Quarter-End Snapshot

Q3 2019

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Firm Update

from Carter Tolleson, CEO

Carter Tolleson, CEO

Typically, towards the end of the year, many of us spend time reflecting on the past trip around the sun – accomplishments, progress made towards our goals, and what we must do to finish out the year.

Instead of focusing solely on looking back, I find myself looking more towards the future, as there is a lot to be excited about. I can’t help but focus on how we can continue to be a nimble, client-centric organization that tackles the emerging trends and challenges that increasingly impact our clients. We know we must adapt to changing needs and continually develop services that are relevant and valuable. To a large degree, embracing technology is a large part of it alongside making sure we are effectively training the next generation of leaders within our firm so that we are well positioned to take care of your family and the transition to future generations.

We strive to stay at the forefront of how we think about our services and the execution of them, like with investments and impact investing. As we embrace trends, implement new ideas, and use new technology, we must always remember that our history plays an important role in our evolution. Coming up on our firm’s 20-year anniversary next year, we remind ourselves of what makes our business unique and how service has always played a central role to our mission. Service that extends beyond you, to your entire family.

Looking towards the year ahead – and into the next 20 years – we are committed to serving our clients and their future generations. We are committed to family learning and to creating space for the rising generation to flourish. Knowing that our insides must match our outsides, we are also just as committed to building resources for talent management and developing the next generation of advisors and firm leaders. By preparing and looking towards the future with strong service values at our core, we can create sustainability, modernization, and readiness for whatever comes ahead.

Markets Fly High, Watch for Turbulence Ahead

from Eric Bennett, CFA, CHIEF INVESTMENT OFFICER

This year remains a strong year to be invested in the markets! Financial assets continue to grow, as global equities were positive in the third quarter, adding to double digit returns for 2019. With some economic and geopolitical hot topics, possible turbulence is in sight in the form of an economic slowdown and volatility.

What sort of turbulence are we going through? The trade negotiations between the U.S. and China have intensified and resulted in tariffs weighing down on global manufacturing and exports. We’re also beginning to see spillover effects as businesses are concerned about a slowdown in global growth affecting future sales that could postpone plans to expand. We expect that a lid will be kept on economic growth as long as trade policy uncertainty remains between the two countries with the biggest economies in the world.

Central banks around the globe are actively using instruments and tools at their disposal to help keep the economy on track, which includes the Fed reducing short-term interest rates to help stimulate growth.

In addition, the biggest contributor to economic growth is consumer spending, which remains healthy thanks to a robust job market, solid wage growth, and low inflation. This combination may allow markets to continue to move higher despite ongoing worries about the timing of the next recession.

Just as a plane is well-engineered to navigate through turbulence and still reach its destination in a timely manner, our investment team continues to position portfolios that are designed to perform over the long-term with less risk than the benchmark. We’re taking a fresh look at portfolios to evaluate downside protection, and as a result, are making a few changes this quarter to reduce risks while staying fully invested to meet the long-term return goals. We will continue to make underlying changes in the portfolio to provide a smoother ride for clients through any possible turbulence that comes along in the markets.

We believe in our philosophy that is centered around a long-term mindset. By not overreacting to tumultuous news headlines, we can instead quantify the current risks to help us determine the appropriate asset allocation and construct portfolios that allow our clients to enjoy their wealth.

Q&A with Joseph Naggar

Members of the Investment Team sat down with Joseph Naggar of GoldenTree Asset Management to discuss the role of structured products within high-yield bond portfolios and his opinion on today’s market environment. Joe serves as GoldenTree’s Head of Structured Products and plays a vital role in client portfolios.

1

Question: When you are at a family reunion, how do you explain what you do for a living when people ask?

Answer: I invest people’s money. The asset class I invest in is often called ‘junk bonds,’ but I identify securities within that asset class that I don’t think are junk. Basically, I buy things that have yields like junk bonds, but risks that are much different.

2

Question: Can you explain the difference between structured products and traditional junk bonds? How are the risks different?

Answer: A traditional corporate bond is simply an ‘IOU’ – it is a promise by the company to pay the bondholder. A structured product is a type of bond that is backed by a defined set of collateral that generates cash flow, and that cash flow is used to pay the bondholder. The risk profile of our structured products is much more in line with the Barclays Aggregate Index, which is an index of high-quality bonds with minimal risk of default, than the High Yield Corporate Index. We are buying securities with underlying collateral that can withstand 30% default rates – that is more than double the default rates during the peak of the financial crisis.

3

Question: What makes your strategy unique?

Answer: We don’t own a single security within our structured products portfolio that is found in an index. Retail investors don’t have access to the securities we buy, which is why I think structured products add significant value to a multi-sector investment approach.

4

Question: What is the most common misconception you hear among investors regarding structured products?

Answer: People have a stigma about structured products because of what happened to mortgages during the financial crisis in 2008. They think to stay away from them. What they often forget is the insane amount of regulatory capital that is placed on structured products today. They don’t think about why the Federal Reserve has trillions of dollars of mortgages on their balance sheet today. Equity markets were down 50% in 2008. The Fed doesn’t own any equities, but you don’t hear people say “don’t buy equities” today because of what happened in 2008.

General Performance Information
This presentation was compiled by Tolleson Wealth Management (“TWM”). 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.