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‘Investors really need to focus on Big Tech’: Girard CIO

Timothy Chubb, Girard CIO, joins Yahoo Finance to discuss the outlook on the market, inflation concerns, and outlook on Bitcoin.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's talk about the markets a little bit more now with Timothy Chubb. He is Chief Investment Officer at Girard. So, Timothy, thanks for being with us. A lot of people thought that Monday's big sell-off was needed. They said valuations were really high, and that they actually thought the market was due for a 10% correction. What's your feeling on that now that we're looking at possibly two back-to-back days for this market of moving higher?

TIMOTHY CHUBB: Yeah, and thanks for having me. We're certainly more optimistic about the economic recovery right now than the broad market valuations. I think when you look at a lot of the indices at a high level, we're certainly are at a point where I think we've probably gone too far too fast, and especially in the short period of time that we've seen the last two days.

But overall, we've seen these little pockets of value open themselves up within the market. This has been a year that, in our opinion, has been very much a stock-picker's market. We've seen these large factor rotations take place between stay-at-home and re-opening trades, it's secular versus cyclical growth. And ultimately, that's presented some opportunity already in the first half of this year with growth stocks selling off in March, April, and May, cyclicals, obviously, performing extremely well following the December vaccine news, and then recently seeing cyclicals pull back a little bit before what is to be expected a pretty strong earnings season for many of those sectors and industry groups.

KRISTIN MYERS: So to that point, then, where are you really seeing the most opportunity, especially, as you mentioned, this market pretty expensive right now.

TIMOTHY CHUBB: Yeah. Well, I think it's really important for most investors to really not try to be in and out of these two factor groups. I think maintaining cyclical and secular growth exposure extremely important in this environment, because you really can get whipsawed by some of these rotations that are taking place under the surface.

I think one of the things that we think is most important is really the rebound in the US consumer, being that US consumer 2/3 of GDP, seeing consumption decline some 53 some odd percent last year at the low. But ultimately, the extra unemployment benefits, the $1.8 million in stimulus really plugged the hole in the economy, allowing the US consumer to get back on its feet much more quickly.

And so as we start to see some of the benefits run out on state-by-state case with some of the extra unemployment benefits, we're hopeful to see a continuation of the decline in the unemployment rate. And ultimately, that makes us pretty bullish about companies that are really exposed to the consumer. We've seen personal income, savings rates, retail sales continue to climb and surpass pre-pandemic highs.

And so one of the areas on the consumer side of things in particular is really in the housing space. And I think as we look at companies that are sort of the interaction-- the intersection, rather, of reopening and stay home, we've seen a huge acceleration in the shift towards online real estate activity. And certain businesses are able to certainly have quite a bit of ad growth during this time, as more and more users are jumping onto their apps and seeing what houses are coming onto the market with such short supply.

ALEXIS CHRISTOFOROUS: Timothy, if we have likely hit peak growth and peak inflation, what's the most prudent thing to do with one's portfolio at the moment? And are you hedging for higher inflation in the short-term?

TIMOTHY CHUBB: Yeah, I think the short-term inflation-- answer the second question first-- right now in our view has been that it will be transitory. And so earlier this year as a result of that view, we'd certainly taken up our exposure to big tech in particular, which had really wonderful results last quarter. And we're expecting it to be the same in this quarter-- contributing about 14% of S&P earnings for the second quarter.

But I think ultimately, as things start to likely revert back to the old way of things, where growth and rates will remain slow and low for quite a long time, I think investors really need to focus on big tech. And given that they're expected to see earnings grow meaningfully once again this year, and certainly a lot of these long-term trends, especially related to the consumer are likely accelerating as a result of COVID-- I think that's really an area where investors don't want to have too little exposure within their portfolios, as unsexy as it may be to be going back to the big five.

But I think in the fixed income markets, that's where we see a lot more risk as far as in that environment. We're getting close and not too far away from record low spreads in the credit markets. There's definitely a lot of risk there, especially as yields have pulled back quite a bit, I think. And so we're a bit concerned.

Just generally speaking, if we were to see a bit of a pickup in inflation, or at least this transitory inflation that we anticipate lasts a little bit longer, I think that's an area where, ultimately, it would cause investors or, excuse me, sectors such as staples, and utilities, and some of the more rate-sensitive sectors-- real estate, of course-- to pull back a little bit more here. So I think technology, communication services, I think having some exposure certainly to the industrials and consumer discretionary sectors as we continue to see the economic recovery take place.

But I think the big takeaway is while economic momentum is slowing, the absolute level of growth is still very high. And so it'll be some time, I think, before we get back to that trend-- you know, 2%, 2.5% GDP growth.

KRISTIN MYERS: Timothy, we haven't actually asked anyone about Bitcoin today. So I'm going to throw the question at you-- you're the lucky one for today. Just because Bitcoin has been mentioned, and it's been argued against this, but has been mentioned as one of those inflation hedges. We've seen Bitcoin sliding lately, especially on a lot of headlines around crackdowns out of China.

What are you making of Bitcoin right now? Are you viewing some of these slides as really good buying opportunities to get into the cryptocurrency? Or are you giving Bitcoin a miss right now?

TIMOTHY CHUBB: Yeah, I think there are plenty and really exciting long-term applications for blockchain technology. Bitcoin is not an asset that I personally own, nor is it one that we've recommended as a firm in a direct sense. But you know, I think as we continue to see regulation take place, I ultimately view that as a positive.

And so personally, I've been adding a little bit here on these dips, and especially in some of the DeFi opportunities that are out there. But I think as far as Bitcoin being a potential inflation hedge, it is so much being driven by, I think, this unwinding of leverage, and certainly derivatives that we've seen in the market, and some of the risk-taking that's been far above what I think is prudent and appropriate for any capital market.

And so it's hard to say. We don't have a forecast of where Bitcoin may go. But I think there's a lot of exciting opportunities within the DeFi space. And ultimately, this pullback was one that I personally took advantage of to invest in some companies-- or at least some technology I think is very similar to a lot of venture capital investments, but obviously in liquid form.

ALEXIS CHRISTOFOROUS: All right, Timothy Chubb, Chief Investment Officer there at Girard, thanks so much for being with us.