Sanibel-Captiva Trust Company hosts investment seminar
With the state of the economy perhaps the most popular conversation topic in the past six months, guests to the annual Sanibel-Captiva Trust Company Investment Seminar, held at The Sanctuary Clubhouse on April 3, were particularly curious to hear the views of eminent investment advisors Richard Ennis and Robert Schuster.
Trust Company CEO Al Hanser welcomed the guests and described the speakers as “all-stars” in their field. Ennis is the Chairman of Ennis Knupp & Associates, an institutional advisor with portfolios aggregating $800 billion, and his firm was retained by the U.S. Treasury last October to assist with the Troubled Assets Relief Program (TARP). Schuster is the Chief Operating Officer of Ned Davis Research (NDR), a major institutional research company with clients in over 30 countries.
Ennis gave a recap of the American economy over the past quarter century, tracing the move from a risk-averse investing public in the early 1980s to the extraordinary use of leverage by global investment banks in recent years.
“By the early 2000s, oceans of liquidity were sloshing around world markets,” he said. “Appetite for risk grew.”
Ennis ticked off some of the factors that created asset bubbles in the economy – easy credit, the failure of rating agencies, excessive debt.
“This was 25 years in the making,” he said.
The audience asked him a range of questions: the stimulus package proposed by the U.S. Treasury, the role of the Federal Reserve, the SEC, China and the fate of GM and the auto industry, among others.
“My opinion is that the financial community perceives that (the federal programs) will work… the financial (institutions) are breathing a sigh of relief that they don’t have to mark to market,” he said.
On April 2, the Financial Accounting Standards Board (FASB) voted unanimously to allow U.S. banks more flexibility in valuing toxic assets on their balance sheets. Stocks rallied after the announcement of the vote, which will particularly help Wall Street titans such as J.P. Morgan Chase & Co., Bank of New York Mellon Corp., and Citigroup Inc.
Asked for advice about what individual investors should do with their stock portfolios, Ennis replied, “If you have had a well-thought out investment policy, don’t be reactionary.”
“Richard Ennis certainly has a grasp of the major issues that confront us,” said Hanser. “More importantly, today he was able to put our economic challenges in the proper context. One can certainly understand why his firm was chosen to oversee TARP.”
Schuster took the audience through “Nine Rules of Research” and explained price movements in the Dow Jones Industrial Averages and S&P 500 Index over long and short periods. As of April, NDR expects that 2009 will see a mean reversion from historical extremes: in general, they anticipate common stocks will rally and outperform bonds, credit spreads will narrow, volatility will recede, emerging markets outperforming with small cap stocks, and gold and commodities should strengthen.
With respect to sectors in the S&P 500, they rate financials, materials and information technology as potential candidates for “upside mean reversion” while health care, utilities and consumer staples are candidates for “downside mean reversion.” NDR emphasizes the analysis of market, sector and industry influences, which they believe account for approximately 65 percent of stock returns.
“Robert Schuster’s presentation speaks to the breadth of resources we employ when managing client portfolios,” said Trust Company President Terry Igo. “Ned Davis Research is one of the many tools we use to reach consensus.”