2021 is going to be a 'major recovery year': Advisor

Max Gokhman, Head of Asset Allocation at Pacific Life Fund Advisors, joins Yahoo Finance's Kristin Myers to break down the latest market action as markets hit record intraday highs.

Video Transcript

KRISTIN MYERS: I want to keep the markets conversation going. We're joined now by Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. Max, we were just hearing Jared talking about cryptos and some of those short squeezes. And I feel like there's so much excitement in investing right now because of what's been happening to cryptocurrencies, what's been happening to GameStop and some of those other short trades.

Now, if you're a first-time investor getting involved right now because of all the excitement, what's your advice for some of those investors on where to park their money? Obviously, cryptos and GameStop and some of those short squeezes are two very different plays to make. But what would you say to some of those first-time investors?

MAX GOKHMAN: Well, I'd say, first of all, it's important that they consider themselves to be investors and not traders, right? Because there is a really big gap between trying to market time on an intraday basis, trying to follow whatever the trend du jour is and actually investing your money with a specific goal in mind, such as retirement or such as sending your kids to college or, you know, even having extra spending income at some point. So I think that's a really important thing.

And you mentioned, you know, parking, right? So if you're gonna park your assets, I think it's important to park in a diversified basket of securities, both stocks and bonds-- probably a lot more equities, certainly, for younger investors. But that's nothing that I would say is new. I mean, I think any investor who's been in this for a while is gonna tell you the same thing.

I think it is really tempting, especially for folks who are coming into the market right now, to, you know, go in on the meme stocks or play it a little bit in crypto. And I think it's fine, so long as you have the mindset that you may lose all of the money you put into this one little slice, to have a slice that, you know, lets you participate in that, so you don't really have such high FOMO when, you know, Dogecoin is up 1,300% based on a meme that Elon Musk posted. But still, remember that this is real money, and it's your money, and you do want to invest it in something that has fundamental value and that has shown to increase over time consistently.

KRISTIN MYERS: I want to ask, Max, about cryptocurrencies, as you mentioned, Elon Musk tweeting about both Bitcoin and Dogecoin, you know, referencing send them both to the moon, tweeting out memes about it. Now, he has spent a lot of money on Bitcoin. And now, saying that Tesla is going to accept Bitcoin as payment-- and I think cryptocurrencies have been gaining-- particularly, Bitcoin has been gaining a lot of legitimacy throughout the years, and folks aren't approaching it with as much skepticism as before. Now that we see this move being made, I'm wondering if you're sitting back and saying to some of those more traditional investors who have not wanted anything to do with cryptocurrency if perhaps now's the time to really start adding it to some of your portfolios.

MAX GOKHMAN: I would say it's a little bit too early to really add them in any meaningful way for most traditional investors. I mean, let's look at what happened with Bitcoin just this year, right? It's up 40%. It's down 25. It's up another 40. It can move just, you know, over 10% on a tweet by an individual-- the wealthiest person in the world, but, you know, an individual nonetheless. And I think that should give you a lot of hesitation.

Now, that's very different from dismissing Bitcoin or cryptocurrency outright. I think that's also the wrong approach. It's something that certainly investors like ourselves who are larger in size are looking at closely. We're trying to understand it. But it's too early to jump into something that has such a high volatility.

KRISTIN MYERS: Right.

MAX GOKHMAN: And I think for Elon, in terms of-- or, really, Tesla accepting it as a medium of payment, that volatility is gonna be really tricky because that means, depending on when you, you know, swipe the proverbial Bitcoin card or, you know, get your key, you may actually either pay 10% more 10% less for that vehicle. So how do you hedge that exposure as a company? How do you actually accept those transactions? Those are really the questions Tesla is going to have to enter before they can actually, you know, do more than just send the tweet out saying they're considering Bitcoin as an actual--

KRISTIN MYERS: Right.

MAX GOKHMAN: --payment.

KRISTIN MYERS: Now, we've seen a lot of market enthusiasm. A stimulus seems likely. The pandemic seems like it's coming under control. We've also been seeing a very strong earnings season. As I mentioned, more than 83% of companies have actually topped expectations. I'm wondering how long you think that markets around earnings can really keep up with high investor expectations and this enthusiasm that we're seeing.

MAX GOKHMAN: We think this is actually the beginning of a broader recovery. We really saw that take off, I think, post- the election. And with Congress being blue now, I think that removes a lot of roadblocks for additional stimulus. And I think Janet Yellen going out and saying, look, this is why we need to pass this, we are not going to be asking, what the ammunition costs when we're in the middle of a war-- the war to end the epidemic and get the nation out of a fairly deep recessionary hole. That is why we believe that this is gonna be a major recovery year.

As vaccines come back online, there's tremendous amounts of pent-up demand that the consumer has. And we think that especially cyclical and smaller companies that are so reliant on the US business cycle are going to be beneficiaries of all of that stimulus and the coming back of the consumer.

KRISTIN MYERS: Are there any other, you know, particular sectors that you're really watching that you think might outperform or lead the market this year? Last year, 2020 was all about tech. A lot of folks are saying it probably won't be all about tech in 2021. What either specific companies or sectors are you looking at?

MAX GOKHMAN: Sure. From a sector perspective, we do think that the work-from-home trade, to some extent, has run its course. Again, the consumers are now looking to break away from their screens. You know, companies that were gonna buy a Zoom subscription have generally bought their Zoom subscriptions. Consumers who were going to get a Netflix subscription instead of mooching off their parents, they've generally done that. And you're not gonna get a second subscription for your dog. So therefore, we do think there's saturation on some of those consumer-focused tech names.

But where-- within tech, where we do see opportunity is actually more within mid-cap B2B tech, especially cybersecurity names like CrowdStrike. We think cybersecurity is gonna be an increasing threat at both a sovereign and a corporate level, so that's a trend within technology that we do like. We also think broader automation and cloud is gonna see continued adoption. That's just a move towards general business efficiency that's really been accelerated by the pandemic, but it's not a trend that's gonna abate just because things return closer to normal.

And then, as I mentioned, some of the smaller, more consumer-focused names, we think those will also have names. And lastly, with the infrastructure bill that potentially will be coming, although there is definitely a lot of questions about whether and how much of an infrastructure bill we can pass-- it's important to remember that this was also a key priority of the Trump administration in their first year in 2016, just like it is President Biden's hope to get an infrastructure bill passed. But if they can get it through-- and we think they will be able to get something through-- then the materials and industrial sectors should see a nice pickup on that.

KRISTIN MYERS: All right, materials and industrials are some of the sectors in the green right now, materials up about 9/10 of a percentage point. Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, thanks so much for joining us today.

MAX GOKHMAN: Thanks for having me.