Q1 Investment Update. April 27, Russ Allen, Berman Capital CIO

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1 Q1 Investment Update April 27, 2017 Russ Allen, Berman Capital CIO

2 Disclosures Important Disclosures: This information is for discussion purposes only and is being furnished on April 27, 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 or be suitable for your portfolio or individual situation. Please contact BCA to discuss your individual situation. Berman Capital Advisors / 2

3 1 st Quarter Review Berman Capital Advisors / 3

4 Major Asset Class Performance 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 Total Return in US$ Index Q Q MSCI Emerging Markets Russell 1000 Growth MSCI Europe MSCI EAFE (International) S&P Russell Midcap Japan Russell 1000 Value High Yield Bonds Russell Small Cap US Aggregate Bond Crude Oil Source: Bloomberg, Ned Davis Research Note: International market returns reported in U.S. Dollars Berman Capital Advisors / 4

5 Key Issues for 2017 Berman Capital Advisors / 5

6 Key Issues 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. Berman Capital Advisors / 6

7 Cyclical Stocks Underperformed SHUT (Staples, Healthcare, Utilities, Telecom) outperformed cyclical stocks like banks, energy and industrials. More recently, cyclicals have performed in line. Berman Capital Advisors / 7

8 Investors Hoping for New Credit Cycle Berman Capital Advisors / 8

9 Why Investors Have Become Worried Credit growth is slowing. Is this driven by temporary factors, or does it reflect a bigger problem? Berman Capital Advisors / 9

10 One Potential Explanation Berman Capital Advisors / 10

11 Yet Investors Questioning Reflation 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 Berman Capital Advisors / 11

12 European Credit Demand Stable Credit decline not reflected in Europe, which may be experiencing relatively stronger growth after a steeper decline. Source: J.P. Morgan Berman Capital Advisors / 12

13 Lack of Wage Growth Concerning? Berman Capital Advisors / 13

14 Employment Market Getting Tighter Berman Capital Advisors / 14

15 Core Inflation About on Track Berman Capital Advisors / 15

16 Global Growth Looks Better Production & Orders Rising Source: BCA Research Some hard data is accelerating Berman Capital Advisors / 16

17 Global Growth Looks Better Some hard data is accelerating Berman Capital Advisors / 17

18 Context: Global Surprises Positive Berman Capital Advisors / 18

19 Energy Market Rebalancing The U.S. does have large energy inventories but they are declining. Berman Capital Advisors / 19

20 Corporate Earnings Growth Returning Berman Capital Advisors / 20

21 Interest Rate Outlook Investors have lost faith, but probably have taken skepticism too far. Berman Capital Advisors / 21

22 Rate Hikes Haven t Been Bad for Stocks Berman Capital Advisors / 22

23 International Developed Spotlight 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. Berman Capital Advisors / 23

24 International is More Levered to Rising Rates Berman Capital Advisors / 24

25 U.S. / Europe Valuation Divergence Berman Capital Advisors / 25

26 Current Earnings Show a Different Story Berman Capital Advisors / 26

27 Conclusion 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. Berman Capital Advisors / 27

28 Thank You