May 10, 2013, Denver Business Journal, By Heather Draper, Reporter
We've survived the fiscal cliff, we're dealing with sequestration and business sentiment appears to be on the rise. But investors remain wary about the nation's economy, given our nagging debt problem and U.S. legislators' inability to get much done.
With earnings growth slowing, gold prices dropping and worries over whether the U.S. Treasuries bubble is finally about to pop, we wanted to find out how local financial experts are advising their clients about their investment strategies this quarter.
Blue-chip stocks are near all-time highs and S&P 500 corporate earnings growth is slowing. Do you believe the U.S. equity markets are set for a correction, and how you are advising clients about equity investing at this time?
Tiffany Adams, vice president, private client adviser, Chase Private Client: We definitely believe in equities. Companies' earnings have grown faster than the stock market and, on a valuation basis, are no more expensive now than they were at the beginning of the year. We feel large-cap stocks are a core piece of any portfolio and remain balanced in our equity positions.
Dickson Griswold, president, Highwater Wealth Management LLC: The returns for the S&P 500 over the past 15 months have been excellent, and stocks may be due for consolidation, if not a correction. Despite that, we still feel stocks offer good return-to-risk characteristics. We have recently rebalanced our portfolios to both capture gains and to include lower-volatility equities, and equities with exposure to growth outside of the U.S. It is impossible to consistently time the market, and that's why we rebalance client portfolios each quarter. Additionally, our clients are invested in portfolios that also include bonds and alternative assets.
Todd M. Hauer, wealth adviser, senior investment consultant, Morgan Stanley Wealth Management: U.S. stock indexes are at or near record highs. However, so are corporate earnings, so we are not overly concerned with valuations, which remain below historical averages. Predicting corrections is near impossible so I won't. Furthermore, the conditions that normally track market peaks in the past, such as rising interest rates, excessive optimism and excessive valuations, are not present today, in our view. At present, our moderate risk portfolio has an allocation of 15 percent U.S. stocks, 17 percent international stocks and 10 percent emerging-markets stocks.
David Overton, regional director, Halbert Hargrove Global Advisors: Consistently predicting the movement of the equity markets over the short term is impossible. Our advice to our clients regarding equity investments in their portfolio is driven primarily by their individual lifestyle goals and the associated returns required to satisfy those goals. We remain disciplined in our diversification and rebalancing of client assets, and appreciate that bull markets are never linear in nature.
Jennifer Pierce, senior investment strategist and vice president, The Private Bank at Wells Fargo: Because we've had a bull market run for over 600 days, and historically, 10 percent corrections occur every 330 days, we do believe a correction in the U.S. equity markets is quite possible. However, many investors who have been sitting on the sidelines for years are once again committing to equities, helping to hold up prices. And though earnings growth has slowed somewhat, equity-market valuations still appear quite reasonable. Our expectation is that the U.S. economy will grow slowly, with the S&P 500 index ending this year between 1,575 and 1,625.
Fred Taylor, president and co-founder, Northstar Investment Advisors LLC: The stock markets are near all-time highs for three reasons: the Federal Reserve is keeping interest rates artificially low until the unemployment number gets to 6.5 percent or lower, the housing market has improved dramatically, and finally with the 10-year Treasury bond trading well below 2 percent, baby boomers still need income from dividend-paying stocks. There are always corrections, but if investors truly have a long-term time horizon and need income, the stock market isn't too expensive from a historical perspective and investors should own blue-chip, dividend-paying companies.
John Trujillo, vice president and senior portfolio manager, UMB Investment & Wealth Management: In each of the last three years, the economy and the stock market have experienced a summertime slowdown. Once again we are seeing this pattern develop. It would be normal and healthy for the equity markets to correct and consolidate. We have been forecasting that the S&P 500 would trade between 1,375 and 1,600, and at the end of 2013 we would again see double-digit returns. Our asset allocation research has suggested that investors be neutral [regarding] equities [allocations]. Inside equities, we have been overweight domestic large cap and underweight international equities.
Carin Wagner, vice president of personal wealth management, GHP Investment Advisors Inc.: We believe the stock market is undervalued and an attractive long-term investment. As of March 31, the S&P 500 Growth Index was selling for a price-to-cash-flow ratio of 12.1. The inverse of this ratio, 8.2 percent, is the yield an investor could expect to earn at the current price based on the ownership of the business. For clients who can tolerate volatility, we believe equities yielding 8.2 percent is attractive relative to a 2 percent yield on the 10-year U.S. Treasury, or a 4.2 percent yield for a diversified Real Estate Investment Trust.
The U.S. stock market has been outperforming most international markets for awhile. With cheaper stock prices and accelerating growth in some countries, should investors start looking overseas for investment opportunities? Any markets in particular
Adams: We see a lot of opportunity in emerging markets. Half of global GDP is in emerging markets and Asia. Managing the volatility that emerging markets can present is important and incorporating emerging market debt can help. We also see opportunity in the developed international markets. Europe has presented a great deal of opportunity and is a stock pickers' market right now.
Griswold: If a country's equity-investments performance mirrors that country's economic growth rate, U.S. investors should certainly be investing more overseas. The IMF predicts that global GDP growth for 2013 will be a slower 3.5 percent. Of that, developed economic growth is expected to be an anemic 1.6 percent, where emerging market growth is forecast at 5.5 percent. While we still own domestic equities for diversification and income, we are avoiding European investments and are particularly optimistic about the long-term growth prospects for emerging markets.
Hauer: International markets have recently underperformed those in the U.S. Emerging markets have been particularly weak and we see value there. We recently recommended decreasing U.S. equity market exposure in favor of international and emerging markets equities. Valuations in international developed markets look attractive and forecast growth rates are higher in emerging markets. Japan is our favored developed market because of significant political change that led to a depreciation of the yen, which we believe is bullish for Japanese stocks.
Overton: Overseas investments have been an asset class included in our client portfolios for decades and will continue to be a core holding. Allocations among developed, emerging and frontier country's equity and debt securities are key to realizing the value inherent in overseas investments. We believe focusing on well-managed companies and sovereign entities globally offer different sources of returns than simply focusing on the U.S. stock market.
Pierce: While the U.S. stock market has been outperforming, we expect that U.S. large-cap growth stocks will continue to be a great opportunity. Many are diversified globally and also focused toward Asia, where a significant portion of the population has been growing into middle-class consumers. Many emerging countries have been experiencing economic growth rates well above the growth posted in developed parts of the world. We anticipate that this will continue to be the case. Because of that, we also believe that emerging growth equities are an attractive asset class.
Taylor: As many market pundits have said on numerous occasions, the U.S. economy is the cleanest shirt in the dirty laundry basket. At this point, investing directly overseas may be too risky for investors regardless of how cheap international stocks may look on the surface. With the growth in China slowing and the mess in Cyprus not resolved, investors would be better off owning U.S. multinational dividend-paying companies that get most of their earnings from overseas but are headquartered here, where there is less currency risk as well.
Trujillo: A primary driver of domestic stock prices has been monetary stimulus, quantitative easing. We do think that in the near term there will be an opportunity to increase exposure to international markets. Once quantitative easing begins in Europe, we expect to increase our allocation to developed foreign markets. Emerging markets are a long-term structural play, however, many emerging markets like Brazil are having a difficult time growing their economy at historic rates. For the time being, we remain overweight domestic stocks.
Wagner: While we believe there is significant investment opportunity in the U.S., we are allocating a portion of long-term assets to foreign markets. In addition to applying our U.S. risk analysis methodology for choosing stocks, when selecting foreign investments, we also examine the macroeconomic environment of a country and its political, legal and regulatory structure. We see many companies in various countries such as Germany, Poland, Netherlands, Switzerland, Canada, United Kingdom, India and Brazil that are attractive investment opportunities.
The price of gold has been on a pretty steady decline in recent months. Do you think that equates to a buying opportunity, or does it mark an end to gold fever? Why?
Adams: We remain neutral on our allocations to gold in our portfolios. We look to gold as a hedge in our portfolios - valuable with inflationary risks on the horizon. However, gold should be kept in the proper allocation and not overweighted in an overall portfolio.
Griswold: On April 15, gold fell nearly 10 percent - its worst decline in 30 years. Despite that, we don't feel it represents a buying opportunity. While gold may be a good diversifier to equities, it's a nonproductive asset that doesn't provide income while owned. And lacking cash flow, earnings or book value, its investment value seems largely arbitrary and emotionally driven. Gold tends to appreciate when investors are particularly concerned about inflation or global economic instability. Gold will always have its fans, but we do not see it as an attractive long-term investment.
Hauer: We think gold still shines. Given the recent weakness in gold - coupled with heavy, reported demand for physical gold - [this] could represent a buying opportunity. Rising demand for gold from the emerging middle class, especially in India and China, and significant monetary intervention by the world's central banks are some of the bullish factors in favor of gold. The Morgan Stanley Global Investment Committee is recommending a 3-to-4 percent weighting in gold. We believe that when this period of extraordinary monetary intervention winds down, investors should consider reducing their investment in gold.
Overton: Gold fever is a byproduct of investors attempting to time global market movements and is a classic behavioral reaction to the ongoing gloom and doom in media headlines. Gold has a small place in some client portfolios when used to satisfy a psychological need for perceived safety, but we don't consider it a long-term asset class that will provide the growth and cash flow required by our clients' investment portfolios. Recent trends in gold prices are a great example of why investors should not be overcommitted to one specific asset.
Pierce: Gold fever will always be around, as those with the glass half-empty will perpetually believe that gold is a safe haven. The fact that Cyprus is selling its gold to cover its debt in itself may not keep downward pressure on the commodity, but other nations that are in trouble may decide to sell their gold, which could hurt the price. Gold bugs may want to either average down or wait before purchasing gold.
Taylor: We have never been a fan of owning gold because it doesn't pay a dividend or interest, and you are speculating that someone will buy it from you at a higher price in the future. Owning gold during the financial crisis didn't work out well because investors needed cash to meet margin calls, or wanted the safety of U.S. treasury bonds. Technically, gold is now in a bear market, so you will need a catalyst for the price to go back up to $1,900 an ounce - or a lot of patience and staying power.
Trujillo: In the past decade, gold has been a good dollar hedge. As the dollar weakened, gold performed well. Due to stimulus around the globe, the dollar may see strength for an extended period of time. In addition, given its store of value, it has been a decent fear hedge. We think that the fear of the Euro collapsing and the U.S. going into another recession has dissipated and thus the fear trade, gold, is no longer necessary. Perhaps gold has lost its luster.
Wagner: We believe the increasing price of gold has formed a bubble. In our opinion, gold, like any commodity, should be priced relative to its marginal cost of production. Just as oil was overpriced in 2008 (and subsequently fell from $148/barrel in July 2008 to a bottom of $35/barrel) we feel gold is also selling at a premium relative to its cost. Although gold has declined approximately 20 percent from its peak, we believe over time it will continue to fall.
Heather Draper covers banking, finance, law and the economy for the Denver Business Journal and writes for the "Finance Etc." blog. Phone: 303-803-9230.
One of the toughest things parents of children with special needs face is making sure those children have the care and finances they need after the parents are gone.
Because of improved health care, many special-needs children live longer now than in previous generations. That means more money — often millions of dollars — is required to sustain them for decades.
“Funding for special-needs care may be needed for 20 years, or 70 years,” said Bob Rhyme, wealth management adviser at Northwestern Mutual Wealth Management Co. in Denver. Rhyme’s own 28-year-old daughter has severe learning disabilities because of her premature birth, and requires care and support from her family.
“You and I worry about outliving our money,” said Denver attorney Jim Littlepage of James A. Littlepage Law Offices, a specialist in estate planning and probate. “Special-needs parents worry about their kids outliving them — about who will handle the money for their kids, where they will live and other things like that.”
Most special-needs children qualify for federal government assistance through programs such as Medicaid, Medicare and Supplemental Security Income (SSI) to help pay for their care, but more funds usually are needed.
How much money is required depends on a child’s mental and/or physical problems — whether the child, and the adult they will become, has Down syndrome and can work part time at a King Soopers grocery store, or is a wheelchair-bound cystic fibrosis sufferer with a 2-year-old’s mental capacity.
To provide funds for their children, parents often work with their estate planner and special- needs attorney to establish some kind of trust — often a special-needs trust, also called a supplemental-needs trust, or a living revocable trust. Such trusts supplement government funding a child receives, and funds for them can come from bequests, gifts, investments, life insurance policies and savings.
“A supplemental-needs trust can’t pay for food, but it can pay for food supplements,” said Dickson Griswold, president of Highwater Wealth Management LLC in Denver. “It can’t pay for gas, but it can pay for cable TV and a telephone.”
Special-needs trusts are structured to allow beneficiaries to receive federal and family financial assistance. Normally, anyone with $2,000 or more in assets is disqualified from receiving benefits such as SSI, but the money in a special-needs trust isn’t considered an asset of the disabled person, which maintains their eligibility for federal help.
A living revocable trust (LRT) is basically a will that doesn’t go through probate, and can provide for both healthy and special-needs children, according to Littlepage. A special-needs trust even can be established within a revocable trust.
Parents of special-needs kids also need to choose two key people — a guardian and a trustee — to watch out for their children after the parents are gone. The guardian, who’s often a family member such as a brother or sister, looks out for the special-needs person’s day-to-day care and needs. The trustee, also called a conservator, oversees finances and may be a lawyer, bank, guardian or non-guardian family member.
Many estate planners, however, counsel against the guardian and trustee being the same person to avoid conflict of interest and because different skills are needed for the positions. The guardian generally is someone who cares about the child, while the trustee needs to be financially savvy.
“The conservator and guardian can be the same person, but often parents want checks and balances,” Littlepage said.
A plan for a special-needs person should include documents such as birth certificate, health insurance card, inventory of assets, and trust and guardianship papers. There should be an inventory of government benefits, and letters outlining health care directives and even the disabled person’s daily routine.
Even with all a plan’s requirements, there’s room for creativity. One mother, for example, wanted her child to be able to live in the family home, so the home was converted to a group home.
One of the biggest problems in creating a strategy for special-needs children is getting parents to do it. For parents, planning for such children means confronting their own mortality, with all the fears and other emotions that go along with it. Most parents start planning in their 40s, according to Littlepage, but they should start earlier.
“A huge duty is placed on these parents,” Griswold said. “Nobody likes to do this kind of planning, but it’s absolutely key to a child’s future.”
Dickson Griswold founded Highwater Wealth Management LLC in Denver after Hurricane Katrina led him to re-evaluate what was important to his family and their lives. When wealth manager Dickson Griswold and his family left their New Orleans home in August 2005, they expected to be gone only a few days — just until after Hurricane Katrina blew over.
But they never went back to Louisiana full time, making a new start in Denver because Griswold’s wife, Gentry, is from here.
“You re-evaluate what’s important in a situation like that,” Griswold said of the hurricane and the devastation it wreaked on his hometown.
When Griswold took stock of his life, he realized he wanted to have his own business and wanted it to be in Denver. Last year, he launched Highwater Wealth Management LLC, a fee-only wealth advisory firm.
A graduate of the University of Mississippi, Griswold learned the wealth management business at venerable New Orleans firm Waters, Parkerson & Co. LLC, which had $1 billion under management when Katrina hit. For 16 years, he was a portfolio manager and bond trader, and was the wealth management firm’s youngest partner in 2005 — and on track to run the business someday.
Griswold’s father, George Griswold II, is the Louisiana company’s chairman. But Dickson was hired on his own merits, not because of family ties, according to David Pointer, president of Waters, Parkerson and one of Dickson’s mentors.
“Dickson’s a perfect example of how we hire here,” Pointer said. “We like to hire them young and train them to our way of thinking.…Dickson became part of our succession plan, and it was working out fine until Katrina.”
The hurricane destroyed much of New Orleans after the city’s levees broke, forcing Waters, Parkerson to temporarily move its headquarters to Memphis, Tenn., where Griswold helped run the company from September 2005 through the end of the year.
He also organized repairs to his damaged New Orleans home near Tulane University, whose basement flooded and roof needed replacing, but was able to sell the house.
“I’m forever indebted to him,” Pointer said. “He was 100 percent during those months we were in Memphis.”
Griswold started working in Denver for Alexander Capital Management Group LLC, a fee-only wealth management firm, in May 2006.
Alexander subsequently merged with Wagner Investment Management Inc., part of Denver-based CoBiz Financial Inc. (Nasdaq: COBZ), and became CoBiz Wealth Management. Griswold was a senior vice president and portfolio manager at CoBiz Wealth until July 2011, when he launched Highwater.
“I wanted to satisfy my entrepreneurial longings,” Griswold said. “I’m constantly trying to improve. I got my CFP.” (CFP stands for certified financial planner.)
Highwater has roughly $25 million in assets under management, from about 25 families. The wealth adviser describes his strategy with clients as “holistic,” meaning he’s not wedded to any one financial product — such as insurance or a mutual fund family.
Highwater designs its portfolios with as much risk as is appropriate to meet a client’s goals.
In addition to helping wealthy individuals and their families with investments, the company also assists them with managing day-to-day finances, estate needs and succession planning.
“Even when someone is successful in their own business, they don’t always know about wealth management, which is a specialized field,” Griswold said. “They look to me to be their financial quarterback. I help them create a financial plan in the first year, and then revise it over time.”
Griswold and his family used his financial planning experience themselves during Hurricane Katrina. When they left New Orleans, they hoped to return quickly, but they also prepared for the worst.
“We did some smart things, thanks to my training and what my insurance agent said,” Griswold said. “He told me when you leave home in a situation like that, you take your irreplaceables — things like heirlooms, insurance papers — because everything else is replaceable. I also shot video of my home, inside and out.”
Bob Gresham, vice president of engineering development at Zachary Engineering Corp. in Denver, and his family have been clients of Griswold’s since he was at Alexander Capital. When Griswold struck out on his own, the Greshams had to decide whether to stay with a company they knew or the wealth manager they liked. “We did a lot of soul searching about whether we wanted to stay with a bigger company with a lot of horsepower behind it, or did we want to go with an individual we trusted,” Gresham said.
The Greshams stuck with Griswold because of his flexibility, responsiveness and knowledge, but also who he is as a person.
“We talked to other people who were equally as knowledgeable, but not as personal,” Gresham said. “The others had their agendas, but you don’t feel that way with Dickson.”