The $26 Billion Woman Posted in: Featured, People - Read the Washington Business Journal profile on Amy Raskin, Chief Investment Officer, at Chevy Chase Trust.

Amy was also recently featured on CNBC. View below:
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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  • Genomics: Changing Medicine and More Posted in: Insights, Noteworthy, Uncategorized, Whitepapers - As thematic investors, we study secular trends, disruptive innovations and economic forces with the potential to reshape the world. Personalized medicine is a case in point.

    As thematic investors, we study secular trends, disruptive innovations and economic forces with the potential to reshape the world. Personalized medicine is a case in point.

    The Human Genome Project and developments it has spawned are transforming our understanding of each person’s unique molecular and genetic profile. More important, as more whole human genomes are sequenced, over 1.5 million to date, increased data is yielding new knowledge linking genetic profiles to specific diseases. This is advancing the frontiers of diagnosis and treatment.

    While many medications today activate or suppress the immune system, cell and gene therapies operate at a more granular level, introducing live cells or altering a person’s genetic code. Rather than manage the symptoms of a condition, cell and gene therapies can address the root cause, offering the potential to treat previously untreatable, and even cure previously incurable, diseases.


    A Well-Timed Pivot to Rare Diseases

    Concurrent with the rise of genomics, traditional drug development has reached a choke point. Bringing a new drug to market now takes on average 15 years with a cost of $2.6 billion. Large-cap biopharma companies in 2018 earned only 1.9% on their research and development investment, down from 10.1% in 2010. At the same time, late-stage pipeline assets have fallen by 23%. Compounding and confounding this slowdown, drugs that do reach the market often prove ineffective for many patients.





    Drug developers have been shifting attention to rare diseases. Defined as conditions that affect fewer than 200,000 people, rare diseases include conditions such as Leber congenital amaurosis, an eye disorder that only affects two to three newborns per 100,000, and spinal muscular atrophy, which affects one per 8,000 to 10,000 people worldwide. In recent years, approvals of “orphan” drugs that treat these rare diseases have increased dramatically.





    As over 80% of rare diseases have a known monogenic (single-gene) cause, rare diseases are particularly good candidates for personalized medicine. Our research estimates there are approximately 1,700 cell or gene therapies in various stages of clinical trials. From an investment standpoint, this shift to molecular/genomic medicine is opening up areas of opportunity beyond the drug therapies themselves.


    Focusing on Genomic Enablers

    It’s difficult to predict whether a drug in development will come through the pipeline, which of those that do will be commercially viable, much less which might become blockbusters. The technologies that facilitate development and logistics have more certainty and are the growth engines of a nascent field.

    The processes and infrastructure used in cell and gene therapies are fundamentally different than those used in traditional medicine. We believe that an historic opportunity in personalized medicine lies less in identifying the next blockbuster drug and more from researching and understanding contributors in the genomic supply chain.




    Identifying the Picks and Shovels of a New Frontier

    As genomics disrupts the pharmaceutical and healthcare industries, the evolving ecosystem presents opportunities for infrastructure companies along the supply chain. Here are three very different facilitators – one in diagnostics, one in development and one in distribution.


    Illumina is the global leader in DNA sequencing. The firm provides an integrated range of instruments, consumables and services that are essential in the identification and understanding of genetic variations.

    Led by Illumina, the cost of sequencing the human genome has declined faster than Moore’s Law, from $13 billion in 2003, to $1,000 in 2014, and broaching a $100 genome today with the recent introduction of Illumina’s NovaSeq sequencer. At a lowering cost of accessibility, genome sequencing should have broad application in clinical diagnostics, particularly oncology and reproductive health.

    We believe Illumina operates with a strong moat, owning 70% of the sequencing market and having generated over 90% of the world’s sequencing data. Illumina is to DNA sequencing what Google is to Internet search, but in its early stages with virtually no alternatives. A person only needs to have his or her whole genome sequenced once during a lifetime. But, if a genetic test can diagnose cancers before symptoms appear, healthy people might get a liquid biopsy as part of annual exams. We are at a tipping point in genomic sequencing as it moves from science to discoveries to applications to routine consumer genetic tests.

    Horizon Discovery is the global leader in the design, manufacture and application of gene editing and gene modulation. Horizon Discovery creates genetic models of human disease that biopharma companies and labs use in drug development. Once these models are created, they become part of Horizon Discovery’s library of cell lines, currently the largest in the world at over 23,000. Customers are provided cells in pairs, one with genetic change attributable to a disease and one a normal version. Adopting gene editing to identify and validate biological targets for precision medicine offers faster, cheaper and more effective drug development.

    On average, drugs now take 15 years to develop and cost $2.6 billion. The main component of the $2.6 billion is funding the cost of previous drug candidate failures, estimated to be 90% of the total. Horizon Discovery’s products help pharma and biotech companies fail poor drug candidates earlier in development. Horizon Discovery’s cell engineering platform allows these companies to understand the exact effect that genetic differences within a disease or patient will have on the efficacy of a drug.

    Horizon Discovery should benefit from long-term trends to rationalize drug R&D, develop more personalized medicines and outsource components of drug development. This is particularly true of gene engineering where outsourcing is quicker and cheaper than developing resources and capabilities in-house.

    Cryoport provides temperature controlled logistics solutions for the shipment of cell and gene therapies. Use of dry ice packing is no longer suitable for many new therapies because temperatures only average -80º Celsius with standard deviation up to 14 degrees. Samples used to develop CAR-T therapies must be kept below -136° Celsius and within a stable range of two to eight degrees. This requirement exists whenever therapies involve the shipment of living cells. Cryoport packaging can keep samples as low as –190° Celsius.

    Cryoport’s competitive advantage includes a proprietary cloud-based tracking system that receives pings from cryogenic packages every seven minutes to report temperature, pressure, orientation, shock and humidity. It also includes chain of custody and compliance information providing end-to-end traceability of cellular drug products. This technology assures a very low failure rate giving confidence to shippers and receivers.

    Since rare diseases by definition only affect a small number of people in any given region, shipping globally adds cost and complexity. Cryoport has worked in over 100 countries. Its first mover advantage, industry leading technology and global reach position it well in a growing market for cell and gene therapies requiring commercial transportation.


    Molecular/genomic drug development should accelerate exponentially. As traditional drugs continue to take more time and money to produce, personalized medicine is coming of age in a favorable regulatory environment. Incentives in the Orphan Drug Act include market exclusivity for seven years, tax credits up to 25%, waiver of prescription drug user fees and grant programs. Further, because of the interconnected nature of the human genome, biopharma companies are able to leverage investment in one drug into the development of others. All of this helps ensure the growth of a robust industry infrastructure as more genomes are sequenced, more data is gathered, more diseases become treatable and new and better drugs come to market.

  • Q & A with Laly Kassa, CFP® Posted in: Noteworthy, People - We recently sat down with Laly Kassa, who helps high net worth individuals, foundations, and non-profits with financial strategy at Chevy Chase Trust.

    We recently sat down with Laly Kassa, who helps high-net-worth individuals, foundations, and non-profits with financial strategy at Chevy Chase Trust.


    Tell us a little bit about your role here at CCT.

    I am responsible for financial planning, so I work with clients to examine just about everything that touches their financial lives. At CCT, we devote a lot of time to planning because it lays the groundwork for the work we do on the investment management side. Planning gives us a full picture of the client’s background, current situation, and future goals so that we can be good stewards of assets we are entrusted with managing.


    Tell us a little bit about your background.

    I am from Ethiopia. I went to UC Santa Barbara for my undergraduate degree in Economics, and went to Columbia where I earned my Master’s in International Affairs. I always thought I would end up at some sort of nongovernmental organization; however, when I was in graduate school the first internship that was available was at a large bank. I was convinced I would hate it – but I loved it. I loved working with all the numbers and working with individuals, so I just went on from there.

    Initially my role was very specific, looking at how clients were impacted by interest rates and foreign exchange and hedging that risk for them so that their balance sheets would not get whipped around because of changes in those markets. Over time my position grew into looking at clients’ full financial picture.


    What do you enjoy most about your work?

    It’s almost like being a detective. As you get to know a family, there are layers of things to uncover. You have a discussion with your client, you are given some documents, and you have to figure out what’s the impact of each piece on the family. It’s fun to decipher all of the elements and contemplate how we can be useful.


    What makes Chevy Chase Trust different from other places you’ve worked?

    That’s easy: the first thing is, we are not limited in the amount of planning, time, or resources we can spend on one particular client. Every client is afforded the same amount of expertise, so you feel like you can truly do a thorough job and address clients’ needs without the clock ticking. I don’t really believe that happens anywhere else.  Additionally, we are face to face with the clients we work for and do the work ourselves. We don’t send the work to planners in a remote location that never get to know the client; many firms use that delivery model and it just doesn’t work, all the intangibles get missed.  It is also important to me to work in a place with a deep bench and colleagues who have a tremendous amount of expertise.  Maybe most important of all, this business is built in a way that avoids conflicts of interest so the client comes first.

    This environment attracts people who are really smart, want to do well by their clients, and enjoy it. It makes this a very fun place to work.


    What would you do if not this?

    I have to admit that it changes all the time.  When my children were little, I thought I’d like to own a toy and book store because I was in that kind of place so often and loved it. I thought I could be good at finding games that challenge the mind and books that ignite the imagination.

    Currently, I’m helping my kids with non-profit work and I could easily do that too. Helping kids identify needs and use their technology and social media skills to harness the communities’ resources, or help children harness their classmate’s resources. There is much to be done and it is so empowering for kids to be involved in things that are bigger than they are.


    What do you like to do outside of the office?

    Now that my children are in high school and I have more time, I love to read, cook and travel. Travelling with the kids has been a lot of fun as they have gotten older – nothing beats watching that sense of wonder as they discover new countries and cultures.

    I also like to learn languages, I’m learning Spanish right now – off and on, unfortunately.


    What is your favorite book?

    My favorite book of all time is called A Suitable Boy by Vikram Seth. It is set in India and, on the surface, it’s about a mother’s search for a suitable boy for her daughter but there is so much in these extended families that reminds me of my own culture and family members.  The book I just finished is The Hired Man by Aminata Forna – although it is set in Croatia, it also reminds me of Ethiopia, with its tumultuous past that is evident only to those that have been through it.


    What advice would you give to someone considering a career path similar to yours?

    I’d say you have to enjoy being a jack of all trades and master of none. You aren’t the sole expert, whether it’s estate planning, insurance, or investments; you need to know enough to be helpful, but also know when to call in the experts. If you like working with people, problem solving, and working across lots of different disciplines, this is a great career path.

    Continue to Laly Kassa’s biography.

    Important Disclosures

  • 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.

    Chevy Chase Trust is proud to announce its top ranking in Barron’s. 

    View Barron’s rankings here.

    Important Disclosures

  • Chevy Chase Trust supports the 2019 Empty Bowls Bethesda Posted in: Community, Noteworthy - On November 4th, 2019, Chevy Chase Trust supports the 2019 Empty Bowls Bethesda.

    On November 4th, 2019,  Chevy Chase Trust supports the 2019 Empty Bowls Bethesda. This is an annual event of the Capital Area Food Bank, the largest hunger-relief organization serving the Washington metro area. With one out of ten residents in the region food insecure, the CAFB works with 450 food assistance partner non-profits to feed nearly 400,000 people. The program feeds 87 people per attendee.

  • Urban Alliance: Giving High School Students Experience in the Corporate World Posted in: Insights, Noteworthy, People, What We're Reading - Bethesda Magazine spotlights Najmah Abdur-Rahman's time in the Urban Alliance internship program with Chevy Chase Trust’s Amy Newman, Senior Trust Officer.

    Najmah Abdur-Rahman wanted an internship during her senior year at Paint Branch High School in Burtonsville, but she had no idea where to look or who was hiring.

    Then she learned about Urban Alliance, a Washington, D.C.-based nonprofit that partners with businesses to provide an on-ramp to the corporate world for students in underresourced schools. In Montgomery County, it places a total of about 30 to 35 students from Springbrook High School in Silver Spring and Paint Branch in paid internships each year. After being accepted into the Urban Alliance program, Abdur-Rahman spent six weeks in after-school classes to prepare for the workplace—learning to dress professionally, manage her time and communicate in a business setting.

    “Coming into the program, I was really shy being around people I had never met,” says Abdur-Rahman, 19, of Burtonsville, who was placed at Chevy Chase Trust in Bethesda. “[The training] gave me practice and let me know what to expect.”

    Read the full article here.

  • Third Quarter, 2019 Posted in: Insights, Investment Update, Latest News, Noteworthy - Despite strong returns this year, U.S. equity markets remain stuck in a relatively narrow 20% trading range that has prevailed for almost two years. Volatility has increased, but the long running tug-of-war between bulls and bears has yet to be resolved. Important Disclosures

    Market Summary and Near Term Outlook — The S&P 500 generated a total return of 1.70% in the third quarter, ending the quarter at 2,977, only 49 points below its all-time closing high of 3,026. Year-to-date, the index has generated a return in excess of 20%. The MSCI ACWI index of global stocks was basically flat for the quarter, generating a total return of 0.1% for the quarter and 16.7% year-to-date. Falling global interest rates and generally easing financial conditions contributed to the modest third-quarter gains.

    Despite strong returns this year, U.S. equity markets remain stuck in a relatively narrow 20% trading range that has prevailed for almost two years. Volatility has increased, but the long running tug-of-war between bulls and bears has yet to be resolved.

    Our base case is that barring a significant change in the U.S.-China trade dispute, U.S. equity markets will remain relatively range bound through at least early 2020. Although global economic growth has slowed due to manufacturing declines in almost every major economy, central banks around the world have been quick to respond by lowering interest rates. The combination of slow economic growth and proactive intervention has yielded weak corporate earnings coupled with relatively high earnings multiples.

    This is not the first time global economic growth has slowed during this ten-year bull market. Slowdowns of roughly similar magnitudes occurred in 2012 and 2015/2016. However, in those instances, massive stimulus by China’s government jump-started global economic activity. We do not think China will act as aggressively this time. There may be some China stimulus which could stem declines in global growth and, perhaps, drive modest acceleration in certain geographies, but we think it will fall far short of the growth seen in 2015/2016, in particular.

    Given the already very low levels of interest rates around the world, it is far from certain that further interest rate declines can meaningfully stimulate economic activity. Lower rates may only put a floor under equity valuations by forcing savers out of bonds and into equities. More easing by central banks may be good for Wall Street, but not necessarily for Main Street. Interest rate movements are keeping equity markets in a contained range and equity market movements are doing the same for interest rates. We don’t think this cycle ends quite yet.

    What Breaks the Cycle?

    Looking out a bit further, there are reasons for concern. During the third quarter:

    • real residential investment in the U.S. declined year over year;
    • the U.S. ISM manufacturing index, an indicator of U.S. economic activity, fell below 50, an indication that manufacturing levels are contracting, rather than just growing more slowly;
    • and, the U.S. yield curve remained inverted for the entire quarter. As measured by U.S. 10-year Treasury Bonds versus the effective Fed Funds Rate, the U.S. yield curve has been inverted for 19 weeks.

    Since the mid-1950s, with one exception, every time these three warning signals coincided, a recession has followed within two years. The one exception was 1966; although the U.S. economy didn’t fall into recession in the late ’60s, economic growth slowed sharply and the S&P 500 fell more than 20%.

    The fact that these long leading signals are occurring at a time when valuations on bonds, equities and real estate are all relatively fully priced, skews the risk/reward trade-off negatively to the downside.


    Getting Defensive

    Slowing U.S. and global growth coupled with relatively high valuations has given us the impetus to position portfolios more defensively. We have increased exposure in more defensive sectors such as Consumer Staples, Healthcare, Utilities and REITS. We have also begun to add a small position in gold. We very rarely buy gold since it does not generate a return, but it is a store of value if both equity and bond prices decline. We are underweight traditionally cyclical sectors, Energy, Financials, Materials and Industrials. We are more defensively positioned today than at any point in the last five years.


    What Could Take the Market Higher From Here?

    There are several potential drivers of a near-term market rise.

    • Investors are already bearish and, counterintuitively, that’s bullish for equity markets. U.S. mutual fund investors have sold $116 billion of equities year-to-date and bought $594 billion of bonds and money market funds. Despite rising risks, investor sentiment is arguably more negative than current economic data warrants. An American Association of Individual Investors survey recently found the lowest five-week average of bulls since November 2016, right before the market soared.
    • While equity markets are expensive in absolute terms, equities are still attractive relative to bonds. Stocks tend to outperform other asset classes when the dividend yield of the S&P 500 is higher than the yield on 10-year U.S. Treasury bonds. That is the case today.
    • China stimulus could be greater than we expect. Many U.S. firms depend on China for growth. Sales by U.S. firms in China are more than twice as large as U.S. exports to China. Regions like Europe and Southeast Asia are even more levered to China. Stronger China growth could indeed be a “shot heard around the world.”


    Welcome to a Slow Growth World – A Longer Term Perspective

    Although China has the financial flexibility to engineer just about any outcome in the short term, we expect China GDP growth to slow considerably over the longer term. After decades of rapid growth, its economic growth has been slowing for several years, weighed down by rising debt levels, slowing working-age population growth, and diminishing returns from infrastructure spending. With no other country or trend large enough to compensate for a sustained slowdown in China, we expect global growth, particularly in areas where China spent heavily, such as industrials and commodities, to be slow for the next five to ten years.

    Other factors are also likely to contribute to slow global growth long term.

    Birth rates have dropped below replacement levels in almost all developed economies. In many countries, populations are declining, especially the working-age segment, which deprives economic growth of its main driver, human capital. In the U.S., strong population growth contributed substantially to real GDP growth of 4.0% per year, on average, in the 1950s, and 4.3% in the 1960s. It doesn’t appear the U.S. will even approach 3.0% in the decade to come. In Japan and Europe, where population growth is negative or very low, consensus estimates of economic growth are even lower, ranging from 0.5% to 2.0%.

    After a ten-year expansion in the U.S. and long expansions elsewhere, there is little pent-up demand to drive growth higher. In 2017, there were 259 million registered private and commercial vehicles in the U.S., compared to only 225 million licensed drivers. By contrast, in 1950, the number of licensed drivers, 62 million, far exceeded the number of registered vehicles, 48 million. Ownership penetration of most other consumer durables has similarly limited upside today. Consumers appear willing to spend their income, but are less inclined to borrow to buy things.

    On the other hand, government finances have spiraled out–of-control in many countries, constraining the potential for further fiscal stimulus. The U.S., for example, is saddled with unprecedented peacetime deficits. The Congressional Budget Office projects that federal debt held by the public will approach 100% of GDP within ten years. Historically, higher levels of government debt have been associated with slower growth.


    Looking at the Future Through the Lens of the Past

    With global economic growth likely slow for the next five to ten years, growth stocks should continue to outperform value stocks. Investors tend to favor growth when it’s hard to find. But, more important, the best growth stocks are unlikely to stay the same.

    Few companies can sustain terrific earnings and sales growth for more than ten years, and when growth slows, multiples generally contract sharply. A new set of global market leaders emerges every decade or so.

    In 1980, six of the world’s ten largest companies by market capitalization were energy firms: Exxon, Standard Oil, Schlumberger, Royal Dutch Shell, Mobil, and Atlantic Richfield.

    In 1990, eight of the top ten stocks were Japanese: NTT, Bank of Tokyo, Industrial Bank of Japan, Sumitomo Mitsui, Toyota, Fuji Bank, Dai-ichi Kangyo Bank, UFJ Bank.

    In 2000, seven of the top ten were tech or telecom firms: Microsoft, NTT DoCoMo, Cisco, Intel, NTT, Lucent, and Deutsche Telecom.

    In 2010, seven of the world’s ten largest stocks by market capitalization were energy or Chinese industrial firms, reflecting expectations of continued rapid growth in China and a commodity supercycle: ExxonMobil, PetroChina, BHP Billiton, Industrial and Commercial Bank of China, Petrobras, China Construction Bank, and Royal Dutch Shell.

    Today, the seven largest stocks in the world by market capitalization are all tech giants: Microsoft, Amazon, Apple, Google, Facebook, Alibaba and Tencent. Their sales and earnings growth have attracted huge amounts of capital. Capital flows tend to push down returns. Also, several of these companies face political risks, related to concerns about privacy, extraordinary size and market power.



    At Chevy Chase Trust, we are focused on finding the best growth opportunities for the next decade, not the growth leaders of the past decade. We think potential contenders can be found in healthcare, genomics, automation, luxury goods and luxury services.

    We believe our themes hold the promise of identifying some of the next decade’s market leaders. Here are thematic bullets that frame much of our current research:

    • U.S. Wealth Migration Mirrors Global Urbanization – Concentration of wealth is characterizing urbanization across the country, reinforced by demographics, changes in city planning and shifts in the housing market. Underpinning this wealth concentration are economies of scale that enhance growth and productivity, spurring new business models in what becomes a virtuous cycle. Urban living has profound implications on consumption and spending patterns.
    • The Advent of Molecular Medicine – Breakthroughs in genomic science are changing the practice of medicine. Genomic sequencing technology, clinical research, data analytics and gene editing are converging to deliver novel treatments and diagnostics that will improve medical outcomes and usher in a new era of healthcare.
    • The End of Moore’s Law Ushers in the Age of Heterogeneous Compute – For nearly 50 years, Moore’s Law broadly benefited the economy by providing exponential improvements in the performance and cost of computing technology. As the physical and economic challenges of further scaling semiconductors continue to mount, researchers are shifting focus from general purpose processors to special purpose technologies tailored to very specific tasks.
    • The End of China’s Emergence – After a multi-decade economic boom, China GDP growth is set to slow considerably. China has been the largest driver of global growth and the largest consumer of many commodities. A significant decline in growth and/or a shift away from infrastructure spending will have a material impact on growth and spending on cyclicals worldwide.
    • Inequality Paradox Leading to Cultural Convergence – Although economic inequality has been on the rise within countries for at least the past four decades, inequality between countries has been falling dramatically since the turn of the century. This shift has greatly expanded the population and distribution of middle and upper income consumers and presents new opportunities for global brands and products in a variety of sectors.
    • Next Generation Automation and Supply Chain Reorganization – Automation that was centered in automobile production in the developed world is now penetrating other industries such as retail, food service and healthcare. This will lead to improved productivity, dramatic shifts in supply chains and growing end markets for technology components and industrial equipment.


    Fixed Income Perspective

    Fixed Income markets were even more volatile than equity markets during the third quarter. The U.S. ten-year Treasury Bond began the quarter yielding slightly over 2.00%. Due to a breakdown in U.S. – China trade negotiations and a general slowdown in global growth, the yield precipitously dropped to 1.46% in early September, more than a 25% decline. Subsequently, the 10-year yield recovered some, to end the quarter at 1.66%.

    Interest rates around the world remain extremely low with approximately $15 trillion in negative yielding debt. It is difficult to predict a path forward for rates in the short term, since movements have been largely tied to inherently unpredictable events.

    A small acceleration in global growth from China stimulus could cause rates to rise modestly. This would likely pressure equity market multiples lower, which would depress consumer confidence and spending, forcing rates lower again.

    Central bankers are concerned that they do not have enough firepower to stimulate global growth when the next recession hits. The U.S. Federal Reserve typically lowers rates about 400 basis points, or 4.00%, during a recession to stimulate economic growth. That would pose an unprecedented challenge given the current Fed Funds rate of 1.75% to 2.00%.

    In a difficult environment for fixed income investors, we identify high-quality, value-add bonds with market or above-market yields.

  • Food for Thought: The Health Care Revolution Posted in: Latest News, Noteworthy, Video - Andrew Marshall, Portfolio Manager and Research Analyst, discusses our thematic investing approach to the Health Care Revolution.


    Andrew Marshall, Portfolio Manager and Research Analyst, discusses our thematic investing approach to the Health Care Revolution.

  • St. Maria’s Meal Program & Chevy Chase Trust Posted in: Community, Noteworthy - On September 18, 2019, volunteers from Chevy Chase Trust headed into downtown D.C. to help support Catholic Charities’ St. Maria’s Wednesday Night Meal Program.

    On September 18, 2019, Chevy Chase Trust volunteers participated in Catholic Charities’ St. Maria’s Meal Program which provides warm, nutritious meals to DC individuals and families in need. Chevy Chase Trust volunteers manned the dinner buffet and delivered meals to others by tricycle.

  • Demographics: Economic Consequences Posted in: Insights, Noteworthy, Whitepapers - We believe that long-term secular trends influence theme development, the macroeconomic environment and investment markets. One of the most important and enduring secular trends is demographics in terms of economic impacts.

    As thematic investors, we look for phenomena that are transforming economic prospects across multiple industries. Then, we seek to identify companies that will benefit, are investable through public equities with ample liquidity, and are likely to pay off within three to five years.

    We believe successful investing requires a long-term unconstrained global perspective and that using investment themes as an organizing framework for our research provides that perspective. We also believe that long-term secular trends influence theme development, the macroeconomic environment and investment markets. One of the most important and enduring secular trends is demographics in terms of economic impacts.

    Demographics encompass the study of population groups based on factors such as age, race, gender, fertility rates, mortality rates, income and migration patterns. While the future is unknowable, demographic data provides a degree of certainty to some aspects of the future. For example, if we know the number of 30-year-olds in the world, we know with certainty that the number of 40-year-olds, ten years from now, will be no greater and, in fact, will be fewer. Further, if we know the number of 30-year-olds by country and by gender, we can apply regional mortality rates to closely estimate the populations and distribution of these groups over the next decade.

    In behavioral finance, “anchoring” is the tendency to make decisions based on current facts and past results even though they may have little bearing on future outcomes. It is difficult to envision change. Markets generally overemphasize present data and short-term trends while underestimating and undervaluing the impact of longer-term structural changes. We believe demographic trends help us envision the future and mitigate the influence of anchoring. Here are some demographic trends we find relevant to our investment thinking.

    Workforce Demographics

    Workforce demographics pose a headwind to economic growth. This can be clearly seen in the long-term trend of dependency ratios.


    Dependency Ratios

    Source: World Bank


    Dependency ratios reflect the percentage of people 65 and older compared to the working age population (defined as those ages 15 to 64). The higher the ratio, the more workers need to produce to maintain, much less improve, the standard of living for all (measured by GDP per capita). Many of the countries that currently are among the largest contributors to global GDP are the most demographically challenged. These demographic headwinds contribute to a slowdown in productivity growth. Productivity growth has fallen in every major economy and in almost every sector.

    While not immune from this trend, the U.S. is one case where a larger percentage of those over 64 are staying in the workforce. In the U.S., the Phillips curve, which postulates a reverse correlation between the unemployment rate and wage inflation, appears to have broken down. Demographic changes in the labor force may partially explain why. A St. Louis Fed analysis found that almost all of the net increase in employment since 2000, some 18 million jobs, is attributable to workers 55 and older.


    Cummulative Change in Employment by Age Group (Millions)

    Source: Bureau of Labor Statistics: Labor Force Statistics from the Current Population Survey


    The population is aging and more people are continuing to work later in life. In 2000, 32% of those 55 and older were in the workforce. In 2018, that percentage had increased to 40.2%. The combination of a higher participation rate for seniors, a relatively flat participation rate for all others and 100% of net job gains attributable to seniors, helps explain subdued U.S. wage inflation. The pace of wage increases slows for older workers as they tend to place a higher value on benefits, flexibility and fewer hours.

    What is inevitable is that this trend will end. The population is aging at a slower rate and the older cohort of baby boomers will start to age out of the workforce. The Phillips curve may have life left. More important, developing regions of the world with younger populations will become an important source of human capital. Companies will intensify recruiting, training and locating facilities in emerging markets. This will contribute to a shifting and rebalancing of global economic geographies.


    Approximately a decade ago, for the first time in history, more than half the world’s population lived in urban areas. This migration trend from rural to urban is projected to continue for the foreseeable future. By 2050, the urban population will more than double its current size with nearly 70% of people living in cities.


    Population of the World, 1950-2050

    Source: United Nations, World Urbanization. Prospectus: The 2018 Revision


    Some regions of the world are more urban than others but all are experiencing the same migratory pattern.


    Urban Population (% of Total)

    Source: United Nations, World Urbanization. Prospectus: The 2018 Revision


    A decade ago, our original urbanization investment theme focused on the buildout of urban infrastructure, particularly in China and India, two countries that were urbanizing the fastest, albeit from the lowest starting points. As the economies in those emerging markets slowed, we shifted our focus to the re-urbanization of American cities, the development of urban-like villages surrounding city centers and new businesses built for and dependent on population density.

    Jonah Lehrer of The New York Times wrote about the research of Geoffrey West and Luis Bettencourt, two physicists who studied the economies of agglomeration – the benefits that firms and people enjoy from close proximity to one another.


    In city after city, the indicators of urban metabolism, like the number of gas stations or the total surface area of roads, showed that when a city doubles in size, it requires an increase in resources of only 85 percent. Whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita. It doesn’t matter how big the city is, the law remains the same.

    A growing city makes everyone in that city more productive, which encourages more people to move to the city, and so on. This superlinear pattern demonstrates why cities are one of the single most important inventions in human history. As cities get bigger, everything starts accelerating. A key reason cities keep growing is their ability to create massive economies of scale.


    Not surprisingly, studies show that per capita GDP rises as countries become more urban. In the U.S., both by cause and effect, choice and consequence, the wealthiest are living closer to city centers than ever before. In addition to population migration to urban areas, the graph below shows that over the last 25 years there has been a pronounced wealth migration to urban areas.


    Per Capita Income, $000s (Composite Average 50 Largest Cities in the U.S.)

    Source: UVA Demographic Research Group, US Census, iamB Consulting


    City dwellers, on average, have higher incomes and higher education levels. This is important from an investment perspective as spending capacity, more than absolute population, influences consumer spending patterns. It is wealth migration within the urbanization trend that is driving new businesses and new business models.

    An Aging Population

    Population aging is a demographic trend worldwide. It is most acute in economically developed countries where fertility rates tend to drop as economies grow. Fertility rates have dropped below replacement rates almost everywhere except India and Africa.


    Fertility Rate, Total – Births per Woman (% of Total)

    Source: (1) United Nations Population Division. World Population Prospects: 2017 Revision. (2) Census reports and other statistical publications from national statistical offices, (3) Eurostat: Demographic Statistics, (4) United Nations Statistical Division. Population and Vital Statistics Report (various years), (5) U.S. Census Bureau: International Database, and (6) Secretariat of the Pacific Community: Statistics and Demography Programme.


    As a result, global population growth is slowing, and humans appear to be on a long-term demographic path toward self-extinction.


    Slowing Population Growth

    Source: (1) United Nations Population Division. World Population Prospects: 2017 Revision. (2) Census reports and other statistical publications from national statistical offices, (3) Eurostat: Demographic Statistics, (4) United Nations Statistical Division. Population and Vital Statistics Report (various years), (5) U.S. Census Bureau: International Database, and (6) Secretariat of the Pacific Community: Statistics and Demography Programme.


    Declining fertility rates, improved health, and increasing longevity are swelling older populations. By 2050, the number of people 60 and older will increase from 900 million to 2 billion, going from 12% to 22% of the world’s population. By 2020, for the first time in history, people age 65 and over will outnumber children under five. Improvements in nutrition, sanitation and healthcare are why more children today reach adulthood, and why most adults reach old age. The longer you live, the longer you’re likely to live.

    Because global population growth is slowing, demand for all sorts of things is also slowing. Japan is the most demographically challenged country in the world. There are no good models for population shrinkage. Depopulation has already resulted in Japan having eight million empty houses.

    While Japan may become the world’s largest nursing home, China is right behind. 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 is between 1.2 and 1.6, well below the 5.9 rate in the early 1970s and less than the 2.1 needed to maintain a stable population.

    The economic consequences of demographic trends in fertility, mortality, and workforces, directionally similar but measurably different in different parts of the world, point to slower global growth, subdued inflation in the U.S. and low interest rates in developed countries for a very long time. At the same time, urbanization is sparking productivity gains and innovative new businesses.

  • College Funding Tips from Laly Kassa Posted in: Insights, Latest News, Noteworthy - While deciding on the best way to save for college depends on your family’s unique situation, for many, the 529 plan offers the most flexibility and tax advantages.

    While deciding on the best way to save for college depends on your family’s unique situation, for many, the 529 plan offers the most flexibility and tax advantages:


    • Account balances may be used for college tuition, room, board, fees, books, supplies and computers. Graduate school and vocational school expenses are also eligible.
    • Up to $10,000 per year may be used for grades K-12 tuition.
    • Account owners may change beneficiaries. For example, funds that aren’t used by one child may be applied to another child or extended family member.
    • Large variety of investment choices including age-based portfolios that become more conservative over time.


    Tax Benefits:

    • Balance grows tax-free, and no tax is due on distributions as long as the funds are used for qualified education expenses.
    • Special provision that allows individuals to “frontload” 5 years of gifts, or up to $75,000 per beneficiary in 2019, and have the entire amount eligible for the annual gift tax exclusion. (Confer with your tax advisor if this technique is used; a federal gift tax return must be filed if more than $15,000 is given in one calendar year.)
    • Not included in account holder’s estate (as long as the 5-year period has passed for any frontloaded contributions).
    • Depending on your state, the contribution amount may be fully or partially deductible for state income tax purposes.



    • Parent-owned accounts receive favorable treatment for the federal financial aid asset calculation (only 5.64% of value is counted), and withdrawals are not included in income when calculating the expected family contribution. (Rules are different for grandparent accounts.)
    • Any withdrawals that are not for qualified educational expenses are subject to income tax and a 10% penalty.


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