The US presidential and congressional elections ushered in a new set of variables for investors to consider, according to Ernest E. Cecilia, CFA, chief investment officer at Bryn Mawr Trust and a speaker at the marcus evans Private Wealth Management Summit Spring 2017, taking place at the Ritz-Carlton Orlando, Grand Lakes, in Florida on June 4-6. In this environment, “diversification with a sensitivity to valuation is vital to building a solid investment portfolio and controlling risk”, he says in this interview.
How is the investment landscape likely to change under the new administration? What do investors need to know?
The November 2016 elections ushered in a new set of variables for investors to consider. The primary issue is whether prospective changes in fiscal policy, regulatory reform, and tax reform will contribute to an extension, and possible acceleration in growth, of our current economic expansion. The outcome of these changes, as well as any alteration of monetary policy by the Federal Reserve, will be key to the behavior of capital markets over the next year or so.
The content, execution, and timing of these fiscal measures are critical to the possible acceleration of GDP and earnings growth. They also will affect the conduct of monetary policy and its effects on inflation and longer-term interest rates.
What policies and initiatives by President Trump should investors prepare for? How?
In our opinion, the crucial issues for capital markets are tax reform and regulatory reform. The timing and extent of these reforms will have a significant impact on the direction of corporate profitability, interest rates, and portfolio construction.
For individuals, changes in personal income tax rates will influence their decisions regarding portfolio construction and tax planning in general.
In this landscape, what are the investment opportunities? Which sectors or industries should they consider, and why?
On a longer-term basis, our investment team continues to favor equities over fixed income securities, despite the rise in equity prices. However, we see selectivity as becoming a more critical factor in portfolio construction and performance.
We believe fixed income securities will see more headwinds, as the central bank continues to pivot toward a less accommodative monetary policy. That will likely affect the short end of the yield curve. Continued employment growth, wage pressures, and fiscal policy measures may impact inflationary expectations and the longer end of the yield curve. In this environment, we continue to favor high-grade corporate issuers over US government securities within the context of a short- to intermediate-duration portfolio.
Within the equity markets, we believe that corporate tax reform will benefit smaller- and mid-capitalization companies most significantly. At the sector level, financial services, and specifically banks, should profit from a continued upward push in interest rates and any softening in the regulatory framework. Even more specifically, smaller banking organizations may be disproportionately advantaged.
Depending on the scope of infrastructure spending, certain areas within the Industrials sector may be beneficiaries. For example, companies engaged in the buildout of US energy infrastructure (pipelines, liquefaction plants, etc.) may derive benefits from regulation as it relates to environmental issues.
What strategies would help them build a solid portfolio? What risk mitigation advice could you offer?
Diversification with a sensitivity to valuation is vital to building a solid investment portfolio and controlling risk. The rise in interest rates, a shift away from a less accommodative monetary policy, and a reduction in the correlation between index constituents argue for a strong focus on valuation and selectivity.
About the Private Wealth Management Summit Spring 2017
The 20th Private Wealth Management Summit, organised by global media, corporate marketing and information company marcus evans, is a forum bringing leaders from principal American single- and multi-family offices and service providers together. The summit offers service providers and executives an intimate environment for a focused discussion of key new drivers shaping the future of the industry. Taking place at the Ritz-Carlton Orlando, Grand Lakes, Florida, on June 4-6, the summit includes presentations on the changing impact of market forces, active vs passive investing, multigenerational family issues and socially responsible investing.
For more information please send an email to email@example.com or visit the event website at: http://events.marcusevans-events.com/pwm-h1-2017-interview/
Please note that the summit is a closed business event and the number of participants is strictly limited.
About marcus evans summits
marcus evans summits are high-level business forums for the discussion of strategies and solutions. They include roundtables and one-on-one business meetings as well as plenary sessions.
The republication of this interview on EmergingMarkets.me has been authorised by marcus evans.