Introduction
Too many American investors and managers do not search
for investment wisdom beyond their national borders. For years Byron Wien wrote about
"the world's smartest investor who has passed away.”
I do not have
the skill to identify the smartest investor. For decades I have been calling on
some very smart investors in London. Some of these were clients of various fund
data services and resulting consulting. Others were leading investment shops or
investment trusts. I continue this journey.
This last week I accompanied my wife Ruth to London to
hear our New Jersey Symphony Orchestra's wonderful music director, Xian Zhang conduct a superb
concert at The Proms, held in the Royal Albert Hall. I took a ‘busman’s
holiday’ and spent the rest of the week speaking with a number of great money
managers, corporate leaders, old friends and former associates. As usual our far
ranging conversations covered both the current global investment environment
through to multi-generational investing.
Shakedown Cruise
Most of my British friends don't know what to make of
President Trump. He is a definite interruption of the past policies and trends
that they had become accustomed. The only way I could help them with their
concerns was to explain that the current occupants of the White House have
embarked on what the US Navy does immediately after it launches a ship. The
Navy conducts a "shakedown cruise" where the crew learns how to
handle as many of the problems that might occur in carrying out their missions.
From a training viewpoint, the more problems the better. Over time they learn
to solve most of the problems. At the beginning of the cruise the crew does not
know how long the shakedown effort will last.
I reminded my hosts that the President learned command
at military school. He is a product of a Queens County, New York real estate
family. Using his threatening negotiating skills, he successfully attacked
other New York City boroughs and regulators to accomplish his business goals.
President Trump is going to be different. The
intramural battles in Washington are what the founding fathers expected. They
did not want an imperial king. We all are going to have to learn the new dance
steps to unfamiliar music.
International Investors and the US Markets
For international investors putting money into the US,
it is a double bet on the dollar and local stock prices. In the past these
moved in the same direction which increased their total returns. More recently
while share prices were rising, the value of the dollar was dropping. (One good
technical market analyst believes the dollar is "bottoming" and will
rise to new highs.) Due to a left leaning press, many in London tie it to Mr.
Trump. I see it very differently.
To me the dollar should not have been strong for a
number of years, which in part was a contributor to the 2016 Republican electoral
wave, all the way down to state legislatures and counties. The reason the dollar
was strong until recently was that almost all other currencies were weak in
view of their own problems. The prospects in many of these countries are
sufficiently improving to a point that the locals are reducing their
conversions into dollars. (I have not yet seen a reversal where there is
significant selling, just less buying.) This phenomenon is being recognized by
US investors who have been replacing some of their domestically-oriented mutual
funds with international funds, a trend that has been going on for many years. We
are also participating in this trend for our accounts.
When I see very successful multi-generational families,
I look at their investment portfolios and philosophies. Most of the positions in the trust-quality portfolios are
not likely to be top performers, near term.
Thus, they won’t make the lists, to use a British expression, of the “Tops
of the Pops.” As
it is almost impossible to always be in the most popular successful stocks,
there will be times when these former leaders will under-perform. Thus their
records will appear to be more cyclical than the somewhat slower moving secular
growers.
Harking back to my first professional investment job at a trust bank, the multi-generational families opted for quality of management and products. Today the long-term concerns of multi-generational investors remain focused on quality and selectivity. We seek to answer these issues in the Endowment and Legacy segments of TIMESPAN L Portfolios®, though these portfolios may contain other instruments that are more price-sensitive as well.
Interesting enough, the striving for quality has a
place in their portfolio investing in under-served markets and these exist in
all societies. The keys to these investments is to be providing uplifting
services to the underserved.
The new European regulations coming into effect in
January, MiFid II will raise the costs of both investors and brokers, which
will lead to a reduction of investment industry capacity and is likely in the
short-term to reduce the support for smaller and many mid-sized stocks.
There is recognition of the large and growing global
retirement capital deficit, but at the moment no one is addressing it in a
major way.
Short-Term Concern
While we focus
long-term, we do not ignore short-term. One of the short-term factors that we
look at is the relative yield dispersion, what Barron’s calls Best Bond and
Intermediate Bonds, based on credit quality ratings. In the last week, the demand for Best Bonds
drove their yields down by 12 basis points, and prices up, whereas the Intermediate Bonds’ yields dropped
by 5bps. The increase in price of the
Best Bonds relative to the Intermediates is viewed by some as a bearish signal
for stocks.
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A. Michael Lipper, CFA
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