President and chief investment officer, Robert Lutts, of Cabot Wealth Management presents a luncheon keynote where he discusses a bull market, four signs of trouble ahead, and Cabot's top three investment themes.
1. WELCOME TO CABOT’S
25TH ANNUAL INVESTMENT & WEALTH MANAGEMENT CONFERENCE
Your interests and goals always come first.
2. Cabot Wealth Management, Inc.
25th Annual Investment and
Wealth Management Conference
Rob Lutts
President and Chief Investment Officer
September 26, 2014
4. Key Factors Today
Global Economic Recovery:
Slow but Steady
Central Bank Intervention:
New Exit Phase Beginning
Great Reallocation Beginning:
Out of fixed income and alternative space to
risk-based asset investing
5. Unexpected Changes
Having Key Impact
Energy Innovation:
U.S. is Expanding Energy Production Rapidly –
82% over 7 years. Impact – Lower Inflation and interest rates
Driving manufacturing in USA – cost advantage to USA – amazing
positive factor (not well appreciated)
Driving Profits Higher for many U.S. Companies
U.S. Innovation Pace is Expanding:
Silent Innovation Revolution – Like Industrial Revolution in 1900s
U.S. Leading World Innovation: Google, Apple, Facebook,
Linked In, Salesforce.com, Illumina, SolarCity, Tesla, Biogen
6. Stocks on Solid Foundation Today
Interest Rate Trends Favorable for Equities:
Bear Market in Bonds Not Far Off
U.S. Manufacturing Costs:
U.S. NOW Competitive
Global Economics Changing:
Capital Investment Accelerating
Deferred Capital Spending:
Indications Trend Accelerating
Equity Valuations Higher, Yet Attractive Today:
P/E Expansion
International Dependency:
Global Cooperation Key – Conflicts Rising
7. Core Belief: The “Good” in Man Always
Overcomes the “Evil”
George Bailey Mr. Henry F. Potter – The Bailey Building & Loan
9. More information has been produced
in the last 20 years than the previous
5,000.
If the increase of knowledge from the
dawn of history to the 1800s is given a
value of one, then knowledge has
doubled 16 times within the last 10
years.
Today the amount of information and
knowledge in the world is doubling
every 18 months.
12. Benefits of information technology
can take us a long way!
I believe Internet and IT will have
much larger impact on productivity
than electricity.
Speed of productivity increased dramatically
13. Core Belief: Wealth Management - Process is Critical
“Investment management” is one of the (important) components
within “wealth management”
Wealth Management:
◦ Investment management
◦ Asset allocation (equities, fixed income, international securities,
alternative assets, etc.)
◦ Investment choices within each asset class
◦ Retirement planning
◦ Tax planning
◦ Estate planning
◦ Risk management (planning for catastrophic risks including disability,
death, long-term care, personal liability, personal property)
14. U.S. Economy – The Most Resilient,
Adaptable, Creative and Innovative
Economy on our Planet
Why? Free Markets, Capital Markets, Legal System, Educational
System, Entrepreneurs Who Drive Ideas, Culture of Growth and Progress
Expect More Growth and a Better Economy in the coming
years
Disruption to established industries high – Value Erosion
Opportunities for value creation very high in next decade
28. Economic Summary
U.S. Economy Growth – Stronger soon
U.S. is Strongest Large Developed Economy on
planet today – U.S. Shines Today
Expect Inflation and Interest rates to remain
lower for a longer period of time -Watch Trends
Corporate Productivity and Profits will continue
to be higher than many expect
Overall: Very Positive U.S. Economic Situation
36. 2.0 percent Dividend Yield
Plus 2-3% Buybacks = 5% Total Return
Equities Providing Solid
Total Return
37. How High Can Stocks Go?
The Bullish Projections By Some Analysts
Earnings Multiple*** Target Upside
2014 $119.50 18.5 X 2,211 11%
2015 $130.00 18.5 X 2,405 20%
As of 9/6/14 SP 500 is 1995
*** Between 1-3 % inflation Ave. P/E is 19X
44. Growing Markets: India / Africa
India – New Leadership may help drive growth higher – much room to improve
Africa – Much room for improvement – those risk takers /high reward
Retail & Healthcare
Travel and Transportation (Auto)
Banks
Insurance & Education
Internet & Advertising
Infrastructure
45. Cape Town, Africa
Rob Lutts Feb, 2014 Attending
Indaba Mining Conference
Tabletop Mountain, 4000 ft.
peak within 15 minutes of
downtown Cape Town
46. Summary
- US Stocks Overweight
- Foreign Stocks - Developed Markets Neutral
- Foreign Stocks - Emerging Markets/Frontier Markets Neutral/ Over
- Domestic and Foreign Bonds Underweight
- Precious Metals Underweight
- REITS Neutral
- Alternative Assets Neutral
51. 15%
6%
Government Debt – A potential
disaster if rates rise dramatically –
could grow deficits quickly
52. “Normal” Market Volatility:
3 Corrections per year > 5%
1 Correction per year > 10%
1 Correction every 3+ years > 20%
NOTE: The S&P 500 Index is a widely recognized, unmanaged Index of common stock prices. Source: Bloomberg
53. Signs of Risk Building
IPO Market – Starting to Heat Up (Alibaba)
Secondary Issue Market Strengthening as well
Investors Appetite for Risk Products is building
Equity Flow of Funds Positive now – but still modest
Client Risk Indicator - moderate
54. Cabot’s Top Three Growth Themes
Solar Power Energy:
Residential and Commercial solar now at critical
cost level that is driving growth
Health Diagnostic Innovation:
Biotechnology and Genomic Breakthroughs
Transportation:
Electric Vehicles
“Innovation is the specific instrument of entrepreneurship...the act that
endows resources with a new capacity to create wealth.”
- Peter F. Drucker
55. Economics of Solar are
Driving Growth Now
Threefold Increase in Three Years!
61. Is Five-Year Bull Market Over?
Shorter Term: 1-2 years
Very Positive on Economy and Equities
Mid Term: 2-4 years
Yes …We See Troubles Brewing… New Bubbles in Economy.
Eventually valuations will become excessive.
Long Term – Coming Decade:
U.S. is well positioned to benefit from innovation
62. What Trouble Will Look Like
In a Few Years
Economy in U.S. and Globally will be much stronger
Inflation will be accelerating and will be viewed as a concern
Interest Rates will be rising steadily
Federal Reserves and Central Banks will have substantially reduced
their stimulus programs
Valuations bubbles will be more evident – stock prices (P/Es at upper
range levels), real estate or other asset classes unknown today.
You Will Feel Better About Our Economy
63. Four Signs of Trouble Building:
Cycle Factors:
Signs of Investor Risk Taking is Building
Central Banks - Soon Raising Rates 10 months?
Equity Valuations Higher Today
Economy Is Closer to “Blue Sky” Today
Geopolitical Issues: Middle East - Conflict, Russia
(Ukraine), China (Protectionism)
64. Diversify
Find a mix that makes sense for you based on risk
tolerance, goals, short/long-term income needs.
- US Stocks Overweight
- Foreign Stocks - Developed Markets Neutral
- Foreign Stocks - Emerging Markets/Frontier Markets Neutral/ Over
- Domestic and Foreign Bonds Underweight
- Precious Metals Underweight
- REITS Neutral
- Alternative Assets Neutral
65. U.S. Economy – The Most Resilient,
Adaptable, Creative and Innovative
Economy on our Planet
Expect More Growth and a Better Economy in the coming
years
Disruption to established industries high – Value Erosion
Opportunities for value creation very high in next decade
68. State of Cabot
Cabot’s 31th Year – Great Opportunities Ahead
Cabot Technology Platform Expanding – Best Practices
Digital Phone System - Thinking Phones – Always Available
Software Integration with Schwab – Salesforce.com and Custodians
Hosted Networks – Cloud Computing
Hardware Upgrades – Security
Backup Generator Installed – All Tested
Green Energy Efficiency Efforts – Roof Solar Project (216 Essex and 30 Federal)
Staff Education – High Investment – Expanding
Conferences, Seminars, World Travel
Continue to Seek To Upgrade our Skills and Abilities
72. Core Belief: Wealth Management - Process is Critical
“Investment management” is one of the (important) components
within “wealth management”
Wealth Management:
◦ Investment management
◦ Asset allocation (equities, fixed income, international securities,
alternative assets, etc.)
◦ Investment choices within each asset class
◦ Retirement planning
◦ Tax planning
◦ Estate planning
◦ Risk management (planning for catastrophic risks including disability,
death, long-term care, personal liability, personal property)
73. State of Cabot
Cabot Investment Management
Equity Research – Team Effort
Cabot’s knowledge and Use of New ETFs Expanding/Equity Sectors
Fixed Income – Use of New Fixed-Income products expanding
Wealth Management Team – Best Practices
Seminars and further education
Advanced Skills– Taxes, Estate Planning and Insurance work
Staff
Culture of emphasizing education and growth
Notes de l'éditeur
ST Positives – Liquidity, Fed cycle, Valuations
LT Innovation Positives – Access to capital, Education base, Cross fertilization of information, leadership talent