Q2 Investm ent Review & Outlook July 19, 20 18 Russ Allen, - - PowerPoint PPT Presentation

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Q2 Investm ent Review & Outlook July 19, 20 18 Russ Allen, - - PowerPoint PPT Presentation

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Q2 Investm ent Review & Outlook July 19, 20 18 Russ Allen, CIO Disclosures Important Disclosures: This information is for discussion purposes only and is being furnished on July 19, 2018. This information is not to be re-transmitted in

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Q2 Investm ent Review & Outlook

July 19, 20 18 Russ Allen, CIO

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Disclosures

Important Disclosures: This information is for discussion purposes only and is being furnished on July 19, 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.

Berman Capital Advisors / 2

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Presentation Outline

  • I. Summary of Q2 and YTD Performance
  • II. Macroeconomic Overview
  • III. Investment Outlook
  • IV. Conclusion

Berman Capital Advisors / 3

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Summary of Q2 and YTD Performance

Berman Capital Advisors / 4

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Summary Outlook

  • Economic growth is slowing in spots but global growth is good overall. The outlook

for profits is still quite strong, and valuations have partially reset.

  • U.S. markets have been the only game in town recently, but we expect that to
  • normalize. In the intermediate term cheaper foreign markets with good prospects

have more room to run.

  • In the near term, the outlook for interest rate sensitive bonds is slightly better, but we

think investors are very complacent regarding the long-term inflation outlook. The high absolute levels of corporate debt are troubling although the outlook for defaults is good.

  • The outcome of trade disputes is the biggest issue on the market’s mind, and

justifiably so. We think that works out too, but there are real risks from a full blown trade war.

  • Emerging Markets are more likely than not to get back in gear, as dollar denominated

debt concerns are overblown.

Berman Capital Advisors / 5

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Major Asset Class Performance

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  • Stocks eased ahead in the second

quarter, although volatility was elevated.

  • U.S. markets were clear leaders.

Emerging markets suffered in the

  • quarter. Growth outperformed

Value and Small-cap

  • utperformed Large.
  • Bonds had slightly negative
  • returns. High yield outperformed.
  • Oil rose again as the effort to limit

supply and takeaway constraints in Texas impacted prices.

Index 2018 YTD Q2 2018 S&P 500 2.6% 3.4% Russell 1000 Growth 7.3% 5.8% Russell 1000 Value

  • 1.7%

1.2% Russell Midcap 2.3% 2.8% Russell Small Cap 7.7% 7.8% MSCI EAFE (International)

  • 2.4%
  • 0.8%

MSCI Europe

  • 2.7%
  • 0.9%

MSCI Emerging Markets

  • 6.5%
  • 7.7%

MSCI Japan

  • 1.8%
  • 2.1%

US Aggregate Bond

  • 1.6%
  • 0.2%

High Yield Bonds 0.2% 1.0% Gold

  • 4.2%
  • 5.5%

Crude Oil 22.7% 14.2%

Source: Factset Research Note: Int'l market returns reported in U.S. Dollars, not local currency

Total Return

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S&P Performance = Tech Stocks

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Macroeconomic Overview

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Good News: GDP Recovery

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Good News: Home Price Recovery

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Good News: Consumer De-leveraging

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Bad News: Government Debt Path

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Source: Congressional Budget Office, JP Morgan

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Oil Still Lower than at Start of Crisis

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Source: Chicago Mercantile Exchange, JP Morgan

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Interest Rates Rising But Are Still Low

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Unemployment can Fall Further

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Wage Growth Higher, Not Too High (Yet)

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Europe Growth Slowing

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Investment Outlook

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U.S. Equity Valuation Perspective

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Another Look at Stock Valuation

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Earnings – Still Trending Positive

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Don’t Fight The Tape?

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Global Equity Valuation Perspective

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Source: Star Capital

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Fixed Income Risk / Reward

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Implications of Flat Yield Curve

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Investment Grade Credit Deterioration

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  • Despite very

good times ratings are drifting lower.

  • Corporations

have increased leverage through the cycle.

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China in Two Charts (1)

Government debt is rising quickly

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China in Two Charts (2)

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But the government is now slowing credit growth

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Trade War Risk

  • A trade war hurts everyone. Most likely this is a public

negotiation.

  • Presently the risk is more to sentiment than the real

economy, but that could change.

  • There are political reasons for Trump to pressure China,

but also for China to resist.

  • China’s economy is likely less trade dependent than it

appears:

− China has already made great progress in rebalancing toward domestic consumption. − America is starting this fight without allies. − Most electronics exports from China are owned by multinationals.

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Some Guesswork on Negative Scenarios

Source: MSCI

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USD & Emerging Market Concerns

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The biggest countries have very little dollar debt

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Conclusion

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  • The current environment favors equities, although some

caution flags have appeared.

  • Uncertainty regarding trade has provided relief from

inflation concerns, but this is likely temporary.

  • We believe investors should favor shorter duration

securities.

  • Because prices for assets everywhere are high, we favor

smaller funds and more niche strategies especially in less liquid investments.

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Thank You