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
- 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.
- Second Quarter, 2022 Posted in: Investment Update, Noteworthy - One question stands paramount: Will it take a deep recession to tame inflation, as in the 1980s, or will a brief, mild economic contraction suffice? Learn more in our Q2 Investment Update.
By any measure, 2022’s first half was exceptionally challenging for investors. Even after accounting for dividends, the S&P 500 generated a 20% loss, its worst first-half performance since 1970. Both the growth-focused Nasdaq and the Russell 2000 Index of smaller-cap stocks delivered their worst-ever first-half results in their shorter histories.
2022 Was One of the Worst First Halves for Stocks
(Total Returns Through June 30 Compared to Index History)
Source: Ned Davis
And bonds provided no shelter. The price of the 10-year Treasury bond fell -11.6% in the half, a record drop for any six-month period.
The main driver of this poor performance was inflation, which has reached a 40-year high and is now compelling the U.S. Federal Reserve (“Fed”) and other major central banks to raise rates aggressively. After delaying action in the belief that inflation pressures would ease, the Fed pivoted sharply and increased interest rates repeatedly in the first half of 2022, most recently by 75 basis points. More rate hikes are expected shortly.
Inflation at the Highest Level in 40 Years
(CPI and Core CPI – % Change vs. Prior Year, Seasonally Adjusted)
Source: Federal Reserve Economic Data
1. Core CPI excludes food and energy.
A Long Period of Optimism Ends Abruptly
Very few investors today have experience managing money in a high-inflation environment. Since Fed Chairman Paul Volcker broke the back of inflation in the early 1980s, the U.S. has enjoyed decades of relative price stability. This allowed the Fed to focus monetary policy almost exclusively on stimulating economic growth. Since the end of the Global Financial Crisis in 2009, the Fed has used stimulative monetary techniques, such as quantitative easing and ever-lower interest rates, whenever growth has faltered. Investors came to expect this “Fed Put,” taking the low inflation that underpinned it for granted.
For more than a dozen years, low interest rates, made possible by low levels of inflation, created a Goldilocks environment for both equity and bond investors. When the S&P 500 reached an all-time high of 4,796 on January 3, 2022, it was more than seven times higher than the bottom it hit on March 9, 2009.
While price-to-earnings multiples (what investors are willing to pay for future company profits) doubled during that time, most of the S&P 500’s gains were due to earnings growth, which more than tripled. The downturn this year brought multiples back to below their long-term average, while earnings expectations have remained relatively strong.
S&P 500 Performance
(March 9, 2009 Through June 30, 2022)
General sentiment swung rapidly from unbridled optimism at the start of the year to deep pessimism that may be overdone.
- According to the University of Michigan Consumer Sentiment Index, which dates to the early 1960s, consumers have never felt worse, despite a historically low unemployment rate of 3.6%.
- Recent polls show the majority of corporate leaders expect a recession to begin in the next 12 to 18 months.
- Most investors now expect the U.S. to be in a recession by year-end, or think we are in a recession already, and have positioned portfolios very defensively.
Counterintuitively, periods when sentiment is very bearish have historically been good times to buy equities, rather than sell them.
Deep Recession or Mild Contraction?
One question stands paramount: Will it take a deep recession to tame inflation, as in the 1980s, or will a brief, mild economic contraction suffice? If a deep recession unfolds, additional pain in the equity markets is highly likely. If a relatively mild slowdown ensues, we may be closer to a near-term bottom.
The pace and scale of Fed rate hikes have increased the odds of a recession. But we don’t think a deep recession is a foregone conclusion. The extreme imbalances that typically lead to deep recessions, such as an overreliance on debt, broad structural supply overhangs or overinvestment, are hard to find today. On the contrary, household and corporate debt levels are generally manageable.
- Consumer balance sheets are strong. The ratio of household net worth-to-disposable income is 50% higher than at the end of 2019. After a decade of deleveraging, household debt-to-disposable income in the U.S. is down by a third since its peak in 2008.
- Corporate balance sheets are also healthy. Corporations have record cash on their books. Although they have been boosting capital spending rates and hiring at a rapid pace, we don’t see many signs of overinvestment.
We think the Fed is only likely to raise rates to the point that causes a deep recession if, as in the 1980s, that’s the only way to rein in long-term inflation expectations. It is far from clear that such a dramatic move will be necessary. Consumers aren’t buying ahead of expected price increases, which would sustain inflation longer term and cause it to spiral upward. On the contrary, intentions to buy durable goods have fallen precipitously, and employment data is likely to weaken soon.
If, as we expect, inflation begins to decline in the second half of this year, the Fed may pause to give prior rate hikes more time to filter through the economy, moving more slowly than consensus expectations indicate. This would likely be positive for both equities and fixed income.
Of course, a host of unanalyzable factors – such as the course of the war in Ukraine or COVID – could tip the scales. We will monitor these closely, but for now, our base case is that the U.S. will avoid a deep recession, and that the stock market will remain volatile but won’t end 2022 dramatically lower than it is today.
Portfolio Themes and Trading
We began to reposition for inflation nearly two years ago, by adding an End of Disinflationary Tailwinds theme to portfolios in the Fall of 2020. We saw then that the impact from the powerful disinflationary forces of the prior decade was fading, most notably China’s emergence as the world’s factory, and increased labor supply due to Baby Boomers delaying retirement. We also expected the unprecedented fiscal stimulus during the pandemic to fuel a surge in spending.
These insights led us to overweight the Energy sector for the first time in eight years. We also added gold and more defensive holdings to portfolios. At the same time, we began to sell highly appreciated Technology holdings that had become too expensive.
Market volatility has been high this year, and we expect this to persist until investors have greater clarity on how much the Fed will have to raise rates to tame inflation. Volatility is often high during periods of uncertainty. During the bear market of 2000-2002, the Nasdaq rose more than 20% – and then collapsed – six times.
High volatility creates an opportunity for active managers like ourselves to generate gains through shorter-term transactions. Consistent with that view, our trading activity picked up over the past quarter, as more extreme market moves allowed us to both buy and trim some of our core, long-term thematic holdings on attractive terms. We are likely to remain more active – though tax-sensitive – in our trading as we await clarity on Fed action.
Times like these require fortitude and a willingness to weather the emotions of a new market reality. We remain committed to our time-tested, four-step Global Thematic Investment process, which relies heavily on our deep thematic research. Our process has steered us successfully through turbulent times in the past. We’re confident that it will do so going forward.
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.
- 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, People, Video - 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.
- Chevy Chase Trust Welcomes Anneke H. Niemira Posted in: Noteworthy, People - Chevy Chase Trust is pleased to welcome Anneke H. Niemira as Director and Senior Wealth Planner.
Anneke H. Niemira has joined Chevy Chase Trust as a Senior Wealth Planner. Anneke delivers both financial and estate planning services by working directly with clients to understand their goals, review existing plans, and to discuss estate planning options and strategies. In addition, she assists clients with setting strategic paths to achieve their near- and longer-term objectives.
Read Anneke H. Niemira‘s bio »
- Q & A | Ramona Mockoviak | Wealth Advisor Posted in: Noteworthy, People - We are proud to welcome Ramona Mockoviak as Senior Managing Director and Wealth Manager! She will advise clients on investment management, financial and estate planning and trust administration and will help grow the firm’s client base.
What caused you to select Chevy Chase Trust as your new home at this stage in your career?
I decided on Chevy Chase Trust for several reasons but primarily for its commitment to an innovative and differentiated approach to investing – called thematic investing. It is what I call the “special sauce.” I also appreciate the firm’s size as it is very accessible to people who are exploring firms and considering their options. Here at Chevy Chase Trust, each client is appreciated and given the time and attention they deserve. No short-cuts here. Further, all the top-quality expertise at the firm is local, deeply experienced and dedicated to client service and success.
I’ve been in the business for over 25 years now and have found that while the big organizations tend to talk about strategic investment allocation versus tactical, they are really practicing buy and hold allocation. And they’re using “mid”, “small”, and “large” cap identifiers and, essentially, indexing the market. Amy Raskin and her team are practicing sophisticated thematic investing by deeply researching the disruptive trends and individual equities. This is a unique differentiator, and it adds a perspective and advantage that clients cannot get anywhere else.
How have client expectations changed?
Clients are more sophisticated now and have more options than ever before–particularly with online and self-directed investing. The complexities of the investment space have increased rather than decreased and having the sophistication to simplify and distill the issues for clients is essential. Also, being able to fully integrate investment objectives with a family’s long-term estate and tax planning is very important. It’s great to have all that expertise in one place.
Clients do have high expectations as they should. Chevy Chase Trust adds value that makes it worthwhile to sign on as a client.
What is your next goal as you get settled at Chevy Chase Trust?
My next goal is the opportunity to help grow the market in Virginia. I’m excited to take what has worked so well at Chevy Chase Trust thus far and help define the firm in Virginia. With a Virginia focus, I believe we can stand out among the competition and be more broadly recognized as the hometown provider of exceptional quality for clients. I want every attorney helping private business owners in Virginia to think of Chevy Chase Trust as a partner of choice for their clients.
Did you have a mentor?
Yes, I did have a mentor and he was a banker’s banker. He is now retired but I still think of him often. He was a founder of Fairfax Bank and Trust in Fairfax, Virginia and hired me as a young twenty something. He encouraged me and helped me and eventually, we went through an IPO, purchased 2 or 3 different organizations from the RTC and grew rapidly. Our bank became part of F&M Bank in Virginia and eventually had about $1.9 billion in assets when we sold to BB&T. I wore many hats during this time period. He always had faith that I could figure it out. It was largely due to his confidence in me that I created my self-confidence and love for the business.
Do you mentor others?
Yes! And there were many tears when I left my last job because I always tried to help out others along the way. Because of what my mentor meant to me, I have kept that in a special place. In this profession, we sometimes spend more time with the people we work with than our own families. So, if I can help someone and make their life a little easier, that’s great. I’m a helper when I can be and want to keep paying it forward.
What advice do you have for someone considering a career in wealth management?
The high and ultra-high net worth space is a growth area and will continue to be. Look at population trends and the production of wealth in U.S. You can see the highest areas of potential growth are in wealth creation and wealth preservation. It’s also a truly interesting area. It is intellectually challenging and always changing. But at the end of the day, our business is a people business and you have like people and enjoy helping them. This must be at the core of one’s motivation. If it is, then everything else will fall into place.
How do you spend your time when not at the office?
I have a husband, adult children, grandchildren, and two English Springer spaniels. My husband has two sons and I have two daughters. We split our time between Virginia and Florida, and we enjoy our family. I am involved in the arts. I love and support the Opera and live performance and theater. I’ve been very blessed to have served on a number of boards. I am currently a member of the Shakespeare Theater Board and a past board member for the Wolf Trap Foundation for the Performing Arts and the Washington National Opera.
Ramona Mockoviak‘s Bio »
- Chevy Chase Trust Welcomes Ramona Mockoviak Posted in: Noteworthy, People - Chevy Chase Trust is pleased to welcome Ramona Mockoviack as Senior Managing Director and Wealth Advisor.
Ramona Mockoviack has joined Chevy Chase Trust as Senior Managing Director and Wealth Advisor. Ramona is responsible for developing opportunities with prospective clients and advisors, with special focus on Northern Virginia and the surrounding communities. She also maintains and broadens relationships with existing clients, advising them in the areas of investment management, financial and estate planning, and trust administration. Acting as point person, Ramona oversees the delivery of services to clients and coordinates with their legal, accounting, and other advisors.
Read Ramona Mockoviak‘s Bio »
- Amy Raskin | Pillsbury | Perspectives on the Economy, Investing and Capital Markets in 2022 Posted in: Insights, Noteworthy, People - Amy Raskin, Chief Investment Officer, was a panelist on Pillsbury’s April 26, 2022 webinar. She offered her insight on the state of the U.S. economy, equity market volatility, inflation, globalization and the labor market.
Amy Raskin, Chief Investment Officer, was a panelist at Pillsbury’s April 26, 2022 webinar “Navigating Rough Seas: Perspectives on the Economy, Investing and Capital Markets in 2022”. During the discussion, she offered her insights on the state of the U.S. economy, equity market volatility, inflation, globalization and the labor market. Click here to hear the entire program.