Investment Panel: Opportunities & Threats Ahead Steve Guyer, - PowerPoint PPT Presentation

Investment Panel: Opportunities & Threats Ahead Steve Guyer, CFA Nico Santini, CFA Roger Vogel, CFA

Economic Overview 2

U.S. Economic Expansions in Context Duration of Previous Expansions November 2001 - December 2007 73 June 1938 - February 1945 80 Current expansion November 1982 - July 1990 is now the longest 92 February 1961 - December 1969 106 March 1991 - March 2001 120 June 2009 - July 2019 121 121 0 20 40 60 80 100 120 140 Months Source: NBER, NEAM 3

Recession Indicator – U.S. Yield Curve Warning Source: FRB, Haver, NEAM Yield (%) -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Sep-81 Jan-83 May-84 Sep-85 Jan-87 May-88 Sep-89 Jan-91 10 yr - 3 month rate May-92 Sep-93 Jan-95 May-96 Sep-97 Jan-99 May-00 10YR < 3 Month Rate Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 May-12 Sep-13 Jan-15 May-16 Sep-17 Jan-19 4

Central Bankers Easing - Let’s Keep the Party Going! 5

Yields From Major Countries Major 10 Yr Yields 5.0 4.0 3.0 Percent 2.0 1.0 0.0 -1.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 US UK GER JAPAN Source: Bloomberg, NEAM 6

Political Tensions 7

LEADING RECESSION INDICATORS LEADING INDICATOR WARNING SIGNAL 1/8/2019 7/11/2019 CURRENT STATUS Long-term vs. short-term U.S. Treasury spread goes 10-year Treasury yield remains slightly above 2-year, but has Yield Curve No Yes negative 6-18 months prior been below 90-day yield for over a month Conference Board gauge is down -12% from peak in October, Consumer Confidence Down >10% from a year before No Maybe but Univ. of Michigan is down barely -3% from cycle high. After ticking slightly upwards, claims have fallen back to Initial Jobless Claims Rising noticeably 3-6 months prior to recession Maybe No 50-year lows Contracting (<50) or within close range of ISM Manfucturing has fallen to 51.7. ISM Non-Manufacturing ISM Surveys No Maybe contraction (<54) has declined, but remains >54 at 55.1 Ratio has marched steadily upwards over past few months, Inventory-to-Sales Ratio Sometimes (not always) rises prior to a recession No Yes though still lower than 2016 peak Often (but not always) down year-on-year Peaked in October following strong rebound, but still up Capital Goods Orders No No prior to recession +1.4% from a year ago Peaked in March 2018; permits for past 6 months are down Building Permits Down noticeably over the past 6-12 months No Yes -3.0% y/ y, for past 12 months down -2.1% y/ y. Commodity prices falling, though it depends on Copper is unchanged YTD, despite a temporary rally; oil has Doctor Copper Maybe No the reason bounced back $15 (+29%) following a -40% drop in Q4 Sometimes (but not always) widens before a Have come back down about -140 bps after ramping up at the Corporate Bond Spreads Maybe No recession end of the year 8

NEAM CONCLUSIONS Threats • Central bank actions (or inactions) will lead to further interest rate volatility • Uncertain global (and U.S.) growth trajectory • Corporate bond market likely highly leveraged • Continue to favor non-traditional Asset Backed Securities (ABS). Opportunities Favorable yields and risk adjusted returns • Pare down overall corporate and BBB bond exposures into technical strength 9

Equities 10

STOCK MARKET INFORMATION S&P 500 EARNINGS YIELD 1 S&P 500 PRICE OF DIVIDENDS S&P 500 STOCK INDEX 95 95 3000 9 9 3000 Dollars 90 90 Ratio 2800 Index 1941-43=10 2800 85 85 2600 2600 8 8 80 80 2400 2400 75 75 2200 2200 70 70 7 7 2000 2000 65 65 1800 1800 60 60 6 6 1600 1600 55 55 1400 1400 50 50 1200 1200 45 45 5 5 1000 1000 40 40 800 800 35 35 4 4 600 30 30 600 25 25 400 400 *6/19 *6/19 *6/19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 S&P 500 EARNINGS PER SHARE 1 S&P 500 PRICE-EARNINGS RATIO 1 S&P 500 STOCK YIELDS 160 160 4.5 4.5 30 30 Percent 140 Dollars 140 Ratio 28 28 120 120 4.0 4.0 100 100 26 26 80 80 3.5 3.5 60 60 24 24 40 40 22 22 20 *2Q/19 20 3.0 3.0 20 20 125 125 2.5 2.5 Percent Change from Previous Year 100 100 18 18 75 75 50 50 16 16 2.0 2.0 25 25 14 14 0 0 1.5 1.5 -25 -25 12 12 *6/19 -50 -50 *6/19 *2Q/19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 93 95 97 99 01 03 05 07 09 11 13 15 17 19 Source: Crandall Pierce 1 Calculated using Operating Earnings 11

GROWTH VS. VALUE RETURN DIFFERENTIAL GROWTH VS. VALUE GROWTH VS. VALUE ROLLING 3 YEAR RETURN ROLLING 1 YEAR RETURN 40% 25% Growth Outperforming Value Growth Outperforming Value 30% 20% 20% 15% 10% 10% 0% 5% -10% 0% -20% -5% -30% -10% -40% -15% Value Outperforming Growth Value Outperforming Growth -50% -20% -60% -25% GROWTH VS. VALUE GROWTH VS. VALUE ROLLING 10 YEAR RETURN ROLLING 5 YEAR RETURN 20% 8% Growth Outperforming Value Growth Outperforming Value 6% 15% 4% 10% 2% 5% 0% 0% -2% -5% -4% -10% -6% -15% -8% Value Outperforming Growth Value Outperforming Growth -20% -10% Source: Silvercrest, Bloomberg 12

U.S. LARGE CAP VS. SMALL CAP STOCKS LARGE CAP VS. SMALL CAP LARGE CAP VS. SMALL CAP ROLLING 1 YEAR RETURN ROLLING 3 YEAR RETURN 40% 25% Large Outperforming Small Large Outperforming Small 30% 20% 20% 15% 10% 10% 0% 5% -10% 0% -20% -5% -30% -10% -40% -15% Small Outperforming Large Small Outperforming Large -50% -20% LARGE CAP VS. SMALL CAP LARGE CAP VS. SMALL CAP ROLLING 5 YEAR RETURN ROLLING 10 YEAR RETURN 20% 10% Large Outperforming Small Large Outperforming Small 8% 15% 6% 10% 4% 5% 2% 0% 0% -2% -5% -4% -10% -6% Small Outperforming Large Small Outperforming Large -15% -8% Source: Silvercrest, Bloomberg 13

PORTFOLIO CHARACTERISTICS—EQUITY INCOME Representative account As of June 30, 2019 CHARACTERISTICS PORTFOLIO RUSSELL 3000 VALUE S&P 500 Number of Holdings 54 2158 505 Typical Annual Turnover 25–33% – – Price/ Earnings Ratio (NTM) 14.4 x 14.2 x 17.0 x Price/ Book Ratio 2.5 x 2.0 x 3.4 x Dividend Yield 3.1 % 2.6 % 2.0 % Debt/ Capital Ratio 38.8% 35.7% 37.7% Net Debt/ LTM EBITDAR (Ex-Fin'l) 2.0 x 2.3 x 1.9 x Median RoIC (Ex-Fin'l) 14.3% 10.7% 15.8% Weighted Average Market Cap ($bn) 119.0 113.4 247.1 The portfolio characteristics are included as supplemental information and complement a full disclosure, which can be located at the end of this presentation. 14

EQUITY INCOME PORTFOLIO CONSTRUCTION/RISK MANAGEMENT Maximum position 5%. • • 40 – 60 holdings Yield Objective: 150% of S&P 500 Index, all issues are dividend payers. • Sector representation and diversification standards ( ≥ 50% and ≤ 200% exposure to benchmark sectors) • As of June 30, 2019 35.0 29.8 30.0 25.4 25.0 21.8 19.2 20.0 15.8 13.5 15.0 13.1 12.3 11.8 11.2 11.3 10.3 10.2 10.1 9.4 9.2 9.0 8.7 10.0 7.8 6.5 6.1 5.1 5.1 4.9 4.8 4.7 5.0 2.8 0.0 Consumer Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Discretionary Equity Income Russell 3000 Value S&P 500 The sector weights are included as supplemental information and complement a full disclosure, which can be located at the end of this presentation. 15

MARKET TIMING SUMMARY—THE S&P 500 STOCK INDEX $1,437.48 MISSING EVEN ONE DAY FROM EACHCALENDAR YEAR CAN HAVE A DRAMATIC EFFECT. $ 600 $600 $537.43 $ 500 $500 $403.14 $392.80 400 $400 $ $ 300 $300 $277.54 $225.45 $211.94 $194.43 $ 200 $200 $159.17 $135.63 $129.90 $116.91 100 $100 $ 5 Years 10 Years 15 Years 25 Years 2014 - 2018 2009 - 2018 2004 - 2018 1994 - 2018 LessWorst 5 Entire Less Best Less Worst 5 Entire Less Best LessWorst Entire Less Best LessWorst Entire Less Best Days Period Days 10 Days Period 10 Days 15 Days Period 15 Days 25 Days Period 25 Days Ending Value $159.17 $135.63 $116.91 $403.14 $277.54 $194.43 $392.80 $225.45 $129.90 $1,437.48 $537.43 $211.94 Percent Change 59.2% 35.6% 177.5% 94.4% 292.8% 125.5% 29.9% 1,337.5% 437.4% 111.9% 16.9% 303.1% Compound Annual Rate 9.7% 6.3% 3.2% 15.0% 10.7% 6.9% 9.5% 5.6% 1.8% 11.3% 7.0% 3.1% Source: Crandall Pierce The “Entire Period” includes every day, while “Less Worst” removes the worst day and “Less Best” removes the best day from each calendar year. 16