Part of my role at the Sarian Group is to visit the offices of our investment managers to get a better understanding of their investment process and current thinking. Over the last few weeks I have visited firms in Denver, Austin, and New York and I wanted to share some of the highlights.
Global Equity and Fixed Income Manager
• Keep in mind that in 2008 we traded a depression for a recession. As a result we’ve had one of the slowest expansions in history, which could also turn out to be one of the longest.
• Long term expectations of a moderate (60/40) portfolio should be 5% annually, not the 7.5% that we’ve experienced over the last 5 years.
• Think of bonds as a hedge if equities go lower. There is no evidence yet that rates have gotten so low that the hedging value has deteriorated.
• US Federal Reserve will likely raise rates very slowly over the next couple of years. Likened the Fed to a photographer that is trying to get an entire class of kindergartners to look at the camera and smile before they snap the picture.
Real Estate Manager
• Remember that not all real estate is created equal, from both a performance and risk standpoint.
• Real estate valuations are now at or above the 2006 peak levels, but there isn’t as much debt on the real estate.
• Seeing more interest from foreign investors, possibly as a function of Brexit, because they want US currency, US transparency, and US stability.
• There is a silver population tsunami coming that we don’t have the capacity to house.
Managed Futures
• Markets are crowds, which often overreact to news or events in the short term. This creates tactical trading opportunities.
• Counter trend strategies benefit from increased trading activity around events. Brexit was great for these strategies.
• Trend strategies benefit from longer term trends, up or down. Flat and volatile markets are challenging. January, February, and July were good months for these strategies, but the rest of the year has been challenging.
• Generally these strategies can provide a significant diversification benefit to a portfolio because they are uncorrelated to both equity and fixed income markets.
Jeremiah Riethmiller, CFA®
Director, Investment Strategy & Research