Key Points
The Brands Fund, while being volatile at times with wild markets, continues to have a comfortable lead on the S&P 500 YTD. The quality factor, has come back en vogue. Please make sure you have sufficient exposure to this style factor. It's likely one of the most important factors to lean on during periods of uncertainty.
Market comments
There's a ton of uncertainty these days and short-term we could see an acceleration of this uncertainty. That likely means clients are experiencing an elevated amount of angst. That puts pressure on them, on you, and ultimately on their interest in sticking to your long-term plan. It's in these times that an investor can make knee-jerk decisions that get them off course. Holding a lot more cash or perceived safety assets is a decision that always feels good at the time, I respect that. The problem tends to be getting back in. The best times to dive back in the pool (low prices) are always during periods when most people want to be as far away from the pool as possible. Most investors lead with their emotions and emotions rarely lead them to make solid investment decisions. That's where experience and a willingness to be greedy when others are fearful can really add value to a client relationship. Blackstone, KKR, Brookfield and others are the best at buying fear and panic and these three alone have over $380B of dry powder available currently. These are savvy, patient investors. Private lending, in particular, has a very robust opportunity today, as banks retrench and private markets become price makers and offer the bespoke solutions that companies need. When you are a price maker, the terms and protective covenants are highly in your favor. Their expertise is working for us in the fund.
The Set-up:
For a variety of reasons, a higher resting heart rate for inflation, fed funds, rates, and the cost of capital should be the expectation for the foreseeable future. Not every asset class or company will thrive in this environment and it could be a wild ride at times given such a long period of zero rates and free money. Zombie companies keep floating to the surface right now. Thankfully, there are a handful of timeless investment thematics (global consumer is one) as well as many "alternative" investment options available to investors. Everyone needs some exposure to the most opportunistic asset managers in the industry yet few actually have it and they are not readily available in ETF's. You get that exposure in the brands fund. Most HNW investors are incredibly overweight the liquidity factor yet it causes angst, often pushes people off course, and is the opposite of how the smartest endowments manage assets.
Investors simply want this: Adding an allocation to Alts can be a solution.
1. Attractive returns over time.
2. As smooth a ride as possible along the journey.
3. To reach their goals, on time, and in-tact.
Fun Facts: See the image below for asset class returns 2007 - Q3 2022
1. Institutions like Endowments tend to perform much better than HNW investors.
2. These Endowments tend to have about 30-50% of their assets in Private assets.
3. Privates, on average handily outperform public comps with much less VOL.
4. The average HNW investor portfolio annualized return over 15 years is ~6-8%.
5. Top Endowment portfolios like Princeton, Harvard, Michigan, have average annual return is ~12-13%. Princeton's annualized return since 1977 has been +13%, they hold a very high weight to "alts" at ~70%.
Building a portfolio of solid, timeless thematics PLUS a handful of private alternatives can really add value to a portfolio and offer a smoother ride along the way. The new regime stated above is the catalyst for these potential portfolio changes. In equities: pricing power, solid balance sheets, big market share, high FCF, and margin stability are key. Yes, I've just defined an iconic, highly relevant global brand. Keep your eye on the prize, great brands make great investments and the savvy investor uses periods of turmoil to accumulate more great brands.
bottom line
Investors are scared, confused, and likely questioning their investments during this normalization process. Re-connecting with them and taking their emotional temperature is likely a very good idea. In order to help you accomplish this, we created a quick 30 question Q&A template to help identify what they really want & need these days. It's a great model you can use as a starting point for spot-checking your portfolio models for proper suitability.
Disclosure:
This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.