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There's a lot of unrealized gains still on the table: Managing Partner

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Duncan Rolph, Managing Partner at Miracle Mile Advisors, joins The Final Round to discuss the market sell-off and what investors can expect moving forward.

Video Transcript

SEANA SMITH: All right. Well, let's get more on today's sell off that we saw. In talking about the broader markets, we had the Dow, NASDAQ, and S&P all closing at four week lows. The NASDAQ is having its worst three day slide, a decline of just around 10% since the beginning of the pandemic, since the middle of March.

And here to talk more about this, I want to bring in Duncan Rolph he's the Managing Partner of Miracle Mile Advisors. And Duncan, another huge day of selling pressure. How are you looking at this?

DUNCAN ROLPH: Well, I think for us when you have the kind of run up that you've had over the past several months, I mean, I think this was probably well overdue in many respects. You know, we've been fairly cautious as, like you said, and this rally has been reasonably narrow in terms of the sectors and the number of names per sector.

And so with our clients especially, you know, when you looked at February, March with markets dropping, you know, 30 plus percent with the S&P over such a short period of time, I think it's natural that you take a pause here. I mean, it's a really challenging investment environment now though. Because you have these valuation levels, which I think a lot of people would call, you know, fair to overvalued.

We haven't seen the S&P valued this way since 2002, at least a couple days ago. But you also have the Fed announcing rates that aren't going to move for a long time. So you have this kind of stimulus that's pushing up against kind of fair market value. And it's causing, I think, a real conundrum here, which is why you're starting to see the volatility that you're seeing.

SEANA SMITH: And Duncan, when you talk about it causing this real conundrum, I mean, how are you playing this then? Because there's so much uncertainty here just in terms of where we go. We also had the election, which is, what, less than two months from right now. So what are the sectors that you're favoring in this type of environment?

DUNCAN ROLPH: You know, we've been overweight technology for-- for a while. And that has been something we've started to pare back to a certain degree over this year. You know, I think it's very difficult to find attractively valued areas in the United States. So one of the areas that we've been looking at pretty hard and have continued to kind of slowly incrementally add to is the emerging market space, just given-- given the relative underperformance of all of the stuff that's not dollar denominated.

This potentially becomes kind of one of those turning points, where you start to look overseas for some attractively valued assets. But that being said, you know, you're still at this period where I think the volatility-- the volatility right now I think is just starting. It's not-- this 7, 8 plus percent here is not the end of the story.

And like you said, the election coming up, you have taxes and regulation on one side. And you have significant uncertainty on the other side, which I think is going to cause things to continue to be fairly dicey, you know, from a longer term investment perspective until we get to the outcome of that.

RICK NEWMAN: Hey Duncan, Rick Newman here. A lot of people want to know, where are the dip buyers? And I think you're suggesting that they're-- they're just not-- they don't think the dip is over yet. Is that what it is? And when will the dip buyers step in?

DUNCAN ROLPH: I think-- I think that's-- yeah, that's exactly what I'm suggesting. And I think ultimately when you have this combination of a lot of people working from home and a massive amount of retail buying, you see stock splits which, you know, create additional media attention for those, you know, those names that we've been talking about a lot.

And I think having these kind of dips from the run up. Again, we've only corrected, you know, a couple of weeks of performance here. So like I said, I think a lot of the longer term, larger investors are waiting. And there's a ton of unrealized gains still on the table. I mean, a lot of people made a ton of money in a lot of these names this year. And they pay taxes.

And so there is a consideration around how, you know, how to reallocate assets, because there is some friction with taxes right now. So I think you're going to need to see this continue for a little while longer. I think we're nowhere near a capitulation point on a near-term correction that's going to create some strong demand on the buy side.

- you said that you've pulled back on some tech, at least in your portfolio. I'm curious if you can share some of those names that you've pulled back from. And what specifically concerns you about the sector as a whole right now?

DUNCAN ROLPH: I mean, the bigger-- the big issue, sorry my light just went out in my office here. The bigger issue for us is that a lot of these names, when you look at it from a pure valuation standpoint, have run up. When we have names that are up 50 plus percent over a short period of time, and you're looking at valuation relative to relative growth going forward, I mean, it's a, you know, it's difficult to justify these kind of valuations over a longer period of time.

So some of the bigger names that I think a lot of people have piled in to, I mean Apple being one and so forth. I think it's just prudent to kind of manage your position waiting. So if you have a stock that's doubled or tripled, now that stock is a much larger percentage of the overall portfolio. So rebalancing down to targets is more of what we're doing right now.

So while it's technically taking money off the table, it's more rebalancing back to target positions that we've had, you know, last year and the year before.

SEANA SMITH: All right. Duncan Rolph Managing Partner at Miracle Mile Advisors, thanks so much for joining the show today.

DUNCAN ROLPH: My pleasure, thank you.