05 Jun Genus Weekly In Focus – Addressing COVID-19 Concerns Week-12
In honour of World Environment Day (June 5th), we celebrate with featuring Sue Talbot, Genus’ first employee, Partner and Portfolio Manager. Sue speaks about the recent rallies in the U.S., the positive news in the markets this week, and the demand for ESG investing in a post-pandemic world.
Sue Talbot: [00:00:00] Hi, everyone, Sue Talbot here and I also have Wayne Wachell with me here. And welcome to week twelve of our In Focus Videos. So for those of you who don’t know me, I’m a partner and portfolio manager here at Genus. And I have been with the firm since day one. And I’ve spent my entire career here and I started off in back office and operations. I think I’ve done almost every single job you can think of here at Genus. So I’ve moved on to middle management and then I got the opportunity to work with Leslie Cliff and her clients. And that’s when I really realized that I really enjoy working with clients and helping them with their portfolios. So here I am today, and I’m very fortunate to be working with a group of portfolio managers here at Genus who are very passionate, passionate about servicing our clients and making sure their financial goals are met.
Sue Talbot: [00:01:00] So I have the pleasure of interviewing Wayne this week. And so let’s get started. So, Wayne, today was a big update update in the markets, but let’s talk about that later. Let’s talk about the big headline in the world, and that is these the ongoing unrest and rallies that are happening in the U.S. and in fact, they’re happening not in the U.S, but globally as well. You know, the reason behind these protests is really important. But let’s just talk about how the markets are reacting to these protests. And so, obviously, these are mass gatherings. Social distancing is not happening, although, you know, people are wearing masks. But, you know, not sure if they’re actually wearing masks for health reasons or not. Things have been peaceful the last couple of days. But, you know, there has been rioting and of both, you know, small businesses and big businesses who have already been hit by the pandemic. So why are the markets unconcerned and largely looking past these events? Should the markets be more concerned?
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Wayne Wachell: [00:02:12] Well, I’ll give you my my take if you look at history. Look at 1968, which was a very violent year. There were assassinations of U.S. leaders that year. And look at 1990 during the Rodney King, it didn’t really affect the market. So I think it was any implications for the marketplace, it’s going to be these mass rallies that might actually cause a bit of a boost in the pandemic after the fact. It could have a bit of an implication as well on the presidential race, I would say. It looks like Trump fell the polls during his handling heaped on the polls throughout this whole thing. So that’s that’s a thing. But I think the big, big news this week was there just so much good news on the economic side.
Sue Talbot: [00:02:57] Yeah, yeah. So today was an exciting day in the market. So it’s a big update and it’s primarily due to the job reports that came out in both the U.S and Canada. And I think analysts were expecting the unemployment rate to increase and not decrease. And so just talking about the markets, the S&P is up over 40 percent in U.S. dollar terms from the March low. So, Wayne, is this a V shaped recovery that few predicted? Is it safe to go back in the water? Is it over?
Wayne Wachell: [00:03:31] Well, we’ve had a V shaped recovery in certain stocks in the tech stocks. All the winners of the pandemic, the shut in stocks did well, technology, health care. They’ve had a V shape, recoveries, V shape recoveries. Some of the areas like financials and oil haven’t had that quite yet, but they’re improving and improved dramatically was a big, big week for financials, energy and industrials. And the numbers today were very positive. Be down minus eight million. And they were up two and a half million, 10 million spread. Huge. But they just kept a great week. It was there was good news coming out all week. The yield curve got steeper during the course of the week in terms of long bond yields went up, which is a good thing. And value stocks rallied. Small cap stocks rallied. So the market saw this coming, I think. And there’s been a lot of noise by economic market commentators about this big, big disconnect in the market and and and the economy. I’ve been saying it from day one. This is a man made a government made recession where they just turn the engines off and then the economy falls and they turn it back on. And we didn’t know how the economy was going respond to that. And it looks like it’s responding. OK. And we’re getting a bit of a recovery here. And it’s you know, it’s it’s the market is look six to nine months forward. I’ll say that again. Into the future. The economic numbers now are, ah, they’re getting better and they will get better. But the market’s looking to next year already. And so it’s looking way ahead of us. And it’s been actually right in terms of rates, but it’s been saying in terms of how the recovery taking. So so but there still are some issues out there in terms of solvency for some of the main street, which hit very hard. And so we still have to wait. But it’s worked. So far, so good. Good sign so far.
Sue Talbot: [00:05:25] Yeah. As they said, there’s a big disconnect between Main Street and Wall Street.
Sue Talbot: [00:05:31] So let’s talk a little bit about the group of stocks that have been really hit hard by the pandemic, and these are the airlines, the cruise ships and the hotel stocks, and they seem to be staging a bit of a comeback. Carnival, Boeing, American Airlines, MGM Resorts are up all up double digits during the past few weeks. And I recently saw a headline that said, ah, are the losers now becoming the winners? So what do you make of this? And have we made any changes to our equity portfolios because of this?
Wayne Wachell: [00:06:03] Well, we’ve been actually through the course of the past couple of weeks, but adding some more value driven stocks, more economic sensitive stocks. But we got to focusing on the banks, oil stocks and industrials. We haven’t really stepped into pandemic losers. The big losers I would call these stocks are these stocks. They were probably up 70 percent of the bottom. Maybe somebody some even lower. They’re still off. Mostly stocks are still out 40 percent from those February highs. So they are coming back. It’s more of a dead cat bounce, as they call it. And they’re due for a bounce because they really were beat up. But they still have a long ways to go. And there’s still concerns about their business model going, you know, going forward. And they’re not really out of the water yet, I’d say, until there’s some kind of solution to the pandemic, rather immunization or something. But they still have issues with their business models. It’s not going to go away. They’re still to have problems, impacts for a couple of years, I would expect. And but they are coming off off the bottom as we get more visibility on the recovery here. They still have issues.
Sue Talbot: [00:07:06] It’ll be interesting to see, especially what happens with the cruise lines. So we had a June asset mix meeting yesterday. And so this is where we look at our macro signals. And there’s 30 signals and six different categories that we look at monetary policy, the economy, inflation risk and others. So what did our signals tell us last month and what trades will we be making in our client portfolios as a result?
Wayne Wachell: [00:07:37] Well, say the signals are positive this month in terms of risk taking more risk. They simply reinforce the previous months are we’re not a cash signal, for example. We’ve got more positive versus previous month. So what we did, we were overweight equities in the first place going into this. So we did have a bit of a shift on the equity side. We saw some dividend strategy and buy some more can more of a growth mandate. We also spend some cash to put that into some of the spread product, the corporate bonds in Canada. We also got some more of our global macro strategy in the U.S, which is contains high yield emerging market debt, corporate debt. So we’re taking more risk on the bond side as we see more visibility and more positive issues coming forward in the economy.
Sue Talbot: [00:08:21] Ok, so let’s just switch gears now. Today is World Environment Day, so I just wanna spend a little time and talk about our fossil free and impact strategy. So about 40 percent of our clients are invested in this way. And these strategies look through companies through an ESG lens. So we look at environmental, social and governance factors. So, Wayne, what do you think the demand for ESG investing will look like in a post COVID 19 world?
Wayne Wachell: [00:08:51] I think it’s going to improve. It’s going to get it’s going to more demand for that. I think, coming from both ends, the buyers of it and also the corporations are going to focus more on that going forward. Let me tell you why. There’s ESG environmental social governance. If you look at the E first, the environmental side, I think with a pandemic is making people more aware of what’s going on in nature and also need to be more prepared for a potential pandemic or a climate change issue. And also, it also brought forward the issue of fossil fuels and how there’s the pricing there. The high, high cost items are being priced out because people don’t consume less of them going forward because of less travel and everything else. So there’s a risk as risk risk aspect for fossil fuels, but also more of a weight and awareness out there. So think it’s going to push demand for for the environmental aspect of ESG? Also, with the social side, this what’s going on right. With the race riots right now, for example, this is going to create make more and more important going forward for corporations. Today, I saw a number in terms of Nike. Nike’s been out there. They’ve been actually using black athletes to promote their products. But today, they broke out numbers based on their number of minority employed, which was like 20 percent, which is way below the the the economy. So they have some explaining to do from that perspective. And they have to raise their game. Going to use that for marketing. You have to as well be aligned within your corporation. So you’ll see definitely more of a focus on that and the social side going forward. I would say you will see that from CEOs all this week talking about what they’re doing and how they’re going to raise their game that we have to raise our game there. And so I think it’s going to become more important. And just the whole race thing plays right into the social side of ESG.
Sue Talbot: [00:10:55] Yeah, I think there’s going to be a lot of changes coming. So thanks, Wayne. We want to keep this short, so we’ll end it here. But before we sign off, I just want to give a shout out to anybody out there that has kids or grandkids graduating in 2020. I personally, my oldest son graduated from university this year. And unfortunately, we can’t, you know, participate in the grad ceremony. And I honestly think I’m more upset than he is about it. My youngest son graduated from high school in twenty nineteen, so he’s not affected. So I just want to say congratulations to all the grads out there of 2020. And hopefully you’ll have a chance to celebrate in person with them friends and family at a later date. So thanks again for watching everybody. And please call your portfolio manager if you have any questions. It’s really important for us to keep these conversations going and to stay in touch. So have a great weekend and thanks for watching. And we will have the dream team, Leslie and Wayne back. Excellent. Thanks, everybody. Thank Wayne.
Wayne Wachell: [00:12:10] Bye bye.