Quarter-End Snapshot: Q3 2019
from 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.
from Susan Jenevein, Director
Are you wondering what the most powerful influences in the lives of young children in your family are? Have you wrestled with how to counteract the emphasis on consumerism and the ‘gimmes’ around the holidays?
A survey by philanthropic consultant 21/64 shows that 89% of children reported that their parents influenced their philanthropic values, followed by 63% who said that their grandparents helped shape their giving.
The holidays present a super-charged opportunity to connect with children to impart your philanthropic values. Neuroscience tells us that holiday traditions evoke feelings of joy and increased energy causing those who participate in holiday traditions to be happier. So, the impact of your giving example at the holidays is turbo-boosted by all the good cheer that is flowing. Holiday traditions of services and giving will be cemented in the minds of children in future years by the powerful force of nostalgia.
To ensure your philanthropic values receive the holiday boost, consider these service and giving opportunities:
- Choose a child from an angel tree, and shop together to fill the list. Talk about what it would be like to lack each item on the list.
- Serve a meal or deliver one. Many organizations like Meals on Wheels need volunteers to fill in as their regular volunteers are out of town for the holidays.
- Give the gift of a tree or donate funds to help plant a tree.
- Visit a nursing home. Talk about the needs of the elderly and what it means to visit someone who may not have any other visitors.
After your holiday giving, mark your 2020 calendar for repeating the gift or the service during the year. Philanthropic commitments make the best New Year’s resolutions and will have a lifelong impact on the children in your life.
from Jeff Strese, Family Learning Consultant
For well over a decade, Tolleson Wealth Management has increasingly developed internal expertise to help families navigate the emotional complexities of wealth, especially as it relates to wealth transfer to the next generation. Families are successful over generations because they are willing to learn and adapt to the changing needs of the next generation and tend to be more resilient to environmental and economic changes. To reflect these trends, Tolleson Wealth Management has made a conscious decision to update the formal distinction of this specialty team to Family Learning, previously known as Family Education and Governance.
By introducing learning initiatives into the family system, we believe this is a proactive way to equip and enable the growth of its members at all developmental stages – from primary school into early adulthood. Family Learning more accurately reflects the philosophy and intent behind these specialty team services we provide. This umbrella of services includes the consultation and facilitation of family governance strategies, communication training, financial literacy, leadership development, and succession planning, just to name a few.
If you are not already thinking about how to talk your kids about money, we can help you develop a strategy that fits your family’s values and aligns with the life stages of your children. Recently, we have seen families begin to involve their young-adult children in family meetings. We can help plan and facilitate these meetings including a range of topics from investments, trust and estate planning, to more qualitative topics likes communication, giving strategies, and how a family can effectively make decisions. If you are interested in getting started on any of these topics and integrating a learning approach into your family planning, please reach out to your advisor with questions and we will help develop an approach that is right for your family’s needs.
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.
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.
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.
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.
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.