Investment Panel: Opportunities & Threats Ahead Steve Guyer, - - PowerPoint PPT Presentation

Investment Panel: Opportunities &

Threats Ahead

Steve Guyer, CFA Nico Santini, CFA Roger Vogel, CFA

Economic Overview

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Source: NBER, NEAM

121 120 106 92 80 73 20 40 60 80 100 120 140 June 2009 - July 2019 March 1991 - March 2001 February 1961 - December 1969 November 1982 - July 1990 June 1938 - February 1945 November 2001 - December 2007

Months

Duration of Previous Expansions Current expansion is now the longest 121

U.S. Economic Expansions in Context

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Source: FRB, Haver, NEAM

• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 Sep-81 Jan-83 May-84 Sep-85 Jan-87 May-88 Sep-89 Jan-91 May-92 Sep-93 Jan-95 May-96 Sep-97 Jan-99 May-00 Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 May-12 Sep-13 Jan-15 May-16 Sep-17 Jan-19 Yield (%) 10 yr - 3 month rate 10YR < 3 Month Rate

Recession Indicator – U.S. Yield Curve Warning

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Central Bankers Easing - Let’s Keep the Party Going!

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Yields From Major Countries

Source: Bloomberg, NEAM

• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Percent

Major 10 Yr Yields

US UK GER JAPAN

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Political Tensions

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LEADING RECESSION INDICATORS

LEADING INDICATOR WARNING SIGNAL 1/8/2019 7/11/2019 CURRENT STATUS Yield Curve Long-term vs. short-term U.S. Treasury spread goes negative 6-18 months prior No Yes 10-year Treasury yield remains slightly above 2-year, but has been below 90-day yield for over a month Consumer Confidence Down >10% from a year before No Maybe Conference Board gauge is down -12% from peak in October, but Univ. of Michigan is down barely -3% from cycle high. Initial Jobless Claims Rising noticeably 3-6 months prior to recession Maybe No After ticking slightly upwards, claims have fallen back to 50-year lows ISM Surveys Contracting (<50) or within close range of contraction (<54) No Maybe ISM Manfucturing has fallen to 51.7. ISM Non-Manufacturing has declined, but remains >54 at 55.1 Inventory-to-Sales Ratio Sometimes (not always) rises prior to a recession No Yes Ratio has marched steadily upwards over past few months, though still lower than 2016 peak Capital Goods Orders Often (but not always) down year-on-year prior to recession No No Peaked in October following strong rebound, but still up +1.4% from a year ago Building Permits Down noticeably over the past 6-12 months No Yes Peaked in March 2018; permits for past 6 months are down

• 3.0% y/

y, for past 12 months down -2.1% y/ y. Doctor Copper Commodity prices falling, though it depends on the reason Maybe No Copper is unchanged YTD, despite a temporary rally; oil has bounced back $15 (+29%) following a -40% drop in Q4 Corporate Bond Spreads Sometimes (but not always) widens before a recession Maybe No Have come back down about -140 bps after ramping up at the end of the year

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Threats Opportunities

• Central bank actions (or inactions) will lead to further interest rate

volatility

• Uncertain global (and U.S.) growth trajectory
• Corporate bond market likely highly leveraged
• Continue to favor non-traditional Asset Backed Securities (ABS).

Favorable yields and risk adjusted returns

• Pare down overall corporate and BBB bond exposures into technical

strength

NEAM CONCLUSIONS

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Equities

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S&P 500 PRICE OF DIVIDENDS S&P 500 STOCK YIELDS

Percent

S&P 500 EARNINGS PER SHARE1

Dollars Dollars

S&P 500 STOCK INDEX

3000 2800 Index 1941-43=10 2600 2400 2200 2000 1800 1600 1400 1200 1000 800 600 400 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 1000 800 600

*6/19

400 4 5 6 7 4 5 6 7

S&P 500 EARNINGS YIELD1

9 9

Ratio

8 8 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 1.5 2.0 2.5 3.0 3.5 4.0 4.5 1.5 2.0 2.5 3.0 3.5 4.0 4.5 160 140 120 100 80 60 40 20 160 140 120 100 80 60 40

*2Q/19 20

125 100 75 50 25

• 25
• 50

125 100 75 50 25

• 25
• 50

Percent Change from Previous Year *2Q/19 *6/19

93 95 97 99 01 03 05 07 09 11 13 15 17 19

S&P 500 PRICE-EARNINGS RATIO1

30 30

Ratio

28 28 26 26 24 24 22 22 20 20 18 18 16 16 14 14 12 12

93 95 97 99 01 03 05 07 09 11 13 15 17 19

*6/19

93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19

STOCK MARKET INFORMATION

*6/19

93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19

*6/19

Source: Crandall Pierce

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GROWTH VS. VALUE RETURN DIFFERENTIAL

Source: Silvercrest, Bloomberg

• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40%

GROWTH VS. VALUE ROLLING 1 YEAR RETURN

Growth Outperforming Value Value Outperforming Growth

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25%

GROWTH VS. VALUE ROLLING 3 YEAR RETURN

Growth Outperforming Value Value Outperforming Growth

• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20%

GROWTH VS. VALUE ROLLING 5 YEAR RETURN

Growth Outperforming Value Value Outperforming Growth

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8%

GROWTH VS. VALUE ROLLING 10 YEAR RETURN

Growth Outperforming Value Value Outperforming Growth

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Source: Silvercrest, Bloomberg

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40%

LARGE CAP VS. SMALL CAP ROLLING 1 YEAR RETURN

Large Outperforming Small Small Outperforming Large

• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25%

LARGE CAP VS. SMALL CAP ROLLING 3 YEAR RETURN

Large Outperforming Small Small Outperforming Large

• 15%
• 10%
• 5%

0% 5% 10% 15% 20%

LARGE CAP VS. SMALL CAP ROLLING 5 YEAR RETURN

Large Outperforming Small Small Outperforming Large

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10%

LARGE CAP VS. SMALL CAP ROLLING 10 YEAR RETURN

Large Outperforming Small Small Outperforming Large

U.S. LARGE CAP VS. SMALL CAP STOCKS

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PORTFOLIO CHARACTERISTICS—EQUITY INCOME

Representative account As of June 30, 2019

The portfolio characteristics are included as supplemental information and complement a full disclosure, which can be located at the end of this presentation.

CHARACTERISTICS PORTFOLIO RUSSELL 3000 VALUE S&P 500

Number of Holdings 54 2158 505 Typical Annual Turnover 25–33% – – Price/ Earnings Ratio (NTM) 14.4 x 14.2 x 17.0 x Price/ Book Ratio 2.5 x 2.0 x 3.4 x Dividend Yield 3.1 % 2.6 % 2.0 % Debt/ Capital Ratio 38.8% 35.7% 37.7%

Net Debt/ LTM EBITDAR (Ex-Fin'l)

2.0 x 2.3 x 1.9 x Median RoIC (Ex-Fin'l) 14.3% 10.7% 15.8% Weighted Average Market Cap ($bn) 119.0 113.4 247.1

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EQUITY INCOME PORTFOLIO CONSTRUCTION/RISK MANAGEMENT

• Maximum position 5%.
• 40 – 60 holdings
• Yield Objective: 150% of S&P 500 Index, all issues are dividend payers.
• Sector representation and diversification standards ( ≥ 50% and ≤ 200% exposure to benchmark sectors)

As of June 30, 2019

The sector weights are included as supplemental information and complement a full disclosure, which can be located at the end of this presentation.

12.3 8.7 9.0 25.4 10.3 4.8 11.3 13.1 5.1 11.2 7.8 9.2 29.8 11.8 4.7 9.4 6.1 10.1 15.8 6.5 4.9 19.2 13.5 2.8 10.2 21.8 5.1

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Consumer Discretionary Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Equity Income Russell 3000 Value S&P 500

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15 Years 2004 - 2018 10 Years 2009 - 2018 25 Years 1994 - 2018 5 Years 2014 - 2018 100 200 300 400 500 600 $ $ $ $ $ $ $100 $200 $300 $400 $500 $600

$159.17 $135.63 $116.91 $403.14 $277.54 $194.43 $392.80 $225.45 $129.90 $537.43 $211.94

Entire Period Ending Value Percent Change Compound Annual Rate

MISSING EVEN ONE DAY FROM EACHCALENDAR YEAR CAN HAVE A DRAMATIC EFFECT.

$1,437.48

$159.17 59.2% 9.7% $135.63 35.6% 6.3% $277.54 177.5% 10.7% $194.43 94.4% 6.9% $392.80 292.8% 9.5% $225.45 125.5% 5.6% $129.90 29.9% 1.8% $1,437.48 1,337.5% 11.3% $537.43 437.4% 7.0% $211.94 111.9% 3.1% LessWorst 5 Days Entire Period Less Best 10 Days Less Best Less Worst 5 Days 10 Days $116.91 $403.14 16.9% 303.1% 3.2% 15.0% Entire Period Less Best 15 Days LessWorst 15 Days Entire Period Less Best 25 Days LessWorst 25 Days

MARKET TIMING SUMMARY—THE S&P 500 STOCK INDEX

Source: Crandall Pierce The “Entire Period” includes every day, while “Less Worst” removes the worst day and “Less Best” removes the best day from each calendar year.

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