REVIEW www.assettv.com • 4th Quarter 2015
Walter Davis Goodbye 60/40. Hello 50/30/20.
PLUS INSIDE:
TIAA-CREF
Expectations for High Yield in 2016
American Funds
Importance of Actively Managing Retirement Income
REVIEW
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Contents Walter Davis, Invesco
5
Goodbye 60/40. Hello 50/30/20.
Kevin Lorenz, TIAA-CREF
7
What are the Expectations for High Yield in 2016
Steve Deschenes, American Funds
9
Importance of Actively Managing Retirement Income
Dr. Andrew Lo of AlphaSimplex
11
Three Investment Themes for 2016
David LeDuc of Standish Mellon Asset Management 13 Will Volatility Continue to Impact the Markets
Trending on Asset TV
14-15
What’s hot and latest most viewed content
MASTERCLASS
16-17
Speaker highlights from our flagship program
In the Hot Seat
19
Check out Asset TV’s newest format
Our New Channel Partners
20
Take a look at our newest content partners
Craig Hodges on Small Caps
21
Finding Opportunities in Small Caps
Stewart Capital Investing Philosophy 23
ASSET TV REVIEW IS PUBLISHED FOR INVESTMENT PROFESSIONALS. No part of this publication may be reproduced without the prior permission of Asset TV Inc. Information, views and opinions contained in the articles
Building an Investment Philosophy around Mid Caps
have been compiled from interviews conducted by or hosted on Asset TV with regulated fund managers and other investment professionals. Asset TV Inc. accepts no liability for any loss arising from the use hereof nor makes any representation as to their accuracy or completeness. Whilst every
CEO of The Gemini Companies
care has been taken in preparing Asset TV Review, neither Asset TV inc. nor the authorities can accept responsibility for any errors it may contain or
What’s in the Cards for Mutual Funds
for any losses from or in reliance upon its contents.
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Financial Noise. It can leave your mind ringing. The constant swirl of market diagnosis, breaking news alerts and “Best Bet” recommendations makes it a challenge to sift out what’s most important to you. Fortunately, Intentional Investing® with Invesco is an approach that helps separate Knowledge from Noise.SM It connects the insight, judgment and expertise of a trusted global money manager with your professional guidance, helping you and your clients hear only what you really need to. See what Invesco’s experts are thinking now at invesco.com/intentional.
Invesco Distributors, Inc.
REVIEW Videos now on the Invesco Channel It’s time to bench the benchmarks
Regardless of an investor’s objective – higher returns, lower volatility, consistent
GOODBYE 60/40. HELLO 50/30/20. Walter Davis, Invesco It seems that 25% is the typical allocation to alternatives by an institutional investor, however individual investors tend to have less than 5% of their portfolio allocated to alternatives. Why is that? There are two big reasons that explain that gap: Experience, whereas institutional investors have had exposure to alternatives for over two decades, as well as perspective. Too many individual investors invest while looking in the rear view mirror, basing their decisions on what has happened in the past, whereas most institutional investors should invest while looking through the windshield, trying to anticipate what might be coming around the corner. I think alternatives should be a core part of every investor’s portfolio because they can do things that traditional stocks and bonds can’t. What is an alternative? Alternatives are anything other than traditional investments in stocks and bonds. When you start introducing different
markets into the portfolio, different asset classes like real estate, commodities, currencies, etc., you’re into the world of alternatives. Then there are alternative investment strategies, where a manager is investing both long and short across a wide variety of global markets. Access to alternatives has changed dramatically for individual investors. It’s now very easy for them to add alternatives into their portfolio. If you had to use an analogy to describe alternatives, what would you use? Alternatives are a little bit like special teams in football. Some can play offense by helping to build wealth, and some can play defense by helping to preserve wealth.
Then there’s a whole other group of alternatives that can help investors enhance the income generated by their portfolio.
income – Invesco believes benchmarks shouldn’t dictate their decisions. Our highconviction strategies can help you invest in opportunities – not just settle for average.
When is good better than best?
With regard to how much to invest, there’s no onesize-fits-all answer. Whether your ideal allocation to alternatives is 5%, 15% or 30%, investors need to move beyond the outdated 60/40 model. We’ve developed a framework that can help investors navigate the challenge of alternatives and efficiently implement them in their portfolio. At Invesco, we have the experience, we have the resources, we have the range of offerings to help you and your clients achieve their investment goals.
Client Portfolio Manager for Invesco Multi-Asset Team, Danielle Singer, explains how targeting good ideas rather than all the best ideas keeps the portfolio from being overly concentrated.
How a market neutral strategy participates in rising interest rates
Visit the Invesco Channel for latest insights: bit.ly/1LxtlWu How to fund an allocation to market neutral, and the role it can play in a portfolio.
www.assettv.com 4th Quarter 2015 5
IF YOUR ASSETS AREN’T REAL,
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See how real assets offer real returns potential. Contact Jennifer Pedigo at Jennifer.Pedigo@tiaa-cref.org BUILT TO PERFORM. CREATED TO SERVE.
AUM as of 6/30/15. ©2015 Teachers Insurance and Annuity Association of America–College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New York, NY, 10017. C25798. Please note: agricultural investments are generally illiquid and may depend on indeterminate environmental, regulatory and political developments.
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TIAA-CREF Asset Management provides investment advice and portfolio management services to the TIAA-CREF group of companies through the following entities: Teachers Advisors, Inc., TIAA-CREF Investment Management, LLC, TIAA-CREF Alternatives Advisors, LLC and Teachers Insurance and Annuity Association (TIAA ). TIAA-CREF Alternatives Advisors, LLC is a registered investment advisor and wholly owned subsidiary of Teachers Insurance and Annuity Association (TIAA). ®
®
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not bank deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
Consider investment objectives, risks, charges and expenses carefully before investing. Go to tiaa-cref.org for product and fund prospectuses that contain this and other information. Read carefully before investing. TIAA-CREF funds are subject to market and other risk factors.
REVIEW Videos now on the TIAA-CREF Channel Why the Fed may wait until 2016 to raise rates
WHAT ARE THE EXPECTATIONS FOR HIGH YIELD IN 2016
Lisa Black, CFA, CIO and Head of Global Public Markets, TIAA-CREF Asset Management, offers perspective on factors that may influence the Fed’s timing for a rate hike.
Kevin Lorenz, TIAA-CREF What are your expectations for high yield investing in 2016? We’re constructive on the US high yield market. There’s a combination of fundamentals and technicals that play in the marketplace. The key really from our vantage point as a long-term investor is how our company’s going to perform and what the outlook is for the default rate. We’ve been running at a trough level, and we think that’s going to continue. It may be at a gradual increase, but all in all it’s a very supportive environment for high yield funds. How would a rising rate environment impact high yield markets and your approach? Whereas rising rates typically mean prices will go down for bonds, high yield performs much more admirably. We looked back in time from 1998 through 2014, and we found 14 periods when tenyear treasury rates increased by at least 50 basis points. Over those 14 different periods, high yield bonds had a positive return of close to five percent, whereas high grade bonds
and mortgage-backed securities had slightly negative returns. Of course, treasuries performed very poorly, with negative five percent return.
are single B rated, but their bonds yield between five and a half and seven and a half to eight percent, where we think you’re getting paid very well.
What parts of the high yield market do you think look attractive right now?
What sectors do you like and dislike in this environment?
We think the best value in high yield is in the double B and single B parts of the market. We really like the single B space because even though high yield will do well in a rising rate environment overall, double Bs are more susceptible to rising rates. In the single B universe, you still have a lot of companies that are very strong financially with good competitive positions, but you can pick up that incremental yield.
The equity market selloff may be overdone, creating potential buying opportunities
Well the most topical sector in the market right now is of course energy. Energy is a meaningful part of the marketplace with ten to fifteen percent, depending on the benchmark you’re looking at. Some companies and their bonds will do very well if energy prices pop from here, and some ultimately will face bankruptcy if they don’t, and so that’s not the part of the market that we see good value in.
Saira Malik, CFA, Head of Global Active Equity Portfolio Management, explains what’s driving our continued optimistic outlook for global markets— especially over the long term.
A better approach to target-date fund design
There are names like Univision, CommScope, Ferrellgas... these are all companies that
Visit the TIAA-CREF Channel for latest insights: bit.ly/1ShFvIJ
John Cunniff, Portfolio Manager for TIAA-CREF Lifecycle Funds, explains how the TIAA-CREF target-date funds are different than those from other providers.
www.assettv.com 4th Quarter 2015 7
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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. American Funds investment professionals actively manage each target date fund’s portfolio, moving it from a more growth-oriented approach to a more income-oriented focus as the fund nears its target date (the year in which an investor is assumed to retire and begin taking withdrawals), and continue to manage each fund for 30 years after it reaches its target date. Although the target date funds are managed for investors on a projected retirement date timeframe, the funds’ allocation approach does not guarantee that investors’ retirement goals will be met. The target allocations shown are effective as of January 1, 2015, and are subject to the Portfolio Oversight Committee’s direction. The funds’ investment adviser anticipates that the funds will invest their assets within a range that deviates no more than 10% above or below these allocations. Underlying funds may be added or removed during the year. For quarterly updates of fund allocations, visit americanfundsretirement.com. ¹ Relative to their Morningstar indexes since the Series launched in 2007; as of December 31, 2014. ² Based on Class R-6 share results for rolling periods through December 31, 2014. Periods covered are the shorter of the fund’s lifetime or since the comparable Lipper index inception date. ³ Based on the net expense ratios for the American Funds Target Date Retirement Series funds (Class R-3) as compared to the most recent prospectus average expense ratios for the Morningstar Retirement, Medium fee level group, which is composed of target date funds classified by Morningstar as Retirement share class type with a 12b-1 fee greater than 0% and less than or equal to .50% as of December 31, 2014. We offer a range of share classes designed to meet the needs of retirement plan sponsors and participants. The different share classes incorporate varying levels of adviser compensation and service provider payments. © 2015 American Funds Distributors, Inc.
REVIEW Videos now on the American Funds Channel The Long View: No Status Quo: The Difference Disruption Makes
Portfolio manager Mark Casey and policy and communications advisor Matt
IMPORTANCE OF ACTIVELY MANAGING RETIREMENT INCOME
Miller, both from Capital Group, discuss cloud computing and how investors can benefit from industry disruption.
Steve Deschenes, American Funds from Capital Group You just issued a study about how the math of investing changes at retirement. Tell us more about this. Everything changes at retirement, but certainly part of it is the math of how you take money out. The sequence of returns in terms of the volatility doesn’t matter as much when you’re saving. In fact, volatility can be your friend because your dollar costs are averaging in. When you’re taking money out of the portfolio, however, it really accentuates that volatility. You identified three factors in your study. Walk us through them. We took four asset classes from Morningstar, and identified 3500 funds in the open end of the funnel. We then identified three factors to funnel those mutual funds down to a better investable cohort. The first factor was low downside capture. So essentially, if the market’s down 20 percent, and
your fund is down 10 percent, that’s a 50 percent downside capture, which would really set you up for the next leg up in the market. The second factor was low expenses. We identified the group that was in the least expensive quartile as producing better returns. Finally, manager ownership, which was the actual money the manager has invested in the funds that they manage. When you look at all three, it allowed us to boil down 3500 funds to just 130, which performed measurably better than both the index and the all-active universe by about 200 basis points. Which, over a course of a normal retirement,
Visit the American Funds Channel for latest insights: bit.ly/1kRvdVj
Chinese E-Commerce on the Rise
can be the difference between success and failure. What about equity investing? How does that change through retirement? You should reduce the amount of equity that you have as you age. That glide path should reduce your risk level, but it’s also the kind of equity that you invest in. When you’re earlier on in growth and accumulation, being in growth-orientated investments makes perfect sense. At retirement you should look for more stable Blue Chip companies that pay a dividend that’s likely to grow over time because you can use that dividend income to form an inflation buffer.
Economist Stephen Green sees growth in China’s digital world, from upcoming innovations to a steady increase in mobile phone usage.
What the Fed’s Wait-and-See Mindset Means for Investors
A portfolio manager discusses the Fed’s decision to stay put on interest rates in the context of the state of the U.S. economy, risks from abroad and implications for long-term investors. www.assettv.com 4th Quarter 2015 9
EIGHT IN TEN INVESTORS WANT NEW STRATEGIES TO BETTER DIVERSIFY THEIR PORTFOLIOS.* WE’VE GOT YOU COVERED. 3
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See what our multi-affiliate model can do for you. Visit us at ngam.natixis.com
A division of NGAM Advisors, L.P. Operated in the U.S. through Natixis Asset Management U.S., LLC. 3 Comprising six distinct private equity companies. Not all offerings available in all jurisdictions. * Natixis Global Asset Management, Global Survey of Individual Investors, February 2015. Survey included 7,000 investors in 17 countries, 750 of whom are U.S. investors. Copyright © 2015 NGAM Distribution, L.P. - All rights reserved 1 2
ADUS447-1115 1207485.4.1
REVIEW Videos now on the NATIXIS Channel Natixis 2015 Global Financial Advisor Survey
John Hailer, President and Chief Executive Officer of Natixis Global Asset Management for the Americas and Asia, discusses
THREE INVESTMENT THEMES FOR 2016
findings from their 2015 Global Survey of Financial Advisors.
Dr. Andrew Lo, AlphaSimplex Group, an affiliate of Natixis Global Asset Management We’re about to close the door on 2015, a year that has been marked by tremendous volatility in global markets. As you look to invest through 2016, what are three main things you’ll bear in mind? The first is that we’ve had some pretty significant change in trends. The first half of 2015 was pretty strong in one direction, but we’ve had some changes over the course of the second half, and I think we’re going to see more changes over the course of 2016 as central banking activity decides to move in ways that it hasn’t in the past by tightening monetary policy. The second theme is volatility. I think that we’ve seen that volatility has gone up, come down, gone up again...so the volatility of volatility is something we have to worry about. I think the third and most important theme is diversification. We want to be able to really spread out investments across a variety of different asset classes so as to make sure
that we’re not putting our eggs in the same basket. What strategy includes diversifying themes that investors can implement into their portfolios? Some of the liquid alternatives I think could be very useful. For example, managed futures are often considered to be anticorrelated with certain kinds of extreme market movement (so-called Crisis Alpha). Sometimes liquidity is not what it’s represented to be, so one has to be sure that these instruments that are being used in these strategies are really ones that can get into and out of position easily.
Natixis 2015 Global Survey of Individual Investors
I think maybe the biggest surprise will be for those investors who don’t put their money in the market. If they don’t, they may actually be left behind because there are some opportunities that could actually be quite significant for wealth accumulation. However, the problem is you don’t know when they’re going to occur. So this year has been a challenge for the S&P 500, but 2016 can be a very different story, particularly if some of the issues in Europe and in Asia have worked themselves out. Once those issues get resolved, we can see some tremendous capital growth opportunities.
John T. Hailer, President and CEO of Natixis Global Asset Management for the Americas and Asia discusses his firm’s 2015 Investor Survey, and explains how advisors and asset managers can help with education and a return to financial planning basics.
Natixis 2015 Global Retirement Index Report
What might be a surprise for investors as we head into 2016?
Visit the Natixis Channel for latest insights: bit.ly/1MOUsyk
John Hailer, CEO of Natixis Global Asset Management, highlights findings from the 2015 Global Retirement Index.
www.assettv.com 4th Quarter 2015 11
Is your portfolio well diversified? Not if you’ve overlooked this risk. Diversification isn’t just about the selection of
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With $1.63 trillion in assets under management,* BNY Mellon is one of the world’s leading multi-boutique investment managers. We stand ready to share our insights and expertise with you.
Diversification and asset allocation cannot ensure a profit or protect against loss. All investments involve risk, including the risk of loss of principal. * Assets under management are as of 9/30/15. Each boutique is a subsidiary of BNY Mellon. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries. BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon has a majority ownership interest in Alcentra and a minority ownership interest in Siguler Guff. BNY Mellon Cash Investment Strategies is a division of The Dreyfus Corporation. CenterSquare Investment Management was formerly known as Urdang. Insight Investment does not offer services in the U.S. “Newton” refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Capital Management Limited (NCM Ltd) and Newton Capital Management LLC (NCM LLC). NCM LLC personnel are supervised persons of NCM Ltd, and NCM LLC does not provide investment advice, all of which is conducted by NCM Ltd. NCM LLC and NCM Ltd are the only Newton companies to offer services in the U.S. © 2015 MBSC Securities Corporation, Distributor
REVIEW Other Featured Videos What’s Happening in Fixed Income?
Portfolio Manager Lon Erickson discusses the current fixed income environment, recent market volatility, and why
WILL VOLATILITY CONTINUE TO IMPACT THE MARKETS
high-quality debt should remain a key part of every investor’s portfolio allocation.
David LeDuc, Standish Mellon Asset Management What volatility triggers will continue to fan the flames of market volatility? We think there are two potential sources of volatility that can continue to create unease in financial markets. One is continued concerns about the growth prospects for emerging economies, particularly China. Those concerns have affected global commodity markets, and in turn, have created a lot of concerns about the credit quality of other emerging economies. The other source of potential volatility is certainly global changes in monetary policy. The Fed is likely to be the first central bank to start tightening monetary policy and we think that financial markets could experience volatility around the first federal rate hike. What are some of the overlooked international bond market opportunities?
Policy divergence is something that we’ve talked about for a long time, so as the Fed looks to start tightening monetary policy, other economies, particularly the European economy, is likely to continue to have easier monetary policy. So while the economy is starting to grow, inflation is not on the horizon in the economy and as a result, we expect the Central Bank to create easier monetary conditions. That should support riskier assets in Europe, but it should also support bond investments in general.
Seeing Upside in Credit Markets
How can investors de-risk their fixed income exposure? One of the ways we think USbased investors can de-risk their portfolios is by having more exposure to global fixed income portfolios, particularly hedged global bond strategies. That should allow investors to have a more diversified portfolio away from the US market where rising rates could erode returns, and have broader access to opportunities in some of the specialized markets such as the Middle East and other emerging economies in Eastern Europe.
Portfolio manager Curtis Mewbourne talks about how PIMCO is finding opportunities despite credit markets pricing in a sharper path of Fed tightening than previously expected.
What’s the Roadmap for Fixed-Income?
With respect to other economies, we don’t see opportunities in Japan right now, but there are other markets such as Australia where we believe that continued slowing growth will present opportunities for bond investors.
Visit the Best Ideas Channel for latest insights: bit.ly/1Qc616Z
Bill Chepolis, co-head of U.S. fixed-income, discusses the odds of a U.S. rate hike in 2015, its potential impact on the market, and the overall areas of opportunity in fixed-income.
www.assettv.com 4th Quarter 2015 13
Trending on assettv.com Emerging Markets
U.S. Equities
China’s Monetary Easing in Perspective
What Factors Will Drive Equity Markets from Here?
Charlie Wilson - Portfolio Manager and Managing Director at Thornburg Investment Management
Bob Doll - Senior Portfolio Manager and Chief Equity Strategist at Nuveen Asset Management
China’s central bank cut its key interest rate for the sixth time since
The outlook for global economic growth, corporate earnings and
last November. While China’s economic outlook may be cloudy
Fed policy all appear murky. Bob Doll, Nuveen Asset Management
at the moment, we believe Chinese government measures will
Senior Portfolio Manager and Chief Equity Strategist provides
facilitate a transition to a more consumption-based economy.
some clarity about what these issues mean for investors.
The Upside to a Down China
Innovation and Investment in “short-termist” America
Dr. David Kelly, CFA - Managing Director Chief Global Strategist at J.P. Morgan Funds
Robert McConnaughey - Director of Global research at Columbia Threadneedle Investments
China’s economy is clearly slowing down and is a headwind to
The broad narrative around US short-termism is in many ways incorrect, says Columbia Threadneedle Investments’ Robert McConnaughey. The aggregate decision-making around capital allocation appears to support a strong global competitive position.
emerging market growth. Chief Global Strategist Dr. David Kelly discusses the implications for EM and DM economies.
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4th Quarter 2015 www.assettv.com
REVIEW
Market Outlook
Retirement
Negative Yields: What’s the story?
The Pitch: Prudential on Stable Value
Peter Westaway - Chief Economist, Europe at Vanguard Asset Management
James King Jr. - Managing Director, Client Portfolio Manager, Stable Value at Prudential Retirement
Quantitative easing has led to very low yields among international
James King Jr. answers questions about stable value funds in the
bonds. Is there still reason to invest in this sector? In this brief
current environment from three experts - Phil Fiore Jr. of the FDG
video, three Vanguard economists - Global Chief Economist Joe
Group at UBS Financial Services, Scott Matheson of CAPTRUST
Davis, Senior Economist Roger Aliaga-Díaz, and Chief European
Financial Advisors and Jeffrey Stein of Morgan Stanley.
Economist Peter Westaway - explain why international bond yields have gone negative and what investors can do.
Is Europe Poised for Recovery?
Helping Clients Plan for Retirement Living
Chris Warren - European Equity Product Specialist at Deutsche Asset & Wealth Management
Michael Finke - Professor and Director of Retirement Planning at Texas Tech University
Chris Warren reviews key strategy differentiators and how they
Michael Finke discusses a number of new trends in longevity and
have impacted performance and positioning. He also provides
why this is such an important part of retirement planning.
an overview of the team’s views on the European economy, including the potential trajectory for a Eurozone recovery. www.assettv.com 4th Quarter 2015 15
Commodities
Municipal Bonds
Jodie Gunzberg - Global Head of Commodities at S&P Dow Jones Indices
Gregory A. Gizzi, Senior Portfolio Manager at Delaware Investments
“When you have a shortage of a commodity the only thing that can bring the market back into equilibrium is the price. It has to trend
“We have a built in liquidity bucket that I would recommend to all investors so that these bouts of volatility become opportunistic
up by definition. And once it trends up and the producers are doing
in nature and you’re not trying to basically just sell to meet
everything they can to drill, mine and grow as fast as they can, and
redemptions.”
they fill the inventory back up, then the price has to fall.”
Target-Date Funds
Liability Driven Investing
John Cunniff, CFA - Lifecycle Portfolio manager at TIAA-CREF Asset Management
Jordan Ledford, Head of US Solutions at Legal & General Investment Management America
“I think some of the evolution that you’ve seen in improvements in
“Our job is to come in and actually size those risk budgets. And what
Target-Date Funds is that more managers are considering tactical
I mean by that is we’re going to be looking to achieve a certain
asset allocation.”
amount of interest rate hedging versus credit spread hedging.”
VIEWERS BENEFIT FROM THE OPPORTUNITY TO APPLY FOR CE CREDITS RECOGNIZED BY THE CFA INSTITUTE, CFP BOARD AND IMCA. 16
4th Quarter 2015 www.assettv.com
REVIEW
Prudential on Pension Risk Transfer
Defined Contribution
Rohit Mathur, Senior Vice President, Global Product and Market Solutions, Pension Risk Transfer at Prudential
Ralph Haberli, Head of Distribution and Business Development for U.S. and Canada Defined Contribution at BlackRock
“It’s a question of what the right timing for many might be; what segment of the population could you target now versus later?”
“We all need to be preparing and saving for our retirement. But at a national level there’s a significant gap. Estimates are that north of four trillion dollars is the gap between what people have and what they’re saving and what they’ll need.”
Closed-End Funds
Fixed Income
Robert Bush, SVP, Director of Closed-End Fund Products at Calamos Investments
Tony Rodriguez, Co-Head of Fixed Income at Nuveen Asset Management
“As long as you’ve got that positive yield curve, these funds are
“When you’re thinking of the risk you’re taking, the duration
going to continue to return in excess to make leverage a profitable
element of it, there are better markets than in the US to be taking
proposition.”
duration risk, so that’s a great opportunity.”
www.assettv.com 4th Quarter 2015 17
Hit the trail with MainStay’s multi-boutique, multi-solutions model MainStay Investments: access to institutional expertise and high conviction boutiques MainStay Investments is committed to meeting the unique needs of our institutional clients. We believe our multi-boutique structure and dedicated team of service specialists provide a solid foundation to develop and nurture long-lasting relationships. Multi-boutique structure—access 12 unique, autonomous institutional asset managers. Each is a deep specialist in a particular area and completely independent, including decades of experience, strict adherence to their investment philosophy, long-term track records and a history of delivering high conviction active world class solutions. Risk management—our boutiques are well versed in meeting the investment mandates of large institutions. Each is dedicated to delivering style consistency, downside risk protection, and following a consistent, time-tested process regardless of the market cycle. A solid backing—as part of New York Life, MainStay Investments has the backing of a long-term AAA-rated mutual insurance company. For nearly 170 years, New York Life has been a conservative, high conviction, long-term investor itself. Intuitional investors can be comforted in the fact that New York Life has provided its seal of approval for our various boutiques.
To learn more, visit mainstayinvestments.com. All investments involve risks, including the loss of principal. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. New York Life Investments engages the services of federally registered advisors to subadvise the Funds. Epoch Investment Partners, Inc. is unaffiliated. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the mutual fund. NYLIFE Distributors LLC is a Member FINRA/SIPC.
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REVIEW More ‘In The Hot Seat’ Videos MetLife - Institutional Income Annuities
Roberta Rafaloff, Vice President, Institutional Income Annuities, MetLife.
MAINSTAY INVESTMENTS MUNICIPAL BONDS
While there have been some
Bob DiMella, MacKay Municipal Managers What is your take on the municipal bond ETF market and how does that compare to individual municipal bonds? We believe municipal ETFs do have a place in a well diversified portfolio, and they are very good substitutes for individual municipal bonds. However, they do have some disadvantages. One is that there is a significant mismatch with the municipal ETF. That is, you have a very, very liquid product like an ETF that invests in the less liquid asset class. And this mismatch can be very dangerous for clients. So they do have to be aware of that. In addition to that, generally speaking, municipal ETFs don’t have a very competitive yield, especially when you compare it to a similar type mutual fund. And when the primary goal for
municipal investors is income, this tends to be a big disadvantage that the municipal ETFs have. So yes, a reasonable substitute for individual portfolios and individual municipal bonds, but I think there are some better alternatives out there for clients if they really look into it. What keeps you up at night? Liquidity is without a question the biggest risk that keeps us up at night. This is a phenomenon not only in the municipal marketplace, but in all capital markets. Since the financial crisis you have had a significant reduction in committed capital from the banks and the capital markets groups. What we tell clients specifically every single day is: Do not come in and be a fore-seller in the
Visit the In The Hot Seat Channel for latest insights: bit.ly/1Rneghv
municipal marketplace. Due to the lack of liquidity and the increase in volatility, transaction costs are a lot higher. You can be active managers, which we firmly believe, to take advantage of this and to turn this risk into an opportunity. It’s one aspect we are active managers on, while most of the municipal marketplace is not. I think that is one of the risks they have when they are fully invested and all of a sudden these dislocations and this volatility hits the space, and it becomes very problematic.
regulatory issues in offering retirement income solutions inside defined contribution plans, recently the Department of Labor started developing regulations for plan sponsors and we are starting to see significant interest in offering institutional income annuities to their participants.
Prudential - Pension Risk Transfer
Scott Kaplan, Senior Vice President, Head of Pension Risk Transfer, Prudential Prudential identified the opportunity in pension risk transfer quite early, and so we began building out and investing in a pension risk transfer capability in 2006/2007. The new wave of pension risk transfer activity didn’t really get the limelight until 2012 when both GM and Verizon did their landmark transactions. Since Prudential was investing in this capability many years before that, Prudential has been able to win most of the larger case transactions.
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REVIEW Other Featured Videos Chuck Royce on the Current State of the Small-Cap Market
FINDING OPPORTUNITIES IN SMALL CAPS Craig Hodges, Hodges Capital What area of the market do you like? At Hodges Capital, we tend to just focus on US equities, and really try to be experts, if you will, at companies. We spend all of our time researching companies and we don’t really try to pay attention to a lot of the outside forces. We just want to know what is going on with companies. We spend our time with our seven analysts, making about 3,000 company touches a year. We feel like the small- and mid-cap areas of the market are the most inefficient parts. Why have you chosen to focus on the small cap space? The reason we have chosen to invest in the small cap space is because we feel like that’s where we’re going to be able to get the best performance doing the research that we do. We noticed in the early 2000s and the 2002/2003 time period, research departments at the big wire houses cut back on their small cap research, as it
wasn’t profitable for them. So they more or less abandoned that part of the market. There weren’t deep markets and there wasn’t much analyst coverage, so you could find small-cap stocks that could trade wildly and go down. So we figured out that was the most inefficient part of the stock market. So our job in following these companies is to find the ones that are mispriced or to find the ones that are undiscovered. When you find a good company that’s growing and has very little analyst coverage, we know that it’s probably a situation that we need to investigate further. Why do you think being an active manager can create better returns in this environment? There’s been a tremendous growth in passive management, and that’s where a lot of the new money comes into the market, going into ETFs and the like.
Visit the Best Ideas Channel for latest insights: bit.ly/1Qc616Z
Of course, computers are now a big component of every trade that’s done. Very little of the investing out there is done on a fundamental basis, where stocks trade based on how the companies are actually doing. We feel like being an active manager and actually trading by looking at companies based on their intrinsic value is the way to go. Computers and ETFs have been trading at a 90% correlation for the last five/six years. Both good and bad companies should not trade at a 90% correlation. There are a lot of mispriced stocks in the market, and at Hodges Capital, we feel that by doing fundamental research we can identify the areas that we can take advantage of.
The small-cap market finished 3Q15 with a double-digit decline, similar to the correction investors saw around this same time last year. CEO Chuck Royce sits down with Co-CIO Francis Gannon to discuss why he believes corrections are a sign of healthy market behavior.
Screening Small Caps for Dividend Growth
ProShares’ senior investment strategist Kieran Kirwan discusses the benefits of applying a dividend growth strategy to small-cap stocks, and how the ProShares Russell 2000 Dividend Growers ETF helps investors do that.
Explaining Factors and the Small Cap Investing
John Montgomery, Founder and CIO of Bridgeway Capital Management, discusses the firm’s investment approach and the importance of research when it comes to small cap investing. www.assettv.com 4th Quarter 2015 21
Experience the
Power Piper of the
855.783.9227 • stewartcap.com Stewart Capital Advisors, LLC is an SEC registered investment advisory firm dedicated to providing quality investment management and subadvisory services to institutions and individuals through separate accounts and mutual funds.
We focus on research and valuation using a fundamental bottom-up approach with a focus on the long term. Contact us to learn more.
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REVIEW Other Featured Videos Using Small-Cap and Small-/ Mid-Cap Stocks in a Portfolio
Phyllis Thomas, Portfolio Manager of the Small Cap and Small/ Mid Cap Value Strategies for NWQ Investment Management, provides her thoughts on the outlook for small-cap securities.
BUILDING AN INVESTMENT PHILOSOPHY AROUND MID CAPS Malcolm Polley, Stewart Capital What’s your investment philosophy? We call ourselves business perspective investors because we really think of ourselves as business owners since, when you buy a share of stock, you’re buying a fraction of ownership interest in a business. It makes a lot of sense to us, that if you are buying a share in a business, you need to understand how that business operates, what drives that business forward, what are its capital returns, and what is the ultimate value of the business. Where the value investing component comes in for us is we want a discount from the present value future cash flows, over and above where that discounted value was, in order to become interested in the company. Given the level of volatility we’ve seen this year, is it easier or more difficult to find investible ideas today? It’s a little bit of both. When the market has been irrationally up, it was increasingly more difficult
to find names. So what we’ve done is use the time to really build a list of companies that we really like, but are not at a price point that we find attractive. We have been finding a lot of activity and a lot of opportunity because we think we understand the companies a lot better than the average person, or quite frankly, Wall Street for that matter, and we are not afraid to buy companies that are somewhat controversial. We’re willing to build a knowledge base and own a very attractive business at a very attractive price. Explain your focus on your investments. It’s interesting, a lot of portfolio managers hold 100 or 150 names in their portfolio, and when you get closer to 100 names in your stock portfolio, your portfolio begins to look and act a lot like an index fund.
Weathering the Storm With Small and Mid Caps If you want active management, then we believe you need to be focused in your areas of highest conviction. In our mind, if it’s a bad business or a business that’s not attractively priced, you simply don’t own it. We also like to focus our ideas into 30 or 50 names because we can build conviction, and we can build very high degrees of knowledge about the businesses that we own. We’re partners, we intend to own businesses for a long time, and we think that investors should really get the power of our conviction by focusing what we do in the highest conviction names in the portfolio.
Rich Glass, portfolio manager for Deutsche Small Cap Value and Mid Cap Value Funds, discusses the U.S. market’s recent rocky waters and its impact in the small- and mid-cap markets.
MASTERCLASS: Mid Caps
Mid-cap stocks provide a balance between security of large-cap companies and nimbleness of smallcap equities. Four experts discuss why mid-cap equities should not be overlooked as a strong asset class.
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Tony Fischer, President of UMB Fund Services, sits down with Asset TV’s Courtney Woodworth to talk about UMB’s value
WHAT’S IN THE CARDS FOR MUTUAL FUNDS?
proposition and why their clients look to them for leadingedge industry services.
Andrew Rogers, The Gemini Companies How do you see mutual funds evolving over the next decade? When I talk to people, there’s still a lot of fear. You see the politics and you see investments...I was just at the Schwab conference, and they noted that the amount of money in domestic equity funds has been lacking the last five, six, seven years during a raging bull market, and I think that’s attributed to fear. If you go back in time to 2000, with the internet bubble, and then 2008, with the financial crisis, and you talk to people, they’re scared to invest. That risk mitigation is really the place where mutual funds are going. I can’t tell you which particular funds are the best because I’m not an investment advisor. I think we’re very early into this, and I think back to 2009, 2010, when many of these liquid alternative funds launched, it was kind of trial and error. Some were successful, some were not, and early on those
funds raised a lot of money. Now we have a longer track record, we see more funds, and there are many different strategies to do this where some are very successful. When I look at the Morningstar box, I really think in the future, when people look at allocations, it’s going to be based upon strategy, whether it be managed futures, or some kind of risk mitigation strategy, as well as using directionally long funds. Do you anticipate hedge fund managers entering the mutual fund space more frequently? I do, and actually I saw a study recently where they said that was not happening. I would say it is happening but it’s happening differently than people believe.
Visit the Best Ideas Channel for latest insights: bit.ly/1Qc616Z
So, hedge fund managers are entering the mutual fund space. The only thing is, running a mutual fund requires a large infrastructure, from a compliance, portfolio management and distribution perspective. What I see hedge fund managers doing is partnering with existing mutual fund companies, using their infrastructure, using their distribution elements, so they can really focus on what they do best, which is managing money.
MASTERCLASS: Mutual Fund Administration
The landscape for funds is dynamically changing both due to regulation and the evolution of products. Three experts talk about how fund administrators are helping guide clients through the evolution of the space.
MASTERCLASS: Hedge Fund
The landscape for start-up hedge fund managers is changing. Three experts discuss what start up managers need to run a successful hedge fund.
www.assettv.com 4th Quarter 2015 25
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