Genus Weekly In Focus – Addressing COVID-19 Concerns Week-16

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COVID-19 Continues to impact the markets, and the economy continues to adapt to the new world. Genus also continues to focus on our clients and what our data has to show. Will J.Powell and the FEDs be permanent actors in the economy, or is there a vaccine on the horizon.

Transcript

Ian Lusher: [00:00:01] Welcome to week 16 of the Genus Capital Management in Focus video. Today, we’re addressing COVID-19 once again. For those of you who don’t know me, I’m Ian Lester. I’m a partner and portfolio manager at Genus Capital Management. And I’m here with Wayne Wachell, the chief executive officer and chief investment officer of Genus Capital Management. So today we’re just going to address the concerns that the clients have right now that we’re hearing as portfolio managers. So I’m going to get right into it. This Sunday, I read an article that ran the gauntlet of seven issues that were going to cause angst in the equity markets and really none of them came to fruition. In fact, the jobs jobs report, which is one of the ones that was mentioned in the US, actually became a catalyst for the market to continue doing well last week. So my question to you, we get this from clients all the time is with all the negative media and the media spin and what we read. How does Genus, what tools do we have? And how does Genus kind of stay above the noise and focus on the data and focus on things that make the portfolio work?

Wayne Wachell: [00:01:02] Well, the first thing we do is turn off cable news, close the door and look at the data and you know, what’s going on in the data. And that’s what drives us. We have models that look at the momentum of liquidity, money supply, growth of interest rates. What’s happening with corporate spreads. We look at different risk indicators and those have all turned positive. Of the main reasons, the Fed has been leaning to this market, buying bonds, driving down rates and actually even buying corporate spreads. So we look at the data and that has to confirm our view.

Ian Lusher: [00:01:32] Right. And you mentioned the Fed a couple of times, so I might as well bring up our friend, Jerome Powell. Who he spoke last week in a testimony last week, and he seems to be getting much, much better at his messaging. The market seems to responding to his message much better. So what really has Jerome Power in the Fed meant to the market right now?

 

Wayne Wachell: [00:01:52] Well, they really learn, learned from 2008 experience. And they came in and want to get ahead of the curve. And they did. And they dropped rates down to zero to give guidance where to hold them down for two years. And they came in and bought corporate bonds, even bought corporate ETFs. It came in very aggressively. And he’s also a fantastic job. He’s jawboning the situation. Even the market higher and the risks are lower by saying things like we’re not even thinking of thinking of raising rates. So it’s he’s been done a real good job, a real turnaround from a couple of years ago when he caused a correction effectively. And, you know, he’s just he’s getting high marks all the way around. One of my mentors, a guy called Leon Tuey says that he’s better than Santa Claus. He’s real and he lives among us. He’s getting quite high accolades at this point time.

Ian Lusher: [00:02:44] Yeah, I think Jerome Powell is kind of turning into the desert of the month club. It’s the gift that keeps on giving. We hear a lot of Jerome Powell. We hear a lot of the Fed, but are actually our clients don’t hear a lot of what’s happening in Canada. Is Canada doing the same type of buying on the fixed income market? Are they doing enough to support the markets? Is the overall economy doing as well as the U.S?

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    Wayne Wachell: [00:03:06] Well, number one, in terms of the economy, look at our economy. Our economy is more tied to oil, for example, and commodities has less exposure to technology and health care. So we don’t have as many winning sectors, number one in Canada. That’s going to hurt our our economy relative to the U.S, I would say. The U.S. probably is going a bit more aggressive in terms of focusing on the business side of things than than Canada. Canada has done a better job in terms of dealing with the virus. But it’s a different economy and I think we have to do more things to to improve the economy here. So there’s issues we have to deal with here. We have a different economy based on world commodities, and it’s going to hurt us more than the U.S.

     

    Ian Lusher: [00:03:47] Right.The consumer confidence numbers in the States have been quite good, but we’re not seeing the same thing in Canada. So I think a little bit of it is messaging and a little bit is just this oil, the oil scare and other things that are going on here that are a little bit different than what’s in the U.S.

     

    Wayne Wachell: [00:04:03] That’s right.

     

    Ian Lusher: [00:04:04] So back to COVID. We’re reading everyday about hit spikes kind of all over the south in areas that we weren’t seeing before. But should clients really be focusing on case count only?

     

    Wayne Wachell: [00:04:19] No, it’s it’s it’s one thing I think the media focuses on that. Every morning I wake up and it’s a new record high. I always go to the Coronavirus page website and look at the bottom line in the U.S and the number of deaths within between 500 and 600 for the past week. They’re dead flat. So in spite of the risen in cases, we’re getting less, less deaths. So you know. the Issue here is younger, younger set that are being infected. And the therapeutics are so much better than they were four or five months ago. And so they’re they have things that really knock down some of the immune issues. And so it’s that they’re there. They learn so much to do. They’re dealing with it better. We can manage this. So. I think we continue to see select selective rolling shutdowns here and there across the country. But we are not having a whole total shutdown again, I would say. And we’re also, you know, the stock market really is a call on potential vaccine, and that will probably happen at some point in time here. And so there still is good value in the market. And a lot of the beat up sectors. So those those areas will do very well. These beat up value stocks. We’ve been talking about we’ll do very well once a vaccine hits.

     

    Ian Lusher: [00:05:30] Right.Yeah. I think what people may not understand is in this State, they kind of have a different testing philosophy than we do here. They’re kind of testing everywhere and anyone in the U.S and we’re still being a little bit more selective. So that might be a reason why the case counts are so different. You mentioned a little bit about the vaccines and the therapeutics that are coming on board. So we’re kind of in a tricky phase in the market where we’re going to have scares about COVID. COVID is not going anywhere, but we’re also there’s a finite amount of time between now and getting it therapeutic that really works because we know a lot more about the virus and a vaccine. So how do we gauge that as an investor? How do we wade in that territory of uncertainty?

     

    Wayne Wachell: [00:06:14] Right now, we’ve started at the being of the year, we moved to the winners of COVID, the technology and the health care. And to the past couple of months, we’ve been moving to a barbell portfolio. We have those winners and we also have some of the other areas that are being hurt, like financials and industrials were sort of equal weighting those at this point time here, because in one day there will be an innate immune therapy. And so we’re trying to balance this off. And if you look at the look at the overall market now, for example, technologies at new highs, healthcare is a previous highs. Financials are still down about 25 percent. Industrials are still down to 20 percent. The real losers, the airlines, cruise ships, they’re down still 50, 60 percent. So there’s still value in this market. So when you hear people talk about the overall market, they shouldn’t. There is a space that it’s really one. The digital economy has been accelerated by at least two to three years. Big winners there, but there’s other areas are still beat up. And so if there is some kind of therapy or a vaccination that really lowers mortality rates, these areas can go higher.

     

    Ian Lusher: [00:07:20] Right. So is that what you’re saying is there is still opportunity. It’s just a matter of being in the right areas at the right time and in kind of following the data.

     

    Wayne Wachell: [00:07:29] And we’re and we’re diversified between those two areas at this point in time. We haven’t dipped down into the real losers in terms of airlines and cruise ships, for example. But we’re in the financials and industrials there.

     

    Ian Lusher: [00:07:39] Right. Well, that’s a wrap for today’s video. Thank you very much. Thanks, everyone, for watching and have a safe and healthy weekend.

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