Q1 Investm ent Update April 27, 20 17 Russ Allen, Berm an Capital - - PowerPoint PPT Presentation

Q1 Investm ent Update

April 27, 20 17 Russ Allen, Berm an Capital CIO

Disclosures

Important Disclosures: This information is for discussion purposes only and is being furnished on April 27, 2017. This information is not to be re-transmitted in whole or in part without the prior consent of Berman Capital Advisors (BCA). While all the information prepared in this presentation is believed to be accurate, BCA 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 BCA to discuss your

individual situation.

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1st Quarter Review

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Major Asset Class Performance

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• Last quarter’s winners

and losers largely switched places.

• Emerging markets

performed well as the dollar was weaker.

• High quality bonds were

boring during the quarter.

Index Q1 2017 Q4 2016 MSCI Emerging Markets 11.4

• 4.2

Russell 1000 Growth 8.9 1.0 MSCI Europe 7.4

• 0.4

MSCI EAFE (International) 7.3

• 0.7

S&P 500 6.1 3.8 Russell Midcap 5.2 3.2 Japan 4.5

• 0.2

Russell 1000 Value 3.3 6.7 High Yield Bonds 2.7 1.8 Russell Small Cap 2.5 8.8 US Aggregate Bond 0.8

• 3.0

Crude Oil

• 5.8

12.3

Source: Bloomberg, Ned Davis Research Note: International market returns reported in U.S. Dollars

Index Total Return in US$

Key Issues for 2017

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Key Issues

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• Cyclical stocks, which are more dependent on economic

growth, underperformed in Q1.

• Interest rates have also retreated – we think the market

is too complacent on the pact of Fed rate hikes.

• Worries about growth have resurfaced, as have

geopolitical tensions.

• Return expectations from traditional asset classes are

likely to be lower. This argues for participating in more niche investment opportunities.

Cyclical Stocks Underperformed

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• SHUT (Staples, Healthcare, Utilities, Telecom) outperformed cyclical

stocks like banks, energy and industrials.

• More recently, cyclicals have performed in line.

Investors Hoping for New Credit Cycle

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Why Investors Have Become Worried

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• Credit growth is slowing.
• Is this driven by temporary factors, or does it reflect a bigger problem?

One Potential Explanation

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Yet Investors Questioning “Reflation”

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• Investors now worried

that we haven’t breached “stall speed” after all.

• Fear that efforts to

deregulate the economy and to cut taxes are also undermining the growth narrative.

• Yet consumer

confidence running high and correlations still decreasing.

Source: Pine Bridge Capital

European Credit Demand Stable

• Credit decline not reflected

in Europe, which may be experiencing relatively stronger growth after a steeper decline.

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Source: J.P. Morgan

Lack of Wage Growth Concerning?

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Employment Market Getting Tighter

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Core Inflation About on Track

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Global Growth Looks Better

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Source: BCA Research

Production & Orders Rising

• Some “hard data” is accelerating

Global Growth Looks Better

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• Some “hard data” is accelerating

Context: Global Surprises Positive

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Energy Market Rebalancing

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• The U.S. does

have large energy inventories but they are declining.

Corporate Earnings Growth Returning

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Interest Rate Outlook

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• Investors have lost faith, but probably have taken skepticism too far.

Rate Hikes Haven’t Been Bad for Stocks

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International Developed Spotlight

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• International stock funds have experienced inflows in

recent months. We also like Europe despite election tensions.

• International is generally cheaper than the U.S. and is

more exposed to a resumption in global growth.

• Like their U.S. counterparts, European and Japanese

companies need earnings growth to justify higher valuations.

International is More Levered to Rising Rates

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U.S. / Europe Valuation Divergence

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Current Earnings Show a Different Story

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Conclusion

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• Despite high valuations, the near term backdrop is still

positive for asset prices.

• Interest rates and the dollar are key factors to watch for

potential tactical moves.

• Faster than expected growth could significantly hurt

bond proxy equities and high duration bonds.

• Return expectations should be muted from traditional

asset classes. We are likely to recommend more private investments.

Thank You