Don’t just take our word for it. - 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 Posted in: Featured
- Thematic Investing - At Chevy Chase Trust's 2017 Fall Investment Symposium, Spencer Smith discusses the thematic research process. Posted in: Noteworthy, People, Video
At Chevy Chase Trust’s 2017 Fall Investment Symposium, Spencer Smith discusses the thematic research process.
“Before we make an investment in any individual company there’s a long dynamic process that precedes that decision.”
To view Spencer’s full presentation, click here.
- U.S. Urbanization - At Chevy Chase Trust’s 2017 Fall Investment Symposium, Tap Chibaya presents the theme of U.S. Urbanization. “Urbanization will contribute to […] Posted in: Noteworthy, People, Video
At Chevy Chase Trust’s 2017 Fall Investment Symposium, Tap Chibaya presents the theme of U.S. Urbanization.
“Urbanization will contribute to sustainable growth in the U.S. by increasing productivity, allowing innovations and new ideas to emerge.”
- Q & A with Blake Keeley Doyle - We recently sat down with Blake Keeley Doyle, Managing Director, to learn more about her background and who and what inspired her career in finance. Posted in: Noteworthy, People
We recently sat down with Blake Keeley Doyle, Managing Director, to learn more about her background and who and what inspired her career in finance.
Q: Tell us a little about your background.
A: I grew up in the Washington, DC area with my three siblings, and attended Holton-Arms. I went to Vanderbilt to study economics where I developed my interest in working in the financial sector. I interned every summer at FBR Capital Markets, an investment bank here in town, and that eventually led me to Boston. There I worked for a private equity group called Audax Group, eventually returning to FBR. That’s where I got my start in institutional sales.
Q: How did you decide to study finance and economics?
A: My dad was a lawyer for 20 years and scared us away from studying the law. I gravitated towards math and science growing up, so when I arrived at Vanderbilt, I knew that was what I wanted to study. Having had early exposure to finance, my interests grew from there.
Q: What was your first job after college?
A: I worked for an Aerospace and Defense Research Analyst. I spent a lot of time reading SEC filings, researching companies and building models. It was a great experience, but I soon realized that it wasn’t the ideal career path for me.
Q: What made you decide to specialize and focus your career on institutional investing?
A: While living in Boston and working at FBR Capital Markets, I worked with a team covering large institutional clients and at an early stage got exposure to some of the best and brightest in the financial industry. As a young person, it was exciting and challenging to meet and engage with sophisticated investors.
Q: What do you enjoy most about your career?
A: I love getting to work with bright people, and constantly learn. I’ve always liked that I don’t do the same thing every day. One day I am immersed in learning about technology companies, and the next day, it’s online food delivery companies. There is always a new challenge or goal to meet.
I value my work with very knowledgeable investment professionals here at Chevy Chase Trust. I have such an incredible resource of brainpower and intellectual capital readily available whenever I need it. The culture here is also refreshing. It is unlike any place I have ever worked before.
Q: What would you advise someone considering a career path like the one you have taken?
A: The advice I would give is that is important to understand all the different elements of the financial services industry. Spend some time, understand the different aspects of banking, investment banking, sales, and research, and decide the right fit for your personality. And its important to find a mentor… I was lucky to have wonderful mentors from the start when I was a sales assistant on a trading desk working with two senior brokers. They took the time to teach me the business.
Q: Who has been your mentor?
A: My dad. Definitely. When I started thinking about jobs after college and identified my career path, my dad guided me to where I should focus, how I should allocate my time, how to handle difficult personalities—all in all, he taught me how to succeed. To this day, he is still the first person I call for advice, and we have regular (sometimes heated) conversations about markets, investing, and politics.
Q: Tell us about how you spend your time outside of work.
A: Most of my time is (not surprisingly) spent with my kids who are two, four, and six, and my dog Homer. Weekends are spent with family, taking my kids to birthday parties, walking the dog in Rock Creek, and going on hikes. On the rare occasion when I am without my kids, my husband and I like to golf.
Outside of family time, I volunteer at A Wider Circle in their professional development center.
Q: Finally, what do you think is the most important piece of financial advice to pass on to your children?
A: I want to pass along the importance of saving, and saving early. My dad taught me to contribute as much as possible to my 401K—even at the very earliest part of my career. Although it is tough when you are young to save for the future, the compounding effect is undeniable.
- How the GOP mortgage interest deduction plan would hurt D.C.’s middle class - From the Washington Post: Laly Kassa, Managing Director and Certified Financial Planner, discusses how the GOP's new tax plan could affect homeowners in the Washington metropolitan region. Posted in: Insights, Noteworthy
Laly Kassa, Managing Director and Certified Financial Planner, discusses how the GOP’s new tax plan could affect homeowners in the Washington metropolitan region.
“If you think about a $1 million mortgage,” said Laly Kassa, managing director at Chevy Chase Trust, “in the initial years, that interest expense is in the $30,000 range. Having that capped is going to have an impact. . . . For the younger clients, it will have a really significant impact. It’s like losing a third of that deduction. For younger families, it will impact what they buy and what they spend their discretionary funds on. That’s $10,000 out the door right at the inception of a mortgage.”
Read the full article on WashingtonPost.com
- Slasher! Nike Wants to Cut Shoe Production Time by Half - Spencer Smith, Director of Research, and Bobby Eubank, Equity Research Analyst, offer insight on the sporting apparel’s ambitions for improving supply chain processes. Posted in: Insights, Noteworthy
Spencer Smith, Director of Research, and Bobby Eubank, Equity Research Analyst, offer insight on the sporting apparel’s ambitions for improving supply chain processes.
“Currently, Nike’s design and production process takes at least a year,” according to Eubank. “If you’re bringing in products from Asia, you’re taking a long time,” he told TheStreet. “This process would be over a year.”
Read the full article on TheStreet.com
- When To Consider A Corporate Trustee - Jeannette Roegge, Chief Fiduciary Officer, discusses how to determine whether a corporate trustee or executor might be beneficial when it comes to managing assets. Posted in: Insights, Noteworthy
Jeannette Roegge, Chief Fiduciary Officer, discusses how to determine whether a corporate trustee or executor might be beneficial when it comes to managing assets.
Roegge states, “Many people choose a close friend or a family member for number of reasons: cost, simplicity, familiarity or even just a sense of obligation. Often, such arrangements go off without a hitch. However, when things do go wrong, they tend to go very wrong. Almost all advisors know stories from their professional or personal experiences of family trustee or executor appointments that went horribly awry. Depending on your client’s circumstances, the complexity of his testamentary wishes and the size of his estate, among countless other individual variables, these cautionary tales may make the appointment of a corporate trustee an attractive option.”
Click to read the full article at WealthManagement.com.
- Don’t fear the robot: Harness automation to boost labor force - Despite below-average economic growth and recurring geopolitical uncertainty, manufacturers here in the U.S. are reporting brisk business. Posted in: Insights, Noteworthy
By Bobby Eubank, Thematic Research Analyst
Originally posted on TheHill.com 10/10/17
The Institute for Supply Management’s (ISM) production index increased to 62.2 in recently released data for September, a month marked by notable and unfortunate hurricane activity. This reading is nearing the highs of this economic expansion.
The overall Purchase Manager’s Index (PMI) from the ISM which includes production but also factors such as employment, inventories, backlogs and inflation was reported at 60.8, the highest reading in more than 13 years.
Enabling Secular Growth
Despite below-average economic growth and recurring geopolitical uncertainty, manufacturers here in the U.S. are reporting brisk business. However, with manufacturing gains for 100 consecutive months, many are asking when this business cycle will end.
Instead of focusing on when the cycle will end, which it eventually will, it is important to ask how to make America’s manufacturing base better positioned for secular growth.
The U.S. won’t become the lowest-labor-cost country for manufacturing, and that’s okay. By embracing automation and training our labor force, we can still become a low-cost producer.
Highly productive manufacturing is necessary for the U.S. to become a more competitive exporter but also able to better serve its $13 trillion domestic consumer economy. Several major apparel brands have announced initiatives to start automated production here in the U.S.
Without automation, these plans would never make it to the CFO’s desk given our labor costs relative to developing countries. For now, these initiatives are limited in scope but may begin to attract creative designers and talented engineers to the space.
The word automation is often associated with job loss. While job displacement by definition happens with increased automation, the U.S. has a unique opportunity to create a large and well-paid workforce that harnesses the power of automation.
Currently, the U.S. lacks the trained labor force to program and implement automation across our factories and warehouses. None of the major robotics companies are based in the U.S.
However, the U.S. is a leader in the hardware and software that enable Artificial Intelligence (AI) which is on the cusp of adoption in factories and warehouses around the world. This technology can allow robots to learn on their own how to best perform a task and then share that method with other robots.
AI will drastically reduce the high costs of programming automation equipment and free those programmers from the tedious task of integrating machinery and allow them to work on higher value problems.
One area that continues to see strong job growth despite automation is warehouses. Our consumer economy is going through a paradigm change where goods are being delivered from warehouses rather than being carried home from a store.
Amazon, despite rapidly increasing its robotics usage, announced in July that it was looking to hire an additional 50,000 people for its fulfillment centers and also announced plans for a second headquarters with 50,000 jobs, each paying over $100,000.
This is in addition to its already massive employee base, including those programming robots and researching artificial intelligence.
Artificial Intelligence Arms Race
From manufacturing to retail merchandising algorithms, AI offers great benefits to numerous industries. Companies worldwide are seeking to catch up to American companies’ head start.
Stifling the adoption of automation and AI during this key phase would harm rather than help America’s ability to grow a talented workforce capable of solving the challenging problems of the future.
Bobby Eubank, CFA, is an equity research analyst for Chevy Chase Trust, which provides investment advisory and corporate fiduciary services.
- Investment Update, Third Quarter 2017 - U.S. equity markets continued a steady climb during the third quarter of 2017. Posted in: Investment Update, Noteworthy
U.S. equity markets continued a steady climb during the third quarter of 2017. The S&P 500 Index generated a total return of 4.48%, bringing the year-to-date return to 14.24%. Volatility remained exceptionally low. If the year were to end today, 2017 would contain the fewest +/- 1% days since 1964. The S&P has gone ten months without a sell-off of more than 3%, making it the second longest stretch since 1950. Historically, 3% (or greater) sell-offs have occurred on average every two to three months.
Unlike prior bull markets, the relatively steady climb higher does not seem to be lulling investors into complacency. Memories of the bursting internet bubble and global financial crisis, stretched valuations, and rising geopolitical risks (most notably North Korea), contribute to somewhat bearish sentiment. Also, investors instinctively, if not intellectually, understand the concept of “negative skew.” Negative skew applied to equity markets means advances tend to be gradual and steady while sell-offs are sudden and sharp. Markets rarely melt up, but they do melt down.
Despite the longevity of this bull market (now well into its eighth year), and several real risks, we are maintaining our current portfolio strategy and positioning. Bear markets have almost always coincided with economic recessions, with the latter usually causing the former. None of our recession-timing signals are flashing red. ISM manufacturing new orders are strong, initial unemployment claims are low, core capital goods orders are accelerating, and the yield curve is not in immediate risk of inverting. U.S. financial conditions have eased this year, which should support near-term growth.
The key indicator we are watching is inflation. In our opinion, a sustained increase in inflation will mark the beginning of the end of this bull market. Rising inflation will signal that the slack created by the last recession has disappeared and the Federal Reserve will have a green light to raise interest rates with intent to slow economic growth.
After five months of inflation data coming in below consensus expectations, the August consumer price index was higher than expected. This is only one data point after a string of lower readings. We will be watching to see if this is a one-off blip or a change in trend. For now, we are holding on loosely, but alertly.
Understanding current equity market dynamics requires looking beyond aggregate results. Thus far, 2017 has seen the largest gap between the performance of growth and value stocks in twenty years. The two tables below illustrate this point.
During 2016 it paid to be smaller and more value-oriented (cyclically positioned). The opposite has been true thus far in 2017. Typically, large cap growth stocks outperform when we are in a slow growth environment. When growth is scarce, investors pay more for it. Cyclicals tend to outperform when underlying economic growth is accelerating.
Another shift that has occurred in 2017 is the outperformance of non-U.S. equity markets versus the U.S. From 2010 to 2016 the S&P 500 outperformed the MSCI All Country World Index in all but one year. The average difference between the two indexes was a whopping 4.9% per year. In 2017 the opposite has occurred. Year-to-date the MSCI All Country World Index has generated a total return of 17.75% versus the S&P 500’s 14.24%.
Surprisingly, this performance divergence has occurred alongside a weakening U.S. dollar. Conventional wisdom at the beginning of 2017 was that the Federal Reserve would raise interest rates faster than other major geographies and, as a result, the U.S. dollar would strengthen. This did not happen. Despite two rate hikes this year, the DXY Index, which measures the U.S. dollar versus a basket of foreign currencies, has declined approximately 9%. This weakness serves as a tailwind for U.S. corporate earnings. A recent research report estimates that every 1% depreciation in the dollar increases S&P 500 earnings by 1.6%. Conversely, relative strength in the euro, yen and yuan acts as a drag on earnings. This makes the year-to-date performance of non-U.S. regions even more impressive.
Finally, U.S. dollar weakness is inflationary since it requires more dollars to buy the same imported goods bought just one year ago. The fact that inflation has missed consensus expectations for most of the year, despite dollar weakness, tells us that secular deflationary pressures are still present despite the U.S. economy approaching full employment. If the U.S. dollar stops depreciating, as many expect, the strong performance of non-U.S. equity markets will likely continue into 2018, and inflation may again fall short of expectations.
As thematic investors, we research secular trends and the resulting changes that we think will impact corporate strategies and performance. Our secular themes tend to be long-lived and typically remain relevant for multiple years. However, they evolve over time and the ideas they spawn and the stocks that capitalize on the themes change as they become more widely recognized. Two current examples are Amazon and NVIDIA.
For several years, the narrative around Amazon was that it didn’t make money and would never be profitable. Our thematic research focused on the growing importance and underappreciation of access to consumer data (our Intangibles theme), and on changing consumer behavior as populations shifted toward denser urban areas in the U.S. (our U.S. Urbanization theme). We believed Amazon’s dominant web services business and the fact that the company was already the largest cloud computing provider in the world, were not appropriately valued because most investors only viewed Amazon as a retail company. We also believed the company’s substantial investment in fulfillment centers close to urban populations would give it a sustainable competitive advantage in retail delivery. This barrier to entry and first mover advantage contributed to the company’s ability to increase market share at the expense of competitors. Today 80% of incremental retail sales occur online and 60% of those sales are captured by Amazon. The company now accounts for half of all growth in retail sales.
As Amazon’s strong positioning became more evident, sentiment also changed. Recent headlines and analyst reports have been almost universally favorable. We still own Amazon, but its uniqueness is no longer as underappreciated.
Similar to Amazon, the semiconductor chip company NVIDIA appeared well positioned to capitalize on more than one of our investment themes. The initial thesis for investing in NVIDIA was fairly simple. The amount of global data being generated was growing at an exponential rate (our Intangibles and Automation themes). Making sense of that data was increasingly challenged with conventional processing techniques. Interestingly, we first discovered NVIDIA’s advantages from speaking with genomic experts while researching our Molecular Medicine theme. We learned that the primary bottleneck in genomic sequencing was processing. Each human genome contains six billion base pairs. It took a day or more to process this amount of data with conventional CPUs and the data analysis portion of the total cost of genomic sequencing kept rising. Scientists discovered that NVIDIA’s GPU chips, first created for graphically intense computer games were a perfect complement to CPUs as an accelerator.
Realizing that Molecular Medicine would not be the only field challenged by data proliferation, we examined the potential for GPUs in other fields and applications. NVIDIA also recognized the potential early and invested heavily in developing their GPUs and the requisite software required to easily program them for different applications. As a result, it was able to capture 85% market share before the opportunity became more broadly recognized by chip competitors. NVIDIA still has a leadership position, but the field is becoming more competitive as GPUs are critical technology for applications as diverse as artificial intelligence (AI) and self-driving vehicles.
Intangible Assets: An Investable Theme – A recent feature in The Economist stated “the world’s most valuable resource is no longer oil, but data.” In a twist on economics, oil’s value derives from its limited supply and scarcity while data’s value is derived from almost limitless growth and new discoveries.
Despite the growing importance of data, it is not listed as an asset on a company’s balance sheet. Unlike property, plant and equipment, it is difficult to value and Generally Accepted Accounting Principles (GAAP) provide little guidance. Access to data has changed the nature of competition by creating self-sustaining network effects. By gathering more data, a firm can improve its products or services, which attracts more customers and generates more usable data. Importantly, these virtuous cycles are occurring across many industries in innovative ways.
The more data Tesla and Google gather from their self-driving cars, the better they become at driving themselves. The more information GrubHub gathers about when, where and what consumers order from restaurants, the better it can help manage inventory, workflow and customer service. Google, Facebook and Amazon can see what people search, share and buy, giving them almost a ‘God’s eye view.’ And a company like NVIDIA acts as the ‘pick and shovel’ facilitating the mining of these vast pools of data. Data inundation, data mining and intangible assets that defy traditional valuation are related subjects in our thematic research.
The 10 year bond yield ended the third quarter of 2017 at 2.33%, slightly below the 2.49% level where it began the year. It dipped to 2.00% in August, but rebounded as risk appetites increased and inflation expectations perked up after the higher than expected August CPI reading mentioned earlier. Forecasting a rise in yields has become a fool’s errand. From a long term perspective, it does not appear that the secular downtrend of lower yields that has been in place for over 30 years is coming to an end. Still, there have been periods during this long bull market where multiple signals point to a modest rise in rates, even when economic conditions remain unchanged. This may be one of those periods. We think yields could climb moderately higher in the short term, but ultimately, we would not be surprised to see them fall early next year.
A big wild card in the bond market will be the impact of the Federal Reserve reducing the size of its balance sheet. Prior to the financial crisis, the Fed’s balance sheet was about $900 billion. It ballooned to $4.5 trillion due to quantitative easing programs put in place to spur economic growth. Now the Fed is finally reversing course and will begin shrinking its balance sheet. Most investors expect this to have either little impact or push yields higher (bond bearish). In essence, shrinking the balance sheet is a form of tightening. Tightening is usually bearish for bonds as it typically implies a backdrop of strong economic growth. However, tightening in the absence of robust growth may lead investors to reduce long-term growth and inflation expectations and, therefore, in this instance, it may actually be bullish (yields may decline). We are in unchartered territory so it is difficult to predict. Time will tell.
We are maintaining our current positioning in short- to medium term investment grade bonds. At this point, we don’t believe risk/reward warrants reaching for longer duration.
- Q & A with Michael Gildenhorn - We recently sat down with Michael to learn more about his background and how he began his career. Posted in: Noteworthy, People
Michael Gildenhorn, Director of Client Management and Senior Portfolio Manager
Michael joined Chevy Chase Trust in 2005 after previously serving as the President of Asset Management Investment Advisers. He currently serves as Director of Client Management and Senior Portfolio Manager, where he provides portfolio and wealth management advice to high net worth and institutional clients. Having over 25 years of experience, Michael has been recognized multiple times as one of Washington area’s top investment advisors by Washingtonian Magazine. We recently sat down with him to learn more about his background and how he began his career.
Q: Tell us a little about your background.
A: I’m a native Washingtonian and attended Walt Whitman High School. I went to Duke University and graduated with a degree in Economics and then studied law at the George Washington University National Law Center. I earned my JD in 1984.
Q: What was your first job out of college?
A: I was a real estate attorney practicing in Washington, DC. I liked the law, but I always knew I loved finance more.
Q: How did you transition into finance then?
A: In 1986, I decided to explore investment advising opportunities and was offered a job at Asset Management, Inc. in Bethesda/Chevy Chase. To prepare, I spent four months in New York City attending investment courses at the New York Institute of Finance.
Asset Management, Inc. was Buddy Adler’s firm. He was a wonderful business role model. He demonstrated that it is not only important to be an excellent investor & portfolio manager, but that it is equally, if not more, important to be connected to clients in a meaningful way. He truly cared about his clients and they appreciated that special quality.
Q: What do you enjoy most about your career?
A: Investment advising requires my pulling from entire education/knowledge base: finance, investments, law, tax, psychology, math, science, politics, etc. All of these areas affect the investments I make and the wealth advice I provide. Also, I began my career at the dawn of the computer age and I am fascinated with the tools I have available to manage money.
Q: How did you come to be at Chevy Chase Trust?
A: I came to Chevy Chase Trust as a product of an acquisition, but I cannot imagine an investment firm that offers more to clients than the current Chevy Chase Trust in terms of its research team, its global thematic investment approach and its comprehensive financial and estate planning offerings. The attention to detail seen in Chevy Chase Trust’s client service and portfolio management goes beyond that offered by the big, institutionalized money managers in this community. I am thrilled that my clients are benefitting in meaningful ways from the resources I have at my disposal.
Q: Who was your mentor?
A: My father. From a young age, I remember his joy and fascination with investing in the financial markets. We often had conversations about commodities, stocks and bonds, charts and trends and the fundamentals of investing.
Q: When you aren’t in the office, what do you enjoy doing?
A: I am very involved in the Jewish community. I am the chair of the investment committee for the JCC Association of North America, and the incoming chair of the investment committee at the United Jewish Endowment Fund.
I also love fly-fishing and cycling. I have fished & cycled extensively around the world. In September 2017 I will be participating in Deloitte Ride Across Britain which will cover the 967-mile length of the United Kingdom: Lands End to John O’Groats.
Q: What are is your favorite vacation destination?
A: I love taking family vacations. Kennebunkport, Maine, and Aspen, Colorado are my two favorites.
Q: What is the best piece of advice or the best lesson that you have learned throughout your career?
A: Client expertise is just as important as investment expertise.
- Amy Raskin featured in September’s Real Assets Adviser magazine - Read about who and what inspired her towards a career in finance and her commitment to thematic investing, the guiding principle at Chevy Chase Trust. Posted in: Noteworthy, People
“The Best Unmade Plans: Chevy Chase Trust CIO Amy Raskin never drafted a professional blueprint, but her opportunism has blazed a torrid career path”
Read about who and what inspired her towards a career in finance and her commitment to thematic investing, the guiding principle at Chevy Chase Trust.
Read the full article here.