Chevy Chase Trust
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The $26 Billion Woman Posted in: Featured, People - Read the Washington Business Journal’s feature on Amy Raskin, Chief Investment Officer, who is responsible for overseeing $26 billion in active and passive investments at Chevy Chase Trust.
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
Chevy Chase Trust - Investment Update, Third Quarter 2017 Investment Update, Fourth Quarter 2017 Posted in: Investment Update, Noteworthy - 2017 was an extraordinary year for stocks. The S&P 500 generated a total return of 21.8%, and rose every single month of the year.
Other News
  • Saying economy is strengthening, Fed’s Powell suggests faster pace of interest rate hikes - Chevy Chase Trust Saying economy is strengthening, Fed’s Powell suggests faster pace of interest rate hikes Posted in: Insights, Noteworthy - From The LA Times: During his first Capital Hill appearance since taking over as Fed Chair, Jerome H. Powell suggested Tuesday that the central bank could hike its key interest rate faster than anticipated. Craig Pernick, Head of Fixed Income weighs in.

    New Federal Reserve Chairman Jerome H. Powell indicated Tuesday that the economy’s prospects have strengthened and that the central bank could lift short-term rates at a quicker pace than anticipated. Speaking before the House Financial Services Committee, Powell said, “We’ve seen some data that will, in my case, add some confidence to my view that inflation is moving to target. We’ve seen continued strength around the globe and we’ve seen fiscal policy become more simulative.”

    Craig Pernick, Head of Fixed Income, commented, “He is saying more of the same, but he’s saying it with a tone with words like ‘tailwinds’ instead of headwinds and that the outlook remains strong.”

    Read the full article here.

  • Finding Opportunity in Disruptive Change: Retailing and Its Supply Chain Posted in: Insights, Noteworthy - As thematic investors, we look for phenomena that are transforming cash flows and profitability across multiple industries. Here, we discuss one of these phenomena—how the next generation of automation is impacting the retail industry. 

    As thematic investors, we look for phenomena that are transforming cash flows and profitability across multiple industries. Then, we seek to identify companies that will benefit, are investable through public equities with ample liquidity, and likely to pay off within three to five years. Here, we discuss one of these phenomena—how the next generation of automation is impacting the retail industry.

    More than 20 major U.S. retail chains declared bankruptcy in 2017, from Sports Authority and Toys ‘R’ Us to Payless ShoeSource. Thousands of stores closed, more than in either of the recession years of 2001 and 2008. Yet, retail sales are booming, the economy is strong and unemployment is at a low of approximately 4%. What’s going on?



    First, e-commerce is taking an ever increasing share of the $3 trillion in U.S. retail spending. E-commerce already accounts for more than 13% of retail spending and should more than double over the next ten years.

    E-commerce’s growth and increased market share occurred against a backdrop of an already bloated retail sector. Retail square footage per capita rose by more than 50% in the U.S. from 1970 to 2016. As a result, according to PricewaterhouseCoopers, there was more than five times as much retail square footage per person in the U.S. than in Europe.



    Brick and mortar retailers are responding by trying to move online themselves and adopting new, small-store formats to reduce costs and get closer to consumers. This is reversing the long-term trend toward big box stores.

    Concurrently, a new generation of automation is upending the global supply chain, rearranging the logistics of retailing and changing the cost structure throughout the supply chain. Production and ful llment centers are moving closer to the end consumer, reversing another long-term trend toward globalization of production.

    Most warehouses today look much like they did 100 years ago, cavernous buildings lled with stacks of crates, shelves, pulleys and lifts. The process inside the warehouse is still largely manual. Five years ago, workers at a typical Amazon warehouse walked up to 12 miles a day, pushing a cart, locating items, taking them from shelves, and moving them to a packaging station.

    Automating Warehouses and Fulfillment Centers

    That’s changing. Amazon now has over 100,000 mobile robots operating inside ful llment centers. These robots lift entire shelves and bring them to packaging stations, eliminating the need for pickers to walk the aisles locating items. Amazon’s new warehouses have miles of conveyor belts, automated shuttle systems and cameras that can read 80 barcodes per second.

    Robots move faster, maneuver through narrower aisles, and retrieve goods from shelving up to ve times higher. These changes have resulted in a 20% reduction in operating costs. As a result, there is a growing cost and efficiency advantage of e-commerce over traditional brick-and-mortar stores. In 2012, Amazon sold seven times more merchandise per square foot of real estate than the average brick-and-mortar store. Since then, warehouse automation has boosted Amazon’s e ciency premium to nine times the average of traditional stores, which have also become more e cient but are falling farther behind.



    While Amazon continues to expand its robot eet, it is also developing a next generation robot that can open boxes, identify and remove single items, and place those items in a di erent box. At an Amazon-hosted robotics contest in 2017, a robot that picked up a baby wipe was treated like a rock star. The celebration of this feat and the tasks being designed for the next generation of robots are examples of Moravec’s paradox. Hans Moravec, a futurist at the Robotics Institute of Carnegie Mellon University, determined that it was relatively easy for robots to be programmed to perform complex adult-like computational tasks, but much harder to replicate the simplest tasks of a toddler, like walking without falling, avoiding a misplaced piece of furniture, or placing a square peg in a square hole.

    This next generation of automation will use cameras, sensors and software to enable robots to perceive and respond to their environment. They will operate around the clock in a “lights out” warehouse without the need for lunch breaks, vacations, sick days, or overtime.


    Last-Mile Production & Delivery

    Next-generation automation is also allowing consumer goods companies to speed time to market. Apparel companies today typically place orders as much as a year in advance—which doesn’t align well with constant demand for current fashion and customizable options. Nike says that the inability to react quickly to demand signals can result in hundreds of millions of dollars of lost pro ts. Today, most footwear and clothing are produced in Asia by a multitude of contractors and subcontractors. A shirt might be stitched in one factory from cloth woven, dyed, and cut in three separate factories owned by three di erent companies, with time between each step of production.

    This system evolved to cut labor costs, which in Asia can be as little as one-tenth the labor cost in the U.S. Automation makes it possible to locate production closer to the end consumer. While labor costs in developed markets are higher, the cost is more than o set by reduced transportation costs, faster time to market and the need for fewer workers. An Atlanta- based company is producing automated sewing equipment for a t-shirt factory. The company claims its rst-of-a-kind technology reduces labor by 90%, while nearly doubling output per hour. Similarly, Nike and Adidas have announced plans to use 3D printing and robotics to produce footwear and apparel here in the U.S. Nike already allows shoppers to order sneakers with customized features.

    Amazon was recently granted a patent for equipment that uses a customer’s measurements to make personalized clothes in their ful llment centers. To complement this strategy, it also purchased a company that makes highly accurate 3D models of each customer’s body. Executives who enjoy the convenience of being measured in their o ce for custom-made suits, typically wait weeks, if not months, for tailoring and delivery from Hong Kong. Amazon’s new system may soon provide custom-tailored suits faster.

    E-commerce is also gaining market share by providing next-day and same-day delivery in major metropolitan areas. To provide this convenience, Amazon, Best Buy, and other e-tailers are locating ful llment centers closer to the customer, typically in higher-cost urban and suburban areas, rather than rural industrial parks.



    Amazon ful llment centers are, on average, 60% closer to purchasers than they were a decade ago, yet still over 100 miles away. In Amazon’s top 25 markets, its ful llment centers are almost three times closer to the end consumer than in smaller markets. Locating distribution centers 10 miles, rather than 100 miles, from consumers could reduce e-tailers’ transportation costs by 70%. We estimate that close-in ful llment centers have the potential to reduce overall e-commerce logistics costs by another 30% over the next few years.

    Eventually, e-commerce delivery costs will come down even more. Ru aello D’Andrea, the co-Founder of Kiva, estimates that it will cost twenty cents to deliver a package with a drone compared with $2 to $8 per package for human delivery today. McKinsey & Co. projects that 80% of packages will be delivered autonomously by 2025.


    New Store Formats

    The increased cost advantages that e-tailing, automated warehouses and last-mile ful llment have provided to e-commerce is putting some traditional retailers out of business and reducing new store construction. Retail construction fell 20% in 2016. We expect to see a 5% to 10% net reduction in retail space over the next few years. But, in our view, it won’t spell
    the end of brick-and-mortar stores. People still like going to stores to see displays, discover new products, touch fabrics,

    try on clothes, and interact with an in-store expert. These are unique advantages that traditional retailers can build on by enhancing the shopping experience, while slashing real estate and inventory costs.

    To cut real estate costs, retailers are reducing or eliminating in-store inventory. We expect retailers to reduce inventory by nearly $200 billion, or up to 30%, over the next few years. One strategy is to maintain better information on inventory levels with Ultra High Frequency Radio Frequency Identi cation (UHF RFID) chips. Think of UHF RFID as bar codes that don’t require a carefully positioned reader. The chips send out a radio signal that informs the store’s inventory system exactly how many units of each item are on the premises.

    Lululemon uses UHF RFID to enable customers to see real-time inventory levels in nearby stores on a mobile app; it also uses the data to balance inventory across its store network. Levi’s tags every pair of jeans with UHF RFID so stores can nd and sell scattered units during a big sale. This reduces odd lots the store would likely sell at clearance prices. We believe these strategies can boost revenues by 5%. For a store with 10% operating margins, boosting revenue by 5% without increasing costs could increase operating pro ts by 50%.

    Other stores are exploring other approaches. Target has a trial store with some goods for sale, but no backroom inventory. Target treats the store like an e-commerce customer, delivering goods as needed from nearby ful llment centers.

    Wal-Mart, which built its empire on a low-price, low-service model, recently paid $310 million for Bonobos, acquiring
    a radically di erent way of doing business. Bonobos calls its stores “guide shops” because a trained guide introduces shoppers to its range of products and ensures that their personal tastes are met. Its shops have no inventory on site; orders arrive at the customer’s home two days later. Similarly, Nordstrom recently introduced Nordstrom Local, just 2% the size of a typical Nordstrom, o ering personal shopping guides and amenities like a nail salon, but no on-site inventory.

    We expect the retail store of the future to be small and uncluttered, and to o er personal shoppers, customized goods, and home delivery. Think of it as a return to bespoke neighborhood tailors—or the spread of luxury service à la Bergdorf Goodman but at much lower prices. The same next-generation automation now being used by e-tailers to put brick-and- mortar stores out of business will allow brick-and-mortar stores to reinvent themselves and provide a more desirable shopping experience.


    Investment Implications

    Within the theme of next generation automation, many traditional elds and old-line business models are being disrupted. New business models are being created, some existing business models are being reinvented, and others are being subjected to creative destruction.

    The impacts on the retail industry and its supply chain are profound and become the catalyst for even more changes. Importantly, the investment opportunities are diverse, seemingly unrelated, but connected by the threads we see in secular trends and our thematic research.

    Here are some conclusions that shape our investment thinking:

    1. Emerging markets will lose an advantage over developed markets, as low-cost wages are no longer the determining factor in location of production facilities.
    2. Automation utilizing arti cial intelligence and sensors will lower prototyping and small batch production costs, facilitating mass customization.
    3. Outsourced ful llment will allow small brands and retailers to do what they do best, create unique products and connect with their customers, leveraging third-party supply chain infrastructure.
    4. Just-in-time inventory enabled by sensors, software, and local ful llment will reduce inventory, waste, and overhead, and the need for pro t-destroying clearance sales.
    5. Mobile and alternative payment systems will continue to gain share as consumers move away from in-store cash transactions.
    6. These trends are de ationary as production costs decline and labor and real estate are repurposed.
    7. Shoppers will make fewer trips to physical stores, but when they do go, their intent to purchase will be higher. This will increase spending per visit and reward those retailers who can satisfy visitor expectations.

    In sum, we’re in the early stages of a revolution in retailing that is creating compelling new investment opportunities.

    Download the whitepaper here.



  • Q & A with Marc K. Wishkoff - Chevy Chase Trust - Noteworthy Q & A with Marc K. Wishkoff Posted in: Noteworthy, People - At Chevy Chase Trust, Marc oversees the delivery of Chevy Chase Trust services to clients and coordinates with their legal, accounting and other third-party advisors.

    Marc Wishkoff, Managing Director

    Marc Wishkoff joined Chevy Chase Trust as Managing Director in 2009, coming to us from Citi Private Bank where he was Director and Private Banker.  At Chevy Chase Trust, he oversees the delivery of Chevy Chase Trust services to clients and coordinates with their legal, accounting and other third-party advisors. We sat down with Marc to find out more about how and why he pursued a career in wealth management and what he does in his spare time.

    Tell us about your background?
    I’m the oldest of three kids with two younger brothers. I have spent most of my life along the east coast of the United States and grew up in Wilmington, Delaware. I am a graduate of the University of Delaware, and the majority of my career has been spent in New York City and the Washington, DC metropolitan area.

    From where did your interest in the financial world come?
    From an early age I had an interest in business, banking and financial markets. My father worked for DuPont for many years as a chemical engineer, but always had an interest in the stock market. I can still remember copies of ValueLine Investment Survey and Investor’s Business Daily laying around the house. My great-uncle’s ownership of a business made an impression on me, as well as the businesses of several other relatives, and led me to want to study business in college.

    At the University of Delaware I obtained a degree in business administration with a concentration in finance. My career has been singularly focused in investments, banking and finance since.

    What was your first job?
    I worked from an early age and can hardly remember a time where I wasn’t doing something at least part-time. From about the age 13 and throughout high school I almost continuously had a job after school or over summers. In college, I worked in the restaurant industry as a waiter and towards the end of school as a credit analyst for a credit card company.

    In my junior year of college, I interned with Dean Witter and quickly learned that I didn’t want to be a broker. Starting the summer after college graduation, I worked for PNC Bank in the group that did accounting work for the mutual fund industry. In this position I worked closely with a New York City based asset manager, so much so that I was eventually hired by them directly and moved to New York.

    When did you move to wealth management?
    At Warburg Pincus Asset Management, I quickly identified where I wanted to focus my career. I was drawn by the intrigue of each private client’s personal story and business acumen. I eventually uncovered an opportunity to work directly for the partner in charge of marketing and I never looked back. At the end of 2000 after Warburg Pincus Asset Management had been through two corporate sales, I was presented with an opportunity to join an energetic group of people building a wealth management business in Washington, DC.

    U.S. Trust had just been acquired by Charles Schwab and I moved to the D.C. area to help open the Tyson’s Corner office and market our firm through our parent company’s offices in D.C., Maryland and Virginia. I had great support from dynamic local leaders and was surrounded by an amazing team of people who provided me with great help and resources. I worked with many of the Schwab brokers and learned how together we could build the brokerage and wealth management businesses to fuel the expansion of US Trust.

    At Chevy Chase Trust, I’ve utilized my many years of experience to ensure my clients not only understand their situation but then deliver to them the very best customized solutions our firm has to offer. If a client needs something we don’t do in-house, my long-standing relationships in the professional community make it easy for me to connect them with the right people and solve their needs. I act as a bridge between clients and the people they need to know both in our firm and outside in the community.

    What do you enjoy doing when you’re not at work?
    I am blessed with an amazing wife and family and the majority of my time outside of work is spent keeping up with the frenetic pace of a busy young family. We are big baseball fans and are active in local baseball and softball leagues and rooting for our Washington Nationals.

    We are also a beach family and enjoy frequent trips to Bethany, Rehoboth and Fenwick Island.

    I very much like to be active in the community and serve on the board of the Community Foundation for Northern Virginia. I am also a graduate of the 2014 class of Leadership Fairfax.

    If you weren’t in wealth management at Chevy Chase Trust, what would you be doing?
    I would probably be driving carpool – and thinking about how easy those people in wealth management have it.


    Continue to Marc Wishkoff’s biography

  • Downsizing baby boomers face a key decision: Is it better to rent or to buy? Posted in: Insights, Noteworthy - From The Washington Post: The age-old question of whether to rent or buy is prominent on the minds of baby boomers who are contemplating downsizing. Laly Kassa, Managing Director, weighs in on the topic.

    The age-old question of whether to rent or buy is prominent on the minds of baby boomers who are contemplating downsizing. Laly Kassa, Managing Director at Chevy Chase Trust, points out that many people assume buying is the better financial choice, but after she works through all the considerations with her clients, they often opt to rent—at least initially.  “I do encourage people to take their time with this decision and to rent temporarily if they are uncertain about their choice of where to live,” says Kassa.

    While many baby boomers envision downsizing to walkable neighborhoods in or near the city, they are surprised to find the costs are not always less than those of the suburban home they want to leave behind.  “There’s no right or wrong answer — you just need to line up the choices and decide what works for you psychologically and financially,” says Kassa.

    Read the full story here.

  • Why is Walmart Closing Sam’s Club Locations Around the Country? Posted in: Insights, Noteworthy - From The Street: Bobby Eubank, Thematic Research Analyst, provides insight on the closing of Sam's Clubs stores across the country and its affects on the retail supply chain model.

    Despite the closing of 63 Sam’s Clubs across the nation, Bobby Eubank, Research Analyst at Chevy Chase Trust, believes “It’s likely that Walmart will retain Sam’s Club. Retailers as a whole are constantly reviewing their portfolios, and right now there’s just too much retail square footage.”  Three Quarters of the stores that closed are located within 10 miles of a Costco.  According to Eubank, the Sam’s Club ecommerce revenue growth doesn’t compare favorably with Costco Wholesale Corporation’s. “Both Sam’s Club and Costco get that e-commerce is important,” Eubank told TheStreet, but Sam’s Club is still playing catch-up. While initially a dozen of the closed stores will serve as fulfillment centers for Sam’s Club’s online purchases, in the future all integrated Walmart brands may be served by these properties.

    Read the full article here.

  • Chevy Chase Trust - Investment Update, Third Quarter 2017 Investment Update, Fourth Quarter 2017 Posted in: Investment Update, Noteworthy - 2017 was an extraordinary year for stocks. The S&P 500 generated a total return of 21.8%, and rose every single month of the year.

    Enjoy It While It Lasts — 2017 was an extraordinary year for stocks. The S&P 500 generated a total return of 21.8%, and rose every single month of the year. Declines were small as the market set record after record. The largest peak-to-trough decline was a mere 3%; since the S&P 500 was created in the 1950s, there has been only one year, 1995, with a smaller intra-year drop. The index reached a new all-time high on more than one in four trading days, more frequently than in all but a single year, also 1995.

    Volatility was low. Breadth was strong. The only people who did not enjoy the U.S. market performance in 2017 were those on the sidelines and those betting against the market.

    Many of the year’s positive trends started earlier. Despite the long-held and widely shared view that equity investors should expect low returns, the S&P 500’s annual return has averaged above 15% for the past five years.

    All good things must come to an end–but not necessarily soon. Given the remarkably steady advance in 2017, the risk of temporary pullbacks is elevated, but returns could well remain healthy, in our view.  The average return for the year following low volatility years is about 5%. The average return for years following those when the market set multiple new record highs is over 7%.  The macroeconomic conditions which drive the market do not change because we turn the page on the calendar and put a new digit on the year.

    While it’s hardly a bold call to say that 2018 is going to be a more challenging year than near perfect 2017, we do not believe the U.S. is nearing bear market territory. Recessions and bear markets tend to go hand in hand, and right now, recession indicators are not flashing red. U.S. economic data continues to be bullish for market returns. The new orders component of the ISM manufacturing index rose to 64 in November, while the inventory component sank to 47. Historically, a wide gap between the two is a powerful predictor of positive stock market returns. The current gap is wider than it’s been 87% of the time historically. Core durable goods orders, initial unemployment claims, capex intentions, consumer and business confidence, global PMIs, and other leading indicators also paint an upbeat picture.

    History suggests the 7th and 8th innings of a business cycle expansion are often the most profitable for equity markets. Since inception, the S&P 500 has delivered an average annualized total return of 14.2% in the 13 to 24 months preceding U.S. recessions, well above its 10.1% annualized average during full business cycle expansions. The S&P 500 did even better in the 7 to 12 months prior to the beginning of the last three recessions, generating annualized total returns of 22.2%, 20.0%, and 13.6% leading up to the recessions of 1990-1991, 2001 and 2007–2009, respectively.

    Bottom line: With recession likely a year or more away, the probability of rewarding equity market returns is high.

    Globally, the picture is even brighter. The MSCI All Country World Index generated a total return of 24.6% in U.S. dollar terms in 2017, beating the S&P 500 by almost three percentage points. For the first time in more than a decade, global economic growth is widespread. Almost 75% of developed economies are at full employment, and most global macroeconomic indicators are pointing to strong growth. The Global PMI is broader than it’s been in a decade, and its manufacturing component is at its highest level since early 2011.

    Notably, the global manufacturing PMI has peaked a median 15 months before the beginning of global recessions, while the global OECD Composite Leading Indicator has peaked a median seven months before recessions. At this point, there is little indication that either of these indicators has reached its high point in this cycle. Taken together, they suggest that the current global expansion has longer to run than the U.S expansion, which began much earlier and is likely further along.

    Even regions plagued with long-term structural problems are experiencing a cyclical bounce. For example, the Japanese and European economies are seeing some of their best growth in years, and policymakers are taking advantage of this strength to address difficult issues. In France, President Macron is implementing many of the labor reforms that were successful in Spain. France’s production outlook is at its highest level in 17 years.

    In Japan, Prime Minister Abe’s economic restructuring efforts are finally bearing fruit. The decline in the labor force due to Japan’s aging population has recently been mitigated by rising female labor force participation and an increase in foreign guest workers. The female labor force participation rate in Japan for women aged 15-64 is now 70% and foreign guest workers have increased from 720,000 in 2013 to an estimated 1.3 million last year.

    Importantly, corporate profit margins in Japan are now at a 70-year high. This is significant because Japanese companies traditionally put a higher priority on sales growth than profitability. We think this augurs well for Japanese stocks.

    Our bullishness on Japan makes us somewhat unusual. In Barron’s October 2017 money manager survey, only 6% of managers expected Japan to outperform other regions over the next 12 months. This compares to 45% of respondents who chose emerging markets to outperform, 29% who chose Europe, 13% who chose the U.S., and 7% picking China. We believe most managers are underappreciating investment opportunities in Japan. We like being early and think the
    risk/reward trade-off is now favorable for Japan. Most of all, we like the fact that many companies in Japan fit squarely in our themes.


    What We Worry About

    Change tends to occur more slowly when inflation is low, but inevitably, market dynamics do shift in response to economic and societal developments. We are on guard for economic distress signals. As Charles Darwin famously said, “It is not the strongest of species that survives, nor the most intelligent, but the ones most responsive to change.”
    In the U.S., year-over-year earnings comparisons are becoming more challenging, and the recently passed tax cuts may overstimulate the U.S. economy, and thus hasten the end of the business cycle. The tax bill represents incremental stimulus to an already strong economy. Unemployment today is just 4%, versus its 7% average when the last seven major tax cuts were enacted. No major U.S. tax reduction has been enacted when the unemployment rate was this low. If too much stimulus leads to higher levels of inflation, the Federal Reserve could boost interest rates faster than expected, choking off economic growth.

    We are also concerned about geopolitical risks, including North Korea, rising tensions in the Middle East, impending elections in Italy and the consequences of Brexit, as it proceeds. A trade war or an unexpected exit from NAFTA would almost certainly have a negative impact on equity markets.

    In sum, there is no shortage of reasons to worry. We will monitor these situations and others that will almost assuredly arise.  As the facts change, we will react and reposition accordingly. The positive side of our 2018 outlook is that the secular bull market is well intact and should continue. The negative side is that the year is likely to include increased volatility and abrupt market corrections.


    Only a Few Stocks Matter

    As relatively concentrated thematic investors, we have never tried to know everything about every company or even every sub-industry in the market. Instead, we focus on what we believe are the most fruitful areas for investment, those tied to our themes.
    Each of our themes made a positive contribution to portfolio performance in 2017 and over the past three years, but in each year, different themes have been the biggest contributor. In addition, in each year, a handful of stocks drove a disproportionate share of portfolio returns. Researching and picking these “winners“  is central to our thematic investment process.

    According to the economist Hendrik Bessembinder, the net gain in the U.S. stock market since 1926 is attributable to the best-performing 4% of listed stocks; the other 96% percent collectively matched the return of one month Treasury bills. Bessembinder expressed these gains in terms of “lifetime dollar wealth creation,” the contribution to the equity market’s net gain from each stock, starting in 1926 or when the company first appeared in the database through the end of the measurement period or earlier delisting of the stock.

    Some market experts use this analysis to tout the virtues of passive investing, claiming it is impossible for active managers to consistently find high-performing stocks. We disagree. We believe thematic investing is more likely to succeed than other active investment approaches because it focuses on companies that are disrupting the status quo and are well positioned to capitalize on structural and economic change. In financial terminology, thematic investing seeks to find investments with positive skewness: greater upside potential than downside risk. Our thematic research is dedicated to identifying these opportunities.


    Portfolio Positioning

    Global markets, generally, have performed well, and many regions still look promising. We are continuing to increase non-U.S. developed market exposure in portfolios. As noted above, we think there are compelling thematic opportunities in Japan and Europe, in particular.

    Our thematic research has recently led us to a new focus area related to curation-influenced opportunities in consumer spending. Curation uses a combination of online data and offline expertise to winnow down the choices presented to shoppers. For many consumers, the proliferation of online stores, travel sites, media and entertainment offerings and other online outlets is overwhelming. Too many choices can sometimes lead to less spending. Technology and consumer companies are teaming up to help vendors customize offerings to specific consumer preferences and then help users navigate the vast array of options.

    This avenue of research stemmed from our work on the growing importance of intangible assets. Data is quickly becoming one of the most prolific commodities in the world, and if used intelligently, one of the most important assets a company can own. Retail and media firms, as well as other consumer-focused companies, are cataloging our online purchases, the length of time we spend on each page of their websites and how we click from one item to the next. However, their ability to monetize this information effectively varies greatly.

    Some companies are extremely good at using data. For example, Amazon has said that it had recommended roughly 70% of the items purchased on its site, based on either other consumers’ purchases or the shopper’s own purchasing history. Similarly, some 90% of shows watched on Netflix were Netflix-recommended. Many other companies don’t yet have the expertise to translate information into higher revenues.  We think this will change. Our research suggests that e-commerce is still in the early stages of improved curation, a trend that may eventually enable smaller companies to compete with industry behemoths.


    Fixed Income

    The 10 year U.S. Treasury bond ended 2017 with a yield of 2.41%. This is only 4 basis points (0.04%) lower than the 2.45% level when the year began. Volatility in the bond market, like the equity market, was very low. The 10-year yield reached a high of 2.63% on March 13, 2017 and a low of 2.04% on September 7, 2017.

    The shape of the yield curve flattened rather dramatically throughout the year with the short end of the curve rising by approximately 75 basis points (0.75%) despite the long end remaining virtually unchanged. The yield curve is currently at its flattest level in 10 years.

    The increase in government debt resulting from the recent tax bill is likely to raise equilibrium bond yields modestly. The Fed estimates that the equilibrium 10-year bond yield would rise on a structural basis by 3-4 basis points for each percentage point increase in the Federal government’s debt-to-GDP ratio, and by 25 basis points for every percentage point increase in the deficit-to-GDP ratio.

    Bears have been calling for the end of the 30+ year bull market in bonds for several years now, and once again many fixed income forecasters are projecting significantly higher yields in 2018. We are not convinced that the end is nigh. However, by investing in individual bonds rather than mutual funds or bond ETFs, we dramatically reduce our risk if significantly higher yields do materialize.


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  • Thematic Investing Posted in: Noteworthy, People, Video - At Chevy Chase Trust's 2017 Fall Investment Symposium, Spencer Smith, Head of Institutional Investing, discusses the thematic research process.

    At Chevy Chase Trust’s 2017 Fall Investment Symposium, Spencer Smith, Head of Institutional Investing, discusses the thematic research process.

    Spencer described the characteristics of a successful theme and also outlined how we use investment research to narrow down the over 250,000 publicly traded securities to the 40 or 50 stocks that go into client investment portfolios. “Before we make an investment in any individual company, there’s a long dynamic process that precedes that decision.”

    To view highlights from Spencer’s presentation, click here.

    To view his full presentation, click here.

    Important Disclosures

  • U.S. Urbanization Posted in: Noteworthy, People, Video - At Chevy Chase Trust's 2017 Fall Investment Symposium, Tap Chibaya, Equity Research Analyst, presents the theme of U.S. Urbanization.

    At Chevy Chase Trust’s 2017 Fall Investment Symposium, Tap Chibaya, Equity Research Analyst, presents the theme of U.S. Urbanization.

    Tap began by pointing out that, for the first time in one hundred years, the rate of urban population growth is outpacing suburban areas, and America’s global competitiveness is now more centered around urban areas and the amenities and opportunities they offer. “Urbanization will contribute to sustainable growth in the U.S. by increasing productivity and allowing innovations and new ideas to emerge.”

    To view highlights from Tap’s presentation, click here.

    Important Disclosures

  • Global Macroeconomic Overview and Investment Process Posted in: Noteworthy, People, Video - Amy Raskin, Chief Investment Officer, presents a global macro overview and the four steps of the investment process at Chevy Chase Trust’s 2017 Fall Investment Symposium.

    Amy Raskin, Chief Investment Officer, presents a global macro overview and the four steps of the investment process at Chevy Chase Trust’s 2017 Fall Investment Symposium.

    Amy’s presentation included an interactive audience response system that allowed participants to provide feedback on various topics of behavioral bias. She also covered the steps of our investment process. “We have developed a robust four-step process which helps us identify and capitalize on investment opportunities earlier than our competitors. This process also helps us manage risk though both proper identification of where we are in the economic cycle and very careful, deliberate portfolio construction.”

    To view highlights from Amy’s presentation, click here.

    To view her full presentation, click here.

    Important Disclosures

  • Laly Kassa featured on Fox 5 News Posted in: Noteworthy, People, Video - Laly Kassa, Managing Director at Chevy Chase Trust, answers questions about Giving Tuesday and the tax benefits of charitable donations.

    Laly Kassa, Managing Director at Chevy Chase Trust, answers questions about Giving Tuesday and the tax benefits of charitable donations.

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