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We do think that it’s time to start tilting towards value and away from growth: Head of Asset Allocation

Max Gokhman, Head of Asset Allocation at Pacific Life Fund Advisors joins the Yahoo Finance Live panel to discuss the latest market news.

Video Transcript

AKIKO FUJITA: Let's turn our attention back to the markets right now because we have seen this vaccine news really keep this rotation out of growth into value sort of facilitate that. That's been accelerating. I want to bring in Max Gokhman. He is the head of asset allocation at Pacific Life Fund Advisors.

And Max, you know, you've clearly started allocating towards value as well. How are you weighing these two good news, bad news scenarios the doctor just laid out? On the one hand, you've got two vaccines now that have more than 90% efficacy rate. And yet, when you look through the states across the country, we are seeing a dangerous uptick in infections.

MAX GOKHMAN: Yeah, I think it's going to really matter if we can get through this period. There's actually a third risk, which is really the fiscal cliff, right? So there is no fiscal stimulus anymore. There are no benefits being given to people as there were, for example, when we were much more bullish on equities more broadly, even as we were going through a second wave in August and July.

So, in terms of weighing that, we do think that it's time to start tilting towards value and away from growth. We do think that those sectors will benefit from the tailwinds of both the Biden administration in terms of infrastructure plans, as well as a bipartisan move to regulate big tech, which will be a headwind for growth, obviously.

But at the same time, it makes sense to be more neutral on equities overall, as we are in this very risky period. It's as, you know, they say. It's always darkest before the dawn. And I think that's kind of where we are with much higher cases spiking. I mean, positivity is at a highest level it's been since May. And I think right before a vaccine starts getting rolled out through the EUA, that is when we're going to have to be most careful.

And, you know, the other risk factor that we're also-- makes us cautious is the lame duck session of the Trump administration. We think that investors who aren't paying attention to that lame duck session may wind up with an egg in their face.

ZACK GUZMAN: Yeah, Max, there aren't a lot of people issuing caution right now. So you'd kind of be in the minority there when we think about other firms raising their price targets next year and beyond that. So I guess, there are concerns about short-term chop for sure in a guess how long it's going to take for that next wave of the stimulus bill to come through here.

On that front, though, when you weigh risk and reward, one of those firms that was upping their price target here would be Jefferies. And they're focusing on financials, saying that they're moving from being moderately bullish on that sector to outright bullish, highlighting easing lending conditions, as well as, you know, the catalyst there of that next stimulus bill. So talk to me about where you're seeing this risk-reward in sectors that you do like longer term.

MAX GOKHMAN: Sure. So I do think financials is something we are liking more now. I think net interest margins will improve, especially if we do get more of infrastructure spending, more stimulus. That's going to start kicking up the long end a little bit. I don't think the Fed's going to let it get too far. But certainly, that's a possibility.

I think lending standards improving and also, more importantly, demand for loans improving, as companies are sort of getting more comfortable with doing more Capex, that's going to be a benefit for financials as well. I think that consumer staples is another value sector that should be looking better.

Again, as consumers start spending more, that's obviously going to be first driven by staples and later by discretionary. Utilities benefit from investor search for yield and continue paying good dividends. I think utilities especially also can benefit from some of the green initiatives that the Biden administration will put forth. And finally, materials and industrials, again, leveraging infrastructure. Those are going to be sectors that I think will benefit both from a return to being outside and return to work, but also benefit more directly from infrastructure spending.

AKIKO FUJITA: Max Gokhman, the head of asset allocation at Pacific Life Fund Advisors, good to talk to you.