Asset manager names the stocks to buy as markets react to a surge in bond yields

Published Mon, Jan 11 20214:24 AM EST

Key Points

The movement was driven by a confluence of factors, most notably the Democratic Party winning control of the U.S. Senate, which prompted expectations for heavier fiscal stimulus packages to shore up the economy.

Stock traders may be overplaying the recent rise in U.S. Treasury yields, according to Ali Miremadi, an investment director at the asset management firm GAM. The 10-year Treasury note crossed the 1% yield threshold last week, sparking speculation that a long period of interest rate compression could be reversing. As of Monday morning, the 10-year yield sat at 1.11%. The movement was driven by a confluence of factors, most notably the Democratic Party winning control of the U.S. Senate, which prompted expectations for heavier fiscal stimulus packages to shore up the economy. The rise in borrowing costs prompted moves into traditional value sectors, those where share prices are relatively low versus companies' financial performance, such as energy, materials and banks. However, Miremadi told CNBC's "Squawk Box Europe" on Friday that the rise was coming from an "extraordinarily low level" and may not have the impact markets have interpreted. "I think a lot of this discussion around rotation and shifting between sectors is the kind of thing you normally get when prices have risen quite so fast quite so quickly," he said. Global equities have broadly rallied since the news of successful coronavirus vaccine trials began to emerge in early November. "With the first vaccine approval, we saw a massive return to what people are calling value and cyclical areas, but I think they've really gone to areas where they think the fundamentals might actually improve, and that's most obvious in things like materials and banks," Miremadi added. He suggested that the appeal of commodities would continue, but that optimism around banks is contingent on rates moving higher. He projected that this expectation may be overplayed, however, and went on to outline the stocks GAM has added to its portfolios in order to navigate this uncertain period. "Our view is that rates may go a little bit higher from here but probably not that much more, and the fundamental underpinning behind this extraordinary set of circumstances in capital markets hasn't changed perhaps quite as much as it looks," Miremadi said. Commodities and banks in, consumer staples out GAM has reduced its exposure to longer duration stocks such as consumer staples, selling some of its holdings in the likes of Unilever , Mondelez , Colgate and PepsiCo , along with U.S. tech giants and Chinese e-commerce companies. Miremadi said the firm had added exposure to materials, highlighting its faith in Canadian fertilizer company Nutrien in particular, along with mining companies BHP and Lundin Mining . In its U.S. funds, GAM retains a substantial position in Citigroup , and Miremadi also highlighted that Samsung has been a "reasonable position," with the South Korean conglomerate's electronics business on Friday announcing strong quarterly results. Miremadi said he does not see such stocks as a "reflation trade," however, and suggested that there are differences between these sector plays. "There's a story behind materials and commodities, I think a very exciting story which really is linked to fundamentals," he said. "What is happening with financials is just the combination of bull market chasing, great expectations and hopes around higher rates, which may or may not materialize, and of course the fact that we were on sensationally low multiples coming into it, and good things can happen to cheap stocks."

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NYSE

Stock traders may be overplaying the recent rise in U.S. Treasury yields, according to Ali Miremadi, an investment director at the asset management firm GAM.

The 10-year Treasury note crossed the 1% yield threshold last week, sparking speculation that a long period of interest rate compression could be reversing. As of Monday morning, the 10-year yield sat at 1.11%.

The movement was driven by a confluence of factors, most notably the Democratic Party winning control of the U.S. Senate, which prompted expectations for heavier fiscal stimulus packages to shore up the economy.

The rise in borrowing costs prompted moves into traditional value sectors, those where share prices are relatively low versus companies' financial performance, such as energy, materials and banks.