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'Tech high flyers massively underperformed on the vaccine news': Portfolio Manager

Lamar Villere, Villere Balanced Fund Portfolio Manager joins Yahoo Finance's Kristin Myers to discuss the latest market action, as hopes for a coronavirus vaccine rise.

Video Transcript

KRISTIN MYERS: Villere. Sorry. Villere. Lamar, thanks so much for joining us today. So we saw a huge rally, of course, yesterday on the news of Pfizer's vaccine. Markets, however, today, far more muted. Were you expecting the optimism on the vaccine news to fade so quickly?

LAMAR VILLERE: Well, yeah. I mean, you know, with the absence of new news. You know, there's the one big-- you know, the 90% figure, I think, caught everybody off guard to the upside. But the market absorbed that pretty quickly. I mean, you saw a huge run-up yesterday. So it makes sense that things kind of calmed down a little bit today, you know, now that those-- there's not new news to get excited about.

KRISTIN MYERS: So to that end, what is it going to take to get this market excited again? Is it news about stimulus? The elections are now over. What is it out there, do you think, that's going to give the markets a little bit of a boost going forward?

LAMAR VILLERE: Well, I mean, it's had quite a boost between the Fed and now with the vaccine news. So you know, this has been a pretty good boost. You know, obviously, some stimulus is always welcomed by the market.

But you know, I would say that the race is not over. You know, I think the market's still very much going to be focused on what goes on with the Georgia runoffs. That's going to have a big impact. You know, the market really likes gridlock. It likes, you know, a lack of surprise and not being caught off guard.

So I think if all the sudden you were to see the Senate controlled by the Democratic Party, so you have kind of single-party rule here, you know, then there's a potential for some changes, for some tax overhaul, some other different things. So I think that's more of a risk. That's still a risk on the outside.

But generally speaking, we've had a lot of things-- ever since, you know, the lows back in March, April, the news has been pretty positive. And yesterday was stunningly positive. And so I think people are pretty optimistic.

KRISTIN MYERS: So to that point, Lamar, as you just mentioned a moment ago, we've seen the markets do pretty well throughout this entire pandemic until, of course, very recently. You said in your note that valuations are already overextended. Are you anticipating another pullback? If you are-- or if there is going to be one that you might be anticipating, how big?

LAMAR VILLERE: Well, I want to be specific. So when we talk about the market, you know, there's lots of different-- there's thousands of different companies in the market. So specifically, you know, as you guys have been pointing out earlier, the technology stocks have had a little bit of a tougher go here today and yesterday.

And really, if you look at the numbers, this year large-cap growth stocks, which is really dominated by those tech names-- large-cap growth stocks is measured by the Russell 1,000 growth-- are up 27%, so having a magnificent year in terms of returns. The Russell 1,000 value, so more the Dow Jones type old-line industrial, the value-type names, is actually down 5%. So that is a huge dispersion.

So what we-- we see the real risk being to those tech stocks that have come a massive way. Even after having a strong year last year, that have actually been, you know, arguably boosted by the pandemic, some of the stay-at-home type stocks. I think there's going to be-- we're going to see the distance between those two, the growth and the value, shrink somewhat.

Whether that's an increased performance by the value stocks or a pullback by the growth, or maybe a little bit of both like we're seeing today, it remains to be seen. But you know, we think, particularly with some of these high-flying growth stocks, the FANG type stocks, it's going to be-- it's going to be tough to see a lot of optimism for those going forward.

KRISTIN MYERS: So to that point, if you're an investor and you start rotating out of some of those names, where do you see opportunity in this market? And especially considering that there's so many questions up ahead in terms of stimulus, on coronavirus, what are some of the defensive plays that investors should be looking at?

LAMAR VILLERE: We still think, you know, ironically, health care, you know, a lot of the health care names are still trading at pretty reasonable valuation. So there's some attractive names there. Obviously, Pfizer and some of the others got a big boost yesterday. But there's still some attractive names in there and some-- some less obvious things.

Small-cap stocks, in general, that's an area we like to invest in. Small-caps are up slightly this year, but there's still some great opportunities there. So you've got to really pick your battles.

You know, dumping money into an S&P index fund, really what you're doing is putting that mainly in those large-cap growth names that have already come pretty far, pretty fast. So I think that's a dangerous place to be, even though it seems sort of simple and safe. But you really have to look and try to work harder to find value in a market like this.