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Fourth Quarter 2017 Research Call Replay

Jan 18, 2018 / Investment Commentary, Portfolio Updates

This is a replay of our fourth quarter 2017 Litman Gregory research team webcast, held January 18, 2017. Topics covered (among others): inflation and the U.S. economy, asset class updates, the impact of tax reform, and tax planning. The presentation slides are available at the bottom of the page under Resources.

 

Audio of the full call:
 
Fourth Quarter Recap and Market Overview with Peter Sousa, Director of Portfolio Strategies:
 
In your scenario analysis framework, are you considering any sub-scenarios where inflation rises faster that the market expects? And if so, how close is that to having enough weighting in your minds to impact expected risks/returns and be an explicitly modeled scenario?
 
It seems we find ourselves in a precarious situation that reminds me of 2007, where we have excessive public, private, and consumer debt relative to ability to grow out of it, yet the United States deficit is set to get much larger, and we can’t raise rates as quickly as we probably should based on the economy/unemployment figures due to the debt levels. What do you envision happening to investment portfolios if instead of the curve continuing to flatten, longer rates rise faster than expected due to the unwinding of all this global stimulus from central banks? 
 
With U.S. corporate tax law changes, steady economic growth, rising corporate profits, rates lower for longer, and fiscal policy stimulus, are you rethinking your U.S. equity underweight vis-à-vis European equities?
 
Will you please share the team’s opinion on the U.S. dollar? Is there still an agnostic approach in regard to the European overweight? Any thought of adding a dollar hedge back?
 
As the risk-free rate rises with the fed hikes, do you expect a meaningful performance boost to the arbitrage strategies such that it could impact expected future returns in the bull case scenario? If not, is it because of very low starting levels, or just that it’s not a large factor of expected returns for the strategies? Also, what if M&A were to dry up, but the risk-free rate kept increasing. How might that impact future expected returns?
 
You shared some great information about potential actions for clients to consider taking prior to year-end 2017 given the tax law changes that took effect earlier this month. Any early 2018 tax planning thoughts to share now that we’ve had some time to read and digest? 
 
What are your thoughts on the muni market, in light of the tax law change?
 
Oakmark Fund (OAKMX) has been beating its more concentrated version. What do you attribute this to?
 
As you pointed out in your year-end commentary, growth/momentum continued to trounce value from a style perspective. From a size factor, large outperformed small. Do you and/or any of your active managers see these trends being reversed due to the fiscal stimulus/tax reform in the United States?

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