Q1 Investm ent Review & Outlook April 24, 20 18 Russ Allen, CIO
Disclosures Important Disclosures: This information is for discussion purposes only and is being furnished on April 24, 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 or be suitable for your portfolio or individual situation. Please contact Berman Capital Advisors to discuss your individual situation. Berman Capital Advisors / 2
Summary Outlook We believe the fundamental backdrop for global equities and credit remains positive. • The acceleration in global growth has likely peaked, but economic growth should remain strong this year. Volatility is certainly back. While bear markets are accompanied by volatility, • volatility itself doesn’t mean much for the performance of “risk” assets. Most investors are focused on our above-average stock market valuation, but • cheapness alone has never been a driver of the markets. Many international stock markets have earnings growth and cheaper valuations, thus we expect renewed international outperformance in coming quarters. We believe global bond yields will move higher over the next 12 months, but not • sharply so. In the next few years, yields are likely to surprise investors on the upside. Corporate bonds, bank loans and, to a lesser extent, high yield bonds are more • attractive than long term Treasury bonds right now. However, higher corporate debt levels could be a significant problem when the next downturn arrives. Berman Capital Advisors / 3
Major Asset Class Performance Stocks struggled in volatile trading • in the first quarter. We haven’t yet seen a significant sector rotation, but there are rumblings. International stocks, especially • Emerging Markets, were top performers. Growth outperformed Value and Small-cap outperformed Large. Bonds generally posted negative • returns. Oil prices continued to rise as the • effort to limit supply has been surprisingly successful. Berman Capital Advisors / 4
Investor Sentiment Reset Excessive investor optimism reduced for now. • Berman Capital Advisors / 5
Volatility in Perspective Historically, we • have seen much higher volatility spikes. Even versus recent • history, current volatility isn’t that unusual. Volatility • accompanies market drops, but doesn’t mean a bear market. Berman Capital Advisors / 6
Recessions Drive Worst Market Corrections Berman Capital Advisors / 7
The Economic Backdrop Berman Capital Advisors / 8
U.S. Economy Remains Healthy Source: The Conference Board via The Wall Street Journal Leading indicators of the U.S. economy remain positive. • Berman Capital Advisors / 9
Global Economy Remains Strong Economic growth is positive almost everywhere – breadth indicators are strong. • Berman Capital Advisors / 10
U.S. vs Europe Consumer Trend Consumer spending has recovered in both the U.S. and Europe. • Berman Capital Advisors / 11
Outside the US, Still Easy Money Source: The Wall Street Journal Berman Capital Advisors / 12
Market Valuation Berman Capital Advisors / 13
Global Valuation Perspective Source: Ned Davis Research Globally, bond yields remain low. Earnings yields show stocks are still attractive. • Berman Capital Advisors / 14
S&P 500 Earnings and Performance Many investors are worried • about high U.S. stock market valuations. However, earnings have provided significant support for the market’s rise. The sustainability of this • earnings growth is the important question. Source: J.P. Morgan Asset Management Berman Capital Advisors / 15
S&P 500 Valuation: Forward P/ E Source: FactSet The market’s recent pullback, combined with very strong • earnings estimates, means forward P/ E ratios look better. Berman Capital Advisors / 16
U.S. vs Developed Markets Valuation International stock market valuations are generally more • Berman Capital Advisors / 17 attractive.
Emerging Markets Valuation Emerging market valuations are generally cheaper than • developed markets. Berman Capital Advisors / 18
Emerging Market Fundamentals Emerging market fundamentals are generally better, too. • Berman Capital Advisors / 19
Interest Rates and Inflation Berman Capital Advisors / 20
Unemployment and Wage Growth Wage growth still surprisingly low, will it accelerate from here? • Berman Capital Advisors / 21
U.S. Rates Rising Faster In response to the Fed, • global growth and commodity prices, interest rates have recently risen more sharply. Source: The Wall Street Journal Berman Capital Advisors / 22
Bond Market vs Fed Rate Expectations Market expectations are beginning to converge with the Fed’s. • Berman Capital Advisors / 23
U.S. Fiscal Policy Source: The International Monetary Fund The U.S. running large deficits when the economy is • already strong. Berman Capital Advisors / 24
Our Long-Term Problem The Congressional Budget Office projects deficit levels • will steadily deteriorate. Berman Capital Advisors / 25
Potential Opportunities Berman Capital Advisors / 26
Energy Market Disconnect Source: Bespoke Investments Energy stocks have decoupled from oil prices, although there are signs this • is changing. Berman Capital Advisors / 27
MLP Valuation The most common • MLP valuation metric, Price to Distributable Cash Flow, is back near crisis era lows. This is occurring • despite much higher oil prices and steadier natural gas markets. Berman Capital Advisors / 28
U.S. Corporate Debt Perspective Corporate cash flows look great for now, but could be setting up for trouble • when the economy eventually turns. Berman Capital Advisors / 29
Very Little Corporate Credit Stress The number of distressed high yield borrowers continues to drop. • Berman Capital Advisors / 30
Private Equity Deal Valuations While still • below pre-crisis levels, private equity is paying steadily more for target companies. Berman Capital Advisors / 31
Covenant-lite Trend Berman Capital Advisors / 32
Conclusion • The current environment favors equities. Valuation is now lower on tax cuts and earnings momentum. • The market is not worried about inflation in the long term, but deficit spending with low unemployment could trigger fears. • Correlations within and across assets have fallen and central banks are de-synchronized. It should be a better environment for active approaches. • Private equity buyout funds are at risk of overpaying; we are pursuing smaller funds and more niche strategies.. Berman Capital Advisors / 33
Thank You
Recommend
More recommend
