To Inform:

Earlier this week, I had the opportunity to go to Austin, TX for an investment conference hosted by a large asset manager. The weather was wonderful, with sunny skies and average temperatures around 80 degrees, which the locals tell me was a noticeable drop from the previous weeks. Another wonderful outcome was the amazing breadth and depth of insight from the various speakers. Here are three quick points that help illustrate the benefit of this conference:

Generating after-tax wealth needs to have an increased emphasis with clients

Industry wide, investment advisors need to be increasingly comfortable implementing novel tools to increase the after-tax wealth of their clients. Being able to deliver various strategies at scale is key, whether diversifying concentrated stock portfolios or using direct indexing to implement tax-loss harvesting in a smart and staged manner.

The US economic outlook is positive, with accelerating gross domestic output coming from a surprising place

The head market strategist at the conference shared his expectations for strong economic growth in the United States, driven by both business investment, particularly in artificial intelligence (AI), and the strength of the US consumer. Many of us have heard of the “K” shaped economy, where strength in consumer spending is largely on the backs of higher-income cohorts of the US population. However, more recent research, observed by many large US bank executives, identifies that consumer spending growth from some of the lower- income cohorts is catching up and even exceeding that of the higher-income cohorts.

Source: Bloomberg

The recent move in municipal bonds presents opportunities

An asset class largely ignored by institutions, tax-free municipal bonds continue to exhibit strong credit quality and tax-free yields not seen in decades. The chart below illustrates the after-tax yield “advantage” offered now in municipal bonds. While yields on a broad index of taxable bonds sit at 5.3%, the same index would need to yield 7.33% to match what tax-free municipals offer investors today. While institutions without tax burdens continue to pursue other areas of the bond market, The Joseph Group has been active in many client accounts we have the privilege of managing, increasing allocations here in recent weeks.

Source: Vanguard

Getting out on the road has long been an opportunity to hear directly from and converse with portfolio managers, strategists, and other industry professionals while creating time to think about the investment landscape and how some of what we’re learning and hearing can be applied in client portfolios. Our hope is that these occasional road trips sharpen our thinking and offer tangible ideas that allow us to continue to deliver on our goal of managing objectives-based portfolios for the benefit of our clients and their great lives!

Written by Jerry G. Brown, CFA, FRM, Senior Investment Analyst