How Will You Remember the Investment Decisions You Made in 2022?

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Will you remember that unlike 2020 and 2021, when S&P 500 investors were rewarded with returns of 18.4% and 28.7%, 2022 was the year you got out of the market altogether? Or will you remember in the face of 2022’s challenges—which included rampant inflation, rising interest rates, horrific natural disasters, the persistent threat of COVID-19, and the ongoing war in Ukraine—you ignored the investment market and focused on your hobbies?

Will you remember that because of poor performance, you abandoned the stock and bond investment mix you’d maintained for years? Or will you remember that, aside from year-end portfolio rebalancing, your holdings remained relatively unchanged?

For many years, institutions and individuals have come to rely upon a long-term portfolio mix that has served them well. Developed by Nobel Laureate Harry Markowitz in 1952, and comprised of 60% stocks and 40% bonds, for many years the portfolio has rewarded investors with attractive investment returns earned by assuming low levels of risk.

From 1980 through July 2022, the 60/40 portfolio delivered positive returns in 35 of 42 years.  Investors who have relied upon this investment mix have seen their portfolios increase in value 83% of the time. As any statistician will tell you, the positive long-term performance of the 60/40 portfolio is “statistically significant”, not the result of chance or luck. With an average annual rate of return of 9.89% for the 30 years ending in 2021, 60/40 investors have been rewarded for staying the course. But this year, the strategy has performed poorly and is down 19.34% through October 5, 2022.

Despite the 60/40 portfolio’s positive long-term returns, this year’s poor performance has prompted investment experts to point investors in the direction of “alternatives” such as private equity, infrastructure, long/short strategies, and real estate. In addition to being asset types that are inaccessible to many investors, alternative managers also employ investment techniques such as using leverage or hedging that have the potential to either amplify gains or losses.

While alternatives do serve a purpose in diversified investment portfolios, they are not necessarily the best investment for everyday investors, because alternatives:

  • Are often more appropriate for large, institutional-type investment portfolios.
    While a small allocation to alternatives may make sense for typical investors, allocating a significant percentage of a portfolio to non-traditional investments makes sense for investors whose portfolios are valued at $1 million or more. Often, these investors are looking for negatively correlated investments that don’t rise and fall in tandem with stocks and/or those that may provide alternative streams of income. During years like 2022, when both the stock and bond markets have performed poorly, alternative investment positions have the potential to temper investment volatility.
  • Possess characteristics that everyday investors dislike.
    For many years, individual investors have grown to appreciate the transparency, regulatory oversight, liquidity, and manageable fees that characterize traditional investments. The same can’t be said for alternatives. In many cases, they are complex, unregulated, illiquid, and costly in terms of fees.
  • Are most beneficial when added to portfolios in anticipation of market downturns.
    Instead of adding alternative investments during market downturns, investors should add them to their portfolios when traditional investments are performing well and alternatives are out of favor.

 

Making significant investment portfolio changes during a bear market is never a good idea. Instead, successful investing is an endeavor that requires investors to muster incredible short-term patience to achieve their long-term financial goals.

 

 

Jim Martin and Team Launch Nordwand Capital, a $5 billion Multi-Family Office and Investment Firm

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Financial advisor Jim Martin and a team of four professionals launched a new multi-family office and investment firm called Nordwand Capital in Radnor, PA with a presence in New York, NY and Boston, MA.

Nordwand Capital is a multi-family office and investment firm serving select families with whom the team has worked for many years. With approximately $5 billion in client assets, “the firm cultivates a prudent long-term investment philosophy that prioritizes performance across asset classes”, the release said. Nordwand is focused on generational continuity, philanthropy, and service as core tenets of investing and client service.

In addition to being a Registered Investment Advisor, the firm has established Nordwand Investments, LLC as an independent entity designed to facilitate co-investment opportunities with some of the world’s most sophisticated investors in a fully aligned manner and with favorable economic structures.

Nordwand Investments will be the GP of several listed and private investment funds and opportunistic Special Purpose Vehicles and has received in excess of $250 million in seed capital for its first three funds from its founding family partners.

“We needed to meet the needs of 21st-century ultra-wealthy clients. which requires creativity and flexibility,” said Mr. Martin. “In response, we launched Nordwand Capital as a fully independent firm that is nimble and responsive enough to seize investment opportunities as they arise. Our new firm offers flexibility, speed, and creative structuring, giving our clients more attractive investment options.”

“It’s clear the team made this decision because it’s in the best interest of their clients,” said Shirl Penney, CEO of Dynasty Financial Partners. “This is one of the largest fully independent firms launching in 2022 and it shows the continuation of the trend of the most successful financial advisors and investment professionals moving toward full independence. We are delighted to welcome Jim and the whole Nordwand team to the Dynasty Network.”

Nordwand Capital has selected Fidelity Brokerage Services LLC as its custodian. Fidelity Institutional® (FI) provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC. Fidelity Family Office Services is a division of Fidelity Brokerage Services LLC.

Jim Martin joins Nordwand Capital as Chief Executive Officer and Chief Investment Officer. He was most recently a Managing Director at Morgan Stanley Private Wealth Management, which he joined in 2016 from Credit Suisse’s private-banking division. He has been recognized nationally by Barron’s as a Top 100 Advisor in 2021 and 2022*. Earlier, Jim was a founding member of Donaldson, Lufkin & Jenrette’s Philadelphia office. Mr. Martin maintains his Series 7 and 66 certifications. He received a B.S. in Finance from St. Joseph’s University.

Joining Jim Martin are the following professionals: Christopher Boyle, Chief Operating Officer, Theodore W. Brooks, CFA, Head of Listed Strategies, Connor Martin, Senior Associate, Daniel Kane, Senior Associate.

Three Reasons Investors Should Look to Emerging Markets

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As volatile as U.S. stock and bond markets have been this year, emerging markets (EM) have had it worse. EM stocks are currently in one of their longest bear markets, with the MSCI Emerging Markets Index down about 40% from its February 2021 peak.

The cause of this poor performance has a lot to do with China and its regulatory crackdowns on its global technology franchises, restrictions on debt restructuring among homebuilders and zero-COVID policy, which has produced rolling lockdowns and interrupted economic momentum.

Together, these have produced disappointing growth. And because China is a major trading partner to virtually all other EM regions, and accounts for one-third of the market capitalization in most EM benchmark indices, its fate weighs heavily on investor willingness to allocate to EM.

Global inflation in oil and food prices and the strong U.S. dollar have further dragged on the markets. The strong dollar raises the cost of dollar-denominated debt and imports for emerging markets.

Together, these challenges have led global investors to slash EM positions and shun the asset class, driving historically cheap valuations. The MSCI EM Index now trades at about 10 times forward earnings estimates, and the MSCI China Index about eight times.

This is in marked contrast to the S&P 500 Index, which still boasts a forward price-to-earnings ratio of 17 and is over-owned by investors globally.

Three Potential Catalysts for a Rebound

A more pro-growth, stimulus-oriented stance in China: Morgan Stanley economists believe China will begin prioritizing economic development over some of its goals related to security and social stability, which have been front and center for the past two years. We also see a possible end to China’s zero-COVID policy by the new fiscal year in April 2023. A full re-opening could allow private consumption to rebound substantially and boost China’s inflation-adjusted GDP growth from below 3% to 4.5% in 2023. Importantly, as China pursued a very different policy response to COVID from most of the West, it is not experiencing high inflation or rising interest rates. This gives Beijing significant runway for stimulus.

A peak in the strength of the U.S. dollar: We may see the dollar losing momentum as the Federal Reserve’s rate-hiking cycle matures and as relative economic growth outside of the U.S. improves. As the dollar potentially weakens, EM countries could benefit from the relative appreciation of their own currency. Additionally, commodity exporters, such as countries in Latin America, could see commodity prices strengthening due to greater global demand.

Shifting global trade relationships: While U.S.-China relations remain complicated, the reorganization of strategic supply chains could create new opportunities for EM nations other than China. In areas such as consumer and industrial goods, we anticipate new relationships between the U.S. and India, Latin America and non-China-linked countries in Southeast Asia. Meanwhile, we also expect China to continue to court economic integration with some of those same countries, extending efforts first nurtured through its Belt and Road infrastructure program.

All in, we think it may be time for investors to reassess their exposure to emerging markets. Investors should consider rebalancing EM exposure with an eye toward China onshore companies, as well as opportunities in South Korea, Taiwan and Brazil.

This article is based on Lisa Shalett’s Global Investment Committee Weekly report from November 14, 2022, “Dawn for Emerging Markets.” 

UBS Partners With Addepar and Mirador to Deliver Wealth Analysis and Reporting for UHNW Clients

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UBS launched a new offering, in collaboration with Addepar and Mirador, that will provide UBS’s ultra high net worth clients in the US with a consolidated, real-time view of their entire portfolio across assets and liabilities, including traditional, non-traditional and illiquid assets.

UBS’s financial advisors will now have access to comprehensive analytics, which will help them more effectively visualize their clients’ investment performance, cash flows, and worth, while assessing the opportunities and risks across their portfolios.

“We recognize that our advisors need an intuitive, visual and modern offering that will provide a complete picture of their clients’ full portfolio – from stocks and bonds to alternative investments and their private art collections,” said John Mathews, Head of Private Wealth Management at UBS. “With this unique offering, our clients will have the ability to gain a deeper understanding of their wealth – guided by their financial advisor – to help them make more informed decisions to meet their financial goals.”

Built with open architecture, Addepar integrates the leading-edge software, data and service partners from across the fintech industry. Addepar’s data, analysis and reporting capabilities will help UBS’s advisors consolidate clients’ performance calculations presented in an easily accessible graphic interface to unlock additional insights on returns and investment trends.

“Our partnership redefines what’s possible for advisors and their clients and truly empowers data-driven investment decisions in a timely, complete and secure way,” said Eric Poirier, CEO, Addepar. “Working with UBS, it’s clear that they recognize the importance of having the best technology, data and solutions to meet their clients’ needs – now and in the future.”

As part of the Addepar partner ecosystem, Mirador’s financial data technology experts will support UBS’s advisors with data management, custom visualization and tailored reporting, as well as operations and system maintenance.

“We are thrilled to have UBS as our first enterprise-wide client,” said Jeremy Langlois, Chief Revenue Officer, Mirador. “We look forward to working with the firm’s advisors to provide tailored solutions to help their clients understand their needs and unique ownership, family and legal entity structures to achieve their financial goals.”

 

‘Expert’ Investors Believe Sustainable Investing Most Likely to Drive long-term Returns

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“Expert” investors are more likely to believe that investing sustainably is key to driving long-term returns compared with people who rate themselves as less knowledgeable, Schroders Global Investor Study 2022 has found.

The sustainability-focused findings of Schroders’ flagship study, which has surveyed more than 23,000 people who invest from 33 locations globally, found that more than two-thirds (68%) of people who class themselves as having “expert/advanced” investment knowledge believe sustainable investment is the only way to ensure profitability in the long term.

This compares with 52% of ‘”intermediate” investors and 43% of those who believe they have ‘”beginner/rudimentary” investment knowledge. Similarly, 69% of “expert” investors share the view that investing sustainably can support positive change when it comes to challenges such as climate change.

Hannah Simons, Head of Sustainability Strategy at Schroders, commented: “The interaction between sustainability and returns has seen some polarising results this year. While beginner investors appear more sceptical, the majority of people believe sustainability is crucial to delivering long-term returns. This is encouraging to see and further emphasises the crucial role asset managers have to play in terms of helping investors better understand how investing sustainably can not only help overcome challenges such as climate change, but also support their long-term returns. Indeed, we see an intrinsic link between long-term sustainable investment returns and solving some of the world’s social and environmental challenges.”

Specifically, the study found that environmental impact was the main reason people are attracted to sustainable investing. However, investing according to social issues has grown in importance compared with previous years. Interestingly, financial gains only ranked third in investors’ list of priorities, having declined over the past two years, falling from 42% in 2020 to 36% this year.

However, a focus on delivering financial returns unsurprisingly still remains a priority for many investors. More than half (56%) seek a fund that focuses primarily on delivering financial returns while integrating sustainability factors. That is particularly the case for people in Asia (61%) and the Americas (60%), while people in Europe were more likely to choose a fund with sustainability characteristics (51%).

The study also found that people would increasingly invest in sustainable funds if they were able to invest in line with their preferences. More than half of investors across all self-defined expertise levels said that the ability to choose investments that align with their personal sustainability preferences would encourage them to increase their allocation to sustainable investments.

In terms of investors’ specific sustainability goals, quality education was seen as the most important globally, with a fifth of those surveyed (21%) ranking this option first.

Education and evidence of better performance and impact also key factors to encourage sustainable investment

Countries with higher poverty levels appeared to prioritise addressing poverty over other factors. In India, eliminating poverty was the top priority (having been selected by 21% of investors). In contrast, investors in Switzerland selected educational improvements as the priority.

As well as the ability to choose investments aligned to their personal sustainability preferences, just under half (48%) said that more education around sustainable investing would encourage them to allocate more sustainably. The lack of clear definitions of sustainable investments was cited as one of the most significant barriers to investing sustainably by all knowledge levels.

Completing the top three, some 44% of people stated that more data and evidence showing that investing sustainably delivers better returns would encourage them to increase their investments.

Andy Howard, Global Head of Sustainable Investment at Schroders, said: “This year’s survey results show that environmental challenges remain one of the key reasons individuals are looking to invest sustainably. However, the ‘S’ in ‘ESG’ can’t be forgotten, with human capital, education and equality all top of people’s investment priorities. Financial education is a key element in driving more capital towards sustainable investing. It is clear from our research that what people seek is essentially guidance and clarity. The more people are able to understand the products they invest in and their impact on society and the environment, the more capital we should see flowing into sustainable investing.”

Insigneo and iCapital Partner to Provide US and Latam Investors Access to Alternative Investment Opportunities

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Insigneo and iCapital announced a partnership to provide Insigneo’s US and Latin American financial advisors and their clients with access to iCapital’s private market and hedge fund offerings. 

“We recognize the growing importance of alternative investments, especially in today’s market  environment,” said Insigneo Chairman and CEO Raul Henriquez. “To that end, Insigneo is  proud to partner with iCapital, which enables us to leverage their technological capabilities to  provide Insigneo’s clients with easy access to a premiere lineup of alternative investing  opportunities.” 

Added Mirko Joldzic, Insigneo’s Head of Investment Solutions: “We are excited that our global  client base will greatly benefit from iCapital’s technology and solutions while accessing a broad  range of private market opportunities within private equity, private debt, and real assets, in  addition to a variety of hedge fund strategies.” 

iCapital and Insigneo both recognize a growing demand for private market and hedge fund  investments in Latam. 

“We are pleased to announce our partnership with Insigneo, a distinguished wealth  management firm with a primary focus on Latin America, and support them in our shared  mission to make institutional-quality private market and hedge fund allocations more accessible  to financial advisors and their clients,” says Marco Bizzozero, Head of International at iCapital.  “Latin America is of strategic importance to iCapital, and we are delighted to grow our business  in the region with such an experienced partner.” 

LatAm and the Caribbean Most Exposed to a US Recession

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Latin America (LatAm) and the Caribbean are the most susceptible regions to a US recession, Fitch Ratings says in a new report. This reflects LatAm and the Caribbean’s geographical proximity and various transmission channels, which tie them to US economic cycles and policy decisions.

Fitch cut its US 2023 growth forecast to 0.5% in its most recent Global Economic Outlook published September 2022; it forecasts a mild US recession beginning in 2Q23.

The main transmission channels into LatAm and the Caribbean are trade, remittances, tourism and commodity prices. Within these regions, the countries’ different economic characteristics mean the impact could vary considerably.

Lower US external demand primarily affects Mexico due to its export-dependence and geographical proximity (Mexico is among the US’s top three trading partners).

A large portion of Central American exports are demanded by the US, although these countries tend to have a more diverse export markets base.

South American economies have limited trade links with the US, but are indirectly affected via the impact on global trade and commodity prices.

Weakening US household incomes and employment could imperil migrants’ capacity to send remittances home, and discourage tourism.

Remittances account for more than 20% of GDP for some Central American countries. Caribbean and Central American economies are vulnerable to a sudden stop in tourist arrivals, particularly Aruba (the world’s most tourist-dependent country as a share of GDP).

A US recession, in tandem with Fed tightening, adds to challenges for frontier markets, as costlier external financing could complicate policy options, and for the region’s more developed economies if their current account deficits are large.

We expect limited pressure on LatAm and Caribbean’s sovereign ratings from a mild US recession. Any ratings impact will ultimately depend on the magnitude of the US economic shock and each country’s capacity to absorb it.

‘Latin America and the Caribbean’s Vulnerabilities to a US Recession’ is available at www.fitchratings.com or by clicking on the link above.

 

VIS with DWS: Methods to manage currency risk in the portfolio

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The continued rise in strength of the U.S. dollar is having profound impacts on the global market. Forecasting spot currencies is never easy, and Investors need to understand how to evaluate whether they should hedge their currency risk in the international markets. In an upcoming Virtual Investment Summit on November 29 at 10:30 am (ET), DWS will bring these issues to the table.

Topics to be discussed include:

  • Portfolio strategies for a strong dollar
  • Learn how to implement a simple FX hedging strategy that may lower volatility, deliver positive carry income, and differentiate your practice in the process
  • Myths and misperceptions uncovered about costs, correlations, and carry
  • The challenges involved in predicting spot currency returns and central bank activity

To register as an attendee to this event click on this link

Host: Aiviel Sanchez, Latin America Coverage, DWS

Aiviel Sanchez is a senior relationship manager at DWS working primarily with institutional and other similar investors in Latin America. He has nearly two decades of financial services experience, having joined DWS in 2018 after previously being head of institutional sales-Chile at BlackRock and before that UBS and JPMorgan. Aiviel earned a BA in Finance from the University of Puerto Rico.

Speaker 1: Dean Allen, Passive Investment Specialist-U.S. Offshore, DWSXtrackers

Dean Allen joined DWS in 2021 with more than 14 years of relevant Passive and ETF experience. Prior to joining the firm he was responsible for wirehouse, private bank, IBD, and RIA clients in U.S. Offshore (UCITS ETFs and mutual funds) at Vanguard. Prior to that Dean was head of product management and ETF capital markets for Vanguard Investments Canada, based in Toronto, as well as having other roles relating to ETFs and distribution in international markets and U.S. businesses. He earned a BS in Finance from the University of Maryland.

Speaker 2: Jason Chen, DWS Research House

Jason Chen is a senior research analyst in the DWS Research House, the firm’s intellectual capital and analytics group focused on market analysis and thought leadership. He has been with DWS since 2018 and prior to his current role was a U.S. product strategist. Before joining the firm Jason focused primarily on multi-asset portfolio management and investment research when he worked at JPMorgan. He earned his BBA in Economics and International Business from Temple University.

Florida governor DeSantis is one of the biggest winners in midterm elections

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Ahmed Riesgo, Chief Investement Officer at Insigneo

Florida Governor Ron DeSantis was one of the night’s biggest winners in the U.S. midterm elections, commented Insigneo’s chief investment officer, Ahmed Riesgo.

The expert explained how DeSantis “outperformed expectations in largely Democratic strongholds like Miami-Dade and Palm Beach Counties”.

In addition, the governor, who was re-elected, polled well among Latin community.

Several political analysts noted how DeSantis was very well positioned for the 2024 presidential race. Riesgo agrees with this view.

“He should be considered the frontrunner for the Republican party Presidential nomination as of today,” he added.

On the other hand, the Insigneo expert, highlight that President Joe Biden is another big winner of the night because although he will lose weight in the House of Representatives, that defeat will be better than what is customary for presidents to suffer.

Riesgo remembered that Presidents and Congressional majorities almost always get flipped in the midterms. “Historically, the Democrats lost this election back in November 2020 when they were first elected,” he commented.

According to the analyst, Democrats “did an above average job of minimizing losses, especially considering the poor macro environment they faced and how many respondents during exit polls claimed that the country was headed in the wrong direction”.

On the other hand, the “red wave” that some pundits claimed was swelling in recent weeks did not hit the beach on Tuesday. Instead, we got merely a “red ripple”.

In that sense, “a divided government is obviously still the base case, but the small Republican majority in the House and the slim majority of either party controlling the Senate means that the debt ceiling will be a major issue for the markets to deal with in 2023,” he commented.

With this scenario, “both parties will have enough opposition critical mass (i.e., scapegoats) to blame the other side for not agreeing on a budget. ” he concluded.

Venture AUM in the Southeastern US has Quadrupled

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Venture capital AUMs in the Southeastern United States has grown nearly 400% over the last 5 years, with a CAGR of 31.7% according to Preqin’s Territory Guide: Venture Capital in the Southeastern US.

By the end of 2021, VC AUM in the region rose to $37bn from just $9.4bn in December 2016 at a compound annual growth rate (CAGR) of 31.7% . That asset growth was on pace with the larger national trend that saw VC allocations jump sharply in 2021 when regional VC firms added $13bn in AUM.

Amid this increase in assets, the number of managers and funds based in the region also rose. Last year, 75 funds closed about $5.2bn in aggregate assets. On 2020’s $2.8bn closed across 41 funds. Through the first nine months of 2022, 44 funds closed a total $2.4bn, on pace to fall below the highs of the year before.

Most recent Preqin data shows that 758 VC managers are operating in the Southeastern US, investing both in the region and globally. More than a quarter of those managers began operations since 2017, and are concentrated in Florida, Georgia, Virginia, and North Carolina. That growth has recently slowed in 2022 as equity markets, particularly tech, sold off.

Despite fewer managers opening funds this year, the number of funds managed in the region increased. More than 570 2021-vintage year funds came to market last year, followed by another 507 through the first nine months of 2022. On average, about 340 funds began investing annually between 2016 and 2020. Again, these funds were highly concentrated in the states mentioned above.

In 2021, total deal value in the region neared $15bn as VC investment across the country experienced a surge. While that number may seem insignificant in comparison to other regions like the Western US ($177bn),
VC investment in the Southeastern US rose at a five-year CAGR of 38.9% as of December 2021, just ahead of the national average of 35.6%.

Through the first nine months of 2022, private companies based in the Southeastraised $12.7bn in total.

The pandemic played a part in the redistribution of the US population, but the seeds of growth had already been planted. US census data shows that several parts of Southern US saw net gains in population from 2020 onward, but places like Miami (Florida), Northern Virginia, and Charlotte (North Carolina) were already mestablishing themselves in the VC space, particularly as tech hubs far from Silicon Valley.

VC investment in the Southeastern US has historically been on par with the Midwestern US. Yet the draw of lower taxes, better weather, and, at the time, laxer COVID-19 policies swung the balance southward, particularly for employees with the freedom to work remotely. The 1,088 deals made in the Southeastern US between 2021 and 2022 made up 8.3% of total US VC deals over that period, ahead of both the Midwestern US (6.5%) and the Southwestern US (4.5%)

In dollar terms, the $28bn in aggregate deal value was also ahead of both the Midwestern US ($19.2bn) and the Southwestern US ($15bn) over the 21-month period ended September 2022.

In 2022, the average deal size for the Southeastern US was $35mn, up from $27mn the year before. It’s important to note that average deal size jumped between 2019 and 2020, from $14mn to $23mn. While the pandemic attracted headlines in 2020, the global response to dropping interest rates was a major factor in the rise in valuations. Although deal prices have remained stubborn in the face of rising rates, it’s uncertain they’ll hold as recessionary pressure builds.

It remains to be seen how this year’s macroeconomic challenges – a down equity market, high inflation, and increasing interest rates – will impact the tech sector.

Private markets tend to lag public market corrections, something that is still yet to be seen in the Southeastern US. So far in 2022, the average information technology deal has been slightly lower than the average deal size at $30mn, however, this is still $4mn higher than that of 2021.