Author Archives: CFAMNEB

Distinguished Speaker Series featuring Jason Trennert – Event Recap

· · Leave a comment

By Brad Lee, CFA Society Minnesota Intern

On Thursday, June 22, 2017 CFAMN hosted Jason Trennert, Managing Partner, Chairman and CEO at Strategas Research Partners. Mr. Trennert is the author of multiple books on investing, and is widely quoted in the press, and is a regular on CNBC and Bloomberg. He shared his perspective on a diverse group of topics including his viewpoint on current economic trends, investing in the Trump era, and the growing discrepancy in the beliefs between the average citizen versus experts in these subjects.

The Base Case

Mr. Trennert is forecasting real GDP growth of 2-2.5% in 2017 and ~3% in 2018. He believes deregulation will focus on energy and financials, and the budget will focus on increases in defense and infrastructure spending. Small business confidence is growing. Therefore, policy changes are believed to help small and mid-sized businesses more than large businesses.

Economic Outlook

His presentation featured a segment on the greatest story never told. This was the serendipity of the election results in November 2016, coinciding with a turn of positive  S&P 500 trailing 12-month Y/Y earnings growth in 4Q’16. This adjustment of increased earnings came after 6 months of negative earnings, which ultimately stimulated the current rally. Mr. Trennert concluded this is perhaps the most unloved bull market of all time since its inception in 2009. The era of low interest rates also may finally be ending. Currently he is bullish on the economy and the market in the foreseeable future.

Four 4 Main Items to Trump Agenda

There were four key points in Mr. Trennert’s presentation he believes investors should focus on, which are highlighted below:

  1. Increasing velocity of money
  2. More drilling
  3. Increased spending of infrastructure and defense
  4. Tax reform

The last seven years has been a period of easy money but tight regulation. An unforeseen issue with this has been marginal companies staying in business, especially in the retail and energy space. Mr. Trennert foresees looser restrictions on stress tests and increased velocity of money going forward with the new administration. As for the current priority of deregulation and the U.S. exporting more in energy, this will result in more drilling by companies and will benefit companies who are prepared for the shift. However, Mr. Trennert is actually more bearish with lighter controls in the industry. He also specified only three of the NATO members (U.S., the U.K., and Estonia) are spending the expected 2% of their GDP on defense spending. Thus, he is bullish on defense stocks and believes this is a growth industry even in an era of populism and heighted concerns about national security. As for tax reform, he believes there are four major goals for the Trump Administration. It includes tax simplification, flattening the effective corporate rate, shift to a territorial tax system, and encouragement of CapEx spending.

Revenge on the Nerds

Mr. Trennert stated his research in 2016 had been “…actually being in the research” or discussing with others to find their perspectives. Thus, he concluded there is a growing trend of how “average ordinary” people are starting to question experts on investments and the economy. Some of these include the open borders, the Affordable Care Act, low interest rates on savings, and over-diversification of investment accounts.

Conclusion

From an investment perspective, Mr. Trennert is overweight financials, industrials, and technology. He believes small to mid-cap financials have more to gain from deregulation than large caps, and likes technology stocks that as he simple stated, “…do not have triple pricing multiple earnings valuation…” He also believes it’s a good bet there will be a tax cut on repatriated profits and any future financial repression favors passive investing, although active investing will always play a major role in the investing world.

 

2016 Financial Compensation Survey Results

· · 4 Comments

We’re pleased to release the findings from our fourth annual Financial Compensation Survey for Minnesota, North2016_cfa_societies_compensation_survey_mn_nd_sd_cover Dakota and South Dakota.

Click the image at right to download, at no charge, this white paper summarizing high-level survey findings in an easy-to-read format. In return for the white paper or for deeper data requests, please complete the contact form below. Your feedback is welcome and appreciated.

Again this year, we expanded the survey to other CFA Societies throughout the Midwest and beyond. Watch for a consolidated report in the coming weeks summarizing results for the cities of Chicago, Indianapolis, Kansas City and Saint Louis, plus the states of Florida, Iowa, Michigan, Nebraska, North Carolina, Ohio and Wisconsin.

Thanks for your interest!

The Impact of Equity Engagement

· · Leave a comment

By Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management, a division of Boston Trust & Investment Management Company

One of the approaches used by investors to engage companies in which they own shares has been a combination of dialogue and shareholder resolutions. For over 45 years investors have utilized their right as shareowners to file resolutions for a discussion and a vote at a  company’s  annual stockholder meeting . These resolutions have included a wide range of governance , social and environmental issues. Many of them ask for companies to expand their reporting and disclosure on an issue. Others seek a change in company policies or practices.

Companies respond in very different ways to these “ petitions”. Some are defensive and hostile, others are polite but still reserved, others see this as a positive opportunity for dialogue with an investor and seek to find a win/win agreement.

Increasingly companies have responded with constructive discussions with investors.  Often these resolutions are the foundation for discussion and are  withdrawn when an agreement is reached . On other occasions the resolution is included in the proxy and voted on at the annual stockholder meeting.

One of the often asked questions is whether engagements and resolutions have any positive impact or if they are just an example of a Don Quixote shareholder tilting at corporate windmills .

I have had the opportunity to be part of such shareholder engagements for over 45 years so can point to numerous examples of this “ exercise” bearing no fruit while others are very effective and result in long term changes by companies. We believe the record shows that such prodding/persuasion by investors has resulted in significant and specific changes by many companies on a wide range of issues.

The “ impact “ of such engagement is chronicled in a 2014 report by the Croatan Institute in concert with a number of investors including Walden . For those interested in this strategy this report is a very useful resource.

These other materials from Walden help make the point about the effective impact of shareholder engagement.

Hear more from Timothy at our upcoming ESG Impact Investing track on August 23. The track is part of CFA Society Minnesota’s annual investor conference, investMNt. Learn more here & register today!

 

Since 1975, Walden Asset Management has specialized in managing portfolios for institutional and individual clients with a dual investment mandate: competitive financial returns and positive social and environmental impact. Walden is an industry leader in integrating ESG analysis into investment decision-making and company engagement to strengthen ESG performance, transparency and accountability. Walden is a division of Boston Trust & Investment Management Company, a PRI signatory.

Facing an Ethical Dilemma?

· · Leave a comment

The CFA Society has long been an advocate for strong ethics in the Investment Profession. The Code of Ethics and Standard of Professional Conduct are an integral part of the testing process, and underscores the importance to the Society of practicing the craft while adhering to those principles. As stated in the CFA Society’s Mission & Vision Statement:

High ethical principles and professional standards are essential to positive outcomes; rules and regulations, while necessary, are not sufficient by themselves.

We think that the CFA Society’s commitment to strong ethics is part of what sets charterholders apart from other professionals in the Investment Profession. We think this is particularly important in light of highly publicized ethical failures and an increasingly skeptical attitude toward the Investment Profession from the public. We would like to reinforce this message by starting a dialogue on FreezingAssets to help promote ethical decision making. The CFA designation comes with an obligation to do more than determine what is legal. We must go beyond the bare minimum of what is required. We want to understand what is right. And to understand what is right, we need to engage in dialogue. We would like to solicit questions and concerns from members, and then tap into our member base and professional experts to explore the ethical issues involved.

So, here are the ground rules.

1) Questions should be submitted anonymously. We don’t want anyone to worry about experiencing negative career impact from engaging in dialogue. So, no real names, no company names. Just situations.

2) Real situations are better. No trying to trick the panel with things like “If God is all powerful, can he make a planet so big that he himself can’t lift?”

3) Freezing Assets is not providing legal advice. So don’t ask for it.

There is a form on Freezingassets.org for submitting questions, situations, or concerns – access the form here. As with much of what we do, this is an experiment. Maybe everybody already knows everything. But we kind of hope there are a few folks out there who are able to challenge us all to think more deeply about what we do. We think that’s really what the Code and Standards are all about.

When submitting an inquiry, you agree to the following. Neither the Blog nor the Society is giving legal advice. If you think you need to consult a lawyer or compliance professional you should do so. The Society disclaims any liability for any advice or commentary on this website. The Blog respects the privacy of its participants.

Distinguished Speaker Series Featuring Bob Doll, CFA, CPA – Event Recap

· · Leave a comment

By Harvey R Peck, CFA

On Thursday, February 11, 2016, CFA MN hosted a presentation by Bob Doll, Senior Portfolio Manager and Chief Equity Strategist at Nuveen Asset Management. After a light dinner at the Minneapolis Club, Mr. Doll shared his highly respected views and perspectives on the global equities markets. You may recognize Bob Doll as a regular on CNBC, Bloomberg TV and Fox Business News with Doll being quoted in other business publications.

Vicious negative feedback loop
Doll opined the equity markets are in a “terrible funk”, a vicious negative feedback loop. As global growth estimates decline, oil prices drop, earnings estimates are revised down, stock prices fall, there is forced selling, credit standards tighten, then global growth estimates decline, and the cycle repeats itself.

How do we extract ourselves from this funk? Oil needs to stop going down. The U.S. dollar needs to stop appreciating. Problem: Oil and commodities are in a multi-year bottoming process.

Can the U.S. economy avoid importing these global deflationary trends?
Doll noted the U.S. economy is doing better than most other developed economies. It is primarily a domestic consumer economy. Doll is forecasting U.S. real growth at mid 2% and nominal GDP growth at 3-4%.

The U.S. consumer economy is doing relatively well as supported by strong new housing starts, firm home resale prices and record auto sales.The Federal Reserve’s inflation targets are within reach. Rising U.S. domestic inflation expectations is supported by two factors: (1) a tightening labor market showing upward labor price pressures and (2) housing rents and home prices increasing.

Bull market in bonds over
The bottom in yields likely occurred back in July 2012. By 2016 year-end, Nuveen forecasts U.S. Treasury yields to be higher. Doll expects high yield credit spreads to be narrower and yields to be lower by year end. Nuveen contends high yield spreads are currently overreacting to the declining creditworthiness in energy and materials. However, these factors should not affect other non-industrial areas of the economy such as medical, information processing technology and media. Currently the high yield markets have corrected too much and the correction was too fast.

Political Issues
The U.S. federal deficit improvement trend is over. Rising entitlement costs over the coming years will cause the deficits to expand. The growing deficit is not yet problematic. Investors are encouraged to wait until the government’s ability to service debt is rising faster than GDP before implementing defensive strategies.

The U.S. needs bipartisan congressional action to address the problem of corporate income taxes on foreign based earnings. The current tax law is fostering large capital outflows from the U.S. economy. This is a very important issue for the long-term viability of the U.S. economy.

Recommendations
Nuveen recommends overweighting allocations to equities, underweighting bonds and fixed-income and holding an overweight in cash reserves. They expect above average volatility. Most investors will be frustrated by the current environment of higher volatility and low returns.

We thank Bob Doll and Nuveen Asset Management for sharing their thoughts and recommendations. You can follow Bob Doll’s commentaries and other Nuveen Asset Management research publications at www.nuveen.com/home. Thanks again to Nuveen Asset Management for their support of CFA MN.