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Cresset AUM: $40 billion
What recent investment allocation changes has your firm made?
We held a sizable allocation to gold in our growth strategy through 2022, so heading into 2023 we allocated half the gold position into international developed markets toward the beginning of 2023 and into U.S. large caps in the second quarter. Our trade was motivated by valuation. International large caps were cheap, and their currencies were relatively cheap compared to the dollar. U.S. large caps were “fairly” priced when we made the allocation. We shifted the funds into high quality companies with a long track record of dividend growth.
What’s your top contrarian pick at the moment?
Our favorite pick nowadays is private credit. We like the quality and the floating rate nature of the coupon. It’s currently paying between 11.5% and 12%.
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Carson Group AUM: $30 billion
What recent investment allocation changes has your firm made?
We added some equity exposure in August and will likely add a little more soon. We’ve been overweight stocks all year and continue to see no recession and likely a continuation of the bull market. The August and September volatility hasn’t been fun, but we can’t say it wasn’t a surprise either. After the best first seven months to a year since 1997 for the S&P 500, some seasonal weakness these two months made sense.
What’s your top contrarian pick at the moment?
We like small caps. Yes, they’ve struggled the past few months, but they are historically cheap relative to large caps. Things aren’t cheap out there, but small caps are one area where investors could find a nice deal. And as the economy surprises to the upside the rest of 2023, we anticipate small caps to do quite well.
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Mercer AUM: $48 billion
What recent investment allocation changes has your firm made?
We recently re-extended duration in our fixed income portfolios. After shortening it to less than two years in January 2022, we extended it back closer to five years in July 2023.
What’s your top contrarian pick at the moment?
Non-U.S. equities continue to be a relative bargain in our view given their valuations, the strength of the U.S. dollar, political instability in the U.S., and ballooning federal debt.
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WEG AUM: $70.1 billion
What recent investment allocation changes has your firm made?
Our most recent changes included adjustments to the international portion of our equity sleeve, as we increased our allocation to large-cap developed international, while decreasing small-cap international. We note that the international equity asset class trades at double its historic discount level vs. the U.S., while weaker foreign currencies provide additional support of earnings power for large-cap exporters. We maintained our overall international exposure which is modestly higher than our strategic benchmark, but notably lower than the MSCI All Country World Index.
What’s your top contrarian pick at the moment?
I wouldn’t refer to this as a contrarian pick, but we tend to have a slight value bias, which certainly is not in favor this year. Our investment approach uses quantitative analysis and factor scoring which tends to apply smaller weights to megacap growth which is driving performance. We believe that applying a consistent approach is imperative even when it’s out of favor, because perfectly timing the next shift from growth-to-value is incredibly challenging. As the hysteria around AI should subside and the business cycle moves to its latter stages, we believe the value focus will resume leadership and help mitigate drawdown risk.
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What recent investment allocation changes has your firm made?
We’ve not made a great deal of changes recently, though that will change soon in preparation for 2024. One notable step we have taken is that we’re beginning to expand our level of interest rate risk. We were essentially in cash, Treasury bills, and equivalents throughout 2022 and for the first three to six months of 2023, but I would say the firm’s stance is that long-term interest rates are much closer to their peak for this cycle than we were at the beginning of the year.
What’s your top contrarian pick at the moment?
I’m not sure you would call it contrarian, but our investment committee has had some conversations about Japan. Japan has been a bit of a forgotten market the past decade or so, but there has been a shift occurring within corporate Japan as it relates to creating shareholder value. Many of the country’s larger firms are in great shape financially, and we believe we’re getting closer to an inflection point in the U.S. dollar this cycle that benefits international companies.
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Crescent Grove AUM: $4 billion
What recent investment allocation changes has your firm made?
With yields taking another leg up and the Fed signaling that they are near the end of their hiking cycle, we have been adding to our higher quality fixed income allocations and starting to extend duration. We’ve been trimming from segments that have performed well this year—credit within fixed income and U.S. growth stocks within equities. Within alternatives, we’ve started to make commitments to venture capital and private equity strategies that can take advantage of a more favorable valuation environment, as well as private credit funds that should benefit from ongoing issues within the banking system.
What’s your top contrarian pick at the moment?
Artificial intelligence (AI) may prove to be a transformational technology over the coming years, but we would exercise caution amid any extreme, near-term exuberance—particularly among the mega cap tech leaders. Questions remain about the speed and magnitude of monetization as well as the cost of the infrastructure buildout. Perhaps more importantly, valuations appear to leave little room for any execution missteps or risks from new, disruptive entrants into the space.
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NewEdge AUM: $40 billion
What recent investment allocation changes has your firm made?
Sometimes no decision is the best decision. We made the decision to maintain our quality focus in portfolios in 2023. This was partially due to a continued consciousness about tax sensitivity (we look to build equity portfolios that can compound value through cycles with lower turnover), but also for the expectation of continued market and economic uncertainty. The April-July rally did not favor quality equities; instead, we saw risky, high-beta, low-quality equities lead the market. We chose to maintain our position and add to our highest conviction areas on weakness instead of chasing this rally. As we have been experiencing higher equity volatility in August and September, quality has begun to shine again as the riskier parts of the market reversed the majority of their ephemeral summer gains.
What’s your top contrarian pick at the moment?
Large-cap high-quality biotech equities have been left behind this year (with the biotech sector down 10% year-to-date), but we are finding some great companies in the biopharma space that to us offer attractive valuations, durable earnings growth, and secular growth driven by technological advancements in treatments and therapeutics.
Large-cap biotech companies with strong balance sheets and healthy cash generation are in an advantageous position given the disruption in capital markets. The market for IPOs has been effectively closed for 18 months.
Biotechs with ample capital may have the opportunity to acquire assets and technology at attractive prices from smaller firms that are struggling to raise capital to fund their cash-burning businesses. The group trades at a mid-teens forward PE multiple, a notable discount to the market, capturing the risk and stress currently present in the industry, but also likely understanding the future secular growth potential of this market segment.
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Beacon Pointe AUM: $28 billion
What recent investment allocation changes has your firm made?
We added a long duration trade that will benefit clients should we see a significant economic slowdown. Bonds are attractive given the Fed’s aggressive rate hikes and currently elevated real yields.
What’s your top contrarian pick at the moment?
We increased our overweight to U.S. large cap value and we added to our underweight to U.S. large cap growth given relative valuations and our expectations for much slower economic growth.
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What recent investment allocation changes has your firm made?
This summer we reduced our weighting to U.S. large cap equities from overweight in our model portfolios to equal weight as we believed that the somewhat surprising advance through the first half of the year had left equities fairly valued. The proceeds of the reduction went to close our longstanding underweight to core fixed income. With interest rates across the maturity spectrum having risen close to our year-end target and with the Fed near the end of its tightening cycle, fixed income yields have effectively “normalized” and are now deemed to be attractive from a risk-adjusted return perspective.
What’s your top contrarian pick at the moment?
Although we do not believe a recession in the U.S. economy is imminent, interest rate spreads in the high yield debt asset class are not sufficiently attractive to compensate investors for the risk of an economic slowdown or the refinancing risk that will occur as debt matures over the coming years. Despite our rather favorable assessment of the broader fixed income markets, we are aggressively underweight this riskier asset class within the space.
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