Investment Insights Podcast: One market has made some major headlines in recent days: Bitcoin

Rosenberger_Podcast

Andrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded May 30, 2017), Andy discusses how Bitcoin isn’t necessarily something that we consider a long-term investable asset for our client portfolios, but it’s certainly been an attention grabber as of late.

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Quick hits:

  • After crossing the $2,200 per bitcoin mark on Monday, I had no less than 3 separate conversations after an article was released on how if you had purchased $100 dollars worth of bitcoin in 2010, it would be worth $72.9 million dollars today.
  • Bitcoin is a digital currency, not backed by any central government or entity, and it relies on a community of supporters to maintain the infrastructure.
  • The underlying technology behind bitcoin is getting the attention of many major players including banks, credit card companies, and technology giants.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Despite the number of headlines last week, markets proved their resilience

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Andrew Rosenberger, CFA, Senior Investment Manager

 

On this week’s podcast (recorded April 10, 2017), Andy discusses sentiment, job growth, and earnings season.

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Quick hits:

  • Despite the number of headlines last week (Syria, China, France, Jobs), markets proved their resilience by finishing the week flat.
  • Sentiment has come down from peak optimism seen in February.
  • Despite the weakness in the headline number, the underlying trends in job growth continue to be favorable.
  • Earnings season kicks off this week with Financials being the first group up.  Investors are looking for comments on loan growth & loan demand.
  • We continue to favor an overweight to risk assets within our discretionary portfolios.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

What to expect from Trump’s tax reform

Andy RosenbergerAndrew Rosenberger, CFA, Senior Investment Manager 

Political biases aside, one can’t deny that equity markets have received the incoming Trump administration favorably. Much of the market optimism has rightly been attributed to a reduction in corporate tax rates which will immediately serve to increase earnings upon implementation. Evercore ISI published an illuminating chart demonstrating the power of lower tax rates. Their chart below demonstrates that companies with the highest tax rates are outperforming companies with the lowest tax rates by 470bps since the election. After all, that makes complete sense given that companies who pay the most in taxes will subsequently benefit the greatest from any cut in taxes.

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Yet, when we reconcile market hope versus the reality of what policy will actually be enacted, it’s easy to get lost in all the details. For that, I give tremendous credit to Barron’s which published a well-articulated overview of what to expect, at least tentatively, when it comes to tax reform. I encourage anyone with a subscription to Barron’s to immediately read their article, Advice From Wall Street’s Go-To Tax Man. However, to summarize some insightful points from the article:

  • The number of federal tax brackets is expected to shrink from 7 to 3
  • The top tax rate for individuals would be lowered from 39.6% to 33%
  • Corporate tax rates would be lowered from 35% to either 15% or 20%
  • Most forms of investment income could be treated tax favorably, including interest income which is taxed as ordinary income rates today
  • Many forms of itemized tax deductions would be removed. Mortgage interest and charitable contributions would likely be spared.
  • Small business owners may be taxed at a rate different from individuals. Today, small businesses income is treated the same as if it were ordinary income.

What are some of the implications of these changes?

  • While there is only a week left in the year, investors should try to defer any further capital gains until next year when they are taxed at a potentially lower rate
  • Earnings will go up; valuations, assuming no change in price, will look more favorable
  • Municipal bonds which provide tax free income will be much less attractive on a relative basis. Also, given that municipalities use their favorable tax treatment to raise capital, this may put additional stress on spreads via funding concerns.
  • Corporate spreads, on the other hand, should theoretically narrow given they get more favorable tax treatment
  • Companies with deferred tax assets and individuals with loss carryforwards will see the value of those assets reduced. However, they will be valuable in the form of offsetting gains.
  • Interest deductions may not be tax deductible anymore. This could lead to lower debt issuance, a smaller supply of corporate and tighter spreads.

Many of these assumptions and implications are based on a combination of Trump’s plan and the proposed House plan. While nothing is set in stone and likely won’t be for quite some time, it’s not too early to begin thinking about how these changes may impact an investor’s wealth planning and asset location strategies. Tax management will no doubt continue to play an important role in the wealth management process. But more than anything, lower tax rates will mean more flexibility for financial advisors as they determine how best to structure their client’s asset allocation to meet their long-term goals.

Brinker Capital provides several tax harvesting opportunities to help investors manage one of their largest costs. Contact Brinker Capital to learn more about how our investment solutions may provide greater tax control.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital does not render tax, accounting, or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Under the radar risks that we’re watching

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded December 19, 2016), Andy discusses how we’re entering the most seasonally strong period of the calendar, and a few under the radar risks that Brinker Capital is watching. Quick hits:

  • Sentiment, is looking a bit too optimistic.
  • The U.S. Dollar has broken out to highs not last seen since 2003.
  • There has been a sense of moving away from globalization in the form of populism.
  • Markets are trading at levels notably higher than they were.
  • Clients are underexposed to risk in general for one reason or another.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Being right for the wrong reasons

Andy RosenbergerAndrew Rosenberger, CFA, Senior Investment Manager

Investors betting on a Hillary win should be grinning ear-to-ear with the outcome of the election. Picture this for one moment. Imagine if I had told you last week who would win the election – but nothing else. Odds are, particularly after listening to the “experts” that you would have sold everything. Maybe if you’re the type who likes to speculate, you would have also used those cash proceeds to short the market, buy some VIX, or perhaps buy long-term Treasuries. After all, the standard meme was Trump = Bad for Markets, Clinton = Good for Markets. Good thing that crystal balls don’t exist. It’s a classic case of being right for the wrong reason. Or, taking the other side of the coin, being wrong for the right reason. As we all digest the outcome of events and try to comprehend what this all means, here are a few ruminations that come to mind:

  • Event-driven investing is REALLY hard. Event-driven investing is the idea of speculating on the outcome of a specific event. It sounds easy. But think about all the factors that go into it. You have to be right on calling the outcome. You have to be right on how the market reacts to that outcome. You have to know how much is already discounted into the market already. You have to have better information than everyone else. You have to structure the trade in such a way that it’s profitable. Like many things in life and investing, it sounds easier than it is.
  • Income relative to duration matters. In one single day, over a year and a half worth of income was wiped out for anyone investing in long term Treasuries. Prior to the election, the 30 year bond was yielding approximately 2.6%. The Wednesday after the election, the Barclays Long Term Treasury Index was down -4.14%. So now investors will have to wait over a year for the income generated on their bonds to make up their losses. Or, maybe they could try out some event-driven investing tactics mentioned above.
  • Volatility is dynamic. When regimes change, low volatility may suddenly be high volatility. It seems like a no-brainer. You can outperform the market with less risk by simply investing in stocks with lower volatility. Forget that it’s the topic du jour. Forget that there are immense amounts of money flowing into this group of stocks. Forget that valuations for these types of stocks have never been higher. It’s worked in the past. Well, until it doesn’t. I acknowledge it’s only one day. But yesterday’s dramatic underperformance of low volatility reemphasizes the point that there’s more to investing than simply investing in what worked historically.
  • Consensus is usually right…until it isn’t. Unlike low volatility stocks, just a few months ago everyone hated financial and healthcare stocks. After all, the yield curve was going to stay flat forever hampering banks and insurance company’s ability to generate returns. Separately, politicians were going to destroy the profitability of pharmaceutical companies by reversing sky-high drug prices. Bad fundamentals. Check. Bad technicals. Check. Market experts agree with you. Check. Unfortunately, when these views reverse, as we’ve seen as of late, they do so extraordinarily fast.
  • In statistics, sample sizes do not represent the overall population. How is it that in an era of big data and interconnectivity that our methods for predicting elections have gotten worse, not better? Certainly the migration away from landline phones and the shy Trump voter effect were both major factors. But anytime we talk about polling, we have to remember that we’re taking small samples of a very large population. I, for one, have NEVER been asked by a polling authority who I’m voting for. With over 119 million voters this election, I would imagine there are quite a few others who weren’t part of the sample size either. Statistics matter but so too does the means with which they are applied.
  • Politics can be very emotional for individuals. Particularly within investing, emotion and outperformance rarely coincide with one another. Investing is hard enough as it is. Billions of dollars of research has been dedicated to the art and science of getting a competitive advantage over other investors. And most haven’t been very successful.

The bottom line is that investors should focus on the long-term outcome knowing that over time, Democrat or Republican, 2% growth or 4% growth, Fed rate hike or no rate hike, that their investments will work for them in the long-term.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Investment Insights Podcast: The market’s next likely source of uncertainty

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded November 4, 2016), Andy discusses the market’s next likely source of uncertainty – the Fed meeting in December. Quick hits:

  • Looking at the probability of a December hike, Fed Fund futures now peg it as a 76% change.
  • 3 month LIBOR rates, which are set by the market, have already risen by 25bps since June.
  • Wage growth looks to be finally increasing.
  • Inflation is now getting back to more normalized levels.
  • Whether right or wrong on inflation, we remain short duration in our portfolios and protected if markets do finally believe that inflation is a credible risk.
  • Our multi asset class philosophy gives us a number of different tools to defend against the risk of rising rates and inflation.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Loud Headlines

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded September 30, 2016), Andy reviews recent media headlines, including Deutsche Bank and OPEC, and if the news is more bark than bite. Quick hits:

  • Deutsche Bank shares set a new all-time low on September 29 and stock is now down almost 50% year to date.
  • Deutsche Bank needs to raise enough capital to alleviate investor concerns or financial authorities will have to step in to backstop the bank.
  • While the ghosts of Lehman Brothers may still haunt the minds of investors, it seems unlikely that financial authorities haven’t learned from 2008 and would be willing to take the same risk with Deutsche Bank should they fail.
  • Saudi Arabia agreed to limit future production of oil, and while there’s been a lot of skepticism that this new agreement will do anything to reduce oversupply and increase prices, it is the first time there’s been any sort of agreement out of OPEC since the sell-off began in 2014.
  • Given all the headlines, it’s easy to miss the more-positive news that has been released, like housing data and low unemployment.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – The World of Negative Interest Rates

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded February 2, 2016), Andy discusses what the world of negative interest rates looks like and how it impacts investors:

  • Japan surprised markets by entering the world of negative interest rates, joining Sweden, Denmark, and the European Central Bank.
  • Just a few years ago it seemed that negative interest rates were impossible; but, today there is over $5.5 TRILLION dollars of government debt with negative yields.
  • Long-term impact to investors is, candidly, unknown. Short-term impact seems to lean towards lower yields globally, including the U.S.
  • Large yield differentials between developed countries (Germany, Japan, U.S.) are a major reason why the U.S. dollar continues to appreciate.
  • Demand created by large yield spreads is why we believe we won’t see meaningfully higher yields in the United States anytime in the near term and why we believe the Fed will back off their initially suggested pace of raising interest rates, perhaps even holding off overall.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – June 19, 2015

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded June 16, 2015): Andy Rosenberger takes his turn on the mic to share recent economic data including industrial production, housing starts as well as some survey data on manufacturing.

Highlights from the podcast include:

  • Mixed economic data to continue; suggests positive growth.
  • Most economists not expecting any action from the Fed following the conclusion of their meeting; expectations of higher interest rates pushed towards latter part of the year.
  • Talks again broke down in Greece, impacting markets negatively; however, they are likely to pick back up.
  • As it’s been over 2.5 years since we’ve seen a 10% correction, we shouldn’t ignore that there could be more downside risk from here; however, earnings have held up and economy appears to be growing.

Listen here for the full version of Andy’s insights.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Investment Insights Podcast – February 11, 2015

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded February 5, 2015): We break away from our traditional format to hear Andy breakdown 2014 performance in terms of a diversified portfolio versus the S&P 500.

Highlights from the podcast include:

  • U.S. markets trumped mostly all other markets in 2014
  • Caution against knee-jerk reactions from investors to move portfolios from international to domestic
  • Encourage keeping an open mind to international opportunity given the 2014 pace of U.S. equities may be unlikely to continue
  • International markets are up year to date; U.S. slightly negative
  • Risks remain–new Greek government, elections in Spain, etc.

Listen here for the full version of Andy’s insights.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.