Issuu

ISSUE NO.24

NOVEMBER 2019

CITYWIREUSA.COM/RIA

REGISTERED INVESTMENT ADVISOR

HOMRICH BERGâ€™S STEPHANIE LANG HAD HER FIRST LESSON IN INVESTING ON A SCHOOL VACATION. SHE HAS NOT LOOKED BACK SINCE WRITE STUFF CREATING CLIENT NEWSLETTERS 101 MACHINE LEARNING HOW RIAs CAN MAKE ROBOS WORK FOR THEM INSIDE IMPACT NEWS AND VIEWS FROM THE SCHWAB CONFERENCE

FOCUSED ON INVESTOR OUTCOMES

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L EADER

TIME FOR REFLECTION This is our last magazine of the year, and where better to bring things to a close than at Schwab IMPACT in San Diego. It was a great chance to reflect on the year the RIA industry just had, which saw some major milestones. It will be a record 12 months for mergers and acquisitions, fuelled by an influx of private equity cash. This year was also significant for brokerage platforms cutting their charges for trading stocks, ETFs and options. On the regulatory front, it was perhaps a less eventful year than those that preceded it. Regulation Best Interest, the Securities and Exchange Commission’s watereddown version of a proper fiduciary rule, is on its way and, while far from perfect, is probably better than nothing. We round up all the best news and views from Schwab on page eight. Elsewhere in this issue, we look at RIAs’ relationship with robo-advisors (tepid at best), how much money clients will actually need in retirement (more than they think!) and whether ESG ETFs are all they say they are (probably not). You can read these articles on pages 12, 24 and 46, respectively. We are taking a break in December but will return in the new year. In the intervening time, we will still be publishing our daily online newsletter every day. If you don’t yet receive it, you can sign up at citywireusa.com/RIA. I hope you all enjoy the various upcoming holidays. See you in 2020!

ALEX STEG ER ASTEGE R@CITYWIRE US A. CO M

CON TEN TS

NEWS & VIEWS 5 NEWS ROUNDUP

EVENT NEWS

Get up-to-date on all the latest news affecting RIAs

All the highlights from the Schwab IMPACT conference in San Diego

ON THE ROAD

Isaiah is back in the ‘burbs, meeting three NYC RIAs

NEWS ANALYSIS Most RIAs are still reluctant to take on robo-advisors

BETTER BUSINESS 14

TECH TIPS

How to find the right email marketing platform for your RIA

WOMEN IN WEALTH

Fairlight Advisors’ co-founders explain their holistic service

STUDY GROUP

Three RIA leaders on navigating the rough terrain of M&A

ADVISOR VIEW

Advising retirees requires an entirely new skillset

COVER STAR

Homrich Berg’s CIO on training young and staying curious

INVESTMENTS 38

MY MODEL PORTFOLIO

Lenox Wealth isn’t afraid of active or factor-based strategies

EQUITIES

Value stocks are providing opportunities in the tech sector

BONDS

Income managers are diving into emerging markets with gusto

ALTERNATIVES

Overnight repo financing could be under threat

INDEX INVESTING

Is it time for reluctant advisors to embrace ESG ETFs?

FOCUS ON FACTORS The first in our four-part explainer series explores Value premiums

IN NUMBERS

Quick-fire market facts and stats

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STEWARD PARTNERS HIRES MERRILL LYNCH ADVISOR Steward Partners has added a $160 million advisor from Merrill Lynch. The $13 billion hybrid RIA has hired Kevin Taube from the wirehouse to work in its Manchester, New Hampshire, office. Taube had worked for Merrill Lynch since 2006, running a practice that he estimated to be 99% fee-based. He specializes in advising business professionals, with a tilt towards employees in the money management industry. ‘We had reached a different stage where we’re really geared towards doing wealth management first,’ said Taube, who joins with one support staffer. ‘We wanted to really make sure we could protect the interests of our current clients to control how we grow.’

SEC MULLS OVERHAUL OF RIA TESTIMONIAL RULE The Securities and Exchange Commission (SEC) is considering a rule proposal that would allow RIAs to use endorsements and testimonials in advertisements. The proposed changes to the Investment Advisers Act governing RIAs would enable advisors to use the previously banned tactics in advertisements, as long as the endorsers followed specific disclosure requirements. Though the SEC has not yet unveiled the specifics of the rule proposal, the commission said that endorsers would be required to say whether they had been paid by the advisor and if they are a client of the RIA they tout.

$10.5BN BEACON POINTE PREPS INTERNAL MERGER Beacon Pointe is merging its two operating RIAs into a single entity. Boutique advisory firm Ardea Partners is assisting the $10.5 billion Newport Beach, California-based shop with the process. Founded in 2002, Beacon Pointe maintains two distinct businesses. Its inhouse RIA, Beacon Pointe Advisors, manages money for private clients and institutions. The other business is Beacon Pointe Wealth Advisors, through which Beacon Pointe takes stakes in other RIAs, creating a network of firms. This is a separate RIA from the private client business and files its own form ADV with the Securities and Exchange Commission. ‘We will all be in one RIA and more perfectly aligned. This means each shareholder’s efforts benefit the others. We will all be working to build the best overall company

and brand,’ Beacon Pointe Wealth Advisors president Matt Cooper (pictured) said. ‘It’s also likely the combination is economically accretive, perhaps immediately, but certainly in the long run.’ Advisors who join the Beacon Pointe Wealth Advisors network swap equity in their own firms in exchange for equity in the wider business. They use a centralized back-office suite and manage their own offices and expenses. Beacon Pointe Wealth Advisors has purchased 12 RIAs in an eight-year span. The firm most recently acquired $387 million Heller Wealth Advisors in early April. Beacon Pointe Wealth Advisors will merge into Beacon Pointe Advisors, Cooper said. The combined firm will operate under the single brand name of ‘Beacon Pointe.’ Beacon Pointe Advisors is controlled by its own employees. The firm is helmed by chief executive Shannon Eusey.

FOCUS FINANCIAL PLANS TO REDUCE DEBT Focus Financial Partners is planning to clean up its balance sheet. The RIA aggregator’s executives told analysts on the company’s earnings call for the third-quarter of 2019 that it will start to reduce its debt load in 2020. KKR and Stone Point-backed Focus Financial Partners’ net leverage ratio – which measures the ratio of its outstanding indebtedness to its earnings before interest, taxes, depreciation and amortization (Ebitda) – sat at 4.27x at the end of the third-quarter of 2019. Focus Financial Partners chief executive Rudy Adolf told analysts that the company’s target net leverage ratio will be a range between 3.5x and 4.5x.

‘We’re confident in these measures,’ added Jim Shanahan, Focus Financial Partners’ chief financial officer. Focus Financial Partners’ debt load drew investor scrutiny over the summer, when the firm added $350 million in debt to its balance sheet, upsizing its first-lien term loan to around $1.153 billion in order to pay down borrowings on the revolving credit facility it uses to finance RIA acquisitions. The company said that at the end of the third-quarter of 2019, it owed around $1.14 billion on the term loan and $140 million on the revolver. Shares of Focus Financial Partners were trending upwards on the Nasdaq earlier this month, up 43 cents at $26.58, a 1.64% gain.

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NEWS & VIE W S

ON THE ROAD

BACK IN THE NEIGHBORHOOD I’ve returned to New York City, where three RIAs share their end-of-year plans, from diversifying their portfolios to ramping up ESG efforts

After three weeks of back-to-back flights to Austin, Montevideo and Los Angeles for our Citywire retreats, I temporarily retired my luggage and loaded up my transit pass for some local meetings in the suburbs of New York City. My first meeting brought me to Ramsey, New Jersey, to catch up with Mark Andraos, associate portfolio manager at Regency Wealth Management. After he spent nearly a year in investment research at Fountainhead Advisors, I was keen to hear about his transition to this new role and firm. Regency was formed in 2010 by partners Andrew Aran, Timothy Parker and Mark Reitsma. The firm has since grown to seven team members overseeing $320 million in client assets. With offices across New Jersey and New York, the firm works with high-networth individuals and families, as well as mass affluent clients. Regency takes an open-architecture approach to investment selection, with an approved list of 22 to 30 managers across the active and passive spectrum. This list is comprised of 12 to 18 equity managers and 11 fixed income managers. The firm offers a suite of customizable models that have a blend of these equity and fixed income strategies. Regency also offers clients access to its in-house US Large Cap strategy, a concentrated portfolio of around 25 stocks. The team also sources alternative investment opportunities for qualified clients. ‘Though we’re pleased with performance in fixed income this year, it’s been a challenge trying to position for the next 12 to 18 months given the Fed’s rhetoric as well as trying to make sense of the implications of negative yields overseas,’ Andraos said.

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NEW YO RK

as well as other geopolitical factors,’ he said. ‘As a result, we intend on keeping our portfolios broadly diversified and closely monitoring risk and performance to make changes on an as-needed basis.’

Regency Wealth Management’s Mark Andraos, left, and I

With 2020 fast approaching, he said he believes there’s a low probability of recession next year. ‘But I do envision increased volatility as a result of ongoing trade tensions, a potential slowdown in non-US developed and emerging markets,

For my next meeting, I hopped onto the MetroNorth from New York’s Grand Central terminal to the White Plains office of $225 million RIA Madison Planning Group. Passing through the autumnal Hudson Valley, I took in the breath-taking views from my train seat as I prepared to chat with chief investment officer Andrew Federico. Madison Planning Group was founded in 1997 by Gary Schwartz, who previously ran financial literacy seminars for people working in the New

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ON THE ROA D

Madison Planning Group’s Andrew Federico, left, and I

York State Courts system. As a result, a good portion of the firm’s clients are current or former government workers, along with a handful of high-net-worth individuals and families. Catering to former government workers, the firm offers pension and 457 plan guidance as part of its planning and investment management services. Federico and team run a range of portfolios that can be adjusted per a client’s goals and risk tolerances. Smaller accounts can expect a model built with lowcost, passively managed vehicles, while larger accounts include a blend of ETFs, mutual funds, SMAs and alternatives. When it comes to determining what model best suits their client’s goals, Federico said the firm does things a little differently. ‘Our industry tends to focus on age being the main factor when it comes to risk tolerance (i.e. millennials should be growth risk-focused and boomers less risky because of retirement). However, that isn’t always the case when you factor in the goals of the individual and the portfolio,’ he said. ‘If a millennial wants to purchase a house in five years or if a boomer wants to leave a gift for their grandchild, the scripts are flipped. We ask those questions up front and let our clients know what the purpose of their portfolio is for and it helps a lot in the long run.’ Federico said the firm takes a different view on alternatives as well. ‘We see them less as a way to generate excess alpha and more of a way to achieve additional diversification for certain clients using a non-correlated asset class. We likely wouldn’t allocate more than 5% of a

given portfolio to alts.’ ‘My best advice to any investor is to know what you own and why you own it. What goals do you have? What is this money for? If you can answer these questions, your portfolio should reflect these goals and desires,’ Federico said. At the moment, the firm believes that the US and non-US developed equity markets are incredibly overpriced, Federico said. ‘We think there are fairly priced opportunities in the international space within frontier and emerging markets. With that in mind, we may slightly increase our exposure in these areas, but we anticipate keeping our current allocations steady and staying well diversified to maximize riskadjusted performance and keep costs low.’ Next, I meandered through Morris County’s rolling hills to the office of Montgomery Wealth Management, where I met founder and chief executive William Shinners. After managing Morgan Stanley’s western complex in Harding, New Jersey, for over a decade, Shinners left to start his own firm in late October, bringing on Sheila Flynn, Michael Vaccaro and Lisa Kain. ‘I opened Montgomery Wealth Management because I believe that it’s time to do things differently,’ he said. ‘Both clients and advisors deserve better.’ The firm serves high-income, C-suite executives. Having launched just last month, Shinners said he sees the firm growing to over $5 billion in assets in the next five years. The team is aiming to accomplish

this by working with OCIO WealthShield for its investment due diligence, selection and portfolio construction – in addition to a new series of model portfolios that use ESG filters. ‘Working with WealthShield has given us the bandwidth to focus on bringing on advisors and growing our business, with the assurance that the investments selected on behalf of our clients are best suited to helping them achieve their financial goals without taking on unnecessary risk,’ Shinners said. Shinners is a firm believer in equities. ‘I believe that owning equities is the main way to create long-term wealth,’ he said. ‘The markets have gone through a depression, numerous recessions, bubbles and many other financial hiccups. It always comes out the other end stronger than ever. Buying equities that match your risk tolerance will pay off in the long run.’ ◊

ISAIAH GREEN R E L AT I O NS HI P MA NAG E R • C I T Y W I R E My name is Isaiah Green and I am a relationship manager at Citywire. My aim is simple: to get to know investment decision-makers at RIAs across the US and to engage with anyone who decides strategies and oversees allocations at these shops. I am constantly on the road. If you would like me to pay you a visit, please don’t hesitate to get in touch at igreen@citywireusa.com or give me a call at 212 301 4915.

Posing with Montgomery’s William Shinners

Don’t forget to tweet @Gone_with_Green if you would like me to visit your city.

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NEWS ANALYSIS

GOING ALL IN We break down some of the highlights and key takeaways from the Schwab IMPACT conference in San Diego earlier this month

‘BEING AN RIA AIN’T SPECIAL. YOU NEED NICHES’ RIAs may do well to take a hint from evolutionary biology. In a talk at the conference, Michael Kitces (pictured right) explained how advisors with specialized niches are built to survive for the long haul. ‘That certainly works. It’s an option. If you’re not already there, particularly once you get to a certain size of a billion-plus dollars [in assets], half a dozen advisors or more, it’s just a really big ship to turn,’ said Kitces, who serves as the director of wealth management at Pinnacle Advisory Group and is the co-founder of the XY Planning Network, an affinity network of advisors who work with Generation X and Generation Y clients. Kitces cited RAA, a $2.8 billion RIA with

offices in Seattle, Dallas and Kennesaw, Georgia, as a successful example of a firm that found a defined niche specialization. RAA – which was recently acquired by $7.5 billion Allworth Financial – focuses exclusively on advising airline pilots. ‘They even actually have sub-niches on their website depending on whether you’re an American Airlines pilot, a United Airlines pilot or a Delta Air Lines pilot, because they all have different legacy pension plans,’ Kitces said. ‘Even Allworth… they built the bulk of their business specializing in utility employees.

SCHWAB EXPERT TO RIAs: DON’T HOLD YOUR BREATH FOR REGULATORY CHANGE With election year politics already in full swing, a Washington DCbased policy expert for Charles Schwab is cautioning advisors not to hold out hope for quick resolutions on issues like Regulation Best Interest or reinstating deductibles for advisor fees. Mike Townsend, vice president of legislative and regulatory affairs for Schwab, lowered expectations during a policy-focused session at the conference. ‘We live in an environment where so much happens every day - it’s just bonkers in Washington,’ he said. Against that backdrop, Townsend said RIAs should not expect to see much progress in the near future on legislative matters of importance to advisors and their clients. On deductibility of advisory fees for investment advice, Townsend said: ‘Don’t hold your breath for this to be reinstated.’

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When all the utility companies were merging in the 1990s, they became one of the leaders in their area in knowing how to help people negotiate all of the buyout packages that were happening when all the utility company mergers were happening.’ Kitces’s vision of the RIA community echoed the words of Dynasty Financial Partners’ chief executive Shirl Penney: an RIA can’t simply market itself as a fiduciary and expect to win clients based on that fact alone, Kitces said. ‘Being an RIA fiduciary providing wealth management ain’t special anymore,’ said Kitces, who noted just how much more competition his RIA, Pinnacle Advisory Group, now has for clients.

He explained that tax legislation in general isn’t moving any time soon and that deductibility for wealthy investors is not the most compelling story in the current environment. ‘We have talked about it in Washington with folks, but I don’t see that happening any time soon,’ he said. Moving over to the regulatory side, Townsend said the elephant in the room remains how Regulation Best Interest will ultimately play out. The new Securities and Exchange Commission rule requires brokers to mitigate or eliminate conflicts of interest but does not define them as fiduciaries, who are required to put their clients’ best financial interest first when making investment recommendations. ‘There’s a long list of questions about how all of this is going to work,' Townsend said, adding that the industry is seeking guidance and clarity on various provisions and standards throughout the hundreds of pages of regulation. Townsend said the agency doesn’t have a specific time obligation to provide those points of clarity. Legal challenges to the rule itself pose further roadblocks for any progress to be made on guidance and clarity coming out, he added.

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EQUITY MATTERS: MINDY DIAMOND EXPLAINS HOW RIAs CAN WOO FROM THE WIRES Want to attract top talent to your RIA? Be prepared to open your wallet. Top advisor recruiter Mindy Diamond explained to a ballroom full of advisors that RIAs need to craft competitive compensation packages for advisors, even if they don’t have the amount of firepower the largest brokerage firms possess. ‘We know you can’t, shouldn’t and wouldn’t compete with the likes of Merrill Lynch or Rockefeller – which is new to the scene now – that are paying giant transition packages to incentivize advisor movement,’ said Diamond, the president and chief executive of her eponymous recruiting and consulting firm, Diamond Consultants. ‘That’s not who you’re competing against, nor do you want to. But still, you need to understand how advisors work.’ Advisors need a clear plan for advisor growth, Diamond explained. That can come in the form of having a clear marketing strategy or access to a steady stream of prospective clients through a custodian’s referral program, such as Charles Schwab’s Schwab Advisor Network or TD Ameritrade’s AdvisorDirect.

‘A clear plan for advisor growth is critical. So for anyone that is able to offer any sort of a referral mechanism – like if you happen to be lucky enough to participate in Schwab’s referral program – that’s an awesome selling point and differentiator,’ Diamond said. Large RIA networks have been searching in recent years for new tactics and techniques to entice the kinds of wirehouse advisors that Diamond assists. RIA middle and back office support provider Dynasty Financial Partners, for example, introduced a forgivable note program over the summer, which the firm claims gives breakaway advisors access to 100% of their trailing 12-month revenue as they leave their brokerage firm and establish their own independent RIAs. RIAs as a whole have a unique lever they can pull, Diamond explained. ‘You need a currency Merrill Lynch doesn’t have, which is a path to partnership of equity,’ she said. ‘Equity matters.’

YOU NEED A CURRENCY MERRILL LYNCH DOESN’T HAVE, WHICH IS A PATH TO PARTNERSHIP OF EQUITY. EQUITY MATTERS MINDY DIAMOND DIAMOND CONSULTANTS

AFTER NIXING COMMISSIONS, SCHWAB EXECS HINT AT WHAT’S NEXT Coming off its decision to roll out zero commissions on trading, Charles Schwab is now looking to expand lending services for advisors and use fractional investing to reel in younger investors. Walt Bettinger, chief executive and president of Schwab, claimed the move to zero commissions in October was the ‘culmination’ of at least 20 years of planning and preparation. Later on in the keynote, Charles Schwab, founder and chairman of his namesake firm, expressed a particular disdain for commissions. ‘I hated commissions,’ Schwab said. ‘I hated them then, I hate them today, and we took them away.’ Schwab clients are now able to buy and sell stocks, ETFs and options listed in the US or Canada commission-free, as long as the

trades are done online or via its mobile app. The firm's $4.95 commission for such trades was effectively eliminated. Other firms, such as Fidelity, TD Ameritrade and E*TRADE, quickly followed suit. With the commission question settled, Bettinger said Schwab is now looking to more aggressively build out lending services for advisors. ‘We've had some evolving thinking on this over the last few years,’ he said. ‘We likely have not been as aggressive in the past as we feel now.’

Bettinger said there is some work underway already with a team of bankers around the country. The goal, he said, is to help RIAs ‘compete effectively’ with anyone else who bundles together banking and lending along with the life planning and wealth management services that advisors provide. Elsewhere on the horizon, Schwab said he is particularly focused on getting younger people engaged in the stock market and investing earlier on in their financial lives. He said it’s particularly important to do decimalization so that younger investors can own ‘real’ stocks — even if it’s just fractions of shares in companies such as Google, Amazon and Netflix — rather than just ETFs, indices and mutual funds.

I HATED COMMISSIONS. I HATED THEM THEN, I HATE THEM TODAY, AND WE TOOK THEM AWAY CHARLES SCHWAB, CHARLES SCHWAB

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SCHWAB IMPACT IN PICS

Walt Bettinger, Charles Schwab’s chief executive

Liz Ann Sonders, Schwab’s chief investment strategist

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Left to right: Bernie Clark, head of Schwab Advisor Services, speaks with Charles Schwab, Schwab chairman

im.bnymellon.com

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NEWS ANALYSIS

A RELUCTANT REVOLUTION RIAs have been slow to adopt robo-advisors despite the potential benefits to their businesses JAKE MARTIN While digital advice has made gains in recent years with investors, particularly smaller and younger investors, industry experts say adoption of the technology by advisors remains nascent. Actual use cases for robo-advisors at RIAs are still largely experimental – or very niche. When robo-advisors, a shorthand for websites that allow prospective investors to take risk questionnaires and select model portfolios, first began appearing on the scene, much of the narrative around them was about how they would replace human advisors. This sentiment has since shifted. The consensus now is that robo-advisors should be seen as a complement to RIAs, a service they harness in order to service clients with fewer investable assets than they might otherwise have worked with. However, while some firms have embraced this way of working, the vast majority have not. Just 12% of RIAs offer a digital advice platform and only 36% are in the process of selecting one, according to a recent Aite Group survey

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of about 100 independent firms. Nearly half (48%) of respondents said they are not interested in using a robo-advisor. This could be because firms have fully realized what the benefits might be. Advisory firms should view robo-advisors as less of a profitability tool and more of a client acquisition tool, according to Ken Schapiro, president and chief executive of analytics firm Backend Benchmarking. He said robo-advisors have had a larger impact on onboarding than the actual management of money. ‘That can already be done with a lot of other types of trade order management software that’s been in the marketplace since the late 1990s,’ he explained. ‘The most innovative thing robos have done is to take a direct-to-consumer approach where, in 10 minutes, a client can answer a bunch of questions and get a managed account.’ Schapiro, who is also the founder and president of Condor Capital Management, a Martinsville, New Jersey-based RIA managing about $1 billion in assets, said despite this view, his firm had opted not to offer a robo-advisor and instead chose to

handle clients with fewer assets in person. ‘Clients with millions of dollars will tend to require more hand-holding and customization than robos offer,’ he said. ‘We always took those hundred-thousand-dollar clients who would grow anyway. I don’t want potential clients to go somewhere else and depend on them coming back to me. I have junior people who work on those situations as those accounts are more automated and cookie-cutter.’ Schapiro said that if you’re really going to implement a robo-advisor, it has to be a core part of your offering. ‘It’s hard to do as a one-off, bolt-on situation in these more complex organizations,’ he said. GROUNDS FOR OPTIMISM While many advisors said they don’t expect the situation to change much in the immediate future, 31% of advisors in the Aite survey are currently researching providers or plan to do so within the next year. This suggests there is some optimism that better capabilities delivered with a human touch will steer more low-asset-value clients to RIAs with robo offerings. In January, Huber Financial Advisors rolled out Beacon, a robo-advisor built on the Betterment for Advisors platform. The $1.6 billion Chicago-area RIA sees encouraging traction and interest among Beacon’s early users, said Maureen Wright, a wealth advisor who oversees the offering. The firm is ‘definitely still in the beta phase’ with Beacon, she said, adding that

THE COMPANIES CREATING THESE ROBOS HAVEN’T BEEN MANAGING ASSETS FOR CLIENTS FOR DECADES, LIKE ADVISORS HAVE WINNIE SUN, SUN GROUP WEALTH PARTNERS

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the business is averaging at least one introductory or discovery meeting with a prospect each week as a result of the offering. She declined to say how many clients are currently on Beacon, though the firm disclosed toward the end of February that 20 clients were onboarded. ‘We’re now able to sit with our clients, whom we ask for referrals, and give them the confidence that we can work with anyone,’ Wright said. ‘It can be intimidating for clients to make a referral to friends and family, because

in the past, we’ve had a harder minimum.’ Wright said the typical Beacon client is in their 40s or 50s and in the wealth accumulation phase, which surprised the firm. ‘We thought we would be targeting those looking to get into investing for the first time,’ she said. ‘Often, those coming to us had tried their hand at investing and realized they could do better partnering with a trusted advisor to look at all sides of their financial picture.’ The platform’s only advisor for now, Wright said clients still want a human point of contact for digital advice products. ‘A lot of finding success in growing wealth is about having an accountability partner,’ she said. ‘We don’t foresee that changing nor would we want that to change. I think it would lessen what we’ve built.’ Winnie Sun, managing director and founding partner of Sun Group Wealth Partners, said her $200 million Irvine, California-based firm is still in its experimentation stage with its robo offering, Saving Pie. As an LPL Financial-affiliated hybrid firm, Sun Group uses LPL’s Guided Wealth Portfolios platform to power the service. ‘We like the way the investments are managed, but we’re looking for something a little more customizable in terms of the

design and ease of use,’ she said. Sun said the firm’s robo-advisor is popular with younger, tech-savvy clients who want a plan they can implement quickly. The next generation of investors wants education and communication tools – such as live chat – built into the platform, she said. ‘It’s not even just competing against other robos but competing against your own advisor experience,’ Sun said, adding that Saving Pie includes access by appointment to a human advisor, for now.

Sun said another challenge is that building robo-advisors in-house is outside the realm of possibility for most RIAs, and that technology companies won’t typically work with advisory firms until they’re willing to commit $50 million in assets or more to an offering. ‘The companies creating these robos haven’t been managing assets for clients for decades, like advisors have,’ Sun said. ‘Once we can get a company to engage us and build around our suggestions, there can be a move to a more robust robo – a true competitor.’ ◊

12%

ARE ALREADY LIVE WITH A DIGITAL ADVICE PLATFORM

HAVE SELECTED A SOLUTION TO IMPLEMENT

CHOSE ‘OTHER’ OR ARE UNDECIDED

48%

ARE NOT INTERESTED IN LEVERAGING A DIGITAL ADVISOR PLATFORM

ARE IN DISCUSSIONS WITH PROVIDERS

18%

PLAN TO START RESEARCHING PROVIDERS WITHIN THE NEXT YEAR

13%

ARE CURRENTLY RESEARCHING PROVIDERS SOURCE: AITE GROUP SURVEY OF 98 INDEPENDENT RIAS, FROM Q2 2019

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BET TE R BUSIN E SS

TE C H TIPS

CHOOSING AN EMAIL MARKETING PLATFORM FOR YOUR RIA It can be daunting to find the right email marketing software for your business. Here are some tips for getting started

GETRESPONSE Feature-wise, GetResponse offers more than most email marketing services, including webinar options for the highertier plans. Users have found the drag-anddrop editor to be more flexible than most other platforms, though the range of options means that editing takes a bit more practice to use. If you’re willing to pay a bit more and invest more time into getting familiar with the platform, you’ll get more personalization, more customization and access to more template possibilities. FEATURES

PRICE

CUSTOMIZABLE EMAIL TEMPLATES

STANDARD PLAN $15/MONTH FOR 1,000 SUBSCRIBERS STANDARD PLAN $65/MONTH FOR 10,000 SUBSCRIBERS PRO PLAN $49/MONTH FOR 5,000 SUBSCRIBERS PRO PLAN $75/MONTH FOR 10,000 SUBSCRIBERS MAX PLAN $165/MONTH FOR 10,000 SUBSCRIBERS MAX PLAN $255/MONTH FOR 25,000 SUBSCRIBERS ENTERPRISE PLAN $1,199/ MONTH FOR 100,000 SUBSCRIBERS 30-DAY FREE TRIAL

A/B TESTING TRACKING TOOLS AND ANALYTICS AUTO-RESPONDERS ECOMMERCE INTEGRATIONS

COURTNEY MCQUADE COURTNEYMCQUADE@CITYWIREUSA.COM It’s been a busy year, and in this column, I’ve covered the basics of LinkedIn, Twitter, Instagram and Facebook. However, there’s one key marketing channel we can’t forget: email. Many RIAs today are eager to build their social media strategy but don’t have an email campaign to tie in. This is a huge miss. Email marketing remains one of the most powerful platforms. By checking to see who is opening and engaging with your emails, you get a better idea of which people are ready for you to take the next step. And thanks to automation features, it’s easier than ever to send targeted messages to clients. Here are my top four suggested email marketing channels. Whether you’re looking for something inexpensive and easy to use, or you’d prefer something that goes above and beyond, there’s something for every small business.

MAILCHIMP MailChimp is often the first newsletter tool that comes to mind, perhaps because of its charming company mascot. But boasting a daily output of 600 million emails per day, it’s clearly established backing behind the name. MailChimp is not recommended if you want automations that are easy to manage – it is not very intuitive to set up. However, its pluses include a great integration system with

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applications such as WordPress and Zapier, as well as offering features such as forms, landing pages and automated drip campaigns with an in-build CRM for customer profiles. FEATURES

PRICE

CUSTOMIZABLE EMAIL TEMPLATES

FREE UP TO 12,000 MONTHLY EMAILS AND 2,000 SUBSCRIBERS

A/B TESTING CONTACT SEGMENTING AUTO-RESPONDERS SERVICE AND APP INTEGRATIONS TIMEZONE-BASED SENDING

$10-$250 PER MONTH FOR 5,000 TO 52,000 SUBSCRIBERS

CAMPAIGN MONITOR While Campaign Monitor isn’t exactly known for cutting-edge features, it offers hefty marketing for those with more basic needs – and for a decent price. While some features and configurations can be a bit difficult to figure out without a fairly technical background and email builder templates have been known for being restrictive in terms of styling and formatting options, Campaign Monitor has extensive scenario handling for segmentations and optional blocks, as well as great responsiveness across mobile and desktop. FEATURES CUSTOMIZABLE EMAIL TEMPLATES MARKETING AUTOMATION/CUSTOMIZATION CONTACT SEGMENTING CAMPAIGNS BASED ON CUSTOMER DATA SIGN-UP FORMS PERFORMANCE ANALYTICS SERVICE AND APP INTEGRATION

PRICE

SOCIAL MEDIA AD INTEGRATION VIDEO EMAIL MARKETING SERVICE AND APP INTEGRATIONS TIME OF DAY OPTIMIZATION CUSTOM LANDING PAGES DESIGN TESTING

CONSTANT CONTACT Constant Contact’s flexible editing module is comparative to its competitors. And while its biggest plus is its wealth of different templates and event integrations, it also offers a very flexible editing module. The only catch is that it can get pricey when you reach the 1,000-subscriber mark. This would be a great tool for small businesses that don’t want to spend a lot of time on email marketing. FEATURES CUSTOMIZABLE EMAIL TEMPLATES A/B TESTING MARKETING AUTOMATION / CUSTOMIZATION LIST SEGMENTATION CONTACT MANAGEMENT REAL-TIME ANALYTICS ECOMMERCE AND EVENT MARKETING MARKETING CALENDAR SOCIAL MEDIA INTEGRATION IMAGE LIBRARY

$9/MONTH FOR 2,500 EMAILS

SERVICE AND APP INTEGRATIONS

PRICE STANDARD PLAN $20/MONTH FOR 500 SUBSCRIBERS STANDARD PLAN $95/MONTH FOR 10,000 SUBSCRIBERS PRO PLAN $45/ MONTH FOR 500 SUBSCRIBERS PRO PLAN $95/ MONTH FOR 5,000 SUBSCRIBERS 60-DAY FREE TRIAL

$29/MONTH FOR UNLIMITED EMAILS $149/MONTH FOR UNLIMITED EMAILS AND SUPPORT

If you have any specific topics that you’d like me to cover, email me at courtneymcquade@citywireusa.com or follow me on Twitter at @CourtMcQuade.

At Barings, weâ€™re bringing our institutional expertise to you. Discover broader asset classes, deeper global insights, and innovative investment solutions. Learn more about how we help our clients to move ahead, and beyond.

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WOMEN IN WE A LT H

KATHARINE EARHART & MAYA LIS TUSSING PARTNERS AND CO-FOUNDERS • FAIRLIGHT ADVISORS

Avoiding the cookie-cutter approach and offering a more holistic service makes this Fairlight duo click, writes Courtney McQuade HOW DID YOU FIRST GET INTO FINANCIAL SERVICES? Katharine Earhart (KE) (pictured, left): While I’d set out to become a literature professor, my professors at the University of California encouraged me join the workforce before returning to graduate school. That’s when I landed at Charles Schwab and found a new passion for educating people about investments and financial planning. I followed that career trajectory for 25+ years, working for robo advisory firm Power Advisors, Barclays Global Investors, iShares/BlackRock and Alesco Advisors. My passion now continues through founding Fairlight. Maya Lis Tussing (MT) (pictured, right): I had every intention of attending medical school after Pomona College, but when I took a job working on a trading desk for Transamerica, I knew I’d never become a doctor. Instead, I went to business school at the University of Washington to embark on a career in financial services. In 25 years, I honed my experience in enterprise risk and investment management at corporations such as BlackRock, Barclays Global Investors, Visa and GE.

WHAT INSPIRED YOU TO JOIN AN RIA? MT: We met in a leadership class at Barclays Global Investors in 2007 and immediately hit it off. We resolved to launch our own company. We had so many ideas, mainly revolving around financial education, nonprofits and empowering people to take control of their financial lives. Since our roles at BGI and subsequently BlackRock kept evolving, we both stayed to develop skills and build connections. The team I led at BlackRock managed hundreds of billions of dollars for the world’s largest sovereign wealth funds, corporate pension funds,

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endowments and foundations. I was honored to have the opportunity to work with such institutions, but I yearned to service more down-toearth clients, who I could look in the eye and help directly. We launched the west coast presence for Alesco Advisors in 2016 and then this September launched Fairlight Advisors to serve our existing clients through a continued partnership with Alesco. KE: Since I started my career at Charles Schwab in the early 90s, I’ve always been around RIAs and felt that was the only advisory model I would pursue based on both the fiduciary nature and the independence.

WHAT ARE SOME BENEFITS OF BEING AN RIA? Katherine (left) and Maya (right) film an explainer video for the firm

MT: An RIA can provide its clients more customized and holistic support than a wirehouse might. We provide both customized risk management consulting and investment management. Our success is based both on how well we deliver investment performance and how well we connect with the client and address their unique challenges.

WHAT IS YOUR FIRM’S BIGGEST DIFFERENTIATOR? MT: We designed a financial planning process to serve nonprofits that need help determining their cash reserves and assessing risks to their organization. Our risk assessment workshop helps nonprofits prepare for and recover from unexpected events that impact their financial security. Our relationships with nonprofits and knowledge of this ecosystem allows us to offer pension consulting services and assist donors and philanthropically minded, high-networth individuals. It’s a natural synergy because we see both sides of the equation: a donor’s mindset and the impact to the nonprofit. We help individuals consider both the impact of their philanthropy and the family legacy and tax benefits to their strategy.

HOW ARE YOU APPROACHING DIGITAL INTEGRATION? MT: Digital access has brought amazing opportunities to the consumer, including lower costs. Being able to access accounts from smartphones, engage with advisors via text and hold webbased calls has enhanced the client experience. But the need for human connection is always there. While we love the digital tools and use them more and more for ourselves and our clients, it doesn’t necessarily fulfill the requirements for a remarkable client experience. The personal bond is still a major factor for good client service.

Left to right: Maya, her daughter and Katharine at a Commission on Women event in San Francisco

AN RIA CAN PROVIDE MORE CUSTOMIZED AND HOLISTIC SUPPORT THAN A WIREHOUSE MAYA LIS TUSSING WHAT DO YOU DO FOR FUN? KE: I love to walk in nature, I’m very social and I love to travel. I find hiking, eating or being with friends and family energizing. I volunteer on nonprofit boards and serve my local community through fundraising and special projects.

WHAT DO YOU SEE FOR THE FUTURE OF THE INDUSTRY? KE: We saw massive consolidation of larger RIAs, but we also saw smaller firms spin off to satisfy the needs of niche clients. As Gen X and Gen Y come into money and begin to think of their retirement, we’ll see even greater changes in how clients engage with their advisors. We’ll be ready and waiting!

MT: Competitive sports have been a major part of my life, and I still try to hone my skills on the court, in the water, on the roads and on the slopes. Like Katharine, I also spend a significant part of my time serving my local community as an appointed county commissioner, volunteer and nonprofit board member. I also enjoy attending Commission on Women events throughout the year (pictured above). ◊

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ADVERTISING F E AT UR E

JOHCM Funds

EMERGING MARKETS: COUNTRY CALLS COUNT JAMES SYME SENIOR FUND MANAGER J O HAMBRO CAPITAL MANAGEMENT

There are two broad drivers of the emerging market equity asset class: global growth and US dollar liquidity. This update serves to point out that neither of these drivers is showing any sign of being supportive, but also that a robust investment process and differentiated portfolio can still find opportunities in the asset class. Global growth is sick and failing to respond to treatment because no treatment has been applied. In the developed world, the US has recently seen the weakest ISM

manufacturing survey in 10 years as well as weakness in the crucial services data, while eurozone 2019 real GDP growth forecasts have been steadily revised down to the current level of just 1.1%. In the emerging world, recent Chinese data has been particularly soft, with fixed asset investment (+5.4% year-on-year), retail sales (+7.8% year-on-year), industrial production (+5.6% year-on-year) and exports (-0.9% year-onyear) all coming in both low and below expectations. The exports of the most cyclically-exposed emerging economies tell a similar story, with Korean exports -14.7% and Taiwanese exports -1.5% in the year to October. Meanwhile, the inherent strengths of the US economy relative to the rest of

the world, combined with the asymmetric impact of the trade war, have kept investors more optimistic about US assets and/or more pessimistic about the need to have sufficient US dollar-denominated assets. This has happened despite the enormous increase in the US fiscal deficit (federal government gross issuance will be around $11.3 trillion in FY2019, up from around $10 trillion in FY2018, with the majority of that issuance at maturities of six months or less), which represents a huge drain on global dollar liquidity. The net effect of this has been a resumption of the uptrend in the US dollar relative to other global currencies that began in 2011. The slide in growth and tight liquidity have been transmitted into emerging

COUNTRY EFFECT ON STOCK PICKING IS HIGHEST IN EMERGING MARKETS

Developed markets

Emerging markets

Cross sectional volatility, 12-month moving average

100%

80%

60%

40%

20%

0% Dec 97

Nov 02

Oct 07

Sep 12

Aug 17

Style Source: MSCI Barra. Data from December 1997 to December 31, 2018.

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0% Dec 97

Industry

Nov 02

Country

Oct 07

Sep 12

Aug 17

ADV ERTIS IN G FEATU RE

economies, with negative GDP growth revisions in almost all of the 26 emerging market economies during 2019. Even previous areas of strength, such as India, Pakistan and Thailand, have been caught up in the slowdown, with the 2019 GDP growth estimate revised down 1.1% in India, 1.2% in Pakistan and 1.0% in Thailand. Global conditions remain tough. FROM THE TOP We believe emerging markets go right or wrong at the country level. Bottom-up consensus alternatively ignores and then overreacts to top-down developments, creating opportunity for focused countrydriven EM investors. Our investment process is designed to seek opportunity, principally at the country level, and we have found various areas of opportunity through our process this year. One would be areas where GDP growth estimates have held firm, including Eastern Europe, where aggregate GDP revisions are about flat year-to-date. We have held some exposure in the Czech Republic, which has been a slight laggard, and considerably more in Russia, which has substantially outperformed.

Another source of opportunity is in the pricing (both equity and currency) of these macro conditions. Even where growth is weakening, panicking investors can drive valuations to levels that overstate the challenging fundamentals, and we aim, through a disciplined monthly review, to identify these opportunities. One such has been Turkey. With 2019 GDP growth revisions of -0.75%, Turkey has been one of the weaker EM economies this year. In May, however, the pricing of that slowdown became wildly excessive, and the Turkish stocks we bought at the end of that month

have very substantially outperformed (and, importantly, have actually made money for investors). Interestingly, Turkey’s 2019 GDP growth estimate has in fact been revised up since the end of May, suggesting that the worst of the selling pressure (and the greatest opportunity for us) was right before the turn. Most, perhaps all, investing is a tradeoff between fundamentals and valuation, and we look to use both to identify topdown, country-level opportunities in EM equity, no matter how good or bad the global environment is at that moment.

JOHCM Emerging Markets Opportunities Fund (JOEMX) Portfolio managers James Syme and Paul Wimborne take high conviction country positions to exploit top-down, country-level opportunities that tend to be overlooked by the bottom-up investors who dominate the asset class. Key • • • •

Fund highlights: Assertively top-down approach High conviction portfolio, normally invested in half of the index countries Concentrated portfolio of ~50 stocks Team has combined EM experience of 40+ years

Sources for all data: JOHCM/Bloomberg/Factset (unless otherwise stated). An investor should consider the Fund’s investment objectives, risks, and charges and expenses carefully before investing or sending any money. This and other important information about the Fund can be found in the Fund’s prospectus or summary prospectus, which can be obtained at www.johcm.com or by calling 866-260-9549 or 312-557-5913. Please read the prospectus or summary prospectus carefully before investing. The JOHCM Funds are advised by J O Hambro Capital Management Limited and distributed through FINRA member Foreside Financial Services, LLC. The JOHCM Funds are not FDIC-insured, may lose value, and have no bank guarantee. Past performance is no guarantee of future results. RISK CONSIDERATIONS: Investors should note that investments in foreign securities involve additional risks due to currency fluctuations, economic and political conditions, and differences in financial reporting standards. Smaller company stocks are more volatile and less liquid than larger, more established company securities. The small and mid-cap companies the Fund may invest in may be more vulnerable to adverse business or economic events than larger companies and may be more volatile; the price movements of the Fund’s shares may reflect that volatility. Fixed income securities will increase or decrease in value based on changes in interest rates. If rates increase, the value of the Fund’s fixed income securities generally declines. Other risks may include and not limited to hedging strategies, derivatives and commodities. The views expressed are those of the portfolio manager as of November 2019, are subject to change, and may differ from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

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STU DY G ROUP

Three RIA leaders explain how they navigate the complex landscape of M&A

BOB OROS HIGHTOWER CHIEF EXECUTIVE For HighTower and Oros, part of dealmaking is accepting that the M&A process may take longer than expected, especially if the prospective seller has hired an investment banker. ‘The real value of a banker-led process is that you have a process,’ said Oros, who serves as chief executive of the Thomas H. Lee Partners-backed RIA aggregator. ‘You have a defined beginning point. You have an educated seller, because they’re getting educated through the banker. So as long as they hire a good banker, I think it’s a positive process.’ Oros’s firm has purchased stakes in four RIAs this year, several of which have

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FOR A BUYER, IT PROBABLY IS A MORE EXPENSIVE PROCESS FOR US, BECAUSE YOU’RE GETTING MULTIPLE PLAYERS INVOLVED used investment bankers throughout the negotiation process. The firm’s most recent investment, $1 billion San Francisco-based Schultz Collins, came as the result of an introduction through DeVoe & Company, a popular RIA M&A advisory and investment banking firm. From a buyer’s perspective, Oros explained, introducing an investment banker into the dealmaking effort adds a layer of complication. ‘For a buyer, it probably is a more expensive process for us, because you’re getting multiple players involved,’ said Oros, who was

participating in a panel on advisor M&A at the Schwab IMPACT conference in San Diego, California. Even if the dealmaking process takes longer than usual once a banker is involved, the end result of the transaction is usually worth the wait. Once Oros and his team of M&A staffers acquires a firm, they work quickly to acclimate the new team to HighTower’s unified back-office suite of services. ‘We take over all of those back-office functions, which we can do with more technology, more efficiency, more automation and free you up to go spend time with clients and spend time finding new clients,’ Oros said. Chicago-based HighTower oversees around $71.3 billion in assets, around $59.5 billion of which it manages.

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DAVE BARTON MERCER GLOBAL ADVISORS

WHAT WE DON’T WANT TO DO IS CREATE DISLOCATION FOR THE SELLER OR THE CLIENTS DURING THE INTEGRATION PERIOD

VICE CHAIRMAN AND M&A LEADER For Barton, a veteran dealmaker, speed is of the essence when it comes to integrating an acquired firm. ‘What we don’t want to do is create dislocation for the seller or the clients during the integration period. Mercer is an integrator, not an aggregator. So we buy firms and move them onto our systems, our platforms, our way of doing things.’ Backed by private equity firms Oak Hill Capital and Genstar Capital, Mercer buys RIAs around the country and adds them to the firm’s single form ADV it files with the Securities and Exchange Commission. Mercer has bought 13 RIAs over the last 20 months. It most recently added Sage Future Financial, a $100 million RIA based in Albuquerque, New Mexico, with a client base of around 45 high-net-worth households. Bringing an RIA onto Mercer’s platform

ADAM BIRENBAUM BUCKINGHAM STRATEGIC WEALTH CHIEF EXECUTIVE Birenbaum and his firm look at dealmaking as something that goes far beyond financial modelling and earnings before interest, taxes, depreciation and amortization (Ebitda) multiples. ‘The key is about finding the right fit,’ he said. ‘If people look at this and think this is just a financial transaction, they’ve missed the mark.’ Birenbaum’s firm is part of Focus Financial Partners, the KKR and Stone Pointbacked aggregator of RIAs. It maintains its own separate form ADV, unlike firms who join Mercer or HighTower. Buckingham has frequently been the beneficiary of acquisitions

takes around a year from start to finish, explained Barton, who previously served as the company’s chief executive before moving into his current role in 2017. That timeline affects the way Mercer pays out its consideration to its acquisition targets. ‘We typically edge on the side of shorter earn-out periods, because ours is, “we want to integrate you faster, not slower,”’ Barton said. ‘So during that earn-out period, we’ll keep in place the same fee schedule

that that seller has so we don’t jeopardize any earn-out potential for that seller.’ At the same time, Barton said the firm lets that end client get to know Mercer. ‘They can feel us, feel the family office offering and then, ultimately, the end goal is that we move to a single-fee schedule.’ Headquartered in Denver, Mercer Global Advisors manages around $16.5 billion in assets across 44 offices around the country.

THIS IS A SCARY TIME IF YOU DO NOT KNOW WHAT YOU ARE DOING AND YOU DON’T HAVE A TRACK RECORD OF EXTRACTING THE VALUE AND OPPORTUNITY OUT OF THOSE THINGS Focus Financial Partners finances - the firm most recently acquired HORNE Wealth, a $252 million RIA with offices in Mississippi and Tennessee. The main obligation for M&A participants these days, Birenbaum explained, is to obtain a modicum of education, whether it’s through an M&A advisory firm or otherwise. ‘This can be a really scary time if you do not know what you are doing. Because you go into a bear market and what

happens? You’ve just done a transaction, you’ve spent more money, you’ve structured the deal in such a way and your entire business blows up,’ Birenbaum said. ‘We have seen that from our side in terms of things that don’t always go perfectly well, and that’s in a 10- to 11-year bull market, right? This is a scary time if you do not know what you are doing and you don’t have a track record of extracting the value and opportunity out of those things.’ Headquartered in St. Louis, Missouri, Buckingham manages around $15.5 billion in assets. The firm maintains 35 offices across 20 states.

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ADVERTISING F E AT UR E

LOW VOLATILITY INVESTING: AN EFFECTIVE RISK MANAGEMENT TOOL Versatility of minimum volatility equity strategies may calm investors’ emotions through uncertain times ALEX PIRÉ, CFA® HEAD OF CLIENT PORTFOLIO MANAGEMENT FOR SEEYOND AT NATIXIS INVESTMENT MANAGERS

As one of the longest market recoveries in history marches on, it may be difficult for many investors to remember the emotional turmoil they felt during the global financial crisis over 10 years ago. Some may even find they have become complacent about risk. This is why now may be a critical time to focus on adapting portfolios to a changing economic landscape – to ensure opportunities are appropriately matched to current risk factors. The team at Seeyond, quantitative managers that take a riskbased approach to investing, continue to see risk as asymmetrically skewed this late in the economic cycle. As we head into 2020, Seeyond’s view is that there is a move away from synchronized global growth and a deceleration in global economies. As such, it is more important than ever for investors to be prepared to expect the unexpected. Chief Market Strategist at Natixis Investment Managers, David Lafferty, CFA®, believes there are several factors causing today’s slow real growth and he doesn’t see a pickup anytime soon. “For structural reasons related to the global working age population, labor force participation, and productivity, it’s difficult to envision a sustained and meaningful pickup in potential real growth rates in most of the developed world,” said Lafferty. Corporate earnings expectations, trade policy setbacks, and geopolitical tensions should also cause more uncertainty for global markets. UNCERTAINTY SIGNPOSTS Various economic indicators appear to be signaling growing angst among consumers and businesses, as well. Business confidence, as measured by the OECD Business Confidence Index, peaked in late 2017 and has been steadily declining ever since to levels not seen since the 2008-2009 financial crisis. Consumer confidence also peaked for both widely used indicators, the University of Michigan

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Surveys of Consumers1 and the OECD Consumer Confidence Index, which has declined to 2014 levels. Consumers in particular may be weary of what the future holds and are growing cautious about expectations going forward. This is concerning as consumer spending is arguably the essence of economic growth, accounting for nearly 70% of GDP. Finally, the Economic Policy Uncertainty Index for United States published by FRED, Federal Reserve Bank of St. Louis, has steadily increased in 2019. INVESTORS WANT CALMING STRATEGIES Knowing that uncertainty can create heightened anxiety in the marketplace, investors may need to refrain from making emotionally driven investment decisions. This behavior can adversely impact their long-term financial plans. In fact, in the 2019 Natixis Investment Managers Global Survey of Individual Investors2, six in ten investors said they feel that volatility undermines their ability to achieve savings and investment goals. As a result, many are looking for investments that can help mitigate the risks associated with equity investing – along with their anxieties, according to David Goodsell, Executive Director of Natixis’ Center for Investor Insight. “Nine out of ten investors told us it is important to protect their assets in volatile times. That feeling is so strong that, in an era in which fees on some passive investments have dropped to nearly zero, 56% of investors are willing to pay a premium price for an investment that could help protect them from volatility,” said Goodsell.2 Therefore, complementing portfolios with strategies specifically designed to help investors become less dependent on day-to-day gyrations in equity markets may be a smart move. AN ALTERNATIVE TO ALTERNATIVES In boxing, the phrase “roll with the punches” is a reminder that fighters are in the business of getting punched as much as punching. As such, boxers who develop a greater capacity to take the pounding are well on their way to victory. This may ring a bell in terms of investors staying the course through bouts of market uncertainty and volatility. However, the problem is that investment options are quite limited when it comes to equity strategies that seek to help investors stay invested over time to achieve long-term goals. Many strategies designed to help mitigate the effect of downside risk typically take a drastic approach to equity exposure by either removing upside potential altogether or capping potential upside. This can make them impractical in an environment of uncertainty.

ADV ERTIS IN G FEATU RE

Also, many of those strategies tend to be in the liquid-alternative category and feature the use of leverage, shorting and derivatives – which can be restricted or make investors uneasy. One interesting solution is to put the power of equity factors to use as a tool in mitigating uncertainty. In particular, the minimum volatility factor has the potential to yield an attractive investment outcome when market uncertainty is high.

Annualized Return and Risk for Global Equities by Risk Quintiles Observation period 1996 to 2016 30% Risk

25% Risk & Return (Annualized)

20% 15% 10% 5% Quintile 5

Quintile 4

Quintile 3

Quintile 2

Return Quintile 1

MINIMUM VOLATILITY VERSATILITY Minimum volatility can be an effective risk management tool to help portfolios remain invested through uncertain times. They can be used as a core allocation, which may increase visibility on return dispersion when compared to traditional equity investments, and achieve a more efficient use of capital. Or they can act as a tool to help free up a portfolio’s risk budget on a more tactical basis. Minimum volatility is the only factor that seeks a dual investment objective of volatility mitigation with capital appreciation. At Seeyond, the team closely follows this factor. Seeyond strategies based on minimum volatility seek to achieve equity-like returns with significantly lower volatility than equity markets. The team believes this approach can help investors stay invested through all market conditions. Unlike many liquid-alternative strategies, minimum volatility can achieve exposure to equity market segments with materially lower volatility than experienced by those markets in a long-only equity strategy. Minimum volatility strategies, such as those managed by Seeyond for the past 10 years, may offer sensitivity to investment markets as measured by beta on par with liquid alternatives. They also retain alpha generation potential through exposure to equities. It is that relationship between a low beta and healthy alpha generation that seeks to generate an asymmetric return outcome helping to mitigate downside movements while retaining competitiveness on the upside. Let’s return once again to the boxing analogy. In the equity space, most mutual funds can be categorized as either benchmark huggers or very aggressive fighters – fast hitters who run the risk of being easily pushed into the ropes or knocked down when markets hit back. By contrast, Seeyond’s approach to minimum volatility is meant to be steadier punchers with the potential to parry the jabs and uppercuts of market turbulence. This type of minimum volatility strategy may offer the potential to absorb some market shocks, with a lower beta, and maintain lower volatility over time. What’s more, the strategy also seeks to deliver returns in excess of the equity risk taken and outperform the broader market over the long term. In short, it seeks to take the hits of the market while it keeps fighting for returns.

MINIMIZE, NOT COMPROMISE It is important to reconcile minimum volatility strategies with investment approaches developed around the concept of “greater risk” leading to “greater reward.” Our experience talking to financial professionals and investors has led us to believe that the best way to overcome this deep-rooted behavioral and cognitive bias may be to think in terms of outcome – i.e. investment goals and applications. Also, as the chart below illustrates, the idea that you need to take greater risk to yield greater return does not always hold for equities. In fact, for the 20-year period of 1996 to 2016, investing in lower-risk equities offered better risk-adjusted returns than higher-risk stocks.3

-5 Least Volatile

Global Stocks

Most Volatile

For illustrative purposes only.

Because there is no silver bullet in the investment universe, one may expect to see minimum volatility strategies display a countercyclical pattern in their performance profile. In other words, rather than mirroring the market’s highs and lows, minimum volatility strategies seek long-term outperformance with a steadier return profile. HELPING INVESTORS HELP THEMSELVES Overall, a long-running bull market, along with signs of a global economic slowdown, has the potential to make markets more volatile in 2020. Because of this, investors may want to consider how a minimum volatility strategy may fortify portfolios – so they can better roll with the punches and stay invested to pursue long-term financial goals.

University of Michigan: Consumer Sentiment; retrieved from FRED, Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/series/UMCSENT Source: Natixis Investment Managers 2019 Global Survey of Individual Investors, conducted by CoreData Research, February-March 2019. Survey included 9,100 investors in 25 countries. 3 Source: Bloomberg/Seeyond. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Risk is measured by standard deviation. Q1 (lowest quintile) represents low risk stocks based on volatility. Q5 (highest quintile) represents high risk stocks based on volatility. Based on returns of stocks included in the MSCI All Country World Index (Net). The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Stocks are equal weighted and quintiles are rebalanced on a quarterly basis. FOR FINANCIAL PROFESSIONAL USE ONLY. All investing involves risk, including the risk of loss. Natixis Investment Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, L.P. and Natixis Investment Managers S.A. CFA® is a registered trademark owned by the CFA Institute. 2672973.1.1 1 2

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ADIFFICULT

CONVERSATION Those who are approaching retirement need to be honest with themselves about how much income they will need

DAN MOISAND MOISAND FITZGERALD TAMAYO PRINCIPAL AND FINANCIAL ADVISOR

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By 2034, there will be 77 million Americans over the age of 65, compared with 76.5 million under the age of 18, according to the US Census Bureau. As baby boomers take over as the largest generation of retirees, financial planning for the retired client will become more and more in demand. The transition into retirement can be one of

the most difficult in a personâ€™s life. Retirees are often not familiar with the challenges they are likely to face financially and personally. This lack of comfort and the possession of more time to explore options often leads to slower decision making. To serve the retired well, financial planners must develop the following skills around key aspects of retireesâ€™ lives.

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THAT FIRST DAY OF RETIREMENT, WHEN THE ALARM CLOCK DOES NOT NEED TO BE SET, WHAT WILL YOUR CLIENT DO? IF YOU DON’T SPEND SOME TIME ON THAT QUESTION, A NEW RETIREE MAY STRUGGLE

MINDSET While working, the schedule of one’s cash flow is clear. Get a job, show up on time, do what you are supposed to do and get your money. For people good at their jobs, this dynamic can give them a strong sense of control. However, retirement changes that. Fewer people expect you to show up anywhere or do anything in particular. For most working people, the bulk of their interaction with others during the day is with co-workers, not family. That first day of retirement, when the alarm clock does not need to be set, what will your client do? If you don’t spend some time on that question, a new retiree may struggle, especially if they retired reluctantly.

CONSERVATISM VS LONGEVITY In retirement, cash flow comes from the client’s assets, not their labor. Assets are affected by many uncontrollable and unpredictable things such as interest rates, the stock market and inflation. Often, a new retiree will want to be conservative. That’s a reasonable wish but is not likely to be wise for a new retiree. Life expectancies have increased, the client has a goal of staying healthy and there are countless healthcare options to help them stay fit. It is not unreasonable to think a new retiree will need

30 years or more of cash flow. If they hope to maintain purchasing power, they must continue to invest a significant amount for growth and accept the risks that go with that.

TAXES For most workers, their tax picture is stable, and there are only a few things they will zero in on to manage their liability, such as making contributions to retirement plans. New retirees are often shocked at just how complex the tax code can be even for relatively simple household asset structures. Particularly before Required Minimum Distributions start at 70 years and six months of age, clients can exercise a great deal of control over their income taxes by how they invest, where they pull their cash flow from and other items, such as when they start taking social security. One decision affects the others. This is fertile ground for adding value as a financial planner.

SPENDING Most retirees think something along the lines of: ‘If I can draw $X per month, I’ll be good.’ That is usually true, but few retirees I’ve worked with get through the rest of their lives spending like that. Health issues are common, but there are other spending shocks that can upset the retiree’s plans. They have kids who marry jerks, need to go to rehab, want to start a new business, or fail

at an existing one, for instance. On the positive side, spending tends to decrease at older ages. They may start retirement needing to grow their assets, but at some point – usually when they reach their 80s – they slow down. They don’t, or can’t, travel as much and they don’t go out as much or spend as much on clothes. They may want to protect a fixed spending pattern, but it just doesn’t happen, so a periodic assessment of spending is essential for a good retiree financial plan.

HUMAN FRAILTY Good planning for retirees also includes a deep dive into how they want to handle the inevitability of aging. Who will make decisions about their health, living arrangements, care and finances if they are not able to? How will their family know when they need to intervene? Good planners will be familiar with the differences in care types, care providers and facilities, as well as the costs associated with them to help lead the client through the necessary planning and execute those plans when the time comes. I have found working with retirees and their families to be extremely rewarding and of tremendous value to our clients. If you want to be a good planner to retirees, it may take some time to learn the necessary technical and interpersonal skills, but it is worth the effort. ◊ Dan Moisand is a principal and financial advisor at Moisand Fitzgerald Tamayo in Melbourne, Florida.

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ETFS - AN IMPORTANT TOOL FOR WEALTH MANAGEMENT MITCHELL FIRESTEIN SENIOR PORTFOLIO MANAGER AVANTIS INVESTORS PHIL MCINNIS VICE PRESIDENT, DIRECTOR OF INVESTMENTS AVANTIS INVESTORS Since their creation in the early 1990s, exchange-traded funds (ETFs) have become widely used to help investors achieve their financial goals. Attracted by low turnover, lower fees, broad diversification and greater tax efficiency, investors have voted with their wallets, pouring more than $5 trillion into ETFs globally.1 In this article, we discuss the growing appeal of ETFs and summarize the different types available to investors. We also review key differences between ETFs and mutual funds and offer some considerations for trading ETFs. While both vehicles are effective for investors seeking to build long-term asset allocations, it is critical to understand key similarities and differences to help inform both asset allocation and asset location.2 ETF USAGE IS GROWING ETF growth has accelerated over the last 20 years. In 2000, U.S. ETFs held $66 billion in assets under management (AUM) compared to $5.1 trillion in long-term mutual funds. By the end of 2018, ETF assets in the U.S. had grown more than 50 times to $3.4 trillion, far exceeding the growth of mutual fund assets which reached $14.7 trillion.3 Advisor adoption has been an important driver of ETF growth. In their 2018 Trends in Investing Survey, the Journal of Financial Planning and the FPA Research and Practice Institute™ reported that 87% of advisors surveyed use or recommend ETFs for clients while 73% use or recommend mutual funds (non-wrap). This represents the widest gap between ETF and longterm mutual fund usage reported since ETFs overtook mutual funds in the 2015 study. We are also seeing significant interest in ETFs among higher income investors. According to the Investment Company Institute (ICI), households owning ETFs in non-retirement accounts tend to have higher incomes than households holding mutual funds.4 ICI report s that 57% of the households holding ETFs in taxable accounts reported income greater than $100,000 versus 45% in the case of households holding mutual funds. We believe higher income investors are attracted to the tax efficiency of ETFs. TYPES OF ETFS Passive ETFs Like index funds, passive ETFs seek to track the performance of indices. They can range from widely followed indices, such as the S&P

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500® Index, to narrower indices such as a specific sector, country, or one created with specific exclusions. Rebalancing in the indices these ETFs track typically occurs on a periodic basis. For example, the Russell 2000® Index rebalances once per year in June. Smart Beta ETFs This type of ETF was introduced in 2006. They track the performance of indices that deviate from market capitalization with the objective of outperforming markets using a rules-based approach. Rebalancing is carried out periodically, similar to passive indexing strategies. As of December 2018, Morningstar reported that there were about 700 smart beta exchangetraded products in the U S. with $705 billion in AUM. The multifactor category is the most common with 171 products, while growth and value are popular single factors. Active ETFs Active ETFs seek to add value like an actively managed mutual fund. Like actively managed mutual funds, active ETFs do not replicate a benchmark. Rather, managers have more discretion over when and how rebalancing occurs and are able to use their expertise with the goal of adding value for their clients. There are two structures in active ETFs: • The fully transparent active ETF that discloses holdings daily; and • The non-transparent active ETF expected to arrive soon to the market. Fully transparent ETFs help investors gain more transparency so that they can evaluate the implications of current holdings in the context of their overall portfolio design. MUTUAL FUNDS AND ETFS Both mutual funds and ETFs are effective tools for helping investors build globally diversified portfolios. Both instruments are managed professionally, and regulated entities serve as custodians of their assets. Mutual fund investors generally buy shares at the fund's net asset value (NAV) with cash. If the fund has a net purchase, portfolio managers may invest the cash and all shareholders bear the investment costs. If, on the other hand, there is a net redemption, the fund must transfer cash to the redeeming shareholders. And, since the redeeming investors are no longer part of the fund, the costs of raising the cash are not borne by them, but by the remaining shareholders in the fund. These expenses could include transaction costs or borrowing costs if the fund borrows money to cover the transfer while portfolio managers sell securities to cover the cash shortfall. Redeeming shareholders may also saddle remaining shareholders with a higher tax burden. When portfolio managers sell securities to satisfy redemptions, they may realize capital gains that must be distributed to the remaining shareholders at the end of the year.

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TYPICAL INTERACTION OF INVESTORS WITH MUTUAL FUNDS

• Investors buy shares with and sell shares for cash. • Portfolio managers need to buy or sell securities to invest or deliver cash after the shareholders' activity (fund may need loans). • Cost of buying or selling happens inside the fund. • Shareholders who sell do not incur cost of raising cash inside the fund. • Selling appreciated securities causes capital gains to be distributed to investors in the fund. ETFs offer a more modern structure. They are listed on stock exchanges, allowing investors to buy and sell shares directly in the market. Like stocks, ETF trading is facilitated by market makers that provide liquidity in the marketplace by fulfilling buy and sell orders. Interactions between market makers and ETF managers happen at end-of-day NAV prices. Creating or redeeming ETF unit s in exchange for underlying securities is called the in-kind process which helps keep ETF market prices close to the NAV of the ETF. In-kind transactions between the ETF and the market makers help shield investors from costs triggered by the activity of other shareholders. They also minimize the need for the ETF manager to hold or borrow cash because the interaction with market markers involves securities. An additional interesting feature of the in-kind redemption process is that it minimizes the need to sell securities and realize capital gains, which may help reduce year-end capital gain distributions. Who pays for the shareholder activity costs? In in-kind transactions, the investors generating the activity pay the costs. Investors can buy ETF shares in market transactions at the ask price, which is the price market makers are asking for when selling the shares to investors. They can sell ETF shares at the bid price, just like normal shares. TRADING ETFS ETFs trade like other securities, with investors placing buy or

TYPICAL INTERACTION OF INVESTORS WITH ETFS

• Investors buy and sell shares in the market. Bid-ask spreads reflect cost associated with transacting with the ETF. • Portfolio managers receive or deliver baskets of securities in-kind to deal with shareholders' activity. • Portfolio managers tend to deliver low-cost basis stocks in-kind, keeping higher cost basis stocks in the ETF and minimizing unrealized capital gains inside the ETF. • ETFs are structured such that shareholders interacting with the ETF bear the costs of buying and selling. • Shareholders do not incur cost or capital gains realizations because in-kind activity minimizes the need to raise cash inside the ETF. sell orders through their brokers. Though placing orders in the market, particularly large orders, can create anxiety, investors have several tools at their disposal. First is the ability to trade with limit orders. These orders limit the price an investor is willing to pay when buying or to accept when selling. In addition, brokerage houses such as Fidelity, Schwab, TD and LPL offer specialized trading desks to help investors trade ETFs. These desks have professional traders who seek best execution through competitive bids from market makers. This usually ensures that ETFs have ample market liquidity. CONCLUSION 9 Funds and ETFs provide investors the ability to create globally diversified asset allocations. Both vehicles can help investors achieve their goals. 9 ETFs offer some benefits relative to mutual funds, particularly for taxable investors, and this has been a big driver behind their growth. This relatively new investment vehicle helps investors minimize transaction costs and taxable distributions. 9 Trading ETFs in the market may seem daunting at first, but brokerage houses have created tools and specialized desks to help investors improve the experience of buying and selling ETFs shares.

ETFGI. "ETFGI Reports Asset s Invested in Global ETF and ETP Industry Reached a Record US$5.32 Trillion at the End of February 2019." Press Release. March 12, 2019. 2 Morningstar Manager Research. Measuring ETFs' Tax Efficiency Versus Mutual Funds. Aug. 1, 2019. Morningstar's Ben Johnson, Director of Global Research, and Alex Bryan, Director of Passive Strategies Research, offered a more comprehensive comparison earlier in 2019. 3 Investment Company Institute. Chapter Two, US-Registered Investment Companies. 2019 Investment Company Fact Book 4 1nvestment Company Institute and Strategic Business Insights. A Close Look at ETF Households. September 2018. 5 Morningstar Manager Research A Global Guide to Strategic-Beta Exchange-Traded Products. March 2019. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. The information in this document does not represent a recommendation to buy, sell or hold security. The trading techniques offered in this report do not guarantee best execution or pricing. Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost past performance is no guaranteed of future results. Exchange Traded Funds (ETF) are bought and sold through an exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. 1

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Stephanie Lang can trace her investment career back to lessons learned one summer when she put her school vacation money to work in the market. Homrich Berg’s CIO has not looked back since

JAKE MARTIN JMARTIN@CITYWIREUSA.COM Long before joining Homrich Berg as a senior analyst, Stephanie Lang got the investment bug from her father, who encouraged her to put a portion of her summer earnings to work in the stock market. The experiment was successful on many fronts. For one thing, it was the early 1990s and hard to make a bad bet, Lang recalls. ‘My money compounded quickly and that really got me motivated and interested in a career in finance,’ she says. From the start, however, Lang was less inclined to view investing as a get-rich-quick scheme, instead thinking of it as a long game in which measured moves over time can build and protect wealth. That ‘steady Eddie’ and cost-conscious approach, as Lang describes it, would serve her well. However, there were a few stops on Lang’s journey to her current role at Homrich Berg. After graduating from the University of Georgia with a finance degree, Lang began her career in 1997 as a sell-side equity

research associate with Robinson Humphrey. Her first assignment was the technology sector, just in time for the dot-com bubble to burst. ‘It definitely gave me some perspective,’ Lang says. ‘For instance, when valuations seem too good to be true, they probably are. There’s a natural skeptic in me when it comes to the idea of infinite growth and analysts trying to attach valuations to that.’ Following that role, Lang moved over to researching media companies, but it was a pretty short stint. ‘I wanted to explore a broader asset allocation and I was particularly interested in wealth management,’ she says. Lang went to Bank of America to work as a portfolio manager in the private bank,

which she says gave her some visibility into the different business models out there, be it a bank, wirehouse or RIA. ‘When I was starting, there were more apparent conflicts of interest, especially between investment banking and equity research,’ Lang says of her early career. ‘While there certainly were some measures put in place to try to mitigate that, it also led me to question the conflicts of interest inherent in certain investments and how that can shape the actions of managers or firms.’ Lang soon decided she wanted to go back to her roots. ‘The way we were investing at the bank was pretty cookiecutter,’ she says. ‘I was looking for more opportunistic ways to invest clients’ capital and also to give better service.’

THERE’S A NATURAL SKEPTIC IN ME WHEN IT COMES TO THE IDEA OF INFINITE GROWTH AND TRYING TO ATTACH VALUATIONS TO THAT c i t y w i re u s a . c om/r i a

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2014 – present Homrich Berg, chief investment officer 2012 – 2014 Homrich Berg, director 2005 – 2012 Homrich Berg, senior investment analyst 2003 – 2005 Bank of America, portfolio manager 1997 – 2003 Robinson Humphrey, equity research associate

With 300 clients at the bank, Lang says it wasn’t realistic to maintain meaningful relationships with all of them. That’s where the appeal of the RIA model, and Homrich Berg, came in. ‘It was exactly what I wanted to go back to – asset allocation, manager research – but this time with a small and growing firm that I was really impressed with, in terms of investment offerings,’ she says.

SEIZING OPPORTUNITY Homrich Berg had about 30 employees and $1 billion in assets under management when Lang joined in 2005. She came in as a senior investment analyst and was part of a three-person team, which has since swelled to a 10-person crew. It was common in Lang’s early days with Homrich Berg for people to take

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on multiple roles across the firm. ‘As we grew, we institutionalized,’ she says. ‘From the investments standpoint, for instance, we were able to build the team necessary to get deep knowledge on any specific asset class, whether it’s equities, hedge funds, private investments or fixed income.’ Over the years, Lang naturally assumed a leadership role. She was named the firm’s chief investment officer in 2014 and became a principal a year later. Upon taking the helm of the investment team, Lang was asked by the firm’s leaders how she wanted to build out the department. ‘They trusted my judgment and were willing to make the investments in our team, largely because one of our differentiators is our allocation to private alternatives, which is very time-consuming,’ she says. ‘You need a lot of people spending time and doing the due diligence than with the public side.’

‘A PRETTY NIMBLE SHIP’ When it comes to decision-making, Lang says Homrich Berg benefits from being 100%-owned by the principals. ‘It’s not like turning the Titanic,’ she says. ‘We’re a pretty nimble ship that can take advantage of whatever investment

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opportunities present themselves to us.’ This efficiency applies to growing the business as well. Homrich Berg has done three acquisitions since 2008 and Lang says the firm expects dealmaking will become a more critical component of its growth strategy in the future. The firm’s client base has mostly grown organically, up to this point. While it has clients in over 40 states, most are concentrated in the Southeast. As Homrich Berg rose from $1 billion to $6.2 billion in assets and Lang climbed the ranks to the C-suite, the wealth management industry itself changed quite a bit as well. ‘The move from active to passive on the asset management side has been a pretty massive gamechanger for the industry,’ Lang says. ‘Costs have come down, not only on the asset management side as ETFs have proliferated throughout the industry, but now you’re seeing it on the trading side.’ Those costs have been coming down for years, but Lang says that with Charles Schwab, Fidelity Investments and TD Ameritrade offering free trading for ETFs and stocks, it’s apparent that a ‘lower-cost mindset’ is spurring transformation.

INVESTMENT PHILOSOPHY Homrich Berg is a big believer in diversification, Lang says. The firm is only paid by clients and accepts no fees or commissions. Clients

THE MOVE FROM ACTIVE TO PASSIVE ON THE ASSET MANAGEMENT SIDE HAS BEEN A PRETTY MASSIVE GAMECHANGER FOR THE INDUSTRY

receive personalized portfolios. The firm’s typical client, Lang says, has between $2 million and $10 million in investable assets, while family office clients tend to have $30 million and up. Lang identified private alternative investments as a particularly differentiated offering and a point of focus for the firm over the next year. ‘We spend quite a bit of time identifying private alternative managers and hedge fund managers,’ she says. ‘We have an internal fund of funds where we pool our clients’ money together to go into a limited partnership and then we will allocate to private alternative managers whether it’s private debt, private equity, private real estate or private natural resources.’ Those funds are generally limited to purchasers with $5 million in investable assets or above. The firm is also looking at other alternatives that some smaller clients or accredited investors can access, she says. ‘Investing in direct real estate, like an apartment building or office building, is something clients really respond to,’ Lang says. ‘They can touch and feel these buildings, they can get income, and it’s easy to understand what that investment is.’ Lang says the firm believes investors can earn excess returns in private investments over the public market. ‘In most circumstances the recommendation would be to put aside 10-15% of their portfolio in more illiquid investments,’ she says.

PREMIUM ON CONSISTENCY Homrich Berg is ‘sticky’ when it comes to fund managers, Lang says. ‘If they’re underperforming for a period of time, that’s not necessarily a reason we would eliminate them,’ she adds. For international stocks, the firm leans toward active management, although it lowered its overall allocation due to higher currency volatility and declining diversification benefits, Lang says. Any use of active managers in domestic equities comes down to fees. ‘If you’re having to pay 1% for a domestic equity manager, it’s that much harder to overcome that hurdle than if you’re

paying 20 basis points,’ Lang says. The firm continues to favor active management with regards to fixed income, especially as there is less liquidity with certain investments in the space, she says. Lang says the firm generally looks for managers with a consistent process and team. ‘We’re evaluating the track record, but we need that performance to be reflective of the team in place,’ she says. The expectations extend to Lang herself as well. ‘Over time, just doing the right thing pays off,’ Lang says. ‘That has helped me grow into the leader I am today and gives me more confidence as a decisionmaker for my department and within my firm overall.’ ◊

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MUNILAND: A WORLD OF OPPORTUNITY? Stellar performance and a recent tax overhaul has brought munibonds to the attention of a new generation of savvy investors ‘I invest only in AAA munis. I look for duration and I don’t reach for yield.’ That was the surprising response Todd Smith, better known as rapper LL Cool J, gave when asked about his personal investments on a plane trip roughly a decade ago. An avid investor, LL was clearly onto something back then: as well as conferring generous federal tax breaks, munibonds remain an unsung hero for many fixed income investors – especially if you’re brave enough to venture out past AAA names. The last two years have been a case in point, much to LL’s liking. Last year, for instance, munis outpaced Treasurys by eking out a modest gain as nearly every major asset class – except cash – finished the year in the red. And 2019 has proven even more fruitful, with the S&P Municipal Bond index on track for its best year since 2014, returning over 6.7% year-toNovember. Boring to some, they’ve been a clear boon for others.

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M UN IBO N D S CATCH F IR E While the stellar performance of munibonds has caught the attention of many savvy investors, it was a major tax overhaul that took effect in 2018 that really set the train in motion. Two provisions in particular have helped propel the municipal bond market in 2019. First, demand has risen as many well-to-do households have become aware that federal deductions for state and local tax (SALT) payments is now limited to just $10,000 a year. That has a disproportionate effect in high-tax states such as California, New York and Connecticut, where investor appetite for munibonds – and their tax breaks – has skyrocketed. The Fed’s rate cutting cycle – it has cut three times this year – has also reduced the attractiveness of conventional bonds that don’t carry a tax-friendly status. Treasurys and investment grade, for example, have gained in value this year, but they now offer

little in the way of yield, and many believe that the risk-reward now looks lousy. By contrast, investors are also drawn to munis’ lower overall volatility and low correlation to equity markets. These tailwinds have all bolstered the attractiveness of munibonds for income investors, with the asset class on track for its highest annual inflow on record, according to data provider Lipper, surpassing the previous high set in 2009. In fact, not only have inflows nearly surpassed the previous annual record already, but this year has seen ‘more than 10 times the amount of new investment money gathered over the whole of 2018,’ said Mark Marinella, a portfolio manager at Capital Group. Second, the tax law also helped crimp supply, especially when it came to ‘advanced refunding issues,’ which made up around one-fifth of all munibond issues annually. A solid economy, meanwhile, has helped fill government coffers, reducing the need for municipalities to borrow. Taxable refunding issues have actually increased this year, but the supply pipeline for non-taxable bonds remains positive overall. ‘This acceleration is in refinancing activity as well as taxable municipals, so we still expect net negative new issue supply of approximately $80 billion for 2019,’ explained John Miller, head of municipals at Nuveen. That means that the supply/demand backdrop for munibonds remains relatively attractive, even if spreads have come in of late. ‘Overall, it’s an unbeatable risk-

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reward situation with municipal bonds,’ said Terri Spath, who runs the Sierra Tactical Core Income fund and has currently nearly one-fifth of his portfolio allocated to munibonds. MORE ROOM TO RU N ? The obvious question is whether munibonds have further room to run after such a strong showing the past three years. It’s a fair question to ask given what’s transpired in recent months and the low yields now on offer from some issuers. The S&P Municipal Bond index yield to worst, for instance, has closely tracked the 10-year Treasury. Having peaked at 3.1% last October, it has fallen dramatically in the past year, dropping to a low of 1.68% in August, well below the average coupon. It has since backed up to around 2%, which has meant relatively muted gains overall in the last three months. Moreover, the last time the index’s yield to worst was around 2%, back in 2016, it managed to eke out a very modest 0.77% gain for the year. So while munibonds do offer good risk-adjusted returns and have only had one down year in the last 10 – when the index fell -2.55% in 2013 – the best days for index investors may well be behind them, at least for the time being. But there are still opportunities. ‘Even with muni yields near multi-year lows, after-tax yields have continued to exceed those of taxable bonds for anyone whose marginal tax rate is 24% or higher – well below the top tax rate of 37%,’ Capital’s Marinella added. Similarly, while the melt-up in Treasury yields and sell-off in defensive assets in November was no doubt a headwind for many munibonds, there are signs that it was a little premature. The détente with China, if it does transpire, is still a first step in a long and ongoing trade truce, while global growth – particularly in the US – shows few signs of bottoming, even if recession odds have fallen. Spreads on A and BBB munis, meanwhile, are closer to their historical averages, which suggests that yields can still fall further in some segments of the muni market. That makes being active – and highly selective – critically important.

G E T ACT IV E A N D R E ACH F O R Y IE L D? According to Marinella, an active manager can serve three main purposes: helping balance portfolios by moving cash off the side-lines; acting as a tax-free ballast; and diversifying portfolio income. By contrast, he said, high-yield bonds ‘aren’t a good diversifier because they have tended to rise and fall with equities. [So] complementing traditional high yield with comparably rated munis can be a double win for investors.’ ‘It’s a great time to be an active muni investor,’ he added. ‘From the shape of the yield curve, to opportunities in healthcare and relative value in the housing sector munis, research is helping us uncover truly varied opportunities.’ Unlike high-yield junk bonds, meanwhile, high-yield munis have had lower default rates historically, and their credit quality has actually increased in many cases. Moody’s recently concluded that 22 states are in a stronger position to weather the next recession than when the recovery began

nearly a decade ago, while 26 states are moderately stronger. Just two states, Illinois and New Jersey, are weaker. State and local revenue trends have been positive, too, as are rainy day funds, and state revenue collections have actually surprised to the upside so far in 2019. That flies in the face of the frenzied fears of alarmists who, for years now, have said that ballooning unfunded liabilities are one reason munibonds are broadly uninvestable. It also means that even if the Federal Reserve actually under-delivers in the months and years ahead, munibonds are perhaps one area where reaching for yield may actually make sense – despite what LL Cool J used to believe. ‘We expect interest rates to remain in a narrow range,’ Nuveen’s Miller said. ‘With this backdrop, we continue to see value in municipal bonds, including those with credit risk and high yield, which have been outperforming amid low volatility. We believe that opportunities exist within the diverse high-yield municipal bond class.’

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WILL MUNICIPAL BONDS CONTINUE TO DELIVER? DARYL CLEMENTS PORTFOLIO MANAGER MUNICIPAL BONDS AT ALLIANCEBERNSTEIN (AB)

The municipal market has enjoyed a remarkable rally this year as investors have embraced munis, driving week after week of inflows. But low yields and an aging expansion worry investors in the home stretch of 2019. They’re concerned about resolving the tension between risk and return in increasingly uncertain conditions. Thankfully, active and flexible strategies can effectively balance risk and reward when conditions are evolving.

LOW YIELDS MEASURE UP Whether they’ve been on the sidelines for months or they’re considering a quick exit, some investors believe that municipal yields are too low to warrant investing. Instead, they’re turning to cash equivalents to provide the ballast they’d otherwise expect from muni bonds. However, the range of possible outcomes strongly favors staying invested. We’ve used a one-year US Treasury bill as a proxy for the after-tax earnings on cash over the next 12 months (Display). For investors to be better off in cash, municipal yields would have to rise by an amount consistent with 10-year Treasury yields climbing above 2%. That seems unlikely in an environment of easing monetary policy and heightened equity volatility. We also expect continued favorable technical conditions. Although muni supply has increased as issuers have taken advantage of lower rates, demand remains strong. Combined with all the other supportive ingredients in place today—low global yields, an expanding economy and a volatile equity market—supply/demand factors suggest stable prices in the fourth quarter. Lastly, sitting out a period of low yields amounts to market timing. Successful market timing is virtually impossible,

MUNICIPALS LIKELY TO OUTPERFORM CASH EQUIVALENTS EVEN IF YIELDS RISE Returns Over Next 12 Months (Percent) US T-Bill

3.23

Intermediate Municipal Bond 2.27

Breakeven with One-Year T-Bill

1.58

0.94

0.94 0.33 One-Year T-Bill

One-Year T-Bill After Tax

1.25%

1.58%

For illustrative purposes only. As of October 2, 2019. Source: Bloomberg and AB.

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2.25%

10-Year US Treasury Yield One Year from Now

2.04%

ADV ERTIS IN G FEATU RE

because no one can predict exactly when yields will rise. And in the meantime, sidelined investors forfeit the after-tax yield advantage that comes with being invested, as well as potential price gains should yields fall further. Indeed, muni investors who opted for cash instead of municipals at the start of 2019 saw their decision backfire as munis resoundingly beat one-year T-bills over the next nine months when yields fell unexpectedly. Bottom line? Stay invested. THE SPECTER OF NEGATIVE YIELDS Slowing growth, low inflation and Fed policies have all contributed to recent declines in US yields. Outside the US, the volume of outstanding debt that carries negative yields has ballooned to US$15 trillion under similar pressures. Could we see negative yields in the US too? We don’t think so. We expect US economic and inflation growth to hover around 2%, which effectively puts a bottom under yields. However, if investors have strong convictions that yields will turn negative, that’s yet another reason to invest in munis now. DIGGING INTO FUNDAMENTALS Today’s expansion is the longest on record, and municipal governments have used the extended period of economic growth and rising employment to shore up their fundamentals. State and local government tax receipts skyrocketed 18% year over year in the second quarter, according to the US Bureau of Labor Statistics. Even more telling, tax receipts in 2019 came in at $1.8 trillion, compared with $1.3 trillion in 2007. State and local officials have prudently managed these revenues, as evidenced by strong growth in rainy-day reserve funds that provide a cushion in the event of a downturn or recession. Reserves have climbed from under 2% as a percentage of general spending in 2010 to more than 7% today. They are now at a 20-year high. Rating agencies have rewarded this fiscal discipline; for the past five years, upgrades have outpaced downgrades across

the municipal market. In the second quarter of 2019, upgrades accounted for 71% of rating migration. In short, municipal issuers appear well positioned for a turn in the credit cycle. THE HUNT FOR INCOME Yield-hungry investors have poured money into high-yield munis this year, driving these spreads well below their post-2008 average of 3.25%. In our view, today’s narrow spreads don’t suggest a bubble, but they do call for a more selective approach to the sector. As investor enthusiasm for high yield has grown, so has the number of relatively risky deals. But opportunities exist elsewhere in muni credit. Spreads on municipals rated A and BBB are closer to their long-term averages, implying more room for spread tightening. Healthier financial conditions also bode well for these issuers. Both high-grade and high-yield muni investors may benefit from a diversified position in mid-grade credit today. Careful selection helps maximize opportunity and minimize risk. Active muni managers with flexible approaches have more tools and strategies at hand for navigating the challenges that dynamic markets present. Investors who keep their hands on the wheel will be better positioned to respond to any pitfalls or opportunities around the bend.

Daryl Clements joined AB in 2002 as a munici pal credit research analyst with a focus on transportation, public power and tobacco-backed bonds. He has been a member of the portfoliomanagement team since 2006. Prior to joining AB, Clements was associate director for Financial Guaranty Insurance Company and a research associate for Moody’ s Investors Service. He holds an MBA from Pace University and a BS in business, management and finance from Brooklyn College.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams, and are subject to revision over time. Past performance does not guarantee future results.

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NOV E MB E R 2 0 1 9

INVE STME N T

MY MODE L PORT FO L I O

DAVID CARTER

CHIEF INVESTMENT OFFICER • LENOX WEALTH ADVISORS

This New York City-headquartered RIA reveals its active, passive and factor-based approach to investing

WHAT IS YOUR OVERALL INVESTMENT PHILOSOPHY? We believe that asset allocation is the primary driver of portfolio performance. As such, we manage our diversified allocation of equities, fixed income and alternative assets in response to and in anticipation of developments in the global economy and financial markets. We see a place for both passive and active management in portfolios – passive for very liquid, efficient markets such as large-cap equities, but active in markets where managers can add value due to beatable index construction or informational asymmetries, such as in fixed income or emerging market equities. We also believe in the academic research behind factor investing and often use factor strategies, which fall somewhere between true active and true passive, in our portfolios. Another component of our investment philosophy is asset location. If a client has both taxable and tax-deferred accounts we try to hold the most tax-inefficient assets in the tax-deferred account to minimize tax-drag on returns.

WHAT MODELS DO YOU OFFER CLIENTS? We may start the portfolio construction process with an indicative model, but will customize it based on each client’s risk objectives, goals, outside holdings and income sources. Portfolios may hold several similar strategies but with different sizing and unique holdings. Objectives can range from capital preservation to aggressive, and also include objective-specific portfolios such as high income.

HOW DO YOU VIEW MANAGER SELECTION? We first evaluate what’s going on in the global economy and financial markets and take stock of how we think our portfolios will fare in the current and coming environments. When we decide

N O V E M BER 2019

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we need to make a change to the portfolios we determine which strategy we need to add and look for the fund we believe will deliver that strategy the best. We look into active, passive and factorbased options. While each type of manager requires a different due diligence approach, we look at quantitative and qualitative criteria for all prospective funds. On the quantitative side, we look at historical risk and return, and for qualitative, we look at AUM, fees and manager history. Other criteria depend on the kind of strategy we are looking to add – recent examples include dividend yields on international high dividend strategies and the portion of qualified income being paid out by preferred stock strategies.

WHAT TYPES OF CLIENTS DO YOU WORK WITH? We work primarily with high-net-worth individuals and families across the US, with concentrations in New York, Chicago, Los Angeles and San Francisco. Many of our clients are financial services and legal professionals who are still working. We also work with select institutions, foundations and non-profits.

HOW DO YOU USE ACTIVE AND PASSIVE FUNDS? We believe there is a place for both passive and active strategies in client portfolios. For very liquid, efficient markets such as US large-cap equities, we believe it is very difficult for an active manager to outperform net of fees, so we’ll use passive strategies. We will use active strategies in less efficient parts of the markets such as emerging market equities, where we believe a manager has a real chance to add value, or in markets where an index might be beatable due to its construction, such as in certain fixed income markets. We also frequently use factor-based equity strategies, which sit somewhere between active and passive.

IN VESTM E NT

M Y M OD EL P ORTFOL IO

MODERATE PORTFOLIO

ARE THERE ANY MANAGERS YOU HAVE HIGH CONVICTION IN? Given the slowdown in global growth, we have been looking to add strategies that can outperform in a low-growth, lowyield environment. We have added higher yielding strategies in preferreds and international high dividend equities, and we have added a minimum volatility factor fund that has provided great downside protection during periods of choppiness so far this year. As most of our clients face high state and local taxes in addition to the normal federal rates, we have shifted more client money into direct-indexing strategies that can harvest capital losses in an effort to reduce their tax burden.

AIA TAX-MAN CE A N VAN S&P 500 SM GED EATO AL MACRO A B GLO INVESCO ED BALANCED RISK FERR E PRE INCOM & EN VE ITIES U N CUR SE

5% i

D XE FI

% 34INCOME

2% 7%

IN TE

iS MS HAR CI ES M E IN D V

L BA LO GE L G O

RES HA IONAL D XS N T FLE ERNA DIVIDE INT ALITY QU

IFIED RETURN INTER N DIVERS NATIO ORGA NAL JP M LORD ABBETT IN T E R M EDIA TE T AX FRE E

AQR LARG SACHS E DMAN MOMENT CAP GOL EBETA U.S. UM ST V YLE ACTI E CAP DFA U.S. SMALL LARG iSHAR ES M CAP VALUE SCI EAF E

49%

EQUITY

ERGING MARKE TS BARON EM

23%

E ARG RL AQ P IVE CA FENS DE LE Y ST

WI S& SDO P5 M GU 00 TRE GG PU E C EN TW B HE IM RI OE MA TE CR O OP PO R

SP D LA R P RG OR E C TF AP OL ET IO F

RE TF CO AP E ES C AR MID SH &P S

INVES BULL CO 2021 ETSHA R C BOND ORPORES ATE

TIC ES M DO

We’ve made a few changes in our CM K ITY 4% EC OD allocation this year. Most were N M VA OM C the result of what we have ES TI NI seen in the global economy TU or financial markets and one was performance 5% % ES driven. To start, we 17NATIV have seen covenant R 2% E LT protections in credit grow more lax over the past year, 3% so we reduced our exposure to leveraged credit. We also sold a position in commodities 6% as the US-China trade war has not only hurt current commodity prices but also dampened the prospects for future inflation, which is a key driver for the performance of commodity funds. We used the proceeds from both of those sales to build a sizeable position in preferreds, which we like for the high amount of income they pay out. In this lower growth environment, we have been looking for opportunities to be paid to wait, and preferreds have been a key part of that strategy. With interest rates on a firm path downward, they should fare well from a price perspective. In the same vein as being paid to wait, we have also moved some of our existing international equity exposure into international high dividend strategies. ◊ SM A

AK ANGEL O RATEGY MULTI-ST INCOME

L NA IO AT RN

ANY CHANGES IN ALLOCATIONS OR MANAGERS FROM LAST YEAR?

2% 3%

3% 2%

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NOV E MB E R 2 0 1 9

Sustainable Investing. We are adapting to the changing climate. Are you?

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The future invests here

2019-10-31 12:22

IN VESTM E NT

EQU ITIES

TECH TRIUMPHS A move into value stocks is offering up new tech opportunities BAILEY McCANN Internet stocks have been on an interesting journey. Companies from Alphabet to PayPal have been growth stocks for several years, but slowing global growth and trade tensions have raised questions about what investors can expect. The managers in this ranking have been able to thrive by focusing on value opportunities and diversification. Rahul Narang runs the Columbia Global Technology Growth fund and his risk-adjusted performance has earned him a top spot in our ranking, with a manager ratio of 0.46 and a Citywire AA rating. His investment strategy primarily focuses on software, IT services and semiconductor names, with these holdings making

up approximately 60% of the fund’s portfolio, which includes high-growth giants such as Microsoft, Alphabet and Amazon.

CHANGING GEARS However, change is on the horizon. Narang said that in the third quarter the fund pivoted out of growth stocks and into value stocks to take advantage of new opportunities. As global growth continues to slow, Narang is looking for names that may be underpriced and have a bit of runway for appreciation. He also believes that China and Japan could take steps if their economies lose growth momentum, which could create new opportunities for undervalued internet stocks to shine. His fund currently has a small position in

THE TOP MANAGERS DRIVING SCIENCE AND TECH FUND PERFORMANCE DATA TO SEPTEMBER 30, 2019 / SOURCE: CITYWIRE DISCOVERY

RANK

MANAGER NAME(S)

CITYWIRE RATING

FUND(S) MANAGED

TOTAL RETURNS (%) 1 YEAR

3 YEARS

5 YEARS

3-YR SECTOR MR*

1/31

RAHUL NARANG

COLUMBIA GLOBAL TECHNOLOGY GROWTH

4.7

79.9

136.1

0.46

2/31

KEVIN LANDIS

FIRSTHAND TECHNOLOGY OPPORTUNITIES

-1.1

84.4

110.4

0.27

WELLS FARGO SPECIALIZED TECH

-4.6

74.5

104.1

0.13

FIDELITY SELECT IT SERVICES PORTFOLIO

9.9

86.8

0.11

KINETICS INTERNET

5.3

44.7

0.07

FIDELITY SELECT SEMICONDUCTORS PORTFOLIO

67.9

140.9

0.02

-6.4

69.2

123

0.02

1.3

60.4

94.1

-0.17

3/31 5/31

WALTER PRICE HUACHEN CHEN DANIEL SHERWOOD PETER B. DOYLE

6/31

MURRAY STAHL JAMES DAVOLOS

9/31

STEVE BARWIKOWSKI

FIDELITY ADVISOR SEMICONDUCTORS

STEVE BISHOP 10/31 CHRISTOPHER CLARK

VICTORY RS SCIENCE AND TECHNOLOGY

PAUL LEUNG AVERAGE MANAGER

*THE MANAGER RATIO IS THE AVERAGE INFORMATION RATIO OF THE FUNDS THE MANAGER HAS RUN IN THIS SECTOR OVER THE PAST THREE YEARS. A POSITIVE FIGURE MEANS THE MANAGER HAS OUTPERFORMED THEIR BENCHMARK(S).

Chinese tech giant Alibaba. Manager trio Peter Doyle, a fellow AA-rated manager, A-rated Murray Stahl and + rated James Davolos have also been wary of the global growth story in the second half of 2019. They run the Kinetics Internet fund and have been telling investors that the best performers might be value plays. ‘The global orientation of these businesses is no longer as compelling a trend, given high saturation rates of technology and connectivity in the developed and developing world, and also the laggard economies of many international developed countries,’ Doyle and his colleagues said in a recent fund commentary.

BRAVING BITCOIN The trio is also constructive on names such as Paypal and Alphabet, but maintains the Grayscale Bitcoin Trust as its top holding. The Bitcoin Investment Trust is a publicly-traded vehicle that gives investors access to bitcoin. Although the cryptocurrency darling is well off its historical highs, it has had a few pops over the past few months that gave investors something to smile about. Most long-term bitcoin investors are now focused on investing in the cryptocurrency as a store of value, which makes it work similarly to gold in a portfolio. Bitcoin supporters also point to the potential for the asset to become a more commonly used currency in traditional financial transactions as payment frameworks expand to include the cryptocurrency in their lists of accepted payments. Their Kinetics Internet fund is up 5.3% for the year and is up approximately 44% and 47% on a three- and five-year basis, respectively. Their three-year risk-adjusted performance saw them record a manager ratio of 0.07 and earned them their spot in this ranking. According to the Kinetic trio, it’s also worthwhile to consider internet stocks that overlap into other sectors within the domestic economy. Doyle and his co-managers are looking for companies that have been able to limit their China exposure, for example, and could be less vulnerable if the trade war heats back up. ‘These include companies involved in cybersecurity/defense and platforms for online payments and lending,’ they said. ◊

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NOV E MB E R 2 0 1 9

ADVERTISING F E AT UR E

Q&A DISCUSSION ON THE JENSEN QUALITY VALUE STRATEGY CHRIS NEILL, CFA® DIRECTOR, INSTITUTIONAL SALES JENSEN INVESTMENT MANAGEMENT

WHAT WAS THE GENESIS FOR LAUNCHING A SECOND PRODUCT AT THE FIRM? The Jensen Quality Value Strategy began in 2007 with our research into the drivers of returns within our universe of high-quality stocks. We found that a portfolio of primarily mid-size companies with less expensive valuations tended to perform well over time and could add a measure of diversification for our clients. The Jensen Quality Value Strategy is an actively managed portfolio of 30-50 companies that is driven by our bottom up, fundamental analysis. CAN YOU BETTER DEFINE THE JENSEN QUALITY UNIVERSE? Qualifying companies in The Jensen Quality Universe demonstrate strong business performance throughout various economic environments by generating a Return on Equity of 15% or greater in each of the past ten years. For the Jensen Quality Value Strategy, approximately 200 companies qualify for research consideration today. The high ROE threshold results in either relatively low or zero exposure to commodity-oriented and interest rate-sensitive sectors such as energy, financials, real estate, and utilities. HOW ABOUT A FEW INSTANCES OF PROACTIVELY IDENTIFYING A VALUE TRAP OR WHERE THE INVESTMENT THESIS MAY BE TEMPORARILY CHALLENGED IN THE TEAM’S OPINION? Our decision to sell Bed Bath & Beyond (BBBY) while maintaining our position in Best Buy (BBY) serves as an illustrative example of our approach. In our view, Best Buy was able to adapt and evolve its competitive moat to meet the increasing demands and disruptive shift to E-commerce. Best Buy addressed the threat by matching prices with Amazon and investing in its online channel and distribution infrastructure. We believe that Best Buy has successfully navigated this industry evolution despite declines in retail traffic. Conversely, Bed Bath & Beyond lagged in implementing changes to its business model. Our fundamental analysis revealed an unsustainable pricing strategy, outdated store design and a reluctance to expand its online presence.

CAN YOU PROVIDE US WITH AN EXAMPLE OF A JENSEN QUALITY VALUE COMPANY? Choice Hotels (CHH) is a franchisor of mid-market and economy hotels, including Comfort Inn, Quality Inn and Econolodge. CHH’s competitive advantages include economies of scale, strong brands and a network effect from its customer loyalty program. The company’s high-margin, franchised-based business model has historically delivered stable, profitable results throughout a variety of lodging and economic environments. Further, CHH’s position in the lodging market can be countercyclical, as customers tend to trade down to less-expensive hotels in periods of economic weakness. HOW DOES THE JENSEN INVESTMENT DISCIPLINE PROVIDE AN EDGE IN MANAGING THE QUALITY VALUE STRATEGY? First, we believe that the Jensen Quality Universe itself provides a streamlined opportunity set of profitable business models to which we can apply our fundamental analysis. Further, the construction of a three-stage discounted cash flow model informs our long-term company view and serves as a buttress to the business analyst’s investment thesis. Our analysts use a ten-year financial forecast in the first stage of their models, allowing the team to focus on a company’s long-term prospects instead of short-term “noise”. Finally, based on the strength of each company’s competitive advantages, the team assigns an overall fundamental rating of 1-4. This rating, combined with the company’s valuation profile, stock-specific risk and liquidity determines its weighting in the portfolio. The top third of companies represent between 3-4%, the middle third between 2-3%, and the bottom third between 1-2% of the model portfolio. Overall, we believe the Quality Value Strategy can play an important role as a “pairing” portfolio to help smooth out style disparities between value and growth allocations within a lineup of small- and mid-cap managers.

FOR FURTHER INFORMATION ON THE JENSEN QUALITY VALUE STRATEGY PLEASE CONTACT: Chris Neill Director, Institutional Sales cneill@jenseninvestment.com

DISCLOSURES: The information contained herein represents management’s current expectation of how an account invested in the Jensen Quality Value Strategy will continue to be operated in the near term; however, management’s plans and policies in this respect may change in the future. In particular, (i) policies and approaches to portfolio monitoring, risk management, and asset allocation may change in the future without notice and (ii) economic, market and other conditions could cause an account to deviate from stated investment objectives and guidelines. Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of an account invested in the Strategy may differ materially from those reflected or contemplated in such forward-looking statements. Performance data shown represents past performance; past performance does not guarantee future results and other calculation methods may produce different results. There is the possibility of loss of principal value. The Russell 2500 is a market cap weighted index that includes the smallest 2,500 companies covered in the Russell 3000 universe of United States-based listed equities. The Russell Midcap Index is a market capitalization weighted index comprised of 800 publicly traded U.S. companies covered in the Russell 1000 Index with market caps of between $2 and $72 billion, as of August 31, 2019. These indexes are unmanaged, and you cannot invest directly in an index. The mention of specific securities illustrates the application of our investment approach only and is not to be considered a recommendation by Jensen. The specific securities identified and described above do not represent all of the securities purchased and sold for the Strategy, and it should not be assumed that investment in these securities were or will be profitable. There is no assurance that the securities purchased remain in the Strategy or that securities sold have not been repurchased. Individual account characteristics and performance returns may differ from other accounts invested in the Jensen Quality Value Strategy and the Jensen Quality Value Composite due to the size of the account , client-specific constraints, tax considerations or other factors. Jensen Investment Management, Inc., is registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training. Although taken from reliable sources, Jensen cannot guarantee the accuracy of the information received from third parties. Graphs, charts, and/or diagrams cannot, by themselves, be used to make investment decisions.

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IN VESTM E NT

B ON DS

INCOME SEEKERS

growth going into next year, relying on the continued expansion of the middle class in many EM economies.

Emerging markets are becoming a favorite hunting ground for income managers BAILEY McCANN Global income funds have been a popular choice among yield-hungry investors eager for opportunities outside of US Treasurys. Many funds in this category have taken advantage of those inflows and are outperforming. As we move into a new year, the question now is whether they will be able to continue to outperform. Recent macroeconomic headwinds, including slowing global growth and record issuance, could dampen investor prospects. However, the managers listed in the table are still finding opportunities throughout emerging markets (EM). Topping our rankings is a manager trio from PGIM – Robert Tipp, Michael Collins and Arvind Rajan – which runs the firm’s Global Total Return fund. ‘We maintain our positive view of

EMERGING OPPORTUNITIES

fundamentals in the credit sectors of the fixed income market with positioning in spread sectors, including emerging market and structured product sectors – collateralized loan obligations, commercial mortgage-backed securities and residential mortgage-backed security credit,’ Tipp wrote in the trio’s latest market commentary. He added that, while the US and the EU bond markets have exhibited some weakness recently, any downturn has been met with an immediate response from central banks, which has helped to keep the momentum going in those markets. They are also constructive on US high yield bonds going into next year. Outside of the developed world, their fund is overweight the debt of European peripheral countries and a select group of emerging market issuers, mostly in sovereign issues. They expect to see robust

Echoing the PGIM trio, the four-person team running the Morgan Stanley Global Fixed Income Opportunities fund – Christian Roth, Michael Kushma, Jim Caron and Richard Ford – also expects solid EM growth in 2020. Risk appetites among investors improved in September as the US and China backed away from escalating their trade war ahead of the holiday season and some EM economies have exhibited new signs of growth, according to the quartet. Given these recent occurrences, they are cautiously optimistic. ‘We remain close to neutral with a small optimistic bias as we believe there will be no global recession in the near term. We are focusing exposures where we believe fundamentals are sound and valuations are reasonable,’ they wrote in their third quarter commentary. They too are constructive on the periphery of the eurozone as a pocket of opportunity. They also expect the Federal Reserve to cut interest rates again to extend the current cycle. On the currency side, if the US dollar remains where it is or declines, that could take some currency pressure off of dollar-denominated bonds that are outside of the US.

HOME COMFORTS

TEN GLOBAL INCOME MANAGERS BRINGING HOME THE RETURNS DATA TO SEPTEMBER 30, 2019 / SOURCE: CITYWIRE DISCOVERY

RANK

MANAGER NAME(S)

1/60

MICHAEL COLLINS

ROBERT TIPP ARVIND RAJAN

CITYWIRE FUND(S) MANAGED RATING PGIM GLOBAL TOTAL RETURN PGIM GLOBAL TOTAL RETURN USD HEDGED

TOTAL RETURNS (%) 1 YEAR 3 YEARS 5 YEARS

3-YR SECTOR MR*

16.4

24.2

1.35

7.7

17.4

21.8

1.01

0.79

MICHAEL KUSHMA 4/60

CHRISTIAN ROTH RICHARD FORD

MORGAN STANLEY GLOBAL FIXED INCOME OPPS

JIM CARON 8/60

BRIAN TIMBERLAKE MUSTAFA CHOWDHURY

10/60 MICHAEL FOGGIN AVERAGE MANAGER

VOYA GLOBAL BOND FIDELITY GLOBAL CREDIT

6.4

9.6

13.7

12.3

12.5

15.7

0.77

7.8

8.3

13.3

0.26

*THE MANAGER RATIO IS THE AVERAGE INFORMATION RATIO OF THE FUNDS THE MANAGER HAS RUN IN THIS SECTOR OVER THE PAST THREE YEARS. A POSITIVE FIGURE MEANS THE MANAGER HAS OUTPERFORMED THEIR BENCHMARK(S).

One manager duo in the ranking is looking closer to home. Brian Timberlake and Mustafa Chowdhury of the Voya Global Bond fund have been zeroing in on the US consumer sector. In recent commentary, they said the US consumer could prove to be a source of growth if individual balance sheets remain positive. ‘A strong rebound in net worth as a percent of disposable income and continued wage gains amidst a very tight labor market continues to support the US consumer,’ they said. ‘We remain strategically overweight securitized credit, which offers attractive exposure to the relative strength of the US consumer.’ The duo agrees with Morgan Stanley’s Kushma that, on a currency basis, the neutral to declining strength of the US dollar will keep the pressure off currency pairs in the EU and some EM economies. ◊

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NOV E MB E R 2 0 1 9

INVE STME N T

ALTE RNATIVES

FEAR THE REPO A rate squeeze in overnight repo financing has spooked markets BAILEY McCANN As the third quarter drew to a close, markets were rattled by a rate squeeze in overnight repo financing, a crucial liquidity tool used by both bank and non-bank participants to provide them with short-term capital, with banks being the primary source of the $2.2 trillion overnight repo market. In mid-September, a confluence of factors caused rates to rise dramatically, as corporates took money out to make large tax payments, while record Treasurys issuance put already-low bank reserves under pressure. The Federal Reserve stepped in to provide capital support and bring down the cost of financing, but it has stopped short of doing anything permanent. In the aftermath of the squeeze, bouts of volatility have become a more frequent feature of the repo market. The Fed has provided capital support, but broader pressure on bank reserves has meant that rates have continued to stay elevated. As a result, overnight financing for market participants, including non-bank broker dealers, mortgage Reits and hedge funds, is becoming more expensive. Over time, high rates could also erode the performance or profitability of some hedge fund strategies if managers are forced to pay more for repo or lose access to some repo financing.

WARNING SIGNS Fitch Ratings sounded the alarm on the potential problems for non-bank participants in a recent report, noting that traditional banks can rely on their deposits to keep overnight financing costs low. Nathan Flanders, global head of non-bank financial institutions at Fitch Ratings, said he expects volatility to be a feature of overnight repo

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THE FED IS THE ONLY INSTITUTION THAT CAN PROVIDE THAT LEVEL OF LIQUIDITY. UNTIL THAT GETS SORTED OUT, VOLATILITY WILL REMAIN JOSH GALPER FINADIUM rates, at least for the near term. ‘We’re not at existential crisis levels yet for non-banks, but if higher rates persist, hedge funds could have to rethink some strategies and reckon with possible performance erosion if they have a strategy that depends heavily on overnight repo,’ Flanders said. Hedge funds that use overnight repo as part of a rates-trading strategy are likely to be most heavily impacted by the rise in repo rates. However, any strategy that uses overnight repo to fund non-agency transactions will end up paying more as well. If volatility remains a feature throughout the rest of this year, hedge fund managers may be confronted with a need to rethink their approach to rates trading to avoid a drag on performance. But there aren’t many other tools managers could use to muddle through while

the Fed decides what to do. Josh Galper, managing principal at Finadium, a specialist securities finance advisory, said that hedge funds could pivot to term repo, total return futures or secured overnight financing rate futures, but all of those options require a bit of flexibility to work. ‘Hedge funds and others are going to have to think through their portfolio construction if this continues,’ he said. ‘Term repo could insulate strategies from some of the volatility. Total return futures are cleared and provide an alternative, but none of it is an instant fix.’ According to Galper, markets may need to think through market structure issues as well to avoid repo rate spikes in the future. ‘Some of this was predicted. Bank regulation means that banks aren't going to be able to step in as they have in the past – they have to maintain reserves,’ he said.

LIQUIDITY LIFELINE A standing repo facility through the Fed would permit banks to convert Treasurys to reserves on demand at an administered rate and could smooth out rates in the repo market. The other option is to relax reserve requirements on banks to allow them to use more of their reserves to fund repo, but that seems unlikely. ‘I don’t think anyone wants that,’ Galper said. ‘I think the Fed wants to avoid being the lender of last resort, but I don’t see how they're going to be able to avoid that with this level of Treasury issuance.’ A standing repo facility would put a ceiling on how high repo rates could go. Yet that would make the Fed the lender of common resort, Galper said, which is a solution that is likely to be met with some resistance from within the Fed. ‘What we’re dealing with is dramatically larger US Treasury issuance than anyone might have predicted when Dodd-Frank was written. The Fed is the only institution that can provide that level of liquidity. Until that gets sorted out, volatility will remain.’ ◊

Managed by the portfolio team at Manulife Investment Management Howard C. Greene, CFA Jeffrey N. Given, CFA

Put a time-tested approach at the core of your portfolio Investors today need a fixed-income solution built to navigate markets in transition. That’s why the team behind John Hancock Investment Grade Bond Fund takes a flexible yet conservative

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Class A: TAUSX

approach, targeting pockets of opportunity without taking on excess risk. We think it’s a better way to invest.

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Top Morningstar ratings1

★★★★★ Overall Class I rating as of 8/31/19 out of 353 intermediate core bond funds. Based on 3-, 5-, and 10-year Morningstar Risk-Adjusted Returns, accounting for variation in monthly performance

All funds may experience periods of negative performance. 1 For each managed product, including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts, with at least a 3-year history, Morningstar calculates a Morningstar RatingTM based on a Morningstar Risk-Adjusted Return that accounts for variation in a fund’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Exchange-traded funds and open-end mutual funds are considered a single population for comparative purposes. The top 10.0% of funds in each category, the next 22.5%, 35.0%, 22.5%, and bottom 10.0% receive 5, 4, 3, 2, or 1 star(s), respectively. The overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. The rating formula most heavily weights the 3-year rating, using the following calculation: 100% 3-year rating for 36 to 59 months of total returns, 60% 5-year rating/40% 3-year rating for 60 to 119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. Star ratings do not reflect the effect of any applicable sales load. As of 8/31/19, the fund was rated 4, 4, and 5 stars out of 353, 308, and 234 intermediate core bond funds for the 3-, 5-, and 10-year periods, respectively. Please note that Class I shares may not be available to all investors and that performance of other share classes may vary. Past performance does not guarantee future results. Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if an issuer is unable or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities include a higher risk of default. Liquidity—the extent to which a security may be sold or a derivative position closed without negatively affecting its market value, if at all—may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. The use of hedging and derivatives could produce disproportionate gains or losses and may increase costs. Fund distributions generally depend on income from underlying investments and may vary or cease altogether in the future. Please see the fund’s prospectus for additional risks.

Request a prospectus or summary prospectus from your financial advisor, by visiting jhinvestments.com, or by calling us at 800-225-5291. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should consider carefully before investing. NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. NOT INSURED BY ANY GOVERNMENT AGENCY. © 2019 John Hancock. All rights reserved. John Hancock Investment Management Distributors LLC, member FINRA, SIPC.

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WINDS OF CHANGE Reluctant advisors who’ve been labelling ESG ETFs as a gimmick may soon have no choice but to join the sustainable bandwagon DAVID STEVENSON Let’s be honest – it’s incredibly easy to be cynical about ESG investing. But my cynicism about ESG investing has deep philosophical roots. My worry is that too much ESG investing feels and acts like an exercise in metropolitan elite virtue signaling that chooses to highlight stuff some people care about (for example, green issues) but ignores awkward stuff of great interest to people outside of the elite (CEO salaries, attitude to labor unions, and whether corporates back national and local businesses, for instance). Also, unlike the more traditional forms of factor-style investing, the sheer enormous range of ESG factors makes any form of consistent screening very difficult. Which is precisely why a bog standard ESG ETF might be an inferior structure when compared with newer technology solutions provided by the likes of Open Invest and Ethic Inc, which allow investors to customize their social investing priorities. And then there are my geeky concerns about what kind of stocks investors are actually buying into if they own an ESG ETF. These were summarized by factor investing guru Nicholas Rabener of FactorResearch in a recent blog for the CFA Institute. He looked at data going back to 2009 and then divided the ESG stocks into four main groups: citizenship, environmental, employees and governance. The good news is that these ESG stocks didn’t underperform. Except for the employees factor, all ESG categories generated positive returns from 2009 to 2018. According to Rabener, ‘based on these results, being a good corporate would seem to pay off.’ But what his analysis also suggested is that there is a big,

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not-so-hidden style bias. ESG stocks tended to have ‘negative exposures to both the value and size factors as well as positive exposures to the low volatility and quality factors… the average market capitalization of the top 10% of the highest-ranking ESG stocks is almost twice that of the bottom 10%,’ he said. Stocks with high ESG scores also display strong positive exposure to the low volatility factor. Why this style exposure? According to Rabener, maybe ‘less-levered companies tend to have management with a more long-term perspective, and highly profitable firms have more resources with which to achieve high ESG scores.’ It’s also worth mentioning the equally obvious sector bias towards technology and healthcare as opposed to energy and banking.

SHARED CYNICISM Now, to be fair, I sense that many US advisors and analysts share my skepticism. According to Deborah Fuhr, managing partner at ETFGI, although 70% of the world’s $5.32 trillion in ETF assets are domiciled in the US, over 60% of the ESG ETF assets are currently domiciled in Europe. She was recently quoted as saying

that ‘Europe are investing along these lines a lot more than people in the US, partly because of regulatory guidelines from countries like France and Belgium.’ Those regulations point to what I think is increasingly the elephant in the room – US advisors may soon have no other choice than to start participating in ESG investing seriously. Despite my long list of misgivings, my sense is that the powers that be – regulators, central banks, large asset owners – are taking this stuff seriously. My hunch is that, over time, these concerns will find their way into clients’ questions. One can sense the winds of change in the CFA Institute’s recent position statement on ESG: ‘The CFA Institute encourages all investment professionals to consider ESG factors, where relevant, as an important part of the analytical and investment decision-making process, regardless of investment style, asset class, or investment approach.’ Another warning of what may happen in the future came at a recent event held in Paris by asset manager Amundi. The head of the French central bank suggested his colleagues in Europe might start looking at investment bank stress-testing for climate change, which could end up with a boycott of the wrong kind of collateral – i.e investment banks might not be able to offer up bonds as collateral from sectors such as the hydrocarbon sector. Big asset owners are also organizing around climate change to force big business into changing their policies. My guess is that we are already starting to see this in the share price of many energy stocks. Oil prices have rebounded over the last few years but energy stocks continue to languish at low valuations, despite bumper cash flows. Anecdotally, I hear that many large traditional institutions are scaling back their purchases of energy stocks because of their concerns about climate change. Put simply, a new investment equation may be emerging, whether we like it or not. If you want to invest longer term, you might not be able to avoid the issue of corporate sustainability, which inevitably drags you back to considering ESG screens. ◊

Generating alpha for the long term

We believe we can achieve betterthan-market returns over the long term through active portfolio management. Our primary focus is on achieving value-added results for your clients. DIAMOND-HILL.COM | 855.255.8955

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A series of articles that answer the most common questions about factor investing

WHAT YOU NEED TO KNOW ABOUT...

VALUE Value investing, which relies on cheap assets to provide higher returns than expensive assets, requires patience and a solid understanding of Value metrics and strategies TOMMI JOHNSEN AND ELISABETTA BASILICO Before we delve into the most common questions asked about the value factor, it is worth taking a quick step back and looking at a bit of history. Professors Eugene Fama and Kenneth French established the foundation for factor investing in the early 1990s with the publication of two influential papers: The Cross Section of Expected Returns (1992) and Common Risk Factors in the Returns on Stock and Bonds (1993). With those publications, Value as a factor was born and the race to build quantitative versions of Value products began. We now have an abundance of factor strategies, and an industry estimated by BlackRock to be worth $2 trillion today. Thanks to the burgeoning number of academic studies on the topic, factors are now everywhere, defined every which way and promise all kinds of advantages. Value was one of the original three factors set out by Fama and French, alongside size and risk. It has been in the news for much of the post-crisis era due to lagging in a roaring growth market, but what is it and how does it work? Read on to find out as we answer investorsâ€™ most common questions about Value.

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WHAT IS THE NARRATIVE BEHIND THE VALUE PREMIUM? Conventionally speaking, the Value premium refers to the tendency for relatively cheap assets to provide higher returns relative to expensive assets. The research is consistent, clear and emphatic on this. Value, when deployed as a strategy, has exhibited higher than expected average returns. The inconsistency in the research comes from the underlying theory as to why higher average returns are the case. Two camps have emerged taking opposite sides of this debate, which asks: Is it risk or is it an inefficient market that drives factor returns? The risk camp argues that the Value premium is compensation for investing in a riskier security. Fama and French argue this case forcefully in their landmark 1992 study. Stocks with high book-tomarket ratios are fundamentally riskier in one way or another, perhaps default risk, and their higher average returns are simply compensation for bearing that extra risk. The mispricing camp counters that emotion and human psychology will impart undue influence on investing decisions and will produce systematically mispriced securities. In the case of Value stocks, for example, investors may incorporate much lower expected growth rates into share prices, oversell them and thus generate a set of stocks that are not only out of favor but consistently and systematically underpriced. In either case, the outperformance of Value as a factor has been documented in academic literature and successfully exploited in various quantitative Value strategies, which are packaged and sold successfully as retail products.

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price, followed by earnings-to-price and earnings before interest tax depreciation and amortization (Ebitda) and to enterprise value. With the exception of Japan, Canada and Singapore, the best and worst metrics were consistent across the remaining countries.

WHY SHOULD YOU CARE? It is important to be aware that the method of constructing factors may vary considerably from provider to provider and could differ from the definition used in academic articles that establish their significance and robustness. That could be a problem because the relative performance of a value strategy will vary depending on the metric used. It is true that most vendors use the book-to-market metric, but we found its performance disheartening at best. Book-to-market was statistically significant in only one out of 10 countries supporting rumors that one of the most studied and commercially used metrics may no longer be effective at capturing the Value premium.

SHOULD WE WORRY THAT VALUE IS DEAD? Despite the evidence about book-to-market, and the not quite up to par performance of Value in general over the last decade, we believe the rumors that the Value premium has disintegrated and disappeared are premature. Factors can and have had periods where large drawdowns occur. Notably, the Value drawdown during the tech bubble of 2000 and the crisis of 2007 were very similar in size and length to the dismal performance of 2018-2019. If the Value premium is to falter it would occur as a result of a fundamental change in the manner in which investors behave or the way markets reward risk taking. The robustness of the research on Value investing has been documented and is a convincing reason to conclude that the return regularities observed are in fact, an economic reality rather than the results of datamining or sampling error.

FINAL THOUGHTS:

ITALY JAPAN AUSTRALIA HONG KONG SINGAPORE

HOW IS VALUE MEASURED AND WHICH METRIC IS BEST TO USE? We studied this question for 10 developed markets over the period from January 1995 to May 2019 with results summarized in figure 1. We were looking for a relationship between forming a portfolio based on the Value metric and future stock returns. We found the clear winning characteristics to be free cash-flow-to-

Be patient. Investors often focus on stocks that pay off over horizons much shorter than is required by most Value strategies. An examination of the return performance, over time, of Value suggests that it may take a number of years to pay off, with periods of underperformance interspersed throughout the investment period. It is best to diversify. That means across Value metrics and across Value strategies globally. And though the historical performance of Value could return in full force, it really wouldnâ€™t hurt to lower your return expectations below that guidance. â—Š

Tommi Johnsen, PhD, and Elisabetta Basilico, PhD, CFA, are co-editors of academicinsightsoninvesting.com. Their book, Smart(er) Investing: How Academic Insights Propel the Savvy Investor, is due out in December.

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60% vs 2%

$19.93 trillion

The wealth gap among retired Americans has worsened. Between 2004 and 2016, the financial assets owned by the wealthiest 5% of baby boomers grew from 52% to 60%. Meanwhile, the share of assets owned by the bottom 50% of boomer households shrank from 3% to under 2%

Facebook’s revenue in the third quarter jumped 29% from a year earlier to $17.7 billion, with profits rising 19% to $6.1 billion. After a run of scandals in recent years, the social network surpassed Wall Street estimates and is optimistic about moving beyond such challenges

REUTERS

NEW YORK TIMES

29%

With more mutual funds launched (345) than ETFs (247) last year, mutual funds in the US still dominate, with $19.93 trillion in assets under management as of August 21, versus $19.49 trillion a year earlier WALL STREET JOURNAL

$13.5 billion Through September, the estimated flows into the 288 open-end and exchangetraded sustainable funds available to US investors reached $13.5 billion, with sustainable funds attracting more than $4 billion in each of the first three quarters of 2019 MORNINGSTAR

$190 billion Fiat Chrysler has agreed to merge with Peugeot’s parent company. Combined, the companies make up one of the world’s biggest automakers, selling 8.7 million vehicles per year and generating $190 billion in revenue NEW YORK TIMES

$-0.41

100,000

12,000

Despite unfavorable predictions from Wall Street analysts, Lyft’s third-quarter earnings reported a 63% jump in revenue to $955.6 million from a year earlier, at $-0.41 per share versus an expected $-0.72 per share

Johnson & Johnson faces more than 100,000 lawsuits over the safety and marketing of products such as opioids and antipsychotic drug Risperdal. Recently, 33,000 bottles of its baby powder were recalled over contamination concerns

So far in 2019, US retailers have announced 8,993 store closures and 3,780 store openings, compared with 5,844 closures and 3,258 openings in all of 2018. Closures are predicted to hit a record 12,000 by the end of this year

BUSINESS INSIDER

NEW YORK TIMES

CNBC

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N EW S & VIEW S

CON TA CTS

DIR E C T O R CHRIS DELAHUNT

DIRECTOR, US AND LATIN AMERICA cdelahunt@citywireusa.com • (+1) 212 3014 903

ED IT O RIAL T E AM ATHOLL SIMPSON

DEPUTY EDITOR asimpson@citywireamericas.com • (+1) 212 3014 905

EDI TOR ALEX STEGER

asteger@citywireusa.com • (+1) 212 3014 906

The Citywire USA editorial and research teams are constantly traveling. One of us will doubtless be near you soon. If you want to get in touch, all the details you need are on this page.

MICHELLE ABREGO

NEWS EDITOR mabrego@citywireamericas.com • (+1) 212 3014 907

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FEATURES EDITOR rlowry@citywireusa.com • (+1) 212 3014 908

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SENIOR REPORTER iwenik@citywireusa.com • (+1) 212 3014 912

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SALES EXECUTIVE dmasterson@citywireusa.com • (+1) 212 3014 920

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R E A C H F O R Y I E L D. MANAGE YOUR RISK. Fixed income solutions designed for markets in motion. Loomis Sayles’ expert managers and global research team uncover hidden values in all market environments. Not beholden to benchmarks, they have the versatility to dig anywhere to find opportunity and to help avoid pitfalls. So funds take advantage when others are taking cover.

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Before investing, consider the fund’s investment objectives, risks, charges, and expenses. Visit im.natixis.com or call 800-225-5478 for a prospectus or a summary prospectus containing this and other information. Read it carefully. All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed-income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. • Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers. Member FINRA | SIPC • ADUS61-0819 • 2530177.2.2

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