Quarter-End Snapshot

Q2 2018

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Firm Update

from J. Carter Tolleson

J. Carter Tolleson

Every few months I have lunch with our new employees to get to know each other better, allow them to ask questions, share some fun facts, etc. Not surprisingly, a lot of the questions revolve around growth strategy for the future of Tolleson Wealth Management (and their careers). I’ve heard a lot of the questions before, but one curious young employee unintentionally challenged me last meeting. He started by saying that he joined the firm because he believed in our mission of helping families, but went on to say, “I heard someone describe having wealth as a ‘burden.’ That doesn’t make any sense to me.”

His perception – and the challenge to define it – made me think. We sometimes use the word “burden” to describe the overwhelming responsibility of managing wealth. It is a complexity that few can comprehend. But that’s what Tolleson Wealth Management does: we simplify the complexities so that wealth doesn’t seem like a “burden.”

We remain deeply committed to providing the freedom you deserve. For the past 18 years, we have continually added and professionalized services within Tolleson Wealth Management to better serve you. This year is no exception. In fact, we have expanded our bookkeeping and bill pay team, which is an integral piece in providing comprehensive wealth management. Utilizing this expanded group, along with newly implemented technology, lets us more efficiently pay bills on your behalf and improve cash flow management and reporting. As summer is fully underway, it reminds me how important our role is in allowing you to focus on your family, your travels or whatever else summer means to you.

Summer Days

from Eric Bennett, CFA, Chief Investment Officer

We have officially started the summer season, which means for most of us here in Texas, we'll look to spend time in a cooler environment to avoid the summer heat! On Wall Street, there is an old saying, "sell in May and go away.” We'd argue that it's a good time to allow us to keep a close eye on the ever-changing market environment as you and your family enjoy your summer – wherever that may be spent.

The uptick in market volatility has steadily continued in 2018. News headlines this quarter discussed topics like trade negotiations, even speculating on a full-blown trade war; however, we remain focused on the fundamentals. Equity markets have benefitted from persistently high profit margins, record corporate earnings and stock buybacks paid for with repatriated cash (the ability to bring cash back to the U.S. that was earned overseas at a reduced tax rate). Business confidence – another indicator for the health of the economy – is now at the highest levels seen since the mid-2000s. What this all means is that U.S. economic growth continues to power forward, but many experts are speculating when this long economic expansion will stall with a recession. While this probability remains low when looking forward over the next 12 months, we remain positioned in high-quality, value equities that we expect will weather any volatility better than the benchmark through a market cycle.

While international stocks have lagged U.S. equities this year primarily due to trade fears, we are intrigued by solid earnings growth and relatively cheap valuations within the European and Asia Pacific regions. These economies have not had the same recovery as we’ve witnessed here in the U.S., which makes for attractive investment opportunities. We advise our families to overweight international equities in their portfolios as we expect that fundamentals will shine through the latest headlines.

As the market continues its unstable but upward march, the Fed has steadily increased short-term rates as advertised due to the U.S. economy doing well. Interest received from cash investments is now noticeable after years of earning near zero percent. Long-term U.S. interest rates have slowly risen as a strong economy applies upward pressure and low interest rates internationally have kept them from rising as fast as short-term rates. As a result, we favor short duration (low interest rate risk) assets to protect against what we expect to be a trend of rising interest rates.

While nobody seems to be too concerned about the markets today, we expect further volatility as companies manage through higher costs of capital and inflation, active separatist movements in Europe, lingering fears of slower global growth, and political agendas. While none of this has us concerned about tipping the economy into a recession, the markets fear uncertain outcomes. We continue to believe the best way to invest in today's environment is by structuring a globally diversified portfolio that is designed to achieve your goals with the highest probability of success, while also focusing on long-term returns rather than what is happening quarter to quarter.

As always, we are happy to speak further about our thoughts on the current environment and how we have structured your portfolio with these things in mind. We also understand if you'd prefer to wait until after a summer break. We will proactively reach out to you should there be a change in the events between now and then. In the meantime, try and stay out of the heat!

General Performance Information
This presentation has been compiled by Tolleson Wealth Management (“TWM”). Past performance is no guarantee of future results. No representation is being made that any account will or is likely to achieve profits or losses. All investments involve risk, including the loss of principal. This information discusses general market activity, industry or sector trends, or other broad-based economic market or political conditions and should not be construed as research or investment advice. Opinions expressed are current opinions as of the original publication date appearing in this material only. Any opinions expressed are subject to change without notice and TWM is under no obligation to update the information contained herein. TWM disclaims responsibility for the accuracy or completeness of this report although reasonable care has been taken to assure the accuracy of the data contained herein. This material has been prepared and is distributed solely for informational purposes only and is not a solicitation or an offer to buy a security or instrument or to participate in any trading strategy. This report may not be reproduced, distributed or transmitted, in whole or part, by any means, without written permission from TWM. If you have any questions regarding this presentation, please contact your TWM representative.