It’s more about balance and looking two or three years out: Expert

Chad Oviatt, Huntington Private Bank Director of Investments joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

- Let's take a look at the broader markets. And I want to bring in our guest, that's Chad Oviatt. He's at Huntington, where he's the director of investments in their private bank. So Chad, I want to ask you, just broadly-- we're looking at all this kind of market movement right now. It's kind of a relatively quiet Friday. But what's kind of catching your eye in terms of where you might see funds going to as we kind of head into the next week?

CHAD OVIATT: Yeah, that's a great question, Brian. And thank you, Brian and Jen, for having us on. Really appreciate the time. So what caught our attention-- what caught the attention of, I think, most market participants this week was really the interest rate movement.

And you know, if we look at yesterday as an example, you saw some significant movement in the 10-year yields in particular. And that has kind of a correlation to those maybe tech-heavy names, those growthier, high-PE-type names on the equity side of the equation. And where we get those movements higher in the 10-year yields, they tend to create that rotation that we've been seeing.

It's not that money is necessarily leaving equity markets. It's moving from the growthier names, those higher-PE names to maybe some of the lower-PE or value-type names. And a lot of that it has to do with this idea of higher cost of borrowing. As we all know, markets are forward-looking. And they're trying to anticipate what the higher cost of borrowing might mean to some of the growthier names.

So again, it's not that things are necessarily leaving, from an equity perspective, it's just that rotation continues. And that's something we've been watching and positioning for here at Huntington. In fact, our equity team has been positioning for kind of a post-recessionary environment since the beginning of the year.

- So when I look at some of the positioning-- and you have made some moves-- is there any conviction behind these? Because I feel like we are seeing this rotation. But a lot of people don't have a good sense that this is definitely the way to go. How do you feel on the conviction front?

CHAD OVIATT: Yeah, you know, one of the things that we talk a lot about with our clients is balance. And having a well-diversified portfolio, staying balanced. And so it's not that we're going, from a directional standpoint, one way or the other at any given point to any significant overweight. We like to do trims and adds.

And to your point, there are a lot of market participants that are wondering if this rotation has sustainability. Is it going to be a long-term effect? And for us, it really is more about the balance. And looking two to three years out. And trying to own names that we think have good balance sheets, good competitive advantages.

And we're really focused more on the fundamentals, even though volatility and market fluctuation nowadays has people participating in a different way. Here at Huntington, we do get back to the fundamentals and think more about broadly diversified portfolios.

- And Chad, what you just said about fundamentals kind of folds into what caught my eye and the note that you kindly sent us this morning, which is that you think that stock investors will be, quote "rained on by dividend increases and a resumption."

So it seems like the value play has, however, already gotten a lot of attention. We've seen the run-up over the past few months. So has the ship already sailed on that journey? Or is there still some place where you can really get into value and make that a good play?

CHAD OVIATT: Yeah, another good question. And so when we think about value, and more specifically, dividends, you know, dividends, for us, have a couple of functions. And for our clients, the biggest component of the dividend story is the fact that it generates income for them. And in certain cases, some tax-advantaged income for some of our higher net worth clients.

And when you compare dividend yield to where we had been on some of the Treasury yields or other fixed income yields, dividends were attractive. And you know, you think about all of the cash that's sloshing around in the system, and companies have that, too. It's not just on individual balance sheets with the consumer. These companies have decisions to make with respect to their own balance sheets.

And we can look at even just this week. Williams-Sonoma had a surprise increase-- 11% increase in their dividend. A billion-dollar buyback announcement as well. So we think that's going to be one of those themes that carries through the rest of this year, as companies-- they're very adaptable to the environment. There's resiliency.

And we saw that through 2020, now here in 2021. Watch for them to think about how they appropriately deploy some of the capital they have.

- And aside from those dividends, you also talk about stock splits and stock buybacks, which of course, were very popular not that long ago. I want to ask you about three stocks you had. You put them in a for those under 30-- Snap, Chewy, and Tesla. Let's talk about Snap, because I'm curious-- it stood out to me in this basket that you have here-- what it is that you like about it right now?

CHAD OVIATT: So all three of these names-- you know, again, going back to the idea that we want to have a diversified portfolio. But there are names, you know, that are in our portfolio that we think resonate with maybe younger consumers and younger investors, Snap being one of them.

But the general theme that transcends all three of these is that, as we've gone to this work from home, school from home, shop from home, entertain from home type of an environment, we know that things have started to change from a communication perspective.

And Snap would be one of those where we think-- you know, they've reframed the idea of a picture says a thousand words kind of thinking. And so that communication change, particularly for the younger audience, we think that's a sustainable group that will continue to use that as a platform for communication. So we like Snap.

You know, if we talk about maybe the other two real quick. The convenience factor of Chewy. All of the pet owners. We know there's a lot of new pet owners, given the pandemic and the lockdown. The convenience of having those supplies delivered to your door, and the easy way of shopping there, and the ongoing need to resupply is attractive to us there.

And then with Tesla, you know, there's a lot of news that impacts Tesla on any given day. But we think the EV theme, this movement from hydrocarbons to electric vehicles, is a sustainable-- to take a term from the ESG lexicon-- but we think that's a sustainable movement.

So all three of those, yeah, they're-- may be targeted for a younger demographic in terms of their purchase and consumer demographics. But we as investors, we think those have long-term fundamental benefits. And if we're thinking two to three years out, we like all three of those names.

- All right. Well, I mean, I only speak for myself, but I don't use Snap anymore. Although that might just be because I'm stuck inside, so what would I snap anyway? Chad Oviatt, Huntington Private Bank Director of Investments, thank you for joining us here on Yahoo Finance today.