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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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  • Retail Bankruptcies Rise, Store Closures Skyrocket in First Half of 2019 Posted in: Noteworthy, What We're Reading - Store closures in the first six months of the year have already exceeded the number of bricks-and-mortar stores closed in all of 2018.

    The pace of retail bankruptcies and store closures in the U.S. has accelerated so far this year compared with 2018, due in part to last year’s lackluster holiday shopping season, a new report finds.

    More retail bankruptcy filings are expected in the second half of the year, and bricks-and-mortar stores will continue to close at a higher rate, according to a report released Wednesday by professional services firm BDO USA LLP.

    “We’re going to see this trend continue,” said David Berliner, who leads the business restructuring and turnaround services practice of BDO, which provides assurance, tax and advisory services. While retailers are expected to keep falling in the second half of the year, the torrid pace should slow, Mr. Berliner said.

    “I don’t think the pace of the bankruptcy filings will be as large as it was in the first half,” he said.

    Talk of a retail apocalypse has echoed throughout the industry for years as shoppers abandon the nation’s malls and flock to online sellers. But the expected increase in bankruptcies and closures means the industry’s recent pain shows little sign of easing.

    Retailers continue to grapple with excessive debt, over expansion, private equity-ownership pressures and changing consumer behavior. On top of that, retailers were hurt by the 2018 holiday season, which failed to meet expectations, resulting in the weakest retail sales performance since December 2009, BDO found.

    Retail sales in the first half of the year were also hit by smaller tax refunds for the average taxpayer, trade tariffs, the longest government shutdown in U.S. history and inclement weather, which led some retailers to offer deep discounts to move merchandise, according to BDO.

    In the first half of 2019, 14 retailers with 25 or more stores filed for bankruptcy, including Payless ShoeSource Inc., Gymboree Group Inc. and Charlotte Russe Holdings Corp., BDO found. That is up slightly from 13 retailers with 20 or more stores during the same period in 2018.

    Over the summer, several more retailers—including Charming Charlie Holdings Inc., Barneys New York Inc., A’Gaci LLC and Avenue Stores LLC—filed for bankruptcy.

    Visit the article here.

  • Consumer Electronics Manufacturer ASUS’s CTO Says AI Will Unblock Industry 4.0 Adoption Posted in: Noteworthy, What We're Reading - The manufacturing industry is undergoing technological transformation, but progress has been slow. From robotics and automation to AI, technological advancements have arrived, yet roadblocks exist that prevent widespread adoption.

    The manufacturing industry is undergoing technological transformation, but progress has been slow. From robotics and automation to AI, technological advancements have arrived, yet roadblocks exist that prevent widespread adoption. As part of my series to to uncover little discussed insights from technology leaders in manufacturing, I recently sat down with Tai-Yi Huang, CVP and CTO of ASUS, a top consumer electronics brand and manufacturer. Huang leads the charge in ASUS’s adoption of new technologies, with a particular focus on the development and early validation of a soon-to-be-released AI engine. While both Huang and I agree that manufacturing provides many high-leverage applications for AI, widespread adoption of the technologies that are on the market has been slow. Huang shared his perspective: “The reason we don’t see more AI in factories is that the systems integration effort is too heavy.”

    In the manufacturing ecosystem, there are three major players. The technology vendors develop and provide new technology products, like smart cameras, robot arms, or analytics software. The buyers are the brands or manufacturers who want to incorporate that technology into their process. In order to do that, they employ a middleman of sorts, a systems integrator. Systems integrators specialize in knowing about all of the available technologies and delivering combinations of them, tied together with some custom engineering, to provide a complete (but often non-reusable) turnkey solution for the manufacturer’s specific need.

    Read the full article here.

     

  • 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.
     
     

    Urbanization

    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:

    Flexibility:

    • 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.

     

    Additionally:

    • 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.

     

  • Scientists Attempt Controversial Experiment To Edit DNA In Human Sperm Using CRISPR Posted in: Latest News, Noteworthy, What We're Reading - First it was human embryos. Now scientists are trying to develop another way to modify human DNA that can be passed on to future generations, NPR has learned.

    First it was human embryos. Now scientists are trying to develop another way to modify human DNA that can be passed on to future generations, NPR has learned.

    Reproductive biologists at Weill Cornell Medicine in New York City are attempting to use the powerful gene-editing technique called CRISPR to alter genes in human sperm. NPR got exclusive access to watch the controversial experiments underway.

    The research is aimed at finding new ways to prevent disorders caused by genetic mutations that are passed down from men — including some forms of male infertility. The team is starting with a gene that can increase the risk for breast, ovarian, prostate and other cancers.

    Read the full article here.

  • Q & A with Lawrence P. Fisher, II Posted in: Noteworthy, People - We recently sat down with Larry Fisher, Senior Managing Director & President, Family Wealth Services, to learn more about his background.

    Lawrence P. Fisher II
    President of Family Wealth Services

    An Interview with Larry Fisher, Senior Managing Director & President, Family Wealth Services.  Larry joined Chevy Chase Trust in 2010 after an impressive early career in banking followed by 15 years as a leader in multi-generational wealth advising.

    Tell us about yourself?
    I was born in Detroit (actually in a car), went to high school in Connecticut and ended up at Georgetown, earning a BSBA in Finance. While I really enjoyed growing up in Detroit (attending as many Lions, Tigers, and Red Wings games as possible), once I arrived in D.C., I decided to stay. I do still have family in Detroit, some still in auto-related businesses.

    I have two grown children and currently live in Bethesda. Working at Chevy Chase Trust has been the reward for being a finance major and working in financial services for 37 years.

    When were you first interested in finance?
    I am sure that growing up with a grandfather, and a father in banking had quite a bit to do with it. During my senior year at G.U., I had an internship in the credit department of Riggs Bank and was lucky enough to turn that into a job offer. I completed the Executive Management Training Program and was in corporate lending until I moved with a group of folks to American Security Bank. In all, I spent 17 years in corporate banking.

    Why did you make the switch to wealth management?
    I realized that banking was not going to be my life long occupation. The business had increasingly become commoditized. In the early ’90s, I spent a few years in public service which included a stint at the National Transportation Safety Board working on budgeting and accounting systems. After returning to banking in the Middle Market Lending Division of Mellon Bank, I found myself frequently referring clients to wealth managers. I decided to try working on the other side of the balance sheet and accepted a job in the de novo D.C. office of U.S. Trust. Once there, I discovered how much more I enjoyed creating real solutions for individuals and families and helping them reach their overall financial goals. The asset management business was much more rewarding than lending, which had become more formulaic and restrictive – I didn’t feel like I was adding value for my clients. Working on real-life situations was exciting for me. Building a business and identifying those we could help became a real passion. And working for a company like U.S. Trust, before it was purchased by Schwab and again by Bank of America, felt like I was working for a privately owned company, a significantly positive differentiator in our industry.

    What advice do you have for those considering a career in wealth management?
    Learn as much as you can about the financial markets first. Start in your college years, if possible, by taking finance-related courses in school, and then read, read, read—the dailys, weeklys, Financial Times, Barron’s, the Wall Street Journal. My favorite book for those considering our business is James E. Hughes’ “Family Wealth–Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations.”

    What’s been your guiding principal?
    As an employee as well as a client of CCT, the phrase, “Do unto others…” has real meaning/significance.

    How do you spend your time outside of work?
    My parents set a terrific example for all of us as we were growing up. They were always involved in helping our community and instilled in us a culture of giving back. Consequently, I spend a lot of time on philanthropic endeavors, especially those that are education-related, helping build the tools kids need to survive. Our work for clients also involves next-generation education and financial literacy. I have served on the boards of Georgetown University McDonough School of Business, Junior Achievement, Teach for America, the National Symphony Orchestra at the Kennedy Center, Wolf Trap, and GMAC (Graduate Management Admission Council). I recently finished my term on the foundation board of Suburban Hospital. We are all witnessing the developing challenges of our aging population, which is captured by a few of our investment themes at Chevy Chase Trust. I decided to get involved with Suburban to learn how I can help, not only in the community but also with the challenges that health care presents to our clients too. I am continuing my board service with LessCancer.org, which focuses on cancer awareness and prevention. The most interesting recent philanthropic assignment I have received was a Congressional Appointment to the Library of Congress Trust Fund Board. I am continuously amazed by the massive resources that are made available to the public, in addition to it being the largest library in the world. The Library of Congresses collection includes more than 38 million books and other printed materials, 3.6 million recordings, 14 million photographs, 5.5 million maps, 8.1 million pieces of sheet music and 70 million manuscripts, 5,711 incunabula, and 122,810,430 items in the nonclassified (special) collections: more than 167 million total items.

    What are your hobbies?
    While usually mutually exclusive activities, I enjoy golf and boating.

     

    Continue to Larry Fisher’s biography

  • Tax-Savvy Giving Strategies May Provide Some Relief for High-Income Earners, by Susan Freed, CFP® Posted in: Insights, Noteworthy, People, What We're Reading - What can an individual do to avoid higher taxes when faced with the loss of significant deductions?

    The Tax Cuts and Jobs Act (TCJA),1 which went into effect in 2018, is full of surprises that may prove costly for individual taxpayers. Like the Grinch who stole Christmas, Congress took away many deductions and limited others. Miscellaneous itemized deductions were eliminated altogether. However, the most radical change is the limit on state and local taxes (including property taxes) to $10,000 per year, per filer. For married couples in high tax jurisdictions like the District of Columbia, New York, and California, this could result in losing tens of thousands of dollars of deductions each year. Although tax brackets are lower, for most high-income earners this does not compensate for the loss of itemized deductions. (Note, however, that for taxpayers subject to the alternative minimum tax (AMT) who were limited in taking many of these deductions, there may be little or no impact.)

    As an example, prior to 2018, a professional couple living in New York earning $750,000 per year may have deducted $60,000 in state income taxes, $13,000 in property taxes, and $10,000 in Miscellaneous Itemized Deductions. Instead of deducting $83,000, the limit on state, local, and property taxes (called “SALT”) reduces these deductions to $10,000. Mortgage interest and charitable deductions remain.

    What can an individual do to avoid higher taxes when faced with the loss of significant deductions?

    Read the full article here.

  • Montgomery County’s Urban Alliance and Chevy Chase Trust Posted in: Community, Latest News, Noteworthy, People - Congratulations to Chevy Chase Trust’s Amy Newman, Senior Trust Officer, for being named by Montgomery County’s Urban Alliance as Mentor of the Year for her work with high school interns.

    Congratulations to Chevy Chase Trust’s Amy Newman, Senior Trust Officer, for being named by Montgomery County’s Urban Alliance as Mentor of the Year for her work with high school interns. Urban Alliance strives to equip young people with the necessary tools for lifelong economic self-sufficiency through extensive job skills training accompanied by a year-long paid internship program with corporate partners. Nominated by Najmah Abdur-Rahman, Chevy Chase Trust intern for the 2018-2019 school year, Amy was recognized for going above and beyond the expectations set by Urban Alliance in preparing interns for the future. “She’s become a professional mentor as well as a personal one, reviewing my scholarship applications, giving me advice on school, editing my essays and resume, and helping me create a LinkedIn profile,” according to Abdur-Rahman. “She was also very supportive when I faced challenges balancing all the commitments of my senior year and helped me find solutions. Whenever I needed someone this past year, Amy was always there, someone I knew I could trust and rely on to support me no matter the challenge.”

    We are proud of our colleague, Amy Newman, who always gives more than expected, both with interns and clients.

  • Food for Thought: Personalized Medicine Posted in: Latest News, Noteworthy, Video - Andrew Marshall, Equity Portfolio Manager and Macroeconomic Research Analyst, discusses our current thinking about one of our global themes.

    Andrew Marshall, Equity Portfolio Manager and Macroeconomic Research Analyst, discusses our current thinking about one of our global themes.

  • Safe-Haven Assets Needed. They Don’t Even Need to Be That Safe Posted in: Noteworthy, People - Corporate debt, collateralized securities and even stocks may not sound like the sort of assets money managers would seek out for their haven qualities.

    (Bloomberg) — Corporate debt, collateralized securities and even stocks may not sound like the sort of assets money managers would seek out for their haven qualities. Yet a slide in global bond yields is forcing investors to look outside of the usual refuges as they hunt for stable assets that provide at least a modicum of return. Gene Tannuzzo, who oversees the $4.8 billion Columbia Strategic Income Fund, says he’s adding investment-grade corporate bonds from Europe for the extra yield. Sarah Lange, a senior fixed-income portfolio manager at Pentegra, is “begrudgingly” seeking out asset-backed debt. Craig Pernick, the head of fixed income for Chevy Chase Trust Co., was even tempted recently by a non-convertible dollar bond from China’s Weibo Corp.

    “Everybody has their own definition of safe haven, and it seems people are loosening that definition in search of yield,” said Pernick, whose firm manages $30 billion in assets. The challenge these days is “not falling into the trap of changing strategy too much.”

    To read the full article, click here.

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