September 22, 2023
Changing dynamics: Money managers shift toward value and overseas stocks

Photo: Eileen Escarda

Wealth Management

Changing dynamics: Money managers shift toward value and overseas stocks

Many money managers are shifting toward value and overseas stocks and taking a short-term approach to bonds.

A variety of economic factors looks to make 2018 a challenging year for managing investments. Despite recent stock market volatility, investors are keeping a low percentage of their portfolios in cash. Some bullish investors expect a prolonged phase of good economic news, while more wary analysts say the laws of financial physics mean the bull market will end before the close of the year.

Overall, the equity market has responded favorably to solid corporate earnings, the new corporate tax environment, higher employment and strong consumer spending. At the same time, cryptocurrencies are intriguing investors, and conversations worldwide are centering on risk versus reward. In addition, signs that the Federal Reserve will raise interest rates have investment advisers steering away from traditional fixed income for now.

Throughout Florida, money managers find themselves responding to clients’ inquiries about whether to take some gains in the equity market, buy more stocks, rebalance their portfolios, change their fixed-income positions and move into alternative investments.

FLORIDA TREND asked some of the top wealth managers/ financial advisers in the state to weigh in on their strategies.

Sheri Billings
Senior Vice President / Wealth Management Advisor / Portfolio Manager Merrill Lynch, Pierce, Fenner & Smith, Weston

Recognized by Forbes as one of Florida’s top wealth managers in 2018, Sheri Billings approaches investing using strategies depending on a client’s age, objectives, risk tolerance and time horizon.

For people from 20 to 40, Billings typically discusses a more aggressive approach. “We are currently favoring international equities, where valuations are more compelling,” she says. For 2017, large-cap stocks and international stocks outperformed large-cap value, mid-cap and small-cap stocks. Growth stocks outperformed value by almost two to one, which is why Billings suggests younger clients consider overweighting portfolios with large-cap growth stocks.

Billings first checks whether investors have a good financial foundation — debt paid off , a safety net for hiccups and a 401(k) or IRA, life insurance, disability insurance and longterm care.

With those fundamentals in place, she suggests a portfolio aligned with the families’ short- and long-term needs by investing in a risk-based asset allocation of stocks, bonds and alternatives. “My concern with the current economic backdrop is bonds or fixed-income investments. It’s easy for investors to visualize risk with stocks, but visualizing risks with bonds is a different animal.” If interest rates rise, bond holders will find their investment worth less, even if they buy new bonds at higher yields, she explains. “The shock will come as people look at their statements and over time with an erosion of spending power,” Billings says. However, if there’s any kind of major economic or political event, bonds are usually the first thing to stabilize, she say.

For investors 50 and older, Billings advises adhering to less aggressive asset allocations of equities and fixed income and more global stocks in sectors of the market with low interest rate sensitivity.

Women: Opportunity to Catch Up

Faith Xenos, founding partner of Singer Xenos, a wealth advisory firm in Coral Gables, says this year presents an ideal opportunity for women to invest in equities and accumulate wealth for retirement. “Women still fall woefully behind when it comes to financial and retirement planning,” she says. According to recent data, roughly 51% of American personal wealth, or $14 trillion, is now controlled by women. Yet men’s retirement account balances are more than 50% higher than women’s — despite women living on average, more than six to seven years longer than men. “I tell my clients that you can make all the money in the world, but you are never fully secure unless you are informed and active in your investments,” Xenos says.

“It’s an exciting time to be a small-cap investor.”

Samuel Dedio

Samuel Dedio
Founder / Managing Partner Patrumin Investors

Samuel Dedio has avoided bonds for the past two to three years. If clients insist, he prefers shortterm bonds with a maturity of one year or less “to protect against the risk of interest rates rising,” he says. He is opposed to long-term bonds with more than a five-year duration.

Dedio’s approach to asset allocation is to include small-cap equities, which “offer better longterm performance than the S&P 500 and large-cap stocks,” he says. He believes tax reform will help to create a favorable scenario for smaller companies. Admittedly, the drawback is volatility. “Some people just can’t take the pain of volatility.” Within small-cap stocks, Dedio leans toward the industrial, banking, technology and select consumer discretionary sectors. He prefers companies that have products or services that change consumer or business buying behavior.

For clients in their 40s and 50s, Dedio invests 40% in a U.S. multicap fund, 40% in a dividend fund and the remaining 20% in a small-cap fund.

For those 60 and older, he invests the majority of assets in a dividend fund, with 10% to 15% in small-cap stocks, with a goal of yielding 3.7%.

“A lot of clients are happy to get a 4% return from a dividendonly strategy. They are not worked up about the stock market going up or down as long as they still get dividends.”

M. David Roberts

M. David Roberts
Principal / Harvest Investment Advisors

When David Roberts considers investment strategies this year, he points to the obvious: “I would be foolish not to be more positive on stocks after tax reform. It’s hard to imagine lower corporate taxes won’t be positive for stocks and positive for the economy in general.”

Still, Roberts believes in being defensive and investing in companies that will fare better in a potentially high-interest rate environment. From his perspective, those are large-cap value stocks that pay dividends. “I think it is a good time for value over growth,” he says. “Growth stocks have outperformed value for seven of the last 10 years. I think that may be about to reverse.” For example, his strategy includes buying a value stock such as Colgate Palmolive rather than a hot stock like Google. He believes over the next few years that value stocks will outperform growth stocks. He also is encouraging his clients to invest in financial services stocks because a possible hike in interest rates could lead to higher earnings. Overall, he says, his strategy is to select stocks that are relatively inexpensive: “If the market corrects itself, the expensive stocks go down first.”

Like most advisers, Roberts says his clients are asking whether to sell equities and bank the profits. “I’m not a fan of big bets. I am more about tweaking asset allocation or moving from stocks that are sensitive to drops (home builder or retailers) to those less sensitive (food companies).”

Roberts also is putting clients’ money into the international market through exchange traded funds (ETFs). “That builds in diversification to reduce risk,” he says.

Tags: Wealth Management, Economic Backbone

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