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Underappreciated stories are driving markets: The Bahnsen Group CIO

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David Bahnsen, Chief Investment Officer at The Bahnsen Group joins Yahoo Finance Live to break down how markets are faring amid pandemic.

Video Transcript

AKIKO FUJITA: Let's kick things off with a broader view of the markets, so we've got David Bahnsen, Chief Investment Officer of the Bahnsen Group. David, it's good to talk to you on this Monday. Just give me a pulse check of where you see the markets trading right now. We saw a bit of a pullback, but there's still this expectation right now of potentially that $1.9 trillion stimulus being passed in the coming weeks.

DAVID BAHNSEN: Well, the $1.9 trillion stimulus is going to be passed, and the market has fully known that for quite some time. On the margin, could it be $1.7, $1.8 once some of the moderate Democrats make adjustments, potentially. But I really believe that's one of the least significant things driving markets right now.

I think the entire fiscal stimulus side, from a pure market standpoint alone, has been really overrated. The biggest issues are that the earning season that we're just sort of wrapping up has been far above expectations. And then that rotation story from a lot of the high-growth winners of 2020 into some of the underappreciated stories, and indeed some of the more value type names, that's the bigger story in markets right now.

ZACK GUZMAN: Yeah, and David, we've kind of been talking about that rotation for, I don't know, I guess it's months now, moving away from some of those high-flying tech names into some of these other beaten-down sectors. So what are you seeing in terms of where we go from here and advice on how to build the right size portfolio?

DAVID BAHNSEN: I mean, of course, everybody's objective as an investor and perspective is going to be a little different, and-- and I think people need to kind of tailor that around their comfort level volatility. No-- nobody should be owning large-cap growth that doesn't know that they're at high valuations, but that doesn't mean they should be selling. They just have to be prepared for some potential volatility around that. High valuations don't necessarily mean a big crash is coming. They just mean that there's less margin for error.

And I think that's the thing that I'd really point out as it pertains to some of the FANG names. When you look, though, at the value names and some of the underappreciated stories of 2020, this yield curve widening out is a big deal. A lot of the financial names that we own that were really down in the first three quarters of 2020 are making new all-time highs all of a sudden. So you've got a lot of recovery in the financial space. There's still some underappreciated stuff out there, consumer staples and utilities come to mind.

AKIKO FUJITA: David, let's talk about some of your stock picks, Simon Property Group, the one that stood out to me, because there has been so much talk over the last year about the death of the malls because of the restrictions from the virus. What do you see there that you think creates great-- big opportunities? And what do you think ultimately will be the catalyst to take it to a higher level?

DAVID BAHNSEN: Well, the number one thing I love is everyone's talking about the death of the malls. And if you can't get everybody on one side of a trade and everybody on-- on the sort of monolithic thinking, it's very hard for it to be a really explosive moneymaker. But because everybody is saying the exact same thing, that was really one of the great sources of conviction we had last year.

Simon got down into the 40s, but it stayed in the low 60s for a long time. Now it's back up here about $115 today, $110 to $115. So it's more or less doubled from where it spent the bulk of 2020 at, and yet it's still significantly lower than its all-time highs. From net operating income, it's cash flowing about a 7% dividend yield to investors, even after the recovery. And it is very low leverage compared to where it was after the financial crisis, less than 50% loan-to-value.

This death of the malls theme is incredibly misunderstood. The idea that prime real estate is going to be repurposed is a given, but the idea that prime real estate is going to have no monetizable of value is just silly. And Simon Property is going to be a great beneficiary of really great assets and great cash flows that they are in possession of.

ZACK GUZMAN: We can talk about another one of your picks, as well, here, and it's one that I've heard from a few people around Apollo and kind of the concerns that it might have been overestimated, those moves that we saw earlier with Leon Black and connections to Jeffrey Epstein. And talk to me about the opportunity ahead for maybe that being a good example of an individual pick that moves perhaps too much of the downside and where you see it going from here.

DAVID BAHNSEN: Yeah, of course, that recovery off of that kind of silly stuff with Leon Black has already taken place. We like it at these levels. We liked it a lot when it dropped after all those kind of headlines. But ultimately, you never want to own a name or sell a name because of some talk about a CEO or one individual. If a company's entire prospects exist around its 70-something-year-old founder, then you got big problems.

That's not the case with Apollo. Apollo's story is that it's one of the best private equity and private credit and real estate players and investors in the world. It has significant amounts of dry powder, and it's a fee-based business. We don't have to go take the balance sheet risk of what they're doing. We're just simply receiving the management fees as an investor in Apollo for all of the different angles in which they're investing.

And of course, the better they do, the better the-- promotes the so-called carried interest is. It's a very similar story to Blackstone, which is another name we own. And Blackstone's now made all-time highs, and we've well more than doubled in our position on Blackstone. Apollo, though, we think is underappreciated, and they're really in a great position to take advantage coming out of COVID about a lot of the M&A opportunities that are out there and the need to deploy middle markets credit.

AKIKO FUJITA: David Bahnsen, Chief Investment Officer at the Bahnsen Group. Some good takes there. Appreciate your time today.