Don’t just take our word for it. Posted in: Featured - At Chevy Chase Trust, we specialize in global research and thematic investing informed by careful planning, and it's working. Forbes and RIA Channel recently ranked us among the highest in their Top 100 list, for 2 years running. Important Disclosures
Thematic Investing Performs Posted in: Uncategorized - Thematic investing at Chevy Chase Trust is a progressive departure from common Wall Street practice. It examines how the world is changing, determines which companies will be advantaged and invests accordingly.
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- Chevy Chase Trust Ranks: Barron’s Top 100 RIA Firms 2020 Posted in: Insights, Latest News, Noteworthy - At Chevy Chase Trust, we specialize in global research and thematic investing informed by careful planning, and it's working. Barron's just named us to their 2020 list of Top 100 RIA Firms.
- Q & A with Dan Serra CFP®, Vice President Posted in: Latest News, Noteworthy, People - At Chevy Chase Trust, we help clients maintain and grow their long-term wealth. Meet Dan Serra, CFP® and Vice President.
Describe your role at Chevy Chase Trust.
My main role is helping clients maintain and grow their long-term wealth through analysis of their cash flow, investments, insurance, taxes and estate planning. Retirement planning is an important part of our work. Clients often seek assurance that they can live the life they want after they stop earning income. I offer guidance to make sure clients are prepared for the unexpected and protect family legacy goals.
What led you to a career in financial services?
Before becoming a Certified Financial Planner®, I was a journalist for major daily newspapers where I developed an interest in business news. I remember interviewing financial planning professionals for my column and being impressed with how they improved people’s lives. Having a helper’s soul, I wanted to join them and went back to college to get my Master’s in financial planning.
What’s the most rewarding part of the job?
It’s absolutely the feeling that you helped someone feel confident and less stressed about their personal finances. Sharing the benefits of a positive relationship with money gives meaning to my work, especially when I witness someone reach their goals. And there’s the additional reward of being surrounded by colleagues who also put clients’ interests before their own.
What would you do if not this?
I would be a teacher. A couple times a year I instruct an online class for Southern New Hampshire University as an adjunct finance professor. I love sharing my knowledge with others and this includes being a role model to those who want to explore a career in financial planning or just learn how all this stuff works!
Do you have a book to recommend?
I gravitate toward spiritual and goal-oriented topics to learn how to live a more fulfilling life, both mentally and physically. I am not a Buddhist but I find the teachings uplifting. Charlotte Kasl does a wonderful job writing about our spiritual paths in her “If the Buddha…” book series. She explains how life is about overcoming its demands and experiencing the natural essence of who you are. Physically, I know the advantage of connecting health with wealth so often I seek out books on healthy eating and exercise. I’ve found success following the guidelines of Dr. Dean Ornish through his excellent book “UnDo It” on the benefits of lifestyle changes to prevent and reverse chronic diseases.
What advice would you give to someone considering a career in investment management/financial services? What personal attributes are essential for success?
Be curious. The industry loves stacks of paperwork so be willing to spend the time studying it carefully to understand how things work, and don’t be afraid to question it. While social interaction is enjoyable, it’s what goes on behind the scenes that makes a successful financial professional– that constant drive to know more.
- Food For Thought: Estate Planning Posted in: Latest News, Noteworthy, Video - With interest rates low, now may be a good time for transfer of wealth. Learn about some compelling options.
With interest rates low, now may be a good time for transfer of wealth.
- Chevy Chase Trust: Financial Times 300 Top Registered Investment Advisers 2020 Posted in: Featured, Insights, Latest News, Noteworthy - Chevy Chase Trust is proud to announce its top ranking in the 2020 edition of the Financial Times 300 Top Registered Investment Advisers.
- Q & A with Marc K. Wishkoff, Head of Business Development Posted in: Latest News, Noteworthy, People - At Chevy Chase Trust, Marc oversees the delivery of Chevy Chase Trust services to clients and coordinates with their legal, accounting and other third-party advisors.
Head of Business Development
Marc Wishkoff joined Chevy Chase Trust as Managing Director in 2009, having spent the previous nine years in business development and relationship management with Citi Private Bank and U.S. Trust Company in Washington, DC. At Chevy Chase Trust, he guides the business development process and is responsible for presenting the firm’s capabilities to individuals, families, trusts, and select non-profit clients. He leads the firm’s Wealth Advisory team and advises clients in the areas of investment management, financial planning, estate planning, and trust administration. We sat down with Marc to find out how and why he pursued a career in wealth management and what he does in his spare time.
Tell us about your background.
I have spent most of my life along the east coast of the United States and grew up in Wilmington, Delaware. My parents and extended family members are from New York City and this provided me a big city perspective with the benefits of a small town childhood. I am a graduate of the University of Delaware, and the majority of my career has been spent in New York City and the Washington, DC metropolitan area.
From where did your interest in the financial world come?
From an early age, I had an interest in business, banking, and financial markets. I am analytical by nature and was influenced by my father’s interest in the stock market. I can still remember copies of ValueLine Investment Survey and Investor’s Business Daily laying around the house and CNN’s MoneyLine playing in the background during dinner. Several family members had built and run successful businesses and this combination of good examples and broad interest in the stock market led me to study business in college.
At the University of Delaware, I obtained a degree in business administration with a concentration in finance. My career has been singularly focused in investments, banking, and finance.
How did your career get started?
I worked from an early age and can hardly remember a time where I wasn’t doing something at least part-time. From the age of 13 and throughout high school, I had jobs after school or over summers. In college, I worked evenings reconciling cash and check deposits for Wilmington Trust and on the weekends was as a waiter at a local restaurant.
In my junior year of college, I interned with Dean Witter for an up-close view of the brokerage industry and in my senior year as a credit analyst for a credit card company. Starting after college graduation, I worked for PNC Bank in the group that did accounting work for the mutual fund industry and worked closely with a New York City based asset manager. I was eventually hired by them directly and moved to New York.
When did you move to wealth management?
At Warburg Pincus Asset Management, I was drawn by the intrigue of each private client’s personal story. I worked directly for the partner in charge of marketing and I never looked back. At the end of 2000, after Warburg Pincus Asset Management had been through two corporate reorganizations, I joined an energetic group of people building a wealth management business in Washington, DC.
U.S. Trust had just been acquired by Charles Schwab. I moved to the DC area to help open the Tysons Corner office and market our firm through our parent company’s offices in DC, Maryland, and Virginia. I had great support from dynamic local leaders and was surrounded by a team of people who provided me with boundless help and resources. I worked with Schwab brokers and learned how together we could build the brokerage and wealth management businesses to fuel the expansion of US Trust.
My Chevy Chase Trust experience has been highly rewarding. We offer top-tier, customized, think-tank quality investment solutions to new and long-time clients. It has been personally satisfying to be a part of a capable, driven, and collegial group. As time has passed, I have made a greater impact on our firm’s direction and am pleased to be a part of a growing, energetic, and successful business.
What do you enjoy doing when you’re not at work?
I am blessed with an amazing wife and family and the majority of my time outside of work is spent keeping up with the frenetic pace of a busy family life. We are big baseball fans, are active in local sports leagues, and root for our Washington Nationals. We are also a beach family and enjoy frequent trips to Bethany, Rehoboth, and Fenwick Island.
I am active in the community and have served on numerous non-profit boards. I currently serve on the board of the Community Foundation for Northern Virginia.
If you weren’t in wealth management at Chevy Chase Trust, what would you be doing?
That’s a hard one to answer after twenty-five years in one industry! I could see two possible courses. I am relatively handy and enjoy seeing an end-product, so real estate development would be a challenging and fun endeavor. I also enjoy politics and history and would have a grand time teaching one or both topics. This is Washington, DC, after all!
- Q & A with Jessica Frommer, Managing Director, Client Services Manager Posted in: Latest News, Noteworthy, People - World-class client service and the day to day client experience set Chevy Chase Trust apart from other Investment Advisory firms. Meet Jessica Frommer, Client Services Manager.
World-class client service and the day to day client experience set Chevy Chase Trust apart from other Investment Advisory firms. Meet Jessica Frommer, Client Services Manager.
Tell us about your role here at Chevy Chase Trust.
I run the client services team. We are responsible for all administrative aspects of the client relationship, which constitutes a wide range of things – from asset transfers to gifting to helping resolve complex issues. We partner with their attorneys and CPAs and family offices to ensure we are always working with the most up-to-date information.
Tell us about your background.
I spent most of my career in wealth management and my roles have ranged from client services to relationship manager to client experience to onboarding.
What led you to a career in financial services?
My father owned a muni bond business in the 80s and was a financial advisor up until his retirement a few years ago. He was incredibly talented when it came to the markets and investing, and he also understood the importance of good client service. I wanted to be like him, and felt my passion and interests would be best served with the client experience.
What’s been the biggest surprise about your career?
I lived through the Lehman bankruptcy and came out standing tall. That experience has made me better, braver, more resilient and compassionate.
What’s the most rewarding part of the job?
The tenure of the men and women who work in the Client Services Group is impressive. In fact, some of the team members have been with the firm for 20 years. When I arrived earlier this year, I had a one-on-one with each team member and immediately noticed the passion they had for their jobs. They are learning from each other, helping each other and taking courses to improve their capabilities. They understand the importance of a quick turnaround and know how to do it with kindness. It makes my job easy!
What makes Chevy Chase Trust different?
Chevy Chase Trust is the smallest firm I’ve ever worked for and I wasn’t sure what to expect. My colleagues are a wonderfully collegial group of people who all have the same goal of wanting their clients to feel cared for and appreciated. We all go the extra mile for our clients. One of our Senior Trust Officers works with a client who does not have any family. She regularly visits the client in her nursing home (pre-COVID) and works closely with her legal team to ensure everyone has her best interests at heart. The result is a client who understands she is important to us and that she can rely on us. Because of our size, we are able to keep it personal with clients instead of them being on a long list of tasks to complete before the day’s end. I am grateful to work here.
What would you do if not this?
I would be running a non-profit focused on childhood hunger and homelessness.
What are your interests in the community?
I am still relatively new to the area and have 2 small children. I have done some volunteer work with Hope for Henry, a DC based organization that is reinventing how hospitals care for seriously ill children and their families. I look forward to getting more involved in the community in the near future.
Do you have a book or podcast to recommend?
I have been listening to a lot of audio books lately and a few I love are Where the Crawdads Sing, Little Fires Everywhere and Open Book. I especially appreciated Jessica Simpson’s book because many of us think celebrities have the best lives, devoid of challenges. Her story was surprisingly relatable as she described the struggles she had growing up that were common to so many.
What advice would you give to someone considering a career in investment management/financial services?
It’s a great sector to work in and provides a lot of upside and opportunity. I recommend starting in a role where you can become a generalist learning many different areas of investment management. This will help you figure out which area draws you in.
What attributes do you believe are essential for success?
The most successful people I’ve seen in this industry have many, if not all of the following: Strong work ethic, ability to manage change and multitask/thrive in a fast-paced environment, have a willingness to learn, aspire to be better and, most importantly, to be a team player.
- Second Quarter, 2020 Posted in: Insights, Investment Update, Latest News, Noteworthy - After a first-quarter plunge, equity markets rebounded in the second quarter.
After a first-quarter plunge, equity markets rebounded in the second quarter. The S&P 500 rose 20%, its largest quarterly gain since 1998. At mid-year, the index was only 8% below its all-time high despite an almost 10% second quarter decline in year-over-year GDP and the highest U.S. unemployment rate since the Great Depression.
What explains the apparent disconnect between financial markets and macroeconomic conditions? We see three inter-related reasons:
- Widespread expectations that the economy will bounce back fairly quickly;
- Massive monetary and fiscal stimulus;
- A collapse in real interest rates, which increases the present value of future cash flows.
Will the Economy Bounce Back?
It’s hard to forecast the economic outlook, because there’s no obvious historical precedent for the COVID-19 crisis. Perhaps the best financial analogy is a natural disaster. Following a natural disaster, the labor market typically stages a more or less linear recovery because an exogenous event, rather than excesses within the economy, caused the disruption. As an example, employment plunged in Louisiana after Hurricane Katrina but began to pick up two months later and returned to pre-hurricane levels within two years. The graph below shows that similar to Katrina, but unlike the Global Financial Crisis, U.S. employment fell sharply when the COVID-19 pandemic set in and began to pick up two months later.
While comparing the labor market data for COVID-19 and Hurricane Katrina may be somewhat comforting, COVID-19 is not an earthquake or a hurricane, which occurs quickly and then ends. Unlike after a hurricane, there are real risks to resuming life as usual until the virus is eradicated or an effective vaccine becomes available. We expect the economic impact of the pandemic to last longer than the impact from most natural disasters.
Statistical modeling suggests the virus will spread faster if economic activity returns to even one-third of its pre-pandemic level, supporting our expectation that the economy will recover slowly. We believe consensus expectations for earnings are too optimistic. Consensus projections for 2021 S&P 500 earnings of $163 are roughly flat with 2019. In our view, companies are unlikely to deliver this level of earnings if the U.S. economy is operating well below 2019 levels.
Further, while other countries have dramatically slowed the spread of COVID-19, U.S. progress in combatting the pandemic has been disappointing. The disease’s recent spread across the U.S. is worrisome. As the display below indicates, COVID-19 has gradually gone from being a huge problem in one region of the U.S. to a big problem in most of it. Initial optimism about successful economic re-openings has begun to fade, and some planned re-openings have been paused to prevent the situation from getting worse.
Some market commentators cite “human ingenuity” as a reason to be bullish. They believe (or hope) the global effort to find a treatment or vaccine will bear fruit by the end of the year. We are relatively optimistic about a treatment but less sanguine about a vaccine. Vaccines typically take a long time to develop. Since they are given to otherwise healthy people, scientists need to ensure they will not adversely impact any segment of the population. In this instance, potentially hundreds of millions of people would be given a prophylactic treatment. The safety bar must be extremely high. Further, the vaccine must be proven to work for a meaningful length of time. If not, individuals may believe they are protected when they are not. This likely necessitates trials that extend into 2021.
The Monetary and Fiscal Response
We think the main drivers of relatively strong equity market performance have been extraordinary monetary and fiscal policy actions. “Don’t fight the Fed” is usually sound investment guidance, especially now, when the Fed is being more aggressive than at any point in history. Broad money supply growth has greatly exceeded nominal GDP growth. Money supply has vastly outstripped demand. Since money must go somewhere, it has poured into financial markets. If this continues, it will likely sow the seeds for the next bubble, which can make it problematic to be underinvested in the equity market.
Massive stimulus is not solely a U.S. phenomenon, although policy makers have been more aggressive in the U.S. than in most other nations. While the global policy response to the 2008-09 financial crisis was extraordinary, the chart below shows that many countries have delivered much larger stimuli this time to revive economies nearly paralyzed by the pandemic.
In the U.S., the Federal Reserve and Congress have thrown nearly everything they have at offsetting the pandemic’s impact on the economy. Many laid-off workers have been eligible for benefits greater than their prior incomes. Congress has passed four fiscal packages totaling almost $3 trillion; this summer, it is expected to pass another $1.5 to $2.0 trillion package, equivalent to 7% to 10% of GDP. With some initial programs expected to expire July 31, any delay or disappointment in the size of a new fiscal package will likely exacerbate equity market volatility.
Ultra-Low Interest Rates
Negative real bond yields and money-market rates have also been driving equity markets higher. Many institutional investors have high cash levels and are taking on more risk to try to attain better returns. At 1.9%, the S&P 500 dividend yield is higher than the 0.16% yield on 2-year U.S. Treasuries. The yield of dividends plus buybacks (the combined cash yield of stocks) is currently 4.2%, far higher than the 0.66% yield on 10-year Treasuries.
Low yields raise the present value of stocks by reducing the discount rate applied to future cash flows. Because much of the value of growth stocks comes from earnings expected to materialize further in the future, growth stocks are particularly sensitive to changes in the discount rate and, to some degree, less exposed to misses or hits to near-term earnings.
How Does It End?
Three scenarios could unfold as the world fully reopens for business.
The most likely scenario, in our view, is that economic activity picks up, but global growth remains slow and inflation, non-existent. In this scenario, growth stocks and long-dated bonds will continue to outperform more cyclical assets—until the valuation disparity gets too wide and reverts. We assign this outcome odds of 55%-65%. We think it’s also the implicit consensus view.
A less likely—and more painful—scenario is that the end of social distancing leads to a sharp rise in new infections and a relatively rapid move back to sheltering at home. If this scenario comes to pass, the best investor positioning would be to underweight equities and own gold. We assess the likelihood of this scenario at 10%-20%: low, but higher than the nearly 0% likelihood that equity markets appear to be ascribing to it.
The third scenario is that pent-up demand, record-high budget deficits, low oil prices and unprecedented central bank stimulus lead to strong global growth and high inflation, after years of price stability. In this case, cyclical, financial and emerging-market stocks would likely outperform, and growth stocks would lag. We estimate the odds of this scenario to be 20%-30%.
Valuation and Sentiment
Market valuations are high. At quarter-end, the S&P 500 was trading at approximately 22 times 12-month forward earnings, and the median multiple for stocks in the Index was 24 times 12-month trailing earnings, far above its 52-year average of 17 times. Price-to-book, price-to-cash flow and most other traditional valuation metrics also indicate that the market is expensive.
Sentiment has been swinging wildly. In March, the Global Sentiment Composite dropped from above 80% (extremely optimistic) to below 10% (panic). Since then, in the fastest sentiment swing on record, it has rebounded to above 80%, on exuberance over the reopening of the economy. Continued acceleration in virus spread could knock it back down.
In our view, as long as fiscal and monetary stimuli continue and yields remain low, the downside to equity markets is likely limited and the possibility of a bubble developing, not negligible. Signs of irrational behavior are appearing. For example, in early June, the value of a Chinese property company jumped more than 10-fold, from $800 million to $10 billion in four hours, as a storm of social media messages noted that its name, Fangdd Network, made it look like a cheap ETF for the FAANG technology giants. The following week, the market capitalization of Nikola, an aspiring electric vehicle manufacturer with no revenues that went public in March at a market capitalization of $300 million, reached a $30 billion valuation, representing a 100-fold increase in just three months.
Those who lived through the 1998-2000 dot.com boom know that the final expansion of a bubble can be immensely profitable—and its bursting, immensely painful.
Equity Portfolio Positioning
Given both the unprecedented economic decline and the enormous fiscal and monetary response, predicting even near-term economic growth is challenging. Both the bullish and bearish tail risks are unusually large.
BEARISH TAIL RISKS
BULLISH TAIL RISKS
- Continued or accelerated virus spread
- Significant progress on treatment or vaccine
- Rising geopolitical tensions (particularly between the U.S. and China)
- A greater than expected fifth stimulus package
- A disappointing fifth stimulus package
- A rush into equity markets due to “fear of missing out” from the ample cash on the sidelines (i.e. an expanding bubble)
- A drop-off in employment growth after PPP expires
- A drop-off in consumer spending after unemployment benefits revert to normal
- November election surprises
At current valuations, we believe the long-term risk/reward balance for equities is negatively skewed. That is leading us to keep balanced portfolios at the lower end of target equity ranges. We aren’t reducing equity exposure further because massive stimulus is making a significant correction unlikely near-term. Too much caution could miss strong market gains, particularly during an inflating bubble.
Our portfolios are currently more evenly balanced between growth and value and between U.S. and foreign equities than at almost any time in recent years. Our sector positioning is close to neutral as well, with the exception of a fairly large overweight in Healthcare. With an outlook that is particularly hard to discern and depends on uncertain medical breakthroughs and the size and scope of governmental actions, we think it’s prudent to minimize factor exposures.
We’re optimistic that the Healthcare sector can prosper in most economic scenarios and is attractively priced. The sector has consistently outperformed during inflationary periods, as well as over the long haul, but fears of a more restrictive drug pricing regime and Medicare for All were pushing down valuations when 2020 began. Those risks have dissipated somewhat, yet valuations are still at or below historical averages. We expect healthcare companies to lead the way back to a healthier economy due to pandemic-related increases in healthcare spending. Healthcare spending is also rising globally, the result of aging populations in developed markets and adoption of healthcare safety nets and higher medical standards in emerging markets.
In contrast, expectations priced into many technology stocks are simply too high, in our view. The 75 fastest growing companies, many in the technology sector, are now expected to grow earnings 28% annually through 2024 and 16% annually for the five years thereafter; these growth rates are 5.5 and 3.5 times the rates for the overall market. While the pandemic has boosted the long-term prospects for some of these companies, it is easy to overestimate growth, particularly during periods of massive dislocation. We have sold or trimmed several of these stocks.
We are asked how the pandemic has influenced our thematic thinking. The short answer is that the impact varies. Wealth Migration and Urbanization has been affected most. We sold several holdings that were well-positioned to capitalize on the movement of wealth from U.S. suburban to urban areas, because we now expect a pause. While the coronavirus does not necessarily spread faster in more densely populated locations (Hong Kong, Taipei and Singapore, all densely populated cities, weren’t overly affected) many of the urban amenities that attract wealthy people to cities are not available now and may be significantly less available for some time to come. Further, ample living space is a luxury that becomes more desirable when people work at home and spend more time there. We would not be surprised if the pandemic sets off a temporary move away from more expensive, densely populated areas of the U.S. and a rise in second home purchases.
The coronavirus has also disrupted supply chains and commodity markets, leading us to neutralize our underweights in several related sectors, including energy. While we still believe that the End of China’s Emergence created overcapacity in commodities and many industrial subsectors, pandemic-related bankruptcies may accelerate capacity reduction. We will revisit this theme when the pandemic ends and we can better assess supply/demand balances.
Our other themes are well-positioned in the current environment. Spending on Molecular Medicine is accelerating, and more genomic population studies are being conducted to understand which groups of people are most at risk of contracting COVID-19 or of having a bad outcome if infected, or both. Advances in genomic understanding will be critical to developing treatments and vaccines.
Our Heterogeneous Computing theme is timely. An executive at one firm we have invested in said in a conference call, “COVID-19 has created the largest-ever change in human behavior at scale and almost instantaneously, requiring companies to fill new demand trends, change how they engage with customers, and adapt quickly to volatile market conditions, all of which require a strong digital foundation, just as they also face massive cost pressures.” Some of the most obvious virtualization companies are now discounting wildly profitable growth for as far as the eye can see. Zoom Video Communications, for example, is trading at 300 times earnings. Our focus is on less obvious tech companies that enable new kinds of communications and computing applications and are reasonably valued relative to promising long-term prospects.
Our Inequality Paradox and Supply Chain Automation themes are also unfolding faster than they would have if the pandemic hadn’t occurred. In general, higher-income individuals are less affected by the pandemic than the larger population; we believe companies with a global footprint and a focus on this segment are well-positioned to prosper. Several of these companies are also at the forefront of automation-related technologies, such as ultra-high frequency RFID and vision systems that enable better inventory management between online and in-store operations.
After falling from 1.88% to 0.70% in the first quarter, 10-year U.S. Treasury yields traded in a relatively narrow range for most of the second quarter. Yields spiked to 0.91% briefly after the surprisingly strong May employment report, and then quickly reverted to the 0.60%-0.70% range that prevailed for most of the quarter. We expect interest rates to remain very low in the short to medium term.
- A Conversation with Amy Raskin, CIO Posted in: Insights, Latest News, Noteworthy - Listen to excerpts from a conversation with Amy Raskin on June 18, 2020.
Listen to excerpts from a conversation with Amy Raskin on June 18, 2020.
- Chevy Chase Trust | Philanthropy Webinar Posted in: Latest News, Noteworthy, Video - Guest speakers include The Community Foundation of Greater Washington, Manna Food, Mary’s Center and Catholic Charities.
Listen to nonprofit leaders in the DMW describe how they have pivoted to meet the community’s expanding needs as a result of the COVID-19 shutdown.
- Chevy Chase Trust Ranks: Barron’s Top 50 RIA Firms 2019 Posted in: Featured, Insights, Latest News, Noteworthy - At Chevy Chase Trust, we specialize in global research and thematic investing informed by careful planning, and it's working. Barron's Top Financial Advisors recently ranked us among the highest in their Top 50 list.