in recent weeks, we put on a 2% hedge: 1% put spreads on the S&P, 1% put spreads on the semiconductor index, and 98% long. So if we're right, those have an expected value of 5x each."
Tengler addresses risks on her radar: "We started broadening out the portfolio, really to have the improvement in some of the names that we've seen in healthcare, financials, some of the more cyclical names...But my biggest concern is that the Fed seems to be, I guess, walking away from their data dependence, and I'll put quotes around that, that they've had in the past. And it seems they're determined to cut. We've drawn an analogy to the 90s. We think you can have higher inflation, but not materially higher. So that's my worry, that we get a surge in inflation because the Fed is too easy."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
AKIKO FUJITA: That's been a record setting start to 2024. We are revisiting the calls made at the end of last year to see which hold up and which in need of repositioning in the Yahoo Finance playbook. Joining us today is Thomas Hayes, Great Hill Capital Chairman, and Managing Member and Nancy Tengler, Laffer Tengler Investments CEO and CIO.
Nancy, let's start with you. Because back in December, you recommended investors buy Broadcom for its exposure to the AI rally calling it the poor man's NVIDIA. But do you still stand by that call?
NANCY TENGLER: Yeah, I've been pretty pleased with it, Akiko. I mean, the stock pulled back on earnings. But then they had an investor day. I think investors came away with a clearer picture about the future.
I think on any pullback, you want to own this stock if you don't already own it. Strong dividend growth. The capital allocation plan, that really rewards shareholders.
And a management team that has been able to make major acquisitions and then rationalize them very quickly and very well. And then, of course, the AI component, which will continue to grow.
JOSH LIPTON: And Thomas, let's bring you in here as well. You look at this market, Thomas, this kind of just steady climb higher. I'm just curious. How is your investment strategy if at all changed so far this year?
THOMAS HAYES: Well, we've been publicly bullish nonstop for a year and a half. And we've recently become more cautious. We're up 17 out of the last 21 weeks.
No 2% pullback in the last 100 trading days. So in recent weeks, we put on 2% hedge. 1% put spreads on the S&P. 1% put spreads on the Semiconductor Index. And 98% long.
So if we're right, those have an expected value of 5x each, so we'll create 10% of new capital. If we're wrong, we think there's enough beta in the portfolio that even that cost of 2% will get eaten by outperformance to the S&P. But if you look at mixed messages, margin levels are down. They're not really super elevated.
So a big correction of 10%. I don't think that's in the cards. I think more like a 3% to 8% would be kind of a normal healthy thing to see. And sector rotation happening under the surface like Jared was talking about.
AKIKO FUJITA: Why single out semiconductors and S&P specifically?
THOMAS HAYES: I'm looking for what's a little bit stretched, where the multiples are stretched, where a lot of people are chasing the shiny objects. All the people that were bearish. We flipped all the bears.
You know the names who have been bearish for a year and a half. And now, they're all flipping. And where are they flipping, too, they're getting excited about stocks that have already run up 100% plus. And we like to skate to where the puck is going, not to where it already has gone.
JOSH LIPTON: Nancy, I want to bring you here as well. When you talk to your clients, Nancy, and they're asking you, what are some of the risks that are really on your radar right now, what do you tell them? Is it valuations, seasonality, what are you thinking about?
NANCY TENGLER: Well, so, Josh, we're long-term investors. And we tend to move at glacial speed. But we were adding as you know we've talked about this to tech and consumer discretionary in October of 2022. And then, again, after trimming them in 2023, we were adding to back to some of the names in October.
And then we started broadening out the portfolio-- October, sorry of last year. We started broadening out the portfolio really to have the improvement in some of the names that we've seen in health care, financial. Some of the more cyclical names were overweight industrials.
But my biggest concern is that the Fed's seems to be, I guess, walking away from their data dependence and put quotes around that that they've had in the past. And it seems they're determined to cut. And so we've drawn an analogy to the '90s.
We think you can have higher inflation, but not materially higher. And so that's my worry that we get a surge in inflation because the Fed is too easy. But we've drawn the analogy to the '90s. And we think that's still accurate.
Higher inflation and higher interest rates can coexist with strong stock prices. And that's what we had in the '90s when I was a young portfolio manager. And I think we're going to see that again due to productivity.
So I'm not running away from tech. We're just broadening out. Because I think you want to own the old economy companies that are embracing the digital revolution, generative AI, cloud computing, and then the suppliers of those picks and shovels in that space.
