Capital Markets Update

Transcription

1 4643 S Ulster Street Suite 1040 Denver, CO innovestinc.com Capital Markets Update Scott Middleton, CFA, CIMA Principal, Director June 21, 2018 Colorado Capital Markets and Middle Market M&A Update 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 1

2 FORECASTING The function of economic forecasting is to make astrology look respectable. ~ John Kenneth Galbraith, economist and author 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 2

3 AGENDA I. Capital Markets Update II. Considerations 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 3

4 I. CAPITAL MARKETS UPDATE 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 4

5 U.S. GROWTH SLUGGISH U.S. Economic Expansions Since WWII Current Expansion The chart assumes that the current expansion started July 2009 and continued through May Sources: BEA, NBER, and JP Morgan Asset Management. Reported 5/31/ INNOVEST PORTFOLIO SOLUTIONS, LLC 5

6 REAL GDP GROWTH BY STATE, 2016 TO 2017 Colorado: #2 Reported 5/5/2018. U.S. Bureau of Economic Analysis INNOVEST PORTFOLIO SOLUTIONS, LLC 6

7 U.S. WORKING-AGE POPULATION GROWTH SLOWING Percent increase in civilian non-institutional population, ages 16 to 64. Reported 5/31/2018. Sources: Census Bureau, DOD, DOJ, and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 7

8 U.S. UNEMPLOYMENT AND WAGE GROWTH Reported 5/31/2018. Sources: BLS, FactSet and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 8

9 U.S. AND COLORADO UNEMPLOYMENT 3.8% 2.8% Reported 6/18/2018. Gray bars indicate recessions. Sources: BLS, and Kansas City Federal Reserve INNOVEST PORTFOLIO SOLUTIONS, LLC 9

10 REAL AVERAGE HOURLY WAGES As of May Reported 6/18/2018. Sources: BEA, BLS, Haver Analytics, and Kansas City Federal Reserve INNOVEST PORTFOLIO SOLUTIONS, LLC 10

11 HOUSING PRICES AND WAGES Home Prices Wages Accessed 5/23/2018. Sources: SLFR/FRED, BLS and FHFA INNOVEST PORTFOLIO SOLUTIONS, LLC 11

12 HOME PRICES INDEX FHFA Purchase-Only Home Price Index. Reported 6/18/2018. Sources: Federal Housing Finance Agency, Census Bureau, Haver Analytics, and Kansas City Federal Reserve INNOVEST PORTFOLIO SOLUTIONS, LLC 12

13 U.S. RETAIL SALES GOOD GROWTH Retail Sales Growth Year-Over-Year in Percent Most Recent: +4.9% Retail sales and food service, ex-gasoline. Shaded bars indicate recessions. Reported 6/14/2018. Sources: Census Bureau and Calculated Risk INNOVEST PORTFOLIO SOLUTIONS, LLC 13

14 < Unhealthier Healthier > LOAN GROWTH STAYING HEALTHY Loans and Leases in Bank Credit Year-Over-Year in Percent All U.S. commercial banks. Reported 6/18/2018. Sources: Federal Reserve System and Federal Reserve Bank of St. Louis INNOVEST PORTFOLIO SOLUTIONS, LLC 14

15 < Healthier Unhealthier > U.S. HOUSEHOLD DEBT LEVELS HEALTHY ** 1Q18 household debt numbers are estimates from JP Morgan Asset Management. Sources: FRB, BEA, and JP Morgan Asset Management. Reported 5/31/ INNOVEST PORTFOLIO SOLUTIONS, LLC 15

16 < Unhealthier Healthier > CORPORATE DEBT IN DECENT SHAPE S&P 500 Interest Coverage Ratio EBIT/interest expense on debt, monthly, last 12 months. Reported 5/31/2018. Sources: FactSet, Standard & Poor s, BEA, Federal Reserve, and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 16

17 FEDERAL FINANCES TROUBLESOME Reported 5/ Sources: OMB, and J.P. Morgan Asset Management;. Federal Budget is based on the Congressional Budget Office (CBO) April 2018 Baseline Budget Forecast. Other spending includes, but is not limited to, health insurance subsidies, income security and federal civilian and military retirement. Please note that these estimates do not include the impacts of the Tax Cuts and Jobs Act of Note: Years shown are fiscal years (Oct. 1 through Sep. 30) INNOVEST PORTFOLIO SOLUTIONS, LLC 17

18 U.S. GOVERNMENT DEBT WORRISOME Federal Net Debt (Accumulated Deficits) As a Percentage of GDP Years shown are fiscal years (Oct. 1 through Sep. 30). Reported 5/31/2018. Sources: CBO April 2018 Baseline Budget Forecast, BEA, Treasury Department, and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 18

19 STATES FISCAL CONDITIONS Colorado: #30 The study ranks each US state s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. Source: Mercatus Center at George Mason University s Ranking the States by Fiscal Condition INNOVEST PORTFOLIO SOLUTIONS, LLC 19

20 PUBLIC EMPLOYEE PENSION FUNDING < Unhealthier Healthier > 2016 figures. Reported by Bloomberg 8/29/2017. *Figures are for 2017 because New York has a March fiscal year; **Figures for these states are based on GASB Statement No. 25 and have not been ranked. Data were not yet available for all states plans INNOVEST PORTFOLIO SOLUTIONS, LLC 20

21 CORE INFLATION MOVING HIGHER Core inflation excludes food and energy. Reported 6/12/2018. Sources: BLS, FactSet, and The Wall Street Journal INNOVEST PORTFOLIO SOLUTIONS, LLC 21

22 FED POLICY FIGHTING INFLATION Reported 5/31/2018. Market expectations are the FOMC and market expectations for the federal funds rate as of the March 2018 FOMC meeting. Sources: FactSet, Federal Reserve, Bloomberg, and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 22

23 PREDICTIVE ABILITY THE FEDERAL RESERVE Reported April Sources: FRB and Deutsche Bank Global Markets Research INNOVEST PORTFOLIO SOLUTIONS, LLC 23

24 PREDICTIVE ABILITY THE FINANCIAL MARKETS Fed Funds Futures vs. Actual Reported April Sources: FRB and Deutsche Bank Global Markets Research INNOVEST PORTFOLIO SOLUTIONS, LLC 24

25 TREASURY SPREADS AND RECESSIONS Ten-Year Yields Minus Three-Month Yields Vertical bars indicate recessions. Reported 6/4/2018. Source: Federal Reserve Bank of New York INNOVEST PORTFOLIO SOLUTIONS, LLC 25

26 U.S. LEADING ECONOMIC INDICATORS Consumers Average workweek Unemployment claims Businesses Expectations for business conditions New orders for consumer goods and materials ISM New Orders Index Building permits New orders for capital goods, excluding aircraft Money and Finance Interest rate spread Leading Credit Index S&P 500 ISM = Institute of Supply Management. Sources: FactSet, Conference Board, and Charles Schwab INNOVEST PORTFOLIO SOLUTIONS, LLC 26

27 LEADING INDICATORS, CONTINUED Conference Board Leading Economic Index Reported 5/17/ Month Moving Average of the 12-Month Rate of Change. Sources: dshort.com and the Conference Board INNOVEST PORTFOLIO SOLUTIONS, LLC 27

28 GLOBAL EARNINGS LOOKING UP Global Earnings Growth Earnings per share in U.S. dollars, next 12 months. January 2006 = 100. Sources: FactSet, MSCI, Thomson Reuters, Standard & Poor s, and J.P. Morgan Asset Management. Reported 5/31/ INNOVEST PORTFOLIO SOLUTIONS, LLC 28

29 < Undervalued Overvalued > < Undervalued Overvalued > STOCKS EXPENSIVE? CHEAP? DM = Developed Markets EM = Emerging Markets * Valuations refer to NTMA P/E for U.S. and Developed Markets, and P/B for Emerging Markets. Data as of 5/31/2018. Sources: IBES, FactSet, MSCI, Standard & Poor s, and J.P. Morgan Asset Management INNOVEST PORTFOLIO SOLUTIONS, LLC 29

30 SUMMARY CAPITAL MARKETS OUTLOOK 1 Unemployment is very low and wages are rising. 2 With rising inflation pressures, the Fed is becoming less accommodative 3 Leading indicators are solidly positive INNOVEST PORTFOLIO SOLUTIONS, LLC 30

31 II. CONSIDERATIONS 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 31

32 HOW MUCH LONGER? thesportsquotient.com 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 32

33 SELLING IT 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC 33

34 Q&A? Scott Middleton, CFA, CIMA Principal, Director , ext INNOVEST PORTFOLIO SOLUTIONS, LLC 34

35 WHY INNOVEST? Independent and Objective Founding principles of our firm Fee-only No conflicts of interest No proprietary products Client-Centered Consultants average 20 years of experience 6:1 client to employee ratio 45 employees, including 10 partners Extremely responsive back-office support Creative, Forward-Looking Approach to Asset Allocation Downside risk quantification Robust independent research Custom investment solutions Institutional Best Practices Complete disclosure: fees, performance, managers Process-oriented Custom solutions Sophisticated reporting Named among the Best Places to Work in the nation by Pensions & Investments, 2014, 2016, Financial Adviso ranked Innovest #14 among RIA firms, 2016 Financial Times Top Financial Advisors, INNOVEST PORTFOLIO SOLUTIONS, LLC 35

36 REPRESENTATIVE CLIENT LIST Alterra Mountain Company Arapahoe County BC Paymaster, LLC City of Aurora Aurora Police Bismarck Fire Fighters Board of Water Works of Pueblo Colorado Boulder Fire & Police Brown & Caldwell Brownstein Hyatt Farber Schreck CableLabs City of Chandler, AZ Catholic Foundation of Northern Colorado CF&I Retirees Colorado Christian University Colorado County Officials and Employees Retirement Association Colorado Pipe Industry Colorado Permanente Medical Group Colorado State University County of Santa Clara, CA Credit Union of Colorado City and County of Denver Delta Dental of Colorado Denver Botanic Gardens Endowment Denver Health and Hospital Authority Denver Housing Authority City of Englewood Ensign USA Drilling Focus on the Family City of Fort Collins City of Golden Group Voyagers Hagadone Corporation Hall & Evans Hays Medical Center Jefferson County Public School District City of Kansas City, MO City of Lakewood City of Lakewood Police Larimer County LONG Building Technologies City of Longmont City of Loveland Mazzetti+GBA City of Mesa, AZ Mental Health Center of Denver Mercy Housing National Cable Television Cooperative The Navigators Northern Colorado Water Conservancy District City of Northglenn Pitkin County Platte River Power Authority Poudre Fire Authority Regis University Republic Steel RK Mechanical Roaring Fork Transportation Authority Rockwell Retirees Healthcare Trust Santa Clara Valley Water District SM Energy South Dakota School of Mines and Technology Foundation Steelworkers Health & Welfare Fund Summit County Swisslog Translogic City of Thornton Taylor University Town of Vail University of Colorado University of Northern Colorado Foundation Western Union City of Westminster City of Wheat Ridge Police Xanterra Parks and Resorts Vivial, Inc. We do not use performance-based criteria in determining which clients to include in this list. It is not known whether the listed clients approved or disapproved of the services provided. This list was created using the following objective criteria: 75 largest institutional clients of Innovest as of June INNOVEST PORTFOLIO SOLUTIONS, LLC 36

37 SCOTT MIDDLETON, CFA, CIMA PRINCIPAL, DIRECTOR Scott is a principal, consultant, and Innovest director. Scott is the director of Innovest s Investment Committee, which oversees the firm s investment research and due diligence process. He is also a member of the Capital Markets Research Group, which assesses the economic and market outlook and oversees clients asset allocation studies and portfolio construction. He has more than 30 years of experience in investment management, focusing on customized portfolio management and consulting for institutional and personal clients. Prior to joining Innovest, Scott was a vice president and senior portfolio manager at Northern Trust, an investment management and trust company. He assisted clients with developing investment policies and managed customized client portfolios. His clients included multi-generational families, entrepreneurs, charitable trusts, and not-for-profit organizations. Previous investment experience included portfolio management with a national bank and trust company, as well as founding his own investment management firm. Scott holds the Chartered Financial Analyst (CFA) and Certified Investment Management Analyst (CIMA ) designations from the CFA Institute and the Investments & Wealth Institute, respectively. He is a graduate of Oral Roberts University in Tulsa, Oklahoma, with a major in history. Scott is a member of the CFA Institute, the CFA Society of Colorado, the Investments and Wealth Institute, and the American Economic Association. He is also a former grader for the level-three CFA examinations. Scott currently serves on the Board of Governors for Catholic Pacific College in Langley, British Columbia. His former volunteer activities include the First Friday Forum, Junior Achievement, and as trustee and chairman of the Investment Committee for the Seeds of Hope Charitable Trust, an organization that provides educational opportunities for at-risk children in Colorado. A Georgia native, Scott is married and the father of three adult children INNOVEST PORTFOLIO SOLUTIONS, LLC 37