Name: Investor Roundtable 2022: Best and worst investments for 2022
Uploaded: 2021-11-29
Duration: 16 min 56 s
Description: Experts believe crypto is an area of opportunity moving forward.

Experts believe crypto is an area of opportunity moving forward.

Investor Roundtable 2022: Best and worst investments for 2022

Finance

Investor Roundtable 2022: Best/worst investments for 2022

So David over the next 12 months, what do you see as the greatest risks facing investors and the greatest opportunities facing them try? I think the biggest risk is what's really interesting to me is we did $164 that we have in our earnings in two of the 19. We're going to do two or 52 of seven. We're well above trend earnings growth here in the s. 500. And you know, some of that earnings is kind of what I call low quality like bank reserve releases. There's been a lot of margin expansion has basically been driven by, you are not doing business travel. Energy prices are high, probably come lower next year. And so and then we also have tax reform that will probably impact earnings by 2, 3% next year as well. So The long term last 10 year kind of learning stripped of the market Kind of x recessions have kind of been like seven and so you're kind of building in seven next year. But you have a lot of headwinds that are probably gonna, you know, Making your next year in the 500 a little bit lower than what it normally would be because of these reserves releases. All these other things are kind of one time in nature. So the only point I would make is Evaluations are, you know, really kind of 25 year highs and large cap equities. Uh multiples, multiples are high, you have earnings growth probably slowing down usually that's not a great combination for the market. That may be different, small caps, maybe different emerging markets, but in large gaps, it's usually not a great combination, but what we do, like if you're going from an environment where growth is plentiful to a place where growth is maybe a little bit more muted. I think stable growth companies, they're kind of more consistent growers. We'll probably go back in favor as we kind of think about 2022 and 2023 more garvey kind of companies. That's where we were patient large bets. Thanks. David Lori Let me pose the same question to you over the next 12 months. Where do you see the greatest risks for investors and the greatest opportunities? Sure. I'll start on the risk side. First, I think, you know, what we see is We look out the biggest risk for corporate earnings in 2022 is, is really around the shortage of labor, which I think it makes it much more challenging for companies to innovate and ultimately grow. And uh, this is not just a supply chain issue, but also a labor issue. And certainly when you look at non farm payroll at, yeah, They've risen by 17 million since the trust Drop of April 2020, but they're still down five million from its pre pandemic level in February of 2020. So providing a safe, inclusive, great workplace. I think that's table stakes today for companies to be able to attract and motivate and retain their talent base. And I think it's also important to note, you know, companies that have a really strong corporate purpose mission are going to be a very significant competitive advantage to attract, engage their employees And then shifting to the opportunities, I would say, as we hopefully return to a new normal and 22, even as the pandemic continues versus around much of the world, I think the best opportunities in 22 will be in selected, high quality stocks that have improving fundamentals That have reasonable valuations and yet have been often overlooked by investors during, throughout, throughout much of the 21 period. So as a long term investor, I'm really focused on those high quality, socially responsible companies, improving earnings growth have durable modes, management teams that are really thinking about, you know, the long term interests of the companies and aligned with long term shareholders And of course reasonable valuations. So these are the opportunities that I see that have the greatest source of upside and after generation during 2022. Thanks Lori Dan, How about you? Where do you see the greatest opportunities and the greatest risks for the next 12 months for investors? Sure, I think the greatest opportunities, I continue to see actually in sort of innovative growth companies. I think we're in a period that covid accentuated and as I've noted accelerated and for some companies in industry accelerated their decline. I think so I think the opportunities are really around, focus on one of the most innovative companies, most innovative sectors, who are the company's leading that those trends. Um and you know, making sure that as an investor you have enough exposure to to innovation and growth. Uh we also like high quality sort of steady grower compound, but I do think that a lot of investors, you know, especially after a multi decade, um uh basically bonds in full market are probably over allocated to uh maybe not David, David, you know, leverage loans to more traditional bomb proposed that will not perform well in rising rate, rising inflation environment and they're under allocated, I believe many to sort of uh you know, the more innovative growth ends of the market and I have highlanders, I think small cap is an opportunity. I agree with many of the commentators that I think the recovery action will come later in international and emerging markets, but therefore those markets, I think actually offer a lot of opportunity. Again, I would not be playing those traditional cyclicals and commodities in those areas that probably will get a lift at the initial stage. But I would look for the high quality true growth companies in the because I think if Katie highlighted there are some leaders globally who are ahead of us, for example, in Fintech that exist in china and India and china of course has had a lot of issues. My greatest concerns for the market's really is that inflation, I think, you know, the consensus view of inflation is transitory will settle back down. Interest rates, you know, extremely low on the tenure uh still historically. So that that seems to be the, you know, really the broadly accepted consensus, but I am a little concerned that we could get higher inflation than the markets expect. Um You know, we've had decades of Falling inflation, falling interest rate. It's uh you know, we sort of thought after the Great Financial Crisis 2008, uh that the efforts there might re stimulate, you know, some of that we never really got back to that as you all know. And then covid of course caused a tremendous shift downward. So, and which we still haven't recovered from. I mean, let's just remember interest rates were basically between two and 3% pre covid, we're at 16 on the 10, 15 and six and the 10 years. So I'm not concerned about 2% no one should be, but I am concerned that um there's a structural forces in terms of, you know, how much has benefited, for example, white collar label, but not blue collar laborers, right? And we're seeing them gain some of that back. And I think that's actually good for our society, but higher wages at the at the at the blue collar jobs that are so necessary for actual real life. Um you know, I think that does tend to translate into higher inflation potentially over time. And it is coming as as many of the commentators have noticed at a time when demographically there are fewer people to fulfill those, those those roles than there once were. So. Um, and then there's a commodity inflation and oil is at $83. We haven't seen $83 since a pretty great financial crisis. Um that was driven by the rise of china today. We have an interesting phenomenon and it's difficult for me because uh, I am an environmentalist. I sit on the board of the Nature Conservancy, I welcome the transition to renewables and sustainable wind and solar and others. But we could have a difficult period where because of discipline and reduce capital spending in the oil and gas industry and the future, the outlook for renewables. We could see sustained very high oil and natural gas prices for years. It might even be the natural outcome if you want the market to force the transition, that's the best way for it to happen. But there could be a very unpleasant middle there um When you think about, you know, energy prices in particular for, you know, ordinary americans, uh heating bills, fuel and how that filters through. So I am worried about what higher inflation would mean. And and then it's a huge risk of course, also because I look at the market says, how are investors positioned over the last few decades? Most investors, I think have become too comfortable in sort of playing vanilla bond portfolios, um, and not enough exposed to, for example, growth equities, small cap equities, emerging market equities, et cetera. And so, um, you know, large parts of the bond market will not perform that well in that kind of environment. And then the other risk I have is more um, geopolitical. It's really about, uh, will there be a policy or political mistake, uh, with either china Russia or others where, you know, we're coming out of covid in a very strange world, uh, you know, what, what is the american relationship with our former allies and with the powers that exist in, in, in Russia and china? And as you all know, it's, uh, it seems to be highly um, indeterminant. In other words, we thought we had one kind of relationship, then we went another way. And now I think, uh, in many ways many people are uncertain what relationship, if any, we have with these. And it's, um, you know, I just worry about the risk of, uh, a political or policy mistake uh, that of course would be, um, well, it could be, it could be tragic, Katie all ask the question to you. Where do you see the greatest risks and the greatest opportunities for investors over the next 12 months when we look out to 2022 on the risk side, I would talk about labor, but I think Lori's already done a great job of that, but we still have the lowest labor force participation rate. This country's had post World war two is a very big problem and we need to find the ways to pull those people back into the labor force for a variety of reasons. And then the other risk would be so we are worried about the supply chain. Yes, the supply chain constraints really lasting well into 2022 an area that we have a particular focus on would be the chip famine that we're all facing. So just so people have context right now we have a record high 22 week lead time for when a chip has ordered to when it is delivered. Um, texas instruments have come out more recently to say that they're starting to see some improvement on that, but that is a very bad, bad leg and it's very relevant because a lot of what we've talked about today is the need for more technological disruption and innovation. Well chips are foundational to all of that technology that leads me to my second point, which is where are the opportunities which are often found in addressing the risks that are out there. And we continue to think of major opportunity in 2022 beyond a building supply chain resiliency. We like the companies that have supply chain resiliency and have already been thoughtful about that and we're very big believers in the companies that will be beneficiaries of that as more and more people build supply chain resiliency and stick on, stick on semi's for a moment. We are expecting both china and the US to make massive investments on being able to design but also fab their chips in those home market or more approximate market to both china and the US. And so we love as an example of semi equipment manufacturers. Uh, allergy would be an example of one in china and M. K. S. Instruments would be an example of something that we like and the U. S. And Leslie, I'm going to come back to you take the last bite at the apple of this question, which is over the next 12 months, where do you see the greatest risks and the greatest opportunities for investors? Um, so this is a really hard question for me to answer for two reasons. First is, uh, I think that among this panel, um, I work in a space, but it's the most forward looking. So it's almost like it's hard for me to think about opportunities and risks in one year chunks rather than in like that. So it's like really, really, really far ahead into the future. Uh, and the second is I actually think that most of the risks I see are the same as the opportunities, like, you know, it's two sides of the same point. So like, I don't know if it's answers the risk, part of what you asked for the opportunity, part of what you have, but they are pretty much the same thing. And so what I would say is, you know, uh, several of my colleagues here have talked about capital, looking for growth opportunities for like small cap or venture emerging markets. And I do think that more and more money is coming into the space because it has never been easier through a company, it has never been easier to Scale of company. And when you look at the rate of growth of companies in the rate of transformation of the public markets, right? Like we're looking at a complete recycling of the public markets in the next 50-200 years, right? Like every company that's on the 9:00 might might not be there by the time my kids are are caged. Um, and I think that a lot of investors trying to see that a lot of investors starting to see that the outcomes adventure the outcomes in early stage are getting bigger and they're happening faster and there is more of them to be had. So that's certainly an opportunity. Now, the challenge is that like early stage is not a place where you can very efficiently invest large amount of capital. In fact, the opposite have, is like the more money thrown at early stage companies, unless they learn how to build substantial businesses and be efficient with their capital as they grow and then you see like tons of big correction. So, so what I see is the risk is, you know, here there's so much capital chasing after the early stage, all these corporations starting their own corporate VC funds, all these family offices, starting their own kind of angel investing practice. And like if you don't have, um, a way to kind of ensure that you're staying true to reasonable valuations even at the earliest stages and you're just kind of throwing money to see what happens. That ends up being bad for the company and ends up being that. So I think for the, for the retail investor, look for funds, look for emerging managers, look for funds that can kind of diversified capital across a number of different companies rather than trying to put all of your couple basic financial, is not saying anything that shocks everyone out. Um, the other thing we did, we didn't talk a lot about this, but I think we would be remitted uh, to not talk about, um, the, you know, the giant need an opportunity to bring more people to work and to bring more people into the side of investing and wealth creation. Right? So before the pandemic, um, I remember the World Economic Forum has said that it was going to take something like 160 years for women and men to reach economic economic gender parody. Uh, and after the pandemic, it's actually almost 300 years. We have lost So many, so many women are no longer working. They're not participating. They're not investing really. Even in our profession, less than 1% of all uh assets worldwide are managed by women. I think that that's an enormous opportunity to bring more people into the economy by making the economy more equitable. Uh we could spend an entire hour talking about what that means, but we'd be remiss to not at least say, hey, things are a lot more unequal than they were a year and a half ago. And it's not like we started from a very good place And I don't think that'll be fixed a year from now either. It is a lifetime's work, but it's a really important theme. It won't be fixed a year from now. But the flip side of that is I'm going to end on a positive note is that it's also not going to be six and 300 because that same, that same increasingly fast cycle of wealth generation of company creation of like growth um creates huge opportunities for people to participate and build wealth in ways that were really kind of in expectable to masses before. So, I, you know, I think that more of us can participate. There's really interesting have models out there that are bringing more and new people more new thinking more new capital into the investing economy. Actually break headed to see what that what that brings. Thank you Leslie that's a great note to end on, and I think we will end it there. Thank you all so much for your time and your insight and your expertise, And that concludes the fortune investor roundtable for 2022.