As we head through the second half of 2019, investors wonder, will we go back to an environment of synchronized global growth or stay mired in a bog of synchronized slowing?



Todd Crawley: As we head through the second half of 2019, investors wonder will we go back to an environment of synchronized global growth or stay mired in a bog of synchronized slowing. Today, we’re discussing this question and many more. I’m Todd Crawley.


Jon Lagerstedt: I’m Jon Lagerstedt.


Matt Lobas: And I’m Matt Lobas, and this is The Essential Practice podcast.


Todd: Our discussion for this episode comes from our 2019 Mid-Year Investment Insights called Staying the path. We encourage our listeners to get this report to find out what our investment teams are doing to find opportunities across asset classes. You can get this report by contacting your sales partner here at Wells Fargo Asset Management.


But before we get started, I’d like to introduce our new colleague Matt Lobas, head of the RIA Sales Channels here at WFAM. Matt’s going to join Jon and myself as a host of The Essential Practice podcast. Matt, welcome.


Matt: Thanks, Todd, and I’m really excited about joining you and Jon on these podcasts, and I hope I can add some real value as we go forward.


Jon: Matt, you’re working with RIAs, and you’re talking a lot about best practices, helping them grow their businesses, which applies broadly across investment professionals. What sorts of ideas do you plan to bring to The Essential Practice podcast audiences?


Matt: Well, thanks, Jon. You know, I used to listen to public radio because I loved the features, the stories, the insights that I heard on public broadcasting.


But in the past couple of months, I’ve moved over to podcasts, and what I like about podcasts is the flexibility of being able to listen to the ideas of the story on my own time.


What I plan to do going forward is bring on some people who are real subject matter experts, so I can interview them and really drill deeper into some certain subjects that are out there. For example, I’m very interested in technology and how technology is impacting the advisor’s workload out there to be more efficient and more effective.


I’m interested in topics in marketing like branding. How can you brand yourself? How could you enhance your brand both for prospecting and for service for your existing clients?


And finally, other ideas in practice management like growth. There’s also studies out there that talk about what advisors want and what investors want. I’d love to bring some of those studies to life for our listeners out there and share some of those stories, so those are some of the ideas I’m thinking about.


Todd: That’s great, Matt. Well, let’s get into the insights. What you’re going to hear today on the program are some clips from Dr. Brian Jacobsen, Senior Investment Strategist here at Wells Fargo Asset Management and the Multi-Asset Solutions Team, who hosted a webinar on today’s topic on July 10. And if you want a copy of that report, just contact your sales partner to get a link to the replay. Then, we’ll discuss Brian’s commentary between the three of us.


Matt: You know, Jon and Todd, when I listened to that report, I thought it really focused on three themes: First, focusing on balancing the risks that matter in your portfolios; second, using security selection to uncover real value; and finally, consider alpha-generating strategies. So here are Brian’s thoughts on balancing risks that matter.


Brian Jacobsen: As we navigate the second half of 2019, I think it’s safe to say that our teams, we’re really taking a three-pronged approach to help build better outcomes for clients. The first is about balancing the risks that matter and recognize that those risks can change over time. It’s not always about balancing growth versus value, stocks versus bonds.


Right now, given the moderate growth outlook and the prospects of inflation remaining subdued, we’re looking more at balancing the risks within equities and bonds more than the risks between equities and bonds, leading a lot of our strategies to be relatively in line with their strategic allocations.


Todd: And when you look at Brian’s comments around balancing risks that matters, the macro themes of inflation, employment, GDP, is it growth over value, is a small over large…they’re really talking about kind of peeling that onion back into two or three different layers deeper and talking about individual risk within equities, within fixed income. Where should we be on the curve? What risks are embedded in those types of equities? That’s really to the heart of that first question of what he’s trying to get across in the mid-year outlook.


Jon: Yeah, Todd, I would agree. It’s more about that allocation of risk within the portfolio, not necessarily the capital allocation that we’re focused on.


Todd: Yup, I agree.


Jon: Well, the second theme that the report sheds light on is the importance of using security selection to uncover value.  Here’s what Brian had to say about that.


Brian: Some of our strategies also employ downside risk hedging, or they might overweight certain factors like low volatility and higher quality, which is an attempt to help reshape the distribution of portfolio outcomes for clients.


We see opportunities with volatility, as it can provide us with chances to be opportunistic buyers, or volatility can also strike to the upside, which can then maybe allow you to be an opportunistic seller, and that can result in mildly higher-than-average cash allocations for some portfolios.


Todd: The third and final theme from the report is considering alpha-generation strategies: The idea that high-quality stocks and bonds, some selling at an absolute discount and others selling at a relative discount, can be alpha-generating opportunities. Here’s what Brian had to say about that.


Brian: Finally, the simple, passive, just get-your-beta-on approach may have done well during the double-bull run of equities and bonds that we’ve had for a good chunk of this economic expansion and this market expansion, but if the bull is getting a little winded, and if monetary policy normalization is becoming a distant memory and we might be on the precipice of some more monetary accommodation, a shift from just beta to beta plus alpha could help increase the probability of portfolio success for clients.


Matt: You know, one of the things that I noticed is in the past couple of years, active managers like us in sitting down and talking to advisors that are, like, listening to this podcast, we’re very concerned about active versus passive. It was really one or the other, but I believe that most advisors that we’re talking to today actually understand that while they need to use beta in their portfolio through the passive strategy have accepted the fact that in periods like this—high volatility and with a lot of uncertainty—active managers also make sense within the portfolios. So we’re seeing, even in some of those big spaces like large growth and large value, movement towards blending active and passive managers.


Jon: Perfect statement.


Todd: As we wrap up this episode, we hope we gave you a glimpse of the issues that are on the top of minds across our teams, asset classes, and regions around the world.


Jon: Our goal, like yours in your practice, is to meet or exceed client expectations for risk, while also striving for results to help your clients achieve their financial goals.


Matt: Absolutely. And any time we can provide you with ideas to grow and manage your practice and help you have better conversations with your clients, that’s a good day for us.


Todd: Couldn’t agree more. Until next time, I’m Todd Crawley.


Jon: I’m Jon Lagerstedt.


Matt: And I’m Matt Lobas. Thank you for listening to The Essential Practice podcast.


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