Q1 Investm ent Review & Outlook April 24, 20 18 Russ Allen, - - PowerPoint PPT Presentation

Q1 Investm ent Review & Outlook

April 24, 20 18 Russ Allen, CIO

Disclosures

Important Disclosures: This information is for discussion purposes only and is being furnished on April 24, 2018. This information is not to be re-transmitted in whole or in part without the prior consent of Berman Capital Advisors. While all the information prepared in this presentation is believed to be accurate, Berman Capital Advisors makes no express warranty as to its completeness or accuracy nor can it accept responsibility for errors appearing in the presentation. No information provided herein shall constitute, or be construed as, an offer to sell or a solicitation of an offer to acquire any security, investment product or service, nor shall any such security, product or service be offered or sold in any jurisdiction where such an offer or solicitation is prohibited by law or registration. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable

• r be suitable for your portfolio or individual situation. Please contact Berman Capital Advisors to

discuss your individual situation.

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Summary Outlook

• We believe the fundamental backdrop for global equities and credit remains positive.

The acceleration in global growth has likely peaked, but economic growth should remain strong this year.

• Volatility is certainly back. While bear markets are accompanied by volatility,

volatility itself doesn’t mean much for the performance of “risk” assets.

• Most investors are focused on our above-average stock market valuation, but

cheapness alone has never been a driver of the markets. Many international stock markets have earnings growth and cheaper valuations, thus we expect renewed international outperformance in coming quarters.

• We believe global bond yields will move higher over the next 12 months, but not

sharply so. In the next few years, yields are likely to surprise investors on the upside.

• Corporate bonds, bank loans and, to a lesser extent, high yield bonds are more

attractive than long term Treasury bonds right now. However, higher corporate debt levels could be a significant problem when the next downturn arrives.

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Major Asset Class Performance

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• Stocks struggled in volatile trading

in the first quarter. We haven’t yet seen a significant sector rotation, but there are rumblings.

• International stocks, especially

Emerging Markets, were top

• performers. Growth outperformed

Value and Small-cap

• utperformed Large.
• Bonds generally posted negative

returns.

• Oil prices continued to rise as the

effort to limit supply has been surprisingly successful.

Investor Sentiment Reset

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• Excessive investor optimism reduced for now.

Volatility in Perspective

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• Historically, we

have seen much higher volatility spikes.

• Even versus recent

history, current volatility isn’t that unusual.

• Volatility

accompanies market drops, but doesn’t mean a bear market.

Recessions Drive Worst Market Corrections

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The Economic Backdrop

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U.S. Economy Remains Healthy

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• Leading indicators of the U.S. economy remain positive.

Source: The Conference Board via The Wall Street Journal

Global Economy Remains Strong

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• Economic growth is positive almost everywhere – breadth indicators are strong.

U.S. vs Europe Consumer Trend

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• Consumer spending has recovered in both the U.S. and Europe.

Outside the US, Still Easy Money

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Source: The Wall Street Journal

Market Valuation

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Global Valuation Perspective

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• Globally, bond yields remain low. Earnings yields show stocks are still attractive.

Source: Ned Davis Research

S&P 500 Earnings and Performance

• Many investors are worried

about high U.S. stock market

• valuations. However, earnings

have provided significant support for the market’s rise.

• The sustainability of this

earnings growth is the important question.

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Source: J.P. Morgan Asset Management

S&P 500 Valuation: Forward P/ E

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• The market’s recent pullback, combined with very strong

earnings estimates, means forward P/ E ratios look better.

Source: FactSet

U.S. vs Developed Markets Valuation

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• International stock market valuations are generally more

attractive.

Emerging Markets Valuation

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• Emerging market valuations are generally cheaper than

developed markets.

Emerging Market Fundamentals

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• Emerging market fundamentals are generally better, too.

Interest Rates and Inflation

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Unemployment and Wage Growth

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• Wage growth still surprisingly low, will it accelerate from here?

U.S. Rates Rising Faster

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• In response to the Fed,

global growth and commodity prices, interest rates have recently risen more sharply.

Source: The Wall Street Journal

Bond Market vs Fed Rate Expectations

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• Market expectations are beginning to converge with the Fed’s.

U.S. Fiscal Policy

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• The U.S. running large deficits when the economy is

already strong.

Source: The International Monetary Fund

Our Long-Term Problem

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• The Congressional Budget Office projects deficit levels

will steadily deteriorate.

Potential Opportunities

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Energy Market Disconnect

• Energy stocks have decoupled from oil prices, although there are signs this

is changing.

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Source: Bespoke Investments

MLP Valuation

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• The most common

MLP valuation metric, Price to Distributable Cash Flow, is back near crisis era lows.

• This is occurring

despite much higher oil prices and steadier natural gas markets.

U.S. Corporate Debt Perspective

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• Corporate cash flows look great for now, but could be setting up for trouble

when the economy eventually turns.

Very Little Corporate Credit Stress

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• The number of distressed high yield borrowers continues to drop.

Private Equity Deal Valuations

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• While still

below pre-crisis levels, private equity is paying steadily more for target companies.

Covenant-lite Trend

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Conclusion

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• The current environment favors equities. Valuation is

now lower on tax cuts and earnings momentum.

• The market is not worried about inflation in the long

term, but deficit spending with low unemployment could trigger fears.

• Correlations within and across assets have fallen and

central banks are de-synchronized. It should be a better environment for active approaches.

• Private equity buyout funds are at risk of overpaying; we

are pursuing smaller funds and more niche strategies..

Thank You