FYI:
Regards,
Ted
September 19, 2019
Dear WEALTHTRACK Subscriber,
We watch big macro trends for you on WEALTHTRACK which affect the investment climate and your portfolio. Two were accentuated this week.
Another stage of central bank easing is well under way globally with the Federal Reserve playing its part. As telegraphed, the Fed cut its benchmark short-term federal-funds rate by a quarter of a percentage point, 25 basis points in bond market terms, to a range of 1.75%-2% this week. It was the second rate cut this summer. Once again Fed Chairman Jerome Powell cited uncertainty about trade policy as a negative and the strength of the U.S. consumer as a positive. What’s the next policy move likely to be? No direction was forthcoming. Powell said at this point the policy makers are pretty much “going meeting by meeting.”
The drone/missile strikes against Saudi Arabian oil fields last weekend were another reminder of the potential for disruption from multiple danger zones. The surprising vulnerability of Middle East oil supplies, the duration of Hong Kong protests, the drawn-out Brexit dilemma are all drags on business confidence and economic growth. The Organization for Economic Cooperation and Development just cut its world GDP forecast to 2.9%, the smallest annual rise since 2009 when the global economy was pushed into recession by the financial crisis. The Paris-based research group is worried about the debilitating impact of trade disputes erupting around the world, particularly from the U.S. and Europe.
Then there are investment trends. A major milestone was reached last month. For the first time in history, assets in passive equity funds (mutual funds and ETFs) based in the U.S. surpassed assets in actively managed funds. According to The Wall Street Journal, Morningstar reported that as of August 31st, $4.27 trillion in assets were in passive U.S. equity funds versus $4.25 trillion in actively managed funds. This historic shift is still accelerating.
Another less recognized investment phenomenon was analyzed recently in a second quarter quarterly letter to clients from Ben Inker, the head of asset allocation at GMO. Inker, a past WEALTHTRACK guest has worked for years alongside noted market strategist Jeremy Grantham.
The letter was titled “Bigger’s Been Better.” In this case “bigger” refers to the 50 largest U.S. companies by stock market value called mega caps. The “better” refers to their record making earnings and stock performance. As Inker wrote, “U.S. stocks have profoundly outperformed stocks in the rest of the world, whether other developed markets or emerging markets… the largest driver of the outperformance has been the massive superiority of earnings growth in the U.S. relative to anywhere else… the improvement in profitability has occurred only in the largest companies.”
The biggest 10 of the largest top 50 mega cap stocks include the tech names that you all know: Microsoft, Apple, Amazon, Alphabet, the parent company of Google, Facebook. They also include the other, more traditional business powerhouses: Berkshire Hathaway, Visa, J.P. Morgan Chase, Johnson & Johnson, and Walmart.
GMO calculated that their “profit/value” added, meaning their gross profit, (revenues less the cost of goods sold) has increased by 62% since the 1986-1995 decade, whereas the profitability of the next 450 companies improved by 37%, and the next 2500 only 5%.
The other big issue is their stock market dominance. These mega stocks dominate index funds. How they go so goes the major market indices. The logical question is how risky does their clout make the U.S. market?
This week’s guest is known for assiduously avoiding market risk. He is global value manager, Charles “Chuck” de Lardemelle, a founding partner of International Value Advisers, known as IVA, which he and his partner, Charles de Vaulx launched in the depths of the financial crisis in 2008. De Lardemelle has just been promoted to co-chief investment officer along with de Vaulx.
He is co-portfolio manager of their two mutual funds IVA Worldwide and IVA International. Although both funds lag their benchmarks in bull markets they protect in declines and have thus earned Morningstar’s Silver Medalist analyst ratings for their “cautious, patient strategy” …making them “a valid long-term choice for wary investors.”
IVA describes its strategy as “winning by not losing” and looking to “assess risk and try to avoid it wherever possible…” de Lardemelle will explain where he is seeing risk and avoiding it and why gold is playing such an important role in de-risking his portfolios.
As usual, this week’s program is available to our PREMIUM subscribers immediately. Plus, in our online exclusive EXTRA feature, de Lardemelle shares one of his keys to investment success.
If you would prefer to take WEALTHTRACK with you on your commute or travels, you can now find the WEALTHTRACK podcast on TuneIn, Stitcher and SoundCloud, as well as iTunes and Spotify.
If you haven’t had a chance to do so, we would very much appreciate if you could participate in the anonymous survey that you’ll find on the website, too.
Thank you for watching. Have a lovely weekend and make the week ahead a profitable and a productive one.
Best regards,
Consuelo
Video Clip
M* Snapshot IVWAX: (Closed To New Investors ?)
https://www.morningstar.com/funds/xnas/ivwax/quoteLipper Snapshot IVWAX:
https://www.marketwatch.com/investing/fund/ivwaxIVWAX Ranks #27 In The (WA) Fund Category By U.S. News & World Report:
https://money.usnews.com/funds/mutual-funds/world-allocation/iva-worldwide-fund/ivwaxM* Snapshot IVIOX:
https://www.morningstar.com/funds/xnas/iviox/quoteLipper Snapshot IVIOX:
https://www.marketwatch.com/investing/fund/ivioxIVIOX Ranks #68 In Thhe (FLCB) Fund Category By U.S. News & World Report:
https://money.usnews.com/funds/mutual-funds/foreign-large-blend/iva-international-fund/iviox 
