worth oct 2014 inflation
TRANSCRIPT
WGROWHighTower’s Elliot Weissbluth Versus the Wire Houses; The Boom in Southeast Asia; Millennials and Their Money
L IVEMiami Beach’s New Mayor; Watch Wisdom from Jean-Claude Biver; 10 Best Fitness Programs
MAKEGulfstream’s New GS650ER Raises the Bar; An Interview with Wall Street’s Top Cop; Big Banks in Trouble
CURATORZegna’s New Power Suit; Four Whiskies Aged to Perfection; Luxury Coupes from Aston Martin, BMW and Mercedes
T H E E V O L U T I O N O F F I N A N C I A L I N T E L L I G E N C E
®
V O L U M E 2 3 | E D I T I O N 0 5
32W O R T H . C O M
THE 100 MOSTPOWERFUL PEOPLE
IN FINANCE
COVER_WOR32_092214_ds.indd 1 9/22/14 8:03 PM
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As the U.S. economy recovers, we are increasingly cognizant of the notion that higher inflation may potentially surface. In fact, the seeds of future inflation reside within the U.S. Federal Reserve’s extraordinary efforts over the past six years to revive the economy from the depths of the Great Recession. The adoption of unconventional mon-etary policies has led to a 48 percent increase in the money supply through a nearly five-fold increase in the Fed’s balance sheet. Recent improvements in economic data have allowed the Fed to “taper” and eventually reverse its easy monetary policy approach, but the potential inflationary forces it created remain in the financial system.
Therefore, investors may want to explore ways to dampen the potential impact of rising inflation through a few portfolio adjustments.
First, consider bonds: Since higher inflation closely correlates with higher interest rates, bond investors need to understand the implications of rising rates and adapt accordingly: Shorten-ing the duration of your bond portfolio can lessen the price volatility associ-ated with a movement in rates. Second, consider diversifying your holdings to include floating-rate corporate bonds. These securities earn a yield that includes both a spread reflecting credit
risk and a floating-base rate, typically the London Interbank Offered Rate (LIBOR), which is reset on a regular basis. This frequent reset means these loans carry far less interest-rate risk than bonds that pay a fixed-interest rate.
Equities have historically been an effective asset class for investors con-cerned with rising inflation. For exam-ple, companies with low variable costs, but stable or increasing revenues, tend to perform well in an inflationary environment. Also, best-of-breed com-panies with dominant market share possess pricing power and the ability to pass along the higher input costs that oftentimes surface during periods of inflationary stress. Finally, active equity strategies are able to emphasize com-panies with the aforementioned traits relative to a passive index.
Investors have traditionally used single solutions like commodities and Treasury inflation protected securi-ties (TIPS) to hedge against inflation risks. However, their sensitivities to inflation sometimes vary, often creat-ing more risk than investors anticipate. A risk-managed, multi-asset solution that invests across a broad range of inflation-sensitive asset classes is an appealing option. We believe expand-ing the universe of investment options that are highly sensitive to inflation
delivers a more efficient portfolio.Lastly, investors of all types should
consider an allocation to hedge fund strategies, either through traditional hedge funds or “liquid alternative” mutual funds. Hedge fund strategies can help mitigate downside portfolio risk and often benefit from rising rates, making them an attractive enhancement to allocations. From January 2000 through September 2013, during months when the 10-year U.S. Treasury rates were rising, hedge funds exhibited positive returns in 58 of 78 months (74 percent). For specific strate-gies like fundamental equity long/short, higher interest rates mean higher rebates on their short positions. For credit arbitrage managers, interesting relative-value opportunities can be more pronounced during periods of rising rates. For example, a manager might invest in floating-rate bank loans and hedge their credit exposure with duration-sensitive, fixed-rate cor-porate bonds.
While there is evidence to suggest that higher inflation may not be on the immediate horizon, the aggressive monetary steps taken over the past six years will likely have inflationary reper-cussions and investors can take steps now to address the impact this will have on their portfolios.
Chicago, IL Leading Wealth Advisor
With interest rates near zero, what steps should I take to hedge against inflation?
Neuberger Berman Wealth ManagementBrian E. Hahn, Managing Director; Christopher J. DeMonte, CFA®, Senior Vice President; Seth A. Yerk, CFA®, Vice President
By Brian E. Hahn, Christopher J. DeMonte, Seth A. Yerk
This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice. Certain products and services may not be available in all jurisdictions or to all client types. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. Firm data, including employee and assets under management figures, reflect collective data for the various affiliated investment advisors that are subsidiaries of Neuberger Berman Group LLC. Neuberger Berman LLC is a registered investment advisor. Alternatives and fixed income products and services are generally available through affiliates of Neuberger Berman LLC. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC. All rights reserved. ©2014 Neuberger Berman Group LLC. All rights reserved.
LWA_NEUBERGER_CHI_WO32.indd 146 9/17/14 11:28 AM
ILL
US
TR
AT
ION
BY
KE
VIN
SP
RO
UL
S
As the U.S. economy recovers, we are increasingly cognizant of the notion that higher inflation may potentially surface. In fact, the seeds of future inflation reside within the U.S. Federal Reserve’s extraordinary efforts over the past six years to revive the economy from the depths of the Great Recession. The adoption of unconventional mon-etary policies has led to a 48 percent increase in the money supply through a nearly five-fold increase in the Fed’s balance sheet. Recent improvements in economic data have allowed the Fed to “taper” and eventually reverse its easy monetary policy approach, but the potential inflationary forces it created remain in the financial system.
Therefore, investors may want to explore ways to dampen the potential impact of rising inflation through a few portfolio adjustments.
First, consider bonds: Since higher inflation closely correlates with higher interest rates, bond investors need to understand the implications of rising rates and adapt accordingly: Shorten-ing the duration of your bond portfolio can lessen the price volatility associ-ated with a movement in rates. Second, consider diversifying your holdings to include floating-rate corporate bonds. These securities earn a yield that includes both a spread reflecting credit
risk and a floating-base rate, typically the London Interbank Offered Rate (LIBOR), which is reset on a regular basis. This frequent reset means these loans carry far less interest-rate risk than bonds that pay a fixed-interest rate.
Equities have historically been an effective asset class for investors con-cerned with rising inflation. For exam-ple, companies with low variable costs, but stable or increasing revenues, tend to perform well in an inflationary environment. Also, best-of-breed com-panies with dominant market share possess pricing power and the ability to pass along the higher input costs that oftentimes surface during periods of inflationary stress. Finally, active equity strategies are able to emphasize com-panies with the aforementioned traits relative to a passive index.
Investors have traditionally used single solutions like commodities and Treasury inflation protected securi-ties (TIPS) to hedge against inflation risks. However, their sensitivities to inflation sometimes vary, often creat-ing more risk than investors anticipate. A risk-managed, multi-asset solution that invests across a broad range of inflation-sensitive asset classes is an appealing option. We believe expand-ing the universe of investment options that are highly sensitive to inflation
delivers a more efficient portfolio.Lastly, investors of all types should
consider an allocation to hedge fund strategies, either through traditional hedge funds or “liquid alternative” mutual funds. Hedge fund strategies can help mitigate downside portfolio risk and often benefit from rising rates, making them an attractive enhancement to allocations. From January 2000 through September 2013, during months when the 10-year U.S. Treasury rates were rising, hedge funds exhibited positive returns in 58 of 78 months (74 percent). For specific strate-gies like fundamental equity long/short, higher interest rates mean higher rebates on their short positions. For credit arbitrage managers, interesting relative-value opportunities can be more pronounced during periods of rising rates. For example, a manager might invest in floating-rate bank loans and hedge their credit exposure with duration-sensitive, fixed-rate cor-porate bonds.
While there is evidence to suggest that higher inflation may not be on the immediate horizon, the aggressive monetary steps taken over the past six years will likely have inflationary reper-cussions and investors can take steps now to address the impact this will have on their portfolios.
Chicago, IL Leading Wealth Advisor
With interest rates near zero, what steps should I take to hedge against inflation?
Neuberger Berman Wealth ManagementBrian E. Hahn, Managing Director; Christopher J. DeMonte, CFA®, Senior Vice President; Seth A. Yerk, CFA®, Vice President
By Brian E. Hahn, Christopher J. DeMonte, Seth A. Yerk
This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice. Certain products and services may not be available in all jurisdictions or to all client types. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. Firm data, including employee and assets under management figures, reflect collective data for the various affiliated investment advisors that are subsidiaries of Neuberger Berman Group LLC. Neuberger Berman LLC is a registered investment advisor. Alternatives and fixed income products and services are generally available through affiliates of Neuberger Berman LLC. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC. All rights reserved. ©2014 Neuberger Berman Group LLC. All rights reserved.
LWA_NEUBERGER_CHI_WO32.indd 146 9/17/14 11:28 AM
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Richard P. Slaughter Associates Inc. 13809 Research Blvd., Suite 905, Austin, TX 78750 512.918.0000
W O R T H . C O M O C T O B E R - N O V E M B E R 2 0 1 4W O R T H . C O M O C T O B E R - N O V E M B E R 2 0 1 4
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Minimum Fee for Initial Meeting None required
Minimum Net Worth Requirement $5 million
Financial Services ExperienceHahn, 24 years; DeMonte, 20 years;Yerk, 10 years
Primary Custodian for Investor AssetsJ.P. Morgan
Compensation Method Asset-based fees
Professional Services ProvidedPlanning, investment advisory and money management services, investment products, strategic and tactical asset allocation and executor and trustee services
Email [email protected]@[email protected]
Website www.nb.com
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“The aggressive monetary steps taken over the past six years will likely have inflationary repercussions and investors can take steps now to address the impact this will have on their portfolios.”—Brian E. Hahn
How to reach The Hahn Team
Any member of our team may be reached at 312.325.2223. We look forward to hearing from you.
With interest rates near zero, what steps should I take to hedge against inflation?
This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice. Certain products and services may not be available in all jurisdictions or to all client types. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. Firm data, including employee and assets under management figures, reflect collective data for the various affiliated investment advisors that are subsidiaries of Neuberger Berman Group LLC. Neuberger Berman LLC is a registered investment advisor. Alternatives and fixed income products and services are generally available through affiliates of Neuberger Berman LLC. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC. All rights reserved. ©2014 Neuberger Berman Group LLC. All rights reserved.
Neuberger Berman Wealth Management 190 South LaSalle Street, 24th Floor, Chicago, IL 60603 312.325.2223Neuberger Berman Wealth Management 190 South LaSalle Street, 24th Floor, Chicago, IL 60603 312.325.2223Neuberger Berman Wealth Management 190 South LaSalle Street, 24th Floor, Chicago, IL 60603 312.325.2223
Left to right: Seth A. Yerk, Brian E. Hahn, Christopher J. DeMonte
—Brian E. Hahn
About Neuberger Berman Wealth Management, The Hahn TeamWealth management is part of Neuberger Berman’s DNA. The Firm was founded to manage assets on behalf of individuals, families and their charitable organizations. Now, 75 years later, as a global investment management organization overseeing more than $250 billion across all asset classes, Neuberger Berman’s wealth management business still remains a central focus. For nearly 20 years, the Hahn Team has been a leading advisory group within Neuberger Berman’s wealth management business, creating customized investment solutions for individuals and their families. Currently overseeing about $1.4 billion in private client assets, the Team’s mission is accomplished through the active management of investments, while incorporating a strong understanding of each client’s tax, estate planning, insurance, philanthropic and banking and credit needs. This integrated approach is a collaborative one, leveraging the expertise of lawyers, accountants, and other professionals involved in the client planning process. Through a commitment to active listening and prioritizing what is most important to clients and their families, The Hahn Team strives to make complex issues more manageable, while keeping clients informed, actively engaged and financially secure over the long term.
LWA_NEUBERGER_CHI_WO32.indd 147 9/17/14 11:28 AM
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Brian E. Hahn Managing Director
Christopher J. DeMonte, CFA® Senior Vice President
Seth A Yerk, CFA® Vice President
Neuberger Berman Wealth Management 190 South LaSalle Street, 24th Floor
Chicago, IL 60603Tel. 312.325.2223