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.
“The strong basis for stock selection comes from whittling down the thousands of public securities around the world to a manageable group- identified through our thematic research. This screening process is perhaps the most important part of investing.”
Amy Raskin, Chief Investment Officer
News & Noteworthy
- Bethesda Magazine | Top Financial Professionals Posted in: Latest News, Noteworthy, People - As of October 25, 2022, Chevy Chase Trust is proud to announce that Larry Fisher, Deb Gandy, Michael Gildenhorn, Ashely Hall, Laly Kassa, Paula Landau, Wendy Moyers, Craig Pernick, Jast Sohi, and Marc Wishkoff have been voted as 2022 Top Financial Professionals by Bethesda Magazine.
As of October 25, 2022, Chevy Chase Trust is proud to announce that Larry Fisher, Deb Gandy, Michael Gildenhorn, Ashely Hall, Laly Kassa, Paula Landau, Wendy Moyers, Craig Pernick, Jast Sohi, and Marc Wishkoff have been voted as 2022 Top Financial Professionals by Bethesda Magazine.
View Bethesda Magazine rankings here.
- Bethesda Magazine | Women in Business 2022 Posted in: Featured, Noteworthy, People - September/October 2022 - Learn about the roles women play at Chevy Chase Trust in the Bethesda Magazine article.
Bethesda Magazine, September/October 2022 – With a majority of women in the senior ranks and in the firm overall, Chevy Chase Trust is proud to be a part of Bethesda Magazine’s Women in Business Profiles. Photographed from left to right are Paula Landau, Stacy Murchison, Blake Doyle, Elizabeth Kearns, Tina Kearns, Laly Kassa and Amy Raskin. Read the full article here.
- Chevy Chase Trust Ranks #8 on Forbes/SHOOK List of Top RIA Firms in 2022 Posted in: Featured, Latest News, Noteworthy - As of October 25, 2022 - Based on qualitative factors such as how a firm treats and serves its clients, and quantitative metrics including assets under management and retention rates, they chose us as a top-ranking firm. Read the Forbes article.
As of October 25, 2022, we are pleased to announce that Chevy Chase Trust ranked #8 nationally on the 2022 Forbes/SHOOK list of America’s Top RIA Firms. Based on qualitative factors such as how a firm treats and serves its clients, and quantitative metrics including assets under management and retention rates, they chose us as a top-ranking firm. Read the Forbes article here.
- Third Quarter, 2022 Posted in: Noteworthy - For the first time in more than four decades, both stocks and bonds have turned in negative results for three quarters in a row with capital destruction exceeding $17T. Learn about two substantial transitions behind the turmoil and why active management with a thematic approach may be the best bet for investors.
Financial markets continued to deliver wrenching results in the third quarter, as the Federal Reserve continued to raise short-term interest rates sharply to quell persistent high inflation. The S&P 500 returned -4.9% in the quarter for a -23.9% return year-to-date. The Barclay’s U.S. Aggregate Bond Index returned -4.8% for the quarter for a -14.6% return year-to-date.
Stocks and bonds rarely decline together. From 1976 through 2021, there were only four instances when U.S. stocks and bonds both delivered negative returns for two consecutive quarters. In 2022, for the first time in at least 45 years, both major asset classes delivered negative returns for three consecutive quarters.
The decline in both stocks and bonds this year has resulted in losses greater than those experienced during the Global Financial Crisis (GFC) of 2008-09. During the GFC, investors endured over $9 trillion of capital destruction in U.S. financial markets, with deep losses in equities and mortgage bonds partly offset by a rally in government bonds. This year capital destruction has exceeded $17 trillion.
Drawdown in U.S. Equity and Fixed-Income Market Capitalization1
(1) Measured using Bloomberg U.S. Exchange Market Capitalization Index for equities and U.S. Aggregate Index for fixed-income.
(2) October 9, 2007 – March 9, 2009
(3) December 31, 2021 – September 30, 2022
Source: Gavekal, Kevin Muir, Bloomberg
Two Transitions at Once
Financial markets are grappling with two significant transitions, one obvious, the other more subtle but quite powerful.
The first, more obvious transition, is from a time of massive liquidity injections, which the Federal Reserve and other central banks provided to support the global economy during the pandemic, to a time of more normal liquidity conditions. Many investors were stunned by the massive rally in the equity and fixed-income markets during the pandemic, when global economic activity ground to a near halt. The gains in financial markets were largely due to unprecedented fiscal and monetary stimulus at a time when money had nowhere else to go. This largesse also led to short-term inflation, as demand soared for physical goods, while factory and port closures impeded supplies.
Now, central banks are withdrawing much of that excess liquidity to quell inflation, and financial markets are responding accordingly. Despite this year’s decline, the S&P 500 closed the third quarter at the same level it was at during the fourth quarter of 2020 and above its pre-pandemic high.
The second transition is less sudden but is likely to have more profound long-term investment implications. After 40 years of nearly continuous disinflationary tailwinds that drove inflation and bond yields down to extremely low levels, we think the environment is reverting to more normal, cyclical inflation with associated higher interest rates and bond yields.
The End of Disinflationary Tailwinds is an important paradigm shift for investors. Decades of declining yields discouraged investors from owning bonds and pushed them toward riskier asset classes to try to earn “acceptable” returns. With the yield on the 10-year U.S. Treasury bond falling below 2.5% in March 2019 and then plunging to 0.5% after the pandemic hit, many investors adopted a “TINA” mindset – “There Is No Alternative” to equities.
Declining rates also made equities – particularly longer-duration Growth stocks – more attractive in their own right, by increasing the expected value of their future earnings.(1) Technology and communications stocks benefited most from this phenomenon, growing to represent 39% of the total market capitalization of the S&P 500 at the end of 2021. At the same time, the combined weight of six classic value sectors – Financials, Industrials, Energy, Materials, Real Estate and Utilities – shrank to just 29% of the index. Meanwhile, the combined weight of just seven stocks (Apple, Microsoft, Alphabet(2), Amazon, Tesla, Meta(3) and NVIDIA) grew from 3% in 2002 to 29% last year.
(1) For a more in-depth description of this phenomenon, please see the discussion of duration sensitivity in our September 20, 2022, Virtual Investments Symposium, by clicking here. (2) Parent company of Google. (3) Parent company of Facebook.
Sector and Company Concentration in the S&P 500
(1) Discretionary, Staples, Healthcare
(2) Financials, Industrials, Energy, Materials, Utilities, Real Estate
Source: FactSet, S&P 500, Chevy Chase Trust analysis. All data as of June 30, 2002, and December 31, 2021.
No Time to Be Passive
Knowingly or unknowingly, at the end of 2021, investors in passive S&P 500 index funds or ETFs were allocating about 39% of every dollar to the high-growth technology and communications sectors and 29% of every dollar to seven stocks that were equal in weight to the six classic Value sectors combined. Given these circumstances, buying the Index meant taking a high-risk, concentrated position in yesterday’s winners.
We still own some of these stocks for clients, but over the years we have reduced our positions in them. Recently, we have been selling into strength when we can, while paying attention to taxes. While it may be tempting to invest new money in the sectors and stocks that have outperformed over the last 20 years, we think it’s not wise for two reasons.
First, even after the drop in long-duration assets this year, massive amounts of capital are still invested in them. Mathematically, the more money is invested in an asset class, sector or security, the harder it is to earn a return on it. And these long-duration assets no longer enjoy a tailwind from falling interest rates.
Second, while Apple, Microsoft, Alphabet, Amazon, Tesla, Meta and NVIDIA are innovative companies that have delivered terrific sales and earnings growth, they can’t grow as rapidly forever. At some point, they will saturate their markets. Great innovations are often supplanted by newer and better ones, and competitors often take share with a better product or a lower price tag. The first Wang computer of 1972 was great in its time, but the IBM PC eventually displaced it. And IBM, once considered invincible, left the PC market long ago.
New Leaders Will Emerge
Equity markets have a long history of falling in love with certain groups of companies and projecting their past success into the future – often wrongly. In 1980, amid a global oil crisis, seven of the ten largest-cap stocks were oil companies. In 1990, eight of the ten largest stocks were Japanese. In 2000, seven of the ten were tech or telecom firms, while in 2010, amid China’s manufacturing rise and construction boom, seven were commodity related. Recently, eight have been Internet and tech related.
We think it’s reasonable to expect that few of the world’s largest stocks today will be on the top ten list a few years hence. But the stocks that attain that lofty position for the first time are likely to be among the best investments in the decade to come.
Stock Market Leadership Changes: Top Ten Companies Globally by Market Capitalization
Source: *Gavekal Research, +Bloomberg. Data as of January 1st of the year indicated.
Since 1926, the best-performing 4% of U.S. listed stocks accounted for the net gain of the entire U.S. stock market versus 1-month Treasury bills. Some cite this data to argue that investors should not pick stocks and should just passively own broad market indices, such as the S&P 500. We believe instead that it shows the importance of forward-looking active equity management, focused on selecting stocks with exceptional return potential. Our Thematic investment process is designed to do just that, by identifying changes that will lead to sustainable shifts in market dynamics and competitive advantages for companies in a wide range of industries.
Recent Thematic Development: Advent of Molecular Medicine
Our Thematic Equity Portfolios are invested today in six themes. In the midst of a turbulent year in the financial markets, we have seen important developments in many of the industries, technologies and operating companies in which we invest. These have strengthened our conviction in our themes. Recent advances in molecular medicine are a case in point.
In early October, Illumina, the leading provider of genomic sequencing equipment, unveiled a new product line that reduces the cost of sequencing a genome by almost two-thirds and the time by roughly half. The company also made the machines easier to use and more efficient. In the past, similar step-change improvements spurred large increases in demand. We expect the same to occur with this new product introduction.
In many respects, the genomic sequencing industry is evolving like personal computing. As the cost of computing declined and PCs became easier to use, more applications were developed, which led to even higher demand and usage, and even more applications. A similar “virtuous cycle of demand” is unfolding in genomic sequencing. As costs decline and sequencers become easier to use, more clinicians are prescribing genetic tests to detect specific diseases earlier and treat them more effectively. And as usage of genetic tests and treatments increases, more companies are bringing such products to market.
Cell and gene therapies are now being developed at record speeds. More than 2,000 clinical trials are underway globally. Scientists at the Centre for Biomedical Innovation expect 40 to 50 new gene therapies to be approved for clinical use by 2030, compared to the trickle today. We expect Illumina’s latest announcement to accelerate the pace of innovation in molecular medicine.
The S&P 500 has returned roughly 9.5% a year since the late 1920s, with zigs and zags along the way. After particularly steep increases, like the one from 2010 through 2021, U.S. equities often drop or move sideways for several years. We think the market may now be in one of these consolidation periods, and that broad equity market returns are likely to be below average for the next few years.
When the stock market no longer lifts all boats, investors need skilled, active management to sail into the wind in pursuit of attractive returns. As Thematic investors, this is what we do best.
This commentary is for informational purposes only. The information set forth herein is of a general nature and does not address the circumstances of any particular individual or entity. You should not construe any information herein as legal, tax, investment, financial or other advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments. This commentary includes forward-looking statements, and actual results could differ materially from the views expressed. Past investment performance is not a guarantee or predictor of future investment performance. There are risks associated with investing in securities, including risk of loss of principal. Foreign investing involves special risks, including the potential for greater volatility and political, economic and currency risks. Clients with different investment objectives, allocation targets, tax considerations, brokers, account sizes, historical basis in the applicable securities or other considerations will typically be subject to differing investment allocation decisions, including the timing of purchases and sales of specific securities, all of which cause clients to achieve different investment returns. The recipient assumes sole responsibility of evaluating the merits and risks associated with the use of any information herein before making any decisions based on such information.
- Investment Strategies for a New Market Reality | Presented by Amy Raskin, Chief Investment Officer Posted in: Events, Insights, Institutional, Noteworthy, Video - 9/20/22: Is now a riskier time to invest than it was a year ago, before the market downturn? Amy Raskin, Chief Investment Officer, answers this question and puts today’s market environment into context, focusing first on U.S. equities and then bonds and international equities.
September 20, 2022 – While 2022 has been a difficult year for most investors, with rising interest rates and turbulent financial markets, market declines don’t last forever. Is now a riskier time to invest than it was a year ago, before the market downturn? Amy Raskin, Chief Investment Officer, answers this question and puts today’s market environment into context, focusing first on U.S. equities and then bonds and international equities.
- Thematic Video: Heterogenous Compute Posted in: Insights, Noteworthy, People, Video - At Chevy Chase Trust, we build equity portfolios of companies positioned to exploit powerful, secular trends, disruptive ideas, innovations and economic forces such as our theme The Dawn of Heterogenous Computing. Watch our video with Jeffrey C. Dillman, CFA, to learn more.
As physical and economic challenges limit further scaling of computing technology, improvements will come from special-purpose technology designed for specific applications rather than general-purpose processors.
Learn where our investments are focused and how companies are enabling this technology in our video with Jeffrey C. Dillman, CFA, Senior Portfolio Manager.
- Chevy Chase Trust Welcomes Stefania Napolitano Posted in: Noteworthy, People - Chevy Chase Trust is pleased to welcome Stefania Napolitano as Assistant Vice President & Trust and Estates Attorney. As part of the Estate Planning team, Stefania assists clients in the review of their existing estate plans and advises them on estate planning options and strategies.
As part of the Estate Planning team, Stefania assists clients in the review of their existing estate plans and advises them on estate planning options and strategies. Stefania also assists the firm in its role as trustee of testamentary and inter vivos trusts, and as executor of probate estates.
Read Stefania Napolitano‘s bio »
- Thematic Investing: Successful Voyages Posted in: Noteworthy, Video - There is no map for investing. But there is a beacon.
While there are no calm seas in investing, it is possible to have a prosperous voyage.
- Q&A | Claire Voorhees | Wealth Advisor and Relationship Manager Posted in: Noteworthy, People - At Chevy Chase Trust, our Wealth Advisors build relationships by thoroughly understanding the ever-changing needs of our clients and assembling a team of experts to ensure that all those needs are met. Meet Claire Voorhees - Wealth Advisor and Relationship Manager.
Tell us about your role at Chevy Chase Trust.
As a Wealth Advisor, I am responsible for advising clients on investment management, financial and liquidity planning, trust administration, and philanthropic planning. I oversee the delivery of services to clients and coordinate with their legal, accounting, and other advisors. I provide holistic and high-touch service and work closely with my clients to understand their unique needs and, utilizing the firm’s expertise and capabilities, design tailored investment strategies to meet those goals.
Tell us about your background.
After graduating UVA, I joined a hedge fund, York Capital Management, first in NYC and then in Asia where I helped set up the fund’s operational base and worked with the trader. Next, after obtaining my MBA from Dartmouth’s Tuck School of Business, I joined Bank of America in Credit Research and later a hedge fund, Fundamental Credit Opportunities, where I worked as their sole credit and investment analyst. After that, I worked on the buy-side of Wells Fargo in San Francisco as Director for the bank’s Investment Portfolio, and then at a private equity firm. While I enjoyed each of these investment roles, I most enjoy working with people and realized my ideal position would be one where I would utilize my investment background while working with and helping clients more directly.
What made you decide to specialize and focus your career on wealth management?
While I’m grateful for all of my experiences as an investment analyst and am able to capitalize on these skills in my current role, working directly with clients is what I am passionate about, I am a people person. Spending time with clients and designing strategies to meet their goals is what I enjoy most.
What’s the most rewarding part of the job? What do you enjoy most about your career?
Working as a Wealth Advisor compliments my prior investment experience and enables me to do what I like most, working closely with and helping people.
In prior roles, my favorite part of the job was always helping a client understand an investment. I love that now I’m working directly with families and individuals and not just presenting to other finance professionals.
What makes Chevy Chase Trust different from other firms where you have worked?
We are privately held, and this enables us to make decisions differently. It makes a difference in how we invest in our business and how the company is run. We are not just one piece of a larger business that must make quarterly earnings, and we don’t have to operate within the parameters of a larger institution. This provides a different feel for employees and clients. CCT is a private investment think tank and I have been impressed with how investment strategy and research is communicated across all levels. We are one team of investors, financial planners, trust officers and wealth managers constantly focused on preserving and growing our clients’ assets.
Have you had a mentor and what are some lessons learned?
My dad. He is really good at seeing the big picture in business and successfully built and grew his firm. He has always encouraged me to take calculated risks and not be afraid of failing. I want my clients to trust me the way my dad’s clients trust him because his clients know he is always looking out for them. He’s a good listener and is so humble. He enjoys helping people and always tries to do the right thing. He kids around a lot and reminds me to keep things in perspective.
What led you to a career in financial services?
I have always enjoyed math and am fairly analytical like my mom, who was a corporate tax attorney. It was her idea that I become an investment analyst because she knew I enjoyed research. She always encouraged me to find a role that complimented what I liked and what I was best at.
What are your interests in the community?
My interests are varied – at the moment, I am spending time in dementia research fund raising efforts, female focused organizations. I also volunteer with my church and neighborhood in Georgetown.
Tell us about how you spend your time outside of work.
I love to be outside, either on the water or in the mountains skiing or hiking. My family has a home on the Miles River in Easton, MD, and I enjoy spending time there and on the boat whenever I can. I also love traveling and enjoy wine and used to be a blind taster as a hobby.
What advice would you give to someone considering a career in investment management/financial services?
It’s helpful to not only understand the different areas within financial services but also to understand what the different roles will entail because your personality type may be better aligned with one area over another. For example, if you are more of an introvert, a role in sales and trading probably isn’t the best role, but if you enjoy writing, researching and digging through financials, you may be well suited to being an investment analyst. Also, it’s important to pay attention to the type of firm, the people with whom you will be working, and what the opportunities to learn will be.
Considering all the people with whom you have worked, what are the most important attributes for success?
Tenacity, hard work, humility, and maintaining perspective and focus on the big picture. The successful person is always keeping their eyes open for opportunities, listening, and observing. They are often willing to take on more than their own specific responsibilities and are successful at working across teams. I think it’s also helpful to have an advocate at your company and a mentor either where you work or elsewhere. The advocate is especially helpful at larger firms.
How did you decide to study finance and economics?
I have always enjoyed math and been pretty analytical and love the fast pace of the markets and reading about interesting companies.
Read Claire Voorhees‘ Bio »
- Thematic Video: Long-Term Covid Beneficiaries Posted in: Insights, Institutional, Noteworthy - As long-term investors, we are interested in the companies who are capitalizing on the permanent changes caused by COVID’s disruptions. Hear Christine Wallace, Senior Portfolio Manager, detail one of our investment themes, Long-Term COVID Beneficiaries.
As governments locked down their economies amidst the Covid-19 pandemic, the consumer’s lifestyle was forced to change. At Chevy Chase Trust, we are focused on the companies that facilitate the consumer’s behavioral shift and sustainably improve their businesses as a result. Hear Christine Wallace, Senior Portfolio Manager, detail one of our investment themes, Long-Term Covid Beneficiaries.