• Invest in concepts,
    not conventions.

    Our approach seeks opportunities across asset classes and around the globe.

  • Different by design
    and planning.

    The smartest investment strategies are informed by sound financial planning.
    Our clients appreciate an integrated approach and the difference it can make.

  • Sometimes the 
    greatest returns come from 
    investing in people.

    We’ve created a culture that values service over products, long-term goals over
    short-term quotas and your success over anything else.


  • InvestmentUpdate Investment Update, Second Quarter 2016 - During almost all of the second quarter, U.S. equity markets seemed impervious to bad news. Through June 23, the S&P 500 traded in a 100 point range between 2,025 and 2,125, close to its record high of 2,134 in May, 2015. Then came Brexit. Posted in: Investment Update, Noteworthy

    During almost all of the second quarter, U.S. equity markets seemed impervious to bad news. Through June 23, the S&P 500 traded in a 100 point range between 2,025 and 2,125, close to its record high of 2,134 in May, 2015. Then came Brexit.

    Pundits, experts and polls did not expect the U.K. to vote to leave the European Union. Usually, people vote in their economic best interest. Money managers believed this, and their surprise contributed to the violent sell-off in equity markets in the days that followed.

    We, too, believed Britain would vote to remain in the European Union; but given significant structural issues facing the entire Continent, our exposure to Europe was and remains low. Only 1% of our equity holdings are domiciled in the U.K. and less than 9% in Continental Europe. Over 40% of the European equities we own are based in Switzerland which never joined the E.U. The remainder are dominated by industrials and energy exporters who generate the majority of their sales outside the region. Europe represents only 15% of sales for our combined portfolio holdings. We believe the source of global revenues is as relevant a long term investment criterion as country of domicile.

    An Imperfect Union
    Since the formation of the European Union in 1993 and the introduction of the Euro currency in 1999, many experts questioned their sustainability. Doubts stem primarily from a union having monetary authority but no fiscal authority.

    Over the years, there have been occasions when it appeared that a member nation might secede, with the Greek bailout referendum being the most recent. However, before now, no member has left. Brexit represents a significant break from the post WWII movement toward open trade and economic integration across Europe. In many respects, it is fortunate that the first country to separate from the Union was not a member of the Euro currency. Secession by a member of the currency union would be infinitely more complicated and likely have far greater financial consequences.

    Global Implications of Brexit

    The U.K. economy represents less than 3% of global GDP, so in and of itself, a recession in the U.K. should not materially slow global growth. However, in the short-term, the Brexit decision will increase volatility in financial markets and fuel demand for “safe-haven” assets like the U.S. dollar. A stronger dollar effectively tightens financial conditions in the U.S. and the 40% of the world economies that tie their currency to the dollar. This will likely cause a temporary slowdown in global growth.

    Longer-term, if the separation is orderly and other European countries do not follow suit, we think this will be unfortunate for Britain, but will not have broader impacts. On the margin, it may turn out to be beneficial for Luxembourg and other money centers in Continental Europe that could see increased investment as financial activities are redirected from London to secondary European money centers.

    An Investment Perspective
    The Brexit vote and other nationalistic/protectionist movements are essentially responses to non-economic problems. From an investment perspective, protectionism has the potential to diminish one of the few economic bright spots of late. Globalization has improved productivity, increased corporate profit margins and lowered prices for most consumer products. This potential negative combined with the surprise factor of the vote outcome had the markets looking shaky before firming up quickly. Events in Europe are still unfolding. Other crises, related and unrelated to Brexit, are sure to follow. When, where and what are unknowable. What we do know is that there are still attractive long term investment opportunities in the global equity markets. We believe our thematic investments can ride the tailwinds of strong secular trends. Companies at the forefront of innovations in robotics, genomics, urbanization and data inundation will, we believe, outlast the next crisis and outperform the markets over time.

    We also see near-term opportunities in certain markets, sectors and companies that are out of favor or undervalued. Currently, only 1% of our holdings are in Japan but the risk/reward trade-offs of some segments of the Japanese market look attractive. Similarly, European banks look extremely undervalued with many of the uncertainties priced in. On balance, we think it presents a buying opportunity, particularly with respect to banks with Eurozone exposure as opposed to U.K. domestic earners. Many are trading at less than 50% of book value with
    high single digit yields.

    Fixed Income
    From a fixed income perspective, the most important and immediate implication of the U.K. decision to leave the E.U. is lower sovereign yields. The uncertainty created by this event triggered a flight to safety, sending sovereign yields lower in all major bond markets including the U.S., Japan, Germany, France and the U.K. Not surprisingly, U.K. yields fell the most.

    The 10-year U.S. Treasury bond fell to 1.40% the day after the Brexit result. On July 1st it declined below the former all-time low of 1.39% in 2012. Prior to the vote, the 10-year had been trading in a range of 1.70% to 1.95%. It started 2016 with a yield of 2.27%. Market reactions to unusual events tend to have similarities. Looking back at past financial crises, immediately after the 1987 stock market crash, 1998 failure of Long Term Capital Management and 2008 Lehman bankruptcy, yields fell briefly and then evened out. We think the 10-year U.S. Treasury bond will rebound from these extreme levels and trade in the 1.50% to 1.70% range until there is a clearer picture of the implications of the U.K. vote and the impact on U.S. and global economic growth.

    A current consensus view in both fixed income and equity markets is that inflation will remain at extremely low levels. As a result, buying inflation protection in the form of Treasury Inflation-Protected Securities (TIPS) is relatively inexpensive. Core CPI, which excludes food and energy, has been above 2% per year for the past seven months. We think it is highly likely that once energy prices stabilize due to supply reductions which are already underway, aggregate CPI will rise to this level, or higher.  In addition to TIPS, we continue to purchase both taxable and tax-exempt investment grade bonds with average durations between three and four years. Given recent flattening of the yield curve, we believe these bonds offer value with very modest risk.


  • InvestmentUpdate Investment Update, First Quarter 2016 - Global economic growth is influenced by many factors. We pay particular attention to three fundamental factors that, we believe, influence both long term economic growth and returns on investments. Posted in: Investment Update, Noteworthy

    The S&P 500 Index ended the first quarter of 2016 at 2,060, 16 points higher
    than where it started the year (2,044) and 1 point higher than the level it began 2015 (2,059). Once again, the proximity of these data points mask volatility that took the Index as high as 2,135 in May of 2015 and as low as 1,810 in February of 2016.

    Global economic growth is influenced by many factors. We pay particular attention to three fundamental factors that, we believe, influence both long term economic growth and returns on investments. They are demographics, productivity and debt.

    Demographics – Global population growth is slowing.  As a result, growth in demand for all sorts of things is also slowing. In the developed world, the primary exceptions are the Anglo Saxon countries (U.S., U.K., Canada, Australia and New Zealand). The U.S. has a natural advantage because it is one of very few developed countries where the birth rate replaces its own population. Immigration is then additive which in the U.S provides further economic benefit because the fastest growing group, Asian-Americans, is the best educated and has the highest incomes of all current immigrant groups. While most other Anglo Saxon countries have birth rates somewhat lower than replenishment rates, Canada, Australia and New Zealand are concertedly striving to import economically advantaged immigrants.

    Japan is the most demographically challenged country in the world. There are no good models for population shrinkage, i.e., having things that are no longer needed. Depopulation has already resulted in Japan having eight  million empty houses.

    China’s workforce began declining in 2012 and its fastest growing population segment is those over 65, not a good combination for economic growth or productivity. China’s fertility rate (the number of births per woman per lifetime) is between 1.2 and 1.6. This is well below the 5.9 rate in the early 1970s and less than the 2.1 needed to maintain a stable population. Interestingly, although China abolished the one-child policy, the fertility rate has barely changed.

    Continental Europe is also demographically challenged and in need of productive immigration. Among the many complexities with the current migrant and refugee crisis, they have not contributed any meaningful economic productivity. While over one million people have entered the European Union in 2015 alone, only half have had a first determination on asylum application. It will take years for this population to integrate into the labor force.

    It is difficult, if not impossible, to reverse or overcome negative demographic trends. As population growth slows and in some cases declines, so will economic growth.

    Productivity – Gross Domestic Product, or GDP, is the value of all finished goods and services produced. It is essentially a function of three components: labor (very much tied to demographics), capital and productivity. Slowing global GDP growth in the current expansion has been primarily driven by a productivity growth slowdown. On a year-over-year basis, productivity growth peaked in 2004 and is now only 0.5%, its slowest pace since 1983.

    Productivity growth has fallen sharply in every major economy and in almost every sector. This has enormous economic and financial market implications. Productivity gains have accounted for most of the increase in material well-being since the Industrial Revolution. If productivity growth stays weak, young people today will not see the improvement in living standards enjoyed by prior generations. In addition, subpar productivity growth increases the risk that tax revenues may not keep up with rising pension and health care obligations.




    The biggest slowdown in productivity growth since 2004 has been in sectors that benefited the most from the adoption of new information technologies over the prior decade. By 2004, most of the transitions were largely complete, ushering in a decade of lower productivity gains. In addition, the Great Recession put further downward pressure on labor productivity growth. Weak investment spending in many economies since 2008 has meant that less capital has been allocated to workers.

    Secular factors also contribute to low productivity growth in the U.S. The decline in the share of workers in their 40s, the age bracket when people are most productive, will be a drag on future growth. A 5% increase in the relative size of this segment would translate into a 1-2% increase in productivity growth.

    There are some signs of reversal. Spending on research and development, which tends to lead multifactor productivity growth by about four to five years, has increased lately. This reflects a cyclical rebound from the Great Recession as well as recognition by companies and countries that they will need to do more with fewer workers.

    Productivity is the most important contributor to a better long term standard of living. A sustained productivity improvement of 2% per year would double the standard of living in 35 years. Given that consumer spending represents over two-thirds of GDP, the economic well-being of the consumer is material.

    Debt – Global debt is growing as a percentage of GDP and recently surpassed its September 2009 peak of 151%. Since 2009, global debt has increased by about $60 trillion and now exceeds $200 trillion. Emerging market debt is less than developed country debt, but is rising much faster. High debt is almost always consistent with lower future growth. Credit growth usually translates into economic growth, but that has not happened in this cycle, in part because a lot of debt has financed buybacks or acquisitions rather than capital and R&D spending.

    In China the ratio of private debt-to-GDP has grown from 117% in 2009 to over 205% today. Historically, this magnitude of debt growth in other countries has been followed by financial crisis. Perhaps China can navigate this problem, but at the very least, China’s growth rate will slow significantly. The country now requires about $6 of debt to produce $1 of incremental GDP, up from $1.50 of debt a few years ago.

    By definition, debt is borrowing resources from the future to use today. This constrains future growth. Low interest rates (even negative rates in some geographies) have made debt manageable in the short run. If interest rates move higher, current debt levels will be an even greater weight on economic activity. High debt and higher cost of debt will make future growth much more difficult to achieve.

    Investment Strategy
    Liquidity is an important driver of market direction in the short and intermediate term. From the end of the financial crisis to 2015, global liquidity increased from three major sources:

    • China’s foreign exchange reserves climbed from less than $2 trillion in 2008 to $4 trillion in 2014; most of that growth was exported to other markets.
    • Petro dollars contributed approximately $2 trillion in global liquidity when the price of oil was above $100 per barrel for almost four years.
    • QE2 and QE3 occurred in the U.S. along with multiple monetary easings globally.

    These factors contributed to a bull market in equities from 2009-2015, despite subpar economic growth. The first two factors ceased to add liquidity by the end of 2015 and the contributions from the third declined.

    We entered 2016 relatively defensive, with overweights in utilities and telecom as well as in one of the deepest cyclicals, energy. Our defensive positioning is a direct result of the longer term structural issues and shorter term reduction  in liquidity. The energy overweight was tactical based on negative sentiment and dramatic underperformance in 2015. Fundamentals do not support a long term overweight in energy or commodities. We intend to market weight energy and underweight materials.

    Healthcare and financials have been the two worst performing sectors year-to-date. Financials have been hurt by a flattening yield curve. We have been underweight financials, but will likely invest if credit spreads continue to contract (narrowing credit spreads are second only to a steepening yield curve among macro factors which act as a tailwind to banks) and/or the Fed becomes more hawkish on rates. Underperformance of non-U.S. financials has grown extreme (80% relative underperformance in certain instances). We are currently researching company and country-specific opportunities in non-U.S. financials.

    Our automation and robotics theme has driven stock selection in the Industrials and Technology sectors. The slowdown in productivity growth is having direct negative consequences on global economic growth. We believe that select companies well-positioned in robotics and industrial automation will be large beneficiaries of investments that will be made to reverse this slowdown.

    We anticipated a pull-back in U.S. dollar strength and marginally increased our non-U.S. exposure at the end of 2015. Between 10-15% of our holdings are currently domiciled in developed markets outside the U.S. and we will be selectively adding non-U.S. market exposure. The multi-year outperformance of U.S. equity markets has resulted in a significant valuation gap. In addition, the U.S. is several years ahead of other developed markets in terms of margin expansion and adoption of shareholder friendly policies, including buybacks and dividend increases. As these practices are more widely employed in Europe and Japan, their markets should respond.

    We are still avoiding most emerging markets. While a softer dollar has served as a temporary reprieve by reducing deflationary stress and by stabilizing commodity prices, fundamentally, little has changed. The vast majority of natural resource-rich emerging markets did not use the windfall from higher commodity prices over the past decade to implement structural and productivity enhancing reforms. Returns on capital continue to fall in almost every emerging region (unlike improving returns in many developed geographies). Once the U.S. dollar weakness runs its course, we expect these regions to continue an underperforming trend.

    Fixed Income
    The 10 year Treasury Note started the year at a yield of 2.27% and fell to a low of 1.66% before recovering to end the quarter at 1.77%. As mentioned, we think yields will remain relatively low for the foreseeable future as slowing demographic and productivity growth, coupled with high debt levels, serve as an anchor on potential output growth.

    As a result of these macroeconomic forces, we have extended our durations modestly. Because the yield curve has also flattened, going too far out in duration is less attractive.

    We continue to believe that while interest rates remain low for now, at some point, a few years out, the risks will tilt toward higher rates, perhaps higher than markets currently anticipate.

    There are four reasons why rates will ultimately move up:

    1. Weak productivity growth will eventually cause economies to bump up against supply-side constraints.

    2. Population aging will erode excess savings, as workers begin to retire.

    3. Low commodity prices will move from being a headwind to a tailwind for growth.

    4. Monetary and fiscal policy will become too stimulative.

    Inflation will then become a real concern and short term rates should rise. We are analyzing fixed-income segments that could outperform by getting ahead of this likely inflection point.

  • ducks What Differentiates Chevy Chase Trust? - Clients tell us they find our approach to be refreshingly straightforward. We offer careful planning, global thinking, exhaustive research and thematic portfolios. This is investing pure and simple. Posted in: Noteworthy


    Private ownership by the B.F. Saul family, with roots in the community that date back more than 100 years.

    • No outside shareholders with quarter to quarter profitability concerns; no pressures regarding business model or profit margins.

    • No need to scale the business; firm can maintain a service model that is in the best interest of our clients, and can attract and retain talented professionals.

    More than 80 employees, all (including decision-makers) based in the same location.

    • Large enough to offer world class expertise and services, but not so large to require segmentation that leads to disjointed delivery of services.

    • Small enough to know and accommodate our clients and their unique needs.

    We manage all portfolios internally, using individual equity and fixed income securities.
    No outside managers, no proprietary funds. Easy for clients to understand what they own.

    • Our clients have a personal relationship with their equity and fixed income portfolio managers who are directly accountable to clients for all investment decisions and performance.

    • We do not subscribe to the common style box approach (i.e. we do not allocate specific percentages to Large Cap, Small Cap, International, Growth, Value, etc.) that frequently results in over-diversification and index-like returns, usually at a high cost with layered fees.

    • We are thematic investors; we look for investable ideas that stem from economic, demographic and technological trends powerful enough to influence corporate performance across multiple industries. We invest in companies of all sizes and located almost anywhere in the world. As examples, current themes include urbanization in the U.S. (with both baby boomers and millennials choosing to move into cities rather than suburbs) and the advent of molecular medicine (the impact of genetic sequencing on medicine and health care).

    • Portfolios of new clients are not automatically liquidated and reinvested into our strategy. We take a careful look at existing holdings and consider tax consequences of any changes. We strive to achieve the best after-tax performance for our clients.

    Each client relationship includes a planner; ideally, all new relationships begin with
    a financial plan.

    • Planners work to gather pertinent financial data and help clients assess their short- and long-term objectives.

    • Resulting plans inform the investment strategy and asset allocation recommendations.

    • The financial plan and investment strategy are not static; financial plans are updated regularly through the years as the client’s unique needs, the economy, markets, and tax laws change.

    We are a trust company that can serve in a fiduciary role when those services are needed, providing a continuum of investment management, planning and fiduciary oversight for our clients and their families.

    • Our staff includes a deep bench of professionals with experience administering trusts and estates, including estate planning lawyers who had 15 to 20 years in private law practice before joining Chevy Chase Trust.

    • We are able to hold non-traditional trust assets, such as private company stock, partnership interests and real estate investment assets that some firms are hesitant to, or will not, hold in fiduciary accounts.

    • We develop a personal relationship with beneficiaries considering how best to meet their financial objectives within the terms and spirit of the trust.

    Chevy Chase Trust charges one investment management fee that covers all of its services.

  • Chevy Chase Trust: Company Vision - Everything about Chevy Chase Trust gives our entire team the freedom to practice the art and science of creative thinking. Posted in: Noteworthy, Video

  • globe What is Thematic Investing? - Thematic investing is at the core of portfolio management at Chevy Chase Trust. We believe that adherence to a thematic investment process delivers superior results over wealth-relevant time horizons. Posted in: Noteworthy

    Global Thematic Equity Investing

    Thematic investing involves capitalizing on powerful secular trends, disruptive ideas, innovations and economic forces that are constantly reshaping the world. Thematic investing builds portfolios of companies positioned to exploit these transformational changes and, just as importantly, avoids companies that will be disrupted by creative destruction.

    How We Do It. 

    Chevy Chase Trust’s research team is organized around themes rather than narrow, industry sub-sectors. We believe that our in-depth research on social, economic and technological changes builds a deeper understanding of the underlying drivers of value creation and risk. By immersing themselves in investment themes, Chevy Chase Trust research analysts develop a forward-looking lens into transformational shifts and form stronger convictions around their investment decisions.

    Identifying and researching secular themes is our starting point. Once we’ve established an investment theme, we conduct in-depth analyses on companies positioned to benefit from the theme. We assess each company’s strategic direction, competitive positioning, valuation, financial condition and management. Every portfolio company is the product of fundamental analysis.

    Why it Works. 

    “The idea of the future being different from the present is so repugnant to our conventional mode of thought and behavior that we, most of us, have a great resistance to acting on it in practice.” 
    – Mark Twain

    It is difficult to envision change. The behavioral finance term for this condition is “anchoring.” Anchoring is making decisions based on known facts and past results even though those facts may have little or no bearing on future outcomes. As a result of this human tendency, markets generally overemphasize present data and short-term trends and underestimate and undervalue the impact from longer-term structural changes.

    Traditional investment frameworks structured around benchmarks often have limited success from another fundamental reason. The short-term focus on quarterly returns relative to indices works against one of an investor’s greatest advantages, a long-term investment horizon. The very nature of a process built around benchmarks or specific styles is by definition backward-looking and fails to incorporate emerging trends and forward-looking perspectives. In contrast, a thematic investment approach seeks to capture, across asset classes and around the world, opportunities created by secular changes. Very few themes are constrained to one industry or one geographic region, which is why traditional research often fails to uncover the breadth of investment possibilities inherent in a major trend.

    The End Result.

    Our thematic portfolios don’t look like most other portfolios. They don’t conform to standard industry classifications based on market capitalization, geography, style or specific benchmarks. Today’s macro themes are unprecedented and powerful. Themes such as genomics, big data, U.S. urbanization, aging populations and robotics provide us with a conceptual framework to construct portfolios that, we believe, are favorably positioned for investment success. 

  • BeyondTheTrends Chevy Chase Trust’s thematic investing approach featured in Forbes article on “Investing Beyond the Trends” - Chevy Chase Trust, recently named #1 on the annual Forbes list of Top Wealth Managers, orients its entire research process around investing in global themes. Posted in: Announcements, Noteworthy

    Chevy Chase Trust, recently named #1 on the annual Forbes list of Top Wealth Managers, orients its entire research process around investing in global themes. This contrasts sharply with the more widespread method of investing based on sectors, industries or geography.

    Read the Forbes article here.


  • InvestmentUpdate Investment Update, Fourth Quarter 2015 - The S&P Index ended 2015 at 2,044, almost exactly where it started the year at 2,059. Including dividends, the Index’s total return for the year was +1.38%. Volatility was higher than in any year since 2008. Market performance was very concentrated. Posted in: Investment Update, Noteworthy

    Going Nowhere Fast

    The S&P Index ended 2015 at 2,044, almost exactly where it started the year at 2,059. Including dividends, the Index’s total return for the year was +1.38%. Volatility was higher than in any year since 2008. Market performance was very concentrated. The ten largest S&P stocks were up 17%, while all others were down 5%. In sum, it was not a banner year for US equity investors, particularly if you didn’t own the winners.

    What now? If the only statistic that mattered was the aggregate return for 2015, there would be reason for optimism. Since 1970, in every year after a relatively “flat” year, the S&P generated a double digit return. Results varied between +11% and +34% with an average of +17%. However, in these “following years” S&P earnings increased by 12% on average. Given the current macroeconomic backdrop, we think it will be very difficult to achieve double digit earnings growth in 2016.

    Due to extremely low inflation, weakening nominal GDP growth, elevated corporate credit spreads and slower money growth, we think 2016 S&P earnings will only grow a modest 5% or so. Pricing power remains a major impediment to faster growth. Deflation plagues more than half of the 60 major industry groups. Selling prices in 32 industries are declining. Six other industries have been unable to raise prices by more than 0.5% per annum, while another seven are below 2%. Thus, more than two-thirds  of industries can’t keep pace with core inflation. This does not bode well for future corporate profit growth.

    Coupling our modest 2016 earnings growth projections with already relatively high price/earnings multiples, leads us to conclude that aggregate returns in 2016 will once again be below long-term averages. Despite this relatively pessimistic view, we believe our thematic approach will  continue to present selective investment opportunities.


    We expect 2016 US GDP growth will remain low but positive. Key factors we’re watching include:

    Interest rates – Historically, small changes in interest rates have not had a large impact on GDP growth. However, the global economy looks very different than it did in the past due to major shifts in demographics. A greater percentage of the global population is no longer in the workforce, the workforce is aging, and birthrates are declining. These demographic changes suggest that small movements in interest rates may matter more now.

    The December 16 Fed rate hike was the first time since 1967 that the start of a Fed tightening cycle coincided with a drop in corporate profits. Volatility will likely remain elevated and markets will struggle if the Fed continues to tighten into a slow growth, low inflation US economy. We would not be surprised if the Fed reverses course, particularly if inflation remains low. All else being equal, we would be more optimistic about equity markets if Fed policy moves to a more neutral stance.

    Energy prices – Energy prices are a key input to inflation. Oil has fallen more than 65% since mid-2014. We don’t expect another 65% decline from current prices. Just as important, we do not expect a sustainable and significant price increase. Equity markets are in a bit of a catch-22. Companies need some inflation to drive profitability, but if inflation grows too fast, the Fed will almost certainly tighten more aggressively. We think lower for longer inflation levels are better for equity markets, because lower earnings growth will be balanced by price/earnings multiples that remain high.

    The US dollar – One of the most important factors for global investors to consider when allocating assets geographically is the relative strength or weakness of the US dollar. When measured in their local currencies, the German, French and aggregate Euro equity indexes generated positive returns of between 3% and 10% during 2015. However, when converted to US dollars, returns were uniformly negative. Since early 2014, we’ve been bullish on the US dollar, expecting it to strengthen against other currencies. This was one of the primary reasons we reduced our non-US equity exposure. Since July, 2014, the US dollar has risen 20% compared to a trade-weighted basket of other currencies.

    Going forward, we think dollar strength will be more muted. This view is based on the belief that the divergence in central bank policies that has been a driver of recent dollar strength will revert to a more synchronized and uniformly accommodative stance. As mentioned, although the Fed finally raised interest rates after a nine year hiatus, we’re skeptical that the economy will weather many more increases before the Fed pauses or potentially reverses course. Conversely, the European and Japanese Central Banks have recently disappointed markets by their reluctance to ease policies more aggressively. On the margin, we think the gap between our monetary actions and those abroad will shrink, which should reduce interest rate differentials and limit the strength of the US dollar.

    Improving fiscal policies – One area of potential economic upside that has not received much investor focus is the large fiscal stimulus enacted by Congress in late December. The legislation significantly increases discretionary spending by over $40 billion and repeals the crude oil export ban. It also extends a number of tax credits and provides relief from taxes imposed by the Affordable Care Act. This package alone may add roughly 0.7% to GDP growth next year. However, it will also increase the deficit  by 0.9%, which may contribute to US dollar weakness.


    We are maintaining equity allocations at the low to midpoint of specified ranges. Within our holdings, we’ve made changes to reflect our updated outlook.

    • Increased the weighting to our Automation theme – In a low inflation environment the best way to increase profitability is to improve productivity. Economies of scale have driven down the cost of robotic technology so that it is now a cost effective option in a wide array of industries. Many of our core holdings in this theme are domiciled outside the US. Given our more balanced view on the US dollar, we’re increasing our holdings in these companies and marginally reducing our U.S. overweight.


    • Moved to a neutral stance in energy – As mentioned, we think the lion’s share of the price declines have occurred. We were not surprised by the stealth collapse of OPEC after participants failed to reach an agreement with regard to pumping limits at its last meeting. However, since most OPEC members are already pumping oil at or near capacity, we don’t expect a flood of new supply to come to market as a result of the cartel’s breakdown.


    • Reduced exposure to our Data Inundation theme and increased weightings in defensive sectors – Many companies in the Data Inundation theme significantly outperformed the market during 2015, some more than doubling in price. We have taken some profits and reallocated to well positioned, reasonably valued companies in defensive sectors with a focus on those with improving pricing power. In particular, consumer staples and telecom services are exhibiting price firming after long periods of decline.


    • Global exposure – We have modestly increased our exposure to developed markets outside the US, while continuing to avoid emerging markets. Earnings of emerging market companies are more positively correlated with international trade than with world GDP growth. International trade continues to slow with the Baltic freight index reaching an all-time low in December 2015. The current deflationary impulses benefiting consumers in developed markets continue to plague many emerging economies saddled with enormous extra production capacity. Until we see the incessant decline in global trade subside and utilization levels rise, we will avoid emerging markets.


    Most US fixed income investments generated very low returns in 2015. Outliers were high yield bonds which declined over 4% and municipals which were up over 3%. Nominal yields for ten year Treasury bonds averaged 2.27%, versus an average yield from 1958-2015 of 6.23%. Real yields (yields adjusted for inflation) in 2015 were even more anemic at 0.25%, versus the 57 year average of 2.46%.

    Over the past six months, in anticipation of Fed tightening, US two year interest rates have nearly doubled to over 1%. Ten year yields remain unchanged around the 2.30% level. This has resulted in the yield curve moving to its flattest level since the Eurozone crisis in 2012, although it is still a long way from inverting. On the margin, given our outlook for relatively modest economic growth, we favor intermediate duration instruments which are more impacted by inflation expectations and are not as explicitly linked to Fed policy. Currently, we are maintaining client portfolio durations in the three-to-four year range.

    Market expectations for future rate rises are still well below the Fed’s published targets, but have moved up recently. Recognizing that any future Fed rate decisions are data dependent and given our economic outlook, we question whether even the market’s expected rate rises will be realized. This makes us relatively optimistic about the outlook for bonds. If we see signs of rising inflation and a faster growing economy, we will grow more cautious since yields across the curve would move higher and bond prices would broadly decline. However, this is not our base case. In the current macroeconomic environment we believe fixed income continues to be an important counterweight to more volatile equity markets.

  • InvestmentUpdate Investment Update, Third Quarter 2015 - Much changed in the third quarter. The narrow trading range that characterized the first seven and a half months of 2015 was breached in mid-August with a significant market decline and increased volatility. Posted in: Events, Investment Update, Noteworthy

    Much changed in the third quarter. The narrow trading range that characterized the first seven and a half months of 2015 was breached in mid-August with a significant market decline and increased volatility. The S&P 500 peaked on May 20th at 2,135 and troughed on August 25th at 1,868, 12.5% below the peak and officially in “correction” territory. We closed the third quarter at 1,920, which represents a 10.1% decline from the peak and a -5.3% total return year-to-date. A market that is down more than 10% from a peak is said to be in a “correction.” A decline of 20% or more is a “bear market.” The last bear market in the U.S. ended in March 2009, after a 47% decline from November 2007.

    The recent sell-off followed a tightening of monetary conditions. Corporate bond spreads widened and inflation expectations plunged. Both constitute monetary tightening even in the absence of explicit policy moves. These conditions, together with the anticipation of actual Fed tightening, are a recipe for equity market volatility.

    Unfortunately, we don’t think the equity markets will stabilize soon for two primary reasons.

  • FT_API Chevy Chase Trust Managing Director named to the Financial Times’ List of the Top 100 Women Financial Advisers - Christine Wallace was only one of three advisors listed in Maryland. Posted in: Announcements, Events, Featured, Noteworthy, People

    Christine Wallace

    Christine Wallace
    Managing Director

    Christine Wallace, Chevy Chase Trust Managing Director and Senior Portfolio Manager, was recently named to the Financial Times’ list of the Top 100 Women Financial Advisers in the U.S. Christine was only one of three advisors listed in Maryland, and among six listed in the greater Washington, D.C. metro area. The 2014 inaugural list was determined using advisers’ self-reported data, regulatory disclosures and research to score aspects such as assets under management, growth rate, and credentials.

    According to Loren Fox in the FT 100 Women Financial Advisers Special Report, “We sought to highlight the many who have built large, successful practices. So this inaugural edition of the FT100 Women Financial Advisers provides a snapshot of the best across the US.”

    Christine manages investment portfolios for individuals, families and foundations. She shares responsibility for the development and oversight of investment strategy and process. Prior to joining Chevy Chase Trust, Christine was a portfolio manager at U.S. Trust in both the N.Y. and Washington, D.C. offices. She earned her undergraduate degree from Holy Cross College and her Master’s in Business Administration from George Washington University.

  • DSC08107 Chevy Chase Trust Fall Investment Symposium - On September 23rd, Chevy Chase Trust hosted its Fall Investment Symposium featuring experts in the areas of investment management, world-wide demographics, and global economics. Posted in: Events, Noteworthy

    On September 23rd, Chevy Chase Trust hosted its Fall Investment Symposium featuring experts in the areas of investment management, world-wide demographics, and global economics. An audience composed of clients, professional advisors, friends and neighbors attended the event held at Round House Theatre in Bethesda.

    Amy Raskin, Chief Investment Officer at Chevy Chase Trust describes Thematic Investing, offering an explanation of what it is and what it is not.

    Read entire transcription here.


    Dick Hokenson, Senior Managing Director at International Strategy & Investment (ISI) and Head of ISI’s Global Demographics Research Team, uses the demographic prism to examine global mega-trends in a world markedly different from the past.

    Read entire transcription here.


    Nancy Lazar, Partner and Head of the Economic Research Team at Cornerstone Macro, describes the U.S. as the world’s driver of global growth.

    Read entire transcription here.