Microsoft has better fundamentals, but buy Apple, says tech investor

Microsoft has better fundamentals, but buy Apple, says Heartland Financial CIO

Microsoft has better fundamentals, but buy Apple, says Heartland Financial CIO   11 Hours Ago | 02:58

Microsoft may have replaced Apple as the most valuable U.S. company, but don’t count Apple out, investor Nancy Tengler told CNBC on Friday.

“Clearly the fundamentals are better for Microsoft in terms of which space they’re in — the cloud space, the growth they’re experiencing — but I’m not willing to walk away from Apple at these levels,” the chief investment officer at Heartland Financial said on “Closing Bell.”

Microsoft’s market cap held an implied market valuation of $851.2 billion at Friday’s close, exceeding Apple’s market valuation of $847.4 billion.

Tim Cook, chief executive office of Apple Inc., speaks during an event at Lane Technical College Prep High School in Chicago, Illinois, U.S., on Tuesday, March 27, 2018. Apple is making announcements in a bid to win back students and teachers from Google and Microsoft Corp. 

Christopher Dilts | Bloomberg | Getty Images
Tim Cook, chief executive office of Apple Inc., speaks during an event at Lane Technical College Prep High School in Chicago, Illinois, U.S., on Tuesday, March 27, 2018. Apple is making announcements in a bid to win back students and teachers from Google and Microsoft Corp.

Tengler, who owns shares of both Apple and Microsoft, said she’s closer to selling Microsoft and buying Apple right now. “This is an interesting time to be adding.”

“We have to get used to the recalibration of iPhone flat sales, no transparency, what’s the next big thing,” she said. “We’re going to find it’s services and something we haven’t thought of yet. Look at the Apple Watch, it’s just kind of been a stealth outperformer.”

Apple shares have had a few rough weeks, releasing disappointing earnings on Nov. 1. The tech giant also announced it would no longer break out iPhone, iPad and Mac sales figures, which garnered a swift response from Wall Street.

However, Tengler dismissed analysts’ concerns.

“Wall Street gets embarrassed. They’re like a woman scorned. When they don’t get the information they want, then they begin to pile on,” she said.

She is betting that Apple will make the successful transition to the next big thing and will bring the Street along. It just may take some time, she added.


PERSONAL FINANCE: Tightening the tax screws

Ferdie Schneider. Picture: SUPPLIED

Ferdie Schneider. Picture: SUPPLIED

The squeeze on individual taxpayers continued in this year’s budget with increased Vat and fuel levies, almost no fiscal-drag relief and a below-inflation increase in the medical tax credit that whittled away this benefit.

This year’s additional burden comes on the back of a steady increase in income tax and indirect taxes over the past few years.

South Africans’ personal income tax burden has risen from 8.3% of GDP seven years ago to 9.8% in the 2018 tax year, the Budget Review notes.

Add to this consumption taxes such as Vat increasing the price of many purchases by another percentage point, the fuel levy and road accident fund levy increasing the tax on fuel from 35.6% to 38.4%, and a two-percentage-point increase in ad valorem excise duty pushing up the cost of goods such as vehicles and cellphones.

Following an income tax rate increase in 2016 and the introduction of a 45% marginal tax bracket for high earners last year, personal income tax rates were not increased this year.

However, the screws will tighten on all taxpayers as national treasury chose, once again, not to fully address tax-bracket creep. This occurs when a salary increase pushes a taxpayer into a higher tax bracket.

This year even the lower income brackets were granted only partial bracket-creep relief — the bottom three income brackets were raised by a below-inflation 3.1%, while the four higher tax brackets were not adjusted at all.

This will cost personal taxpayers an additional R6.8bn in the 2019 tax year.

Individual taxpayers will also be squeezed for an additional R700m because medical tax credits rose by less than inflation.

They increased by a mere 2.31% (for the first two beneficiaries) and 2.45% (for remaining beneficiaries) — well below the increases in contributions that medical scheme members face, which are typically two to three percentage points above inflation (which was 4.4% for the year to the end of January).

The increases in contributions average 7.75% for nine large medical schemes, according to Grant Thornton Healthcare.

Middle-income earners were spared investment tax and estate duty increases this year, but high earners with estates exceeding R30m will face a higher estate duty rate of 25% — or should they try to donate assets exceeding this amount, they will pay donations tax.

Dividends tax was increased last year from 15% to 20% and the inclusion rate on capital gains tax increased in 2016.

The tax burden on individuals is often measured in terms of the number of days in the year the average taxpayer works to pay his or her tax obligation — known as tax freedom day.

Last year tax freedom day was on May 25 — five days later than it was in 2015 and six weeks later than it was in 1994, the Free Market Foundation reported last year.

Tax freedom day is calculated by taking total government tax revenue and dividing it by GDP.

But Ferdie Schneider, the national head of tax at BDO, says the calculation is misleading because it only considers an average effective tax rate, and these rates vary sharply.

Just in income tax, the Budget Review shows the 2019 average income tax rates will vary from 0% to 36.8%.

Tax freedom day also fails to take into account public services provided by the state.

If government fails to provide benefits such as health care, education, retirement savings and security, taxpayers need to fund these themselves.

Health care is not the only one of these costs rising at above-inflation rates. Recently Old Mutual warned parents to expect education costs to rise by 9%/year.

This means public school costs of R32,000/year last year could amount to R50,000 in five years, and private high school costs of R125,000 could rise to R197,000 by 2021. University costs of R54,000 last year would increase to R85,000 by 2021 and R176,000 by 2030, Old Mutual says.

Eugene du Plessis, director of tax at Grant Thornton, says a taxpayer earning R1m/year in the past tax year and paying R7,500/month in medical scheme contributions, R10,000 in private schooling costs, R5,000 in retirement savings and R1,360 for security had an annual income tax burden of R275,918.

Such a taxpayer would have needed to work 224 days out of 365 — or until August 13 — to cover tax, medical, security, retirement and education costs.

In the tax year that starts on March 1, assuming this taxpayer’s income and costs increase by 4.8%, his or her annual income tax liability will rise to R294,417, which means working an extra two days until August 15 to meet expenses.

Rhodes Business School tax professor Matthew Lester says last year’s tax statistics released by the SA Revenue Service show that just over 1m taxpayers earning more than R500,000/year pay 62% of personal tax, which amounts to 23% of total tax revenue, before they spend a cent on anything else.

The tax burden on these individuals could therefore be close to reaching a tipping point.

Schneider says too heavy a burden on taxpayers leads to an emigration brain drain, tax avoidance mechanisms, and capital or income-generating potential being moved to tax jurisdictions with lower rates.


Opinion today: The personal finance data trap

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The network effect keeps many of us hooked on social media platforms, and many businesses captive to online marketing platforms. What would happen to our autonomy online if each of us, as consumers, had to rely on the same company for our payments and our credit scores?

John Gapper argues in his column on Thursday that Alibaba’s Ant Financial is a risky experiment in just this dual online role, and one that will keep customers locked into a version of a video game, compelled to keep making purchases to chase good credit ratings.

With a potential valuation of $120bn when it goes public, the Chinese social credit experiment has 520m users already. Although John believes these private credit rating schemes are less sinister than the state’s ambitions towards monitoring all its citizens’ online behaviour (in order to then impose rewards and punishments on individuals) the private schemes are troubling, he says — not least because tech companies have a more lax attitude to data than banks.

But the most worrying aspect of this Chinese innovation is perhaps how it “gamifies” how customers achieve (very opaque) credit ratings — “a tournament in which people must compete to raise their numbers through activity, like a financial version of social networks and mobile games.”

Africa’s changing of the guard
David Pilling questions whether the new faces as heads of government in Angola and Zimbabwe, Ethiopia and South Africa, are anything more than a switch in personnel. The ruling elite may just have successfully perpetuated itself in spite of appetite and hopes of real transformation.

Trump boxed in by Mueller’s chess moves
Edward Luce argues that Robert Mueller is gradually ensuring Donald Trump is on the defensive about ties to Russia. If Watergate is any guide, the investigation may take two years and could corner the US president.

Pro-Brexit sums do not add up
Chris Giles analyses the promise of a 2 to 4 per cent boost to the UK’s national income after Brexit, included in this week’s paper from Economists for Free Trade. He concludes that the model they use is flawed, their assumptions are unjustifiable, and so the conclusions cannot be right. In short: “Put rubbish in, you get rubbish out.”

Should public galleries be selling art or buying it?
Tiffany Jenkins argues that acquiring new works is a crucial part of the mission of public galleries. But in an age of tighter budgets and political demands about social mission, some are instead becoming merely museums with fixed collections — or, worse, having to sell their treasures.

Best of the rest

Why the Jeremy Corbyn spy story won’t change minds and what could — Stephen Bush in the New Statesman

The slaughter in Syria should shame us all — Jonathan Freedland in the Guardian

Romney faces complicated path as he runs for Senate seat — Dan Balz in The Washington Post

The game-changing success of Black Panther — David Sims in The Atlantic

What you’ve been saying

Think very carefully before regulating speech — letter from Donald E Graham

Any call to regulate Google, Facebook, Amazon and Apple should be careful to say: what is it we are to regulate? I have lived through more than one time when a president would have preferred that fewer people read news stories in The Washington Post. I would suggest that voters in any country approach the idea of regulating speech on Facebook and Google with extreme caution. Readers should make up their own minds whether to read the Financial Times and government should have no role in their decision. The large technology companies must comply with laws that all companies must obey. They must pay their taxes. They must obey the antitrust laws and mustn’t overcharge consumers. But when it comes to what stories they publish on Google News or Facebook, or whose advertisements they accept, governments should keep their hands off.

Comment from Leftie on Millennial insecurity is reshaping the UK economy

Times are hard for millennials because the dice of government policies are loaded against them. Government prefers to support the huge cost of pensioners’ healthcare and “triple-lock pensions”. Why’s that? The simple answer is that close to 90 percent of pensioners are registered to vote and they do vote. Whereas, millennials and many other pre-middle aged voters do not vote. Does that matter? Of course it does! Politicians are just like ordinary people, they want to hang on to their well-paid jobs. So they vie with each other to be the strong friends of pensioners and the over-fifties who actually make a difference to politicians’ careers.

Our presence in space is helping us manage climate change — letter from Robin Russell-Jones

Robin Russell-Jones is right to assert that solving climate change will involve a variety of Earth-bound commitments. He is wrong though to dismiss the improvement of access to space by private companies as pointless and harmful. The relevance of space-based technologies to climate change mitigation has been self-evident since the “Blue Marble” image of Earth, taken in 1972 by the crew of Apollo 17, helped give rise to the modern environmental movement. Since then our knowledge and understanding of the causes and effects of climate change on the planet, as well as how to better manage the consequences for its inhabitants, have been immeasurably improved because of our presence in space.

Today’s opinion

How can we protect workers from AI? FT readers respond Ideas and counter-arguments poured in after Rana Foroohar asked for your thoughts

Poland’s pollution gives Vogue a less glamorous backdrop Polish cities’ poor air quality regularly breaches European standards in the winter

Why Donald Trump will never escape Russia The US president is being outplayed by special investigator Mueller’s chess moves

Public art collections in an age of austerity and superwealth Museum and gallery curators are under pressure from politicians and soaring prices

Free Lunch: Intangible does not mean untaxable While rent extraction persists, at least capture it for the public good

Instant Insight: The gulf separating the two camps of eurozone reformists The German-led group remains opposed to the France and Italy contingent on sovereign debt

Instant Insight: The latest pro-Brexit analysis has got its sums badly wrongAssumptions used for the Economists for Free Trade paper are absurd

Africa’s power shuffle is a renewal, not a revolution The ruling elite has engineered a personnel change in the interest of self-preservation

FT View

FT View: A plan to make Warsaw pay for its defiance In principle EU funding should be conditional on respecting EU rules

FT View: Making progress against the American gun plague As the culture changes, incremental steps can help slow the killing

The Big Read

The Big Read: Driverless cars: mapping the trouble ahead Competition between companies is putting a brake on the highly complex 3D maps autonomous vehicles need to function


Visual Capitalist Takes On Personal Finance With New Project

There’s no doubt that financial decisions have a crucial impact on our lives.

Everyone should have access to knowledge on how to save money, buy a home, make smart purchases, and build a robust portfolio of investments. This information can be dry at times, but it can also be the difference between being living month-to-month and achieving financial independence.

Yet statistics show that only about 16.4% of high school grads were required to take a course on personal finance, and problems go far deeper than that. Right now, financial literacy is dropping around the globe – and even worse, a record-high amount of debt is weighing younger generations down.



What’s your excuse for not budgeting?

Image result for What’s your excuse for not budgeting?

Budgeting is very individual so there’s more than one way to budget successfully. Rather than give up, look for different ways to budget. Getty Images/iStockphoto

Q: I got married quite young in my early 20’s, and my husband and I never really saw eye to eye with money. We ended up getting divorced and now amicably share custody of our three kids. In a way, I find it much easier to manage my money on my own; I don’t need to be accountable to anyone but myself, or maybe I’m just making up budgeting excuses. I started seeing someone about a year ago and we’re beginning to plan a future together. He manages his money carefully and was surprised that I don’t. Is living with a budget really that important? ~Irena

A: The short answer is yes, budgeting your money is important, however, budgeting looks different for everyone. The benefit of budgeting is that you can plan how best to spend your money. You can ensure that your bills are paid, that you save for what you need throughout the year and longer-term, and you can avoid relying on credit to make ends meet. A budget also helps you determine how much more you need to earn if you find yourself running short. Knowing that you have what you need gives you peace of mind.

There are many different ways to budget. Some people prefer a spreadsheet and follow their plan quite strictly. Others are stricter with their spending to start with, or when their life circumstances change, but generally know where they stand and how much they want to spend. There isn’t one right way to do it but finding what works for you can take some trial and error. However, along with different ways to budget, are different excuses people make about why they don’t budget.

Here are six budgeting excuses we hear, along with how to overcome them:

1. “I tried budgeting once and it didn’t work.”

Giving up because you tried it once and weren’t successful is much like going to a restaurant, having a bad meal, and swearing off going to restaurants again. If you have a bad meal in one particular restaurant, you might try another one that serves different food, or you might try the same one but at a different location.

The solution

Budgeting is very individual so there’s more than one way to budget successfully. Rather than give up, look for different ways to budget. For instance, if you tried an app on your phone, try an interactive budget spreadsheet this time. If you’re better with pencil and paper, use a budgeting workbook instead. If you used pre-assigned budget categories that didn’t work for you last time, rename them and try again. Some people even budget by the type of store rather than the types of expense, e.g. Costco/big box versus groceries. Do what works best for you.

2. “There’s not enough money to budget.”

When money is so tight that you face daily decisions about what to buy and spend money on versus where to cut back, you are already budgeting more than you realize. That is what a budget is – it’s a plan for how to spend what you have.

What to do instead

Ultimately, a budget should help you move forward. When money is tight look for ways to avoid debt and improve your level of income. Tracking what you spend might identify a leak in your wallet that you didn’t know you had, e.g. giving your kids lunch money instead of packing lunches, buying coffee or treats on the run, or an expensive communication bundle that a simple phone call can cut down to size. Couple reduced spending with a slight increase in income and you may just find better balance.

3. “I don’t get regular pay cheques.”

When your pay cheques fluctuate, or your income is irregular, it can be harder to budget, but it certainly isn’t impossible. You might be self employed, work on contract, have several jobs to make up the equivalent of full time work, or you might be a student or seasonal worker. Many people in similar situations budget their money very effectively, so you can too.

3 Ways to Budget Effectively with Irregular Income

Overcome this excuse

You just need to employ different strategies. For instance, figure out your average monthly income from past tax returns and use that as the base amount for your spending plan. Open a separate savings account to use as your “budget balancer.” Set money from the better income months aside in this special savings account to top up your leaner months.

Running two budgets, one for the leaner times and one for the better times tends to be less effective because it’s easy to spend money we anticipate receiving. If something happens and our plan changes, the resulting debt on credit cards becomes an expensive and stressful reality.

4. “I’ve always managed just fine, so why change what isn’t broken?”

Setting up a brand-new budget can be as exciting as watching paint dry. Or worse, it can be a few hours of tedious work, followed by tracking your spending, making choices about what you can afford and what you can’t, and reviewing your progress on a regular basis only to find ways to feel guilty about not doing better. Is this about accurate?

How to Get Started Living with a Budget

It doesn’t have to be that way. Deciding what you want to spend your hard-earned cash on now, saving for what you want to do in the future, e.g. buy a home, travel the world or start a business, and ensuring that your golden years aren’t fraught with financial instability can be fun. It’s all in what you make of it. Find apps that work for you, both to track your spending, outline your budget, and show you the progress you’re making towards your goals. Read books and blogs that help increase your level of financial literacy. Learn how the markets work and consider trying your hand at buying and selling stock. You know where you’ll end up if you keep doing what you’re doing; imagine where a little more planning could take you!

5. “There’s always some expense that derails my plans.”

Does it feel like every time you catch a break and you’re getting ahead, life gets expensive again? You’re not alone. I was speaking with someone the other day and they had worked hard to become debt free, but they had depleted much of their savings in the process. An unexpected dentist bill, on top of Christmas and holiday bills, and a car repair expense – they were feeling quite discouraged.

How to Stop Living Pay Cheque to Pay Cheque

Avoid a budget collapse

The one thing we can always count on is the unexpected, so the solution is to plan for the unexpected. Do this by living below your means so that there is always more money than month, establish a savings account for unexpected expenses, use a realistic budget to guide your spending decisions, and protect your credit rating. Sometimes when life throws us a curve ball the only way to keep ourselves going is to pay for the expense with a line of credit. The all-important next step then is to have a solid plan how to pay the credit line off and get back on track. Having a budget makes managing unexpected expenses and situations much easier.

6. “I don’t have money problems, so why bother budgeting?”

You might not have money problems (now), but why not manage your money in a way that does even better?

Here’s why

With an effective budget in place, you know how much extra you can pay down on your mortgage, save for a vacation, or top up an RRSP contribution. With breathing room in your day-to-day spending, ensure that your credit cards are paid off in full every month, that your finances are organized, that you have a plan for what to do with your tax refund, and that you’re getting the most out of every penny you earn. When you look at those who are doing well, they pay a lot of attention to how much they earn and what they spend. If they can save $10 by packing a lunch, they will.

The bottom line on your excuses not to budget

There are lots of excuses about why not to budget. No one ever said you have to like budgeting; even those who are good at budgeting don’t always like it. When you first start living by your budget, try not to get discouraged. A new budget doesn’t really start working until the second or third month. It takes time to not only juggle things until they balance, but more importantly it takes time for you to get used to living by a budget. Go easy on yourself and don’t knock it ‘til you’ve tried it.


Are you investing correctly for your child’s goals? Answers to these 6 questions can help you

If you are an Indian parent, ‘dilemma’ is probably your middle name. When you aren’t in a fix over how to impart the right values to your progeny, you’re possibly fretting over how to ratchet up the corpus for his education and wedding. Which instruments should you invest in? Will these help build an adequate corpus for all the goals? Have you taken the right decision in picking Ulips or should you have opted for the Sukanya Samriddhi Yojana? Perhaps real estate is the best investment, or should you just dump all your money in safe fixed deposits? If you are racked by such queries, you are not alone.

Most parents blindly feel their way through the investment terrain, randomly putting their money in a disparate set of instruments guided by ignorance and wrong advice. “They make so many mistakes, right from waiting too long to start investments, to not investing consistently, from not securing their own health and lives with insurance, to not having a clear idea about the goal values,” says Priya Sunder, Director, PeakAlpha Investment Services. The result? Inadequate corpus for goals, or worse, risk to parents’ retirement corpus.

Little wonder then that there was a Rs 4.15 lakh shortfall between what parents contributed and what students claimed they spent on education, according to the HSBC Value of Education Survey 2018. Nearly 61% of parents also wished they had started saving earlier for the goals. As per another study, the 2017 Birla Sun Life Insurance Company Protection Survey, saving for kids’ education was the top worry for nearly 35% of the 1,540 respondents.

The first step to building a sufficient corpus for your children is to frame clear goals, with defined future values that take inflation into consideration. Then fix correct time horizons for these goals. It’s the time frame and risk associated with proximity to goals that primarily decide where you invest: if there is enough time to reach the goal, invest in equity, but if you have little time left, opt for debt.

The second step is to build a portfolio with the right asset allocation—optimum mix of equity, debt, real estate, gold—to ensure growth and safety of your investments in keeping with your age and goal horizons. Finally, pick the instruments that fit into this asset allocation. You can either pick a bunch of equity and debt instruments separately, or invest in mutual funds, which have an inbuilt equity-debt combination to suit your risk profile.

Once you understand this basic investing process, all your dilemmas regarding instruments will be easily resolved. So as you fete your kids this Children’s Day, go through the six questions in our cover story and understand why you should pick one instrument over another.

Q1. Which mutual fund should I invest in for child’s goals?
Most people have the discipline to start investing but find it difficult to continue. “So automating investments is a good idea and mutual funds are the best instruments to do this,” says Sunder. They offer funds for all goals—short-, medium- or long-term—but the wide variety means that one should know which funds to use for which goal.

“It is better to construct a portfolio with equity and debt mixture with respect to the tenure the investor has. For a long-term goal, it is better to have investments inclined towards equity, whereas for short-term goals, have more exposure to debt,” says Nitin Vyakaranam, Founder & CEO, ArthaYantra.

For long-term goals of over 8-10 years, equity funds or diversified equity funds that invest nearly 80% in equity, can be considered. This is because these will give high returns of over 12% and the risk is virtually negligible after 10 years. “One can opt for a mix of large- and mid-cap funds since both can offer sustainable growth,” says Dinesh Rohira, Co-Founder, 5nance. You can also go for an ELSS, which is a diversified equity fund. It offers tax benefit under Sec 80C and has a lock-in period of three years


Does a mutual fund’s size matter while investing?


People seem to instinctively believe that a big shop, or a big retail chain or a big newspaper will provide better goods or services. Presumably, the underlying logic is that a business becomes big only if its customers are happy. This may or may not be true.

However, it’s certainly far from the truth as far as mutual funds are concerned. A lot of investors believe that the size of a mutual fund is important. In this context, size means the amount of money that a fund manages. This belief has no real basis. There’s no inherent reason that a larger fund is better than a smaller one. If a smaller fund has a better track record than a larger fund of the same type, then by all means investors should choose the smaller one.

Investors hold this belief not just because of the ‘big is good’ presumption, but because it is actively promoted by the sellers of larger funds as it gives them an additional handle to promote their fund against some other that may be doing better.

Does this idea have any actual validity? As it happens, Value Research data show that compared to smaller funds, a relatively greater proportion of larger funds display good performance. However, that’s a small and very diffuse trend. There are many lousy large funds and there are many great small funds.

As an investor, you must not fall into the trap of confusing cause with effect. Funds that have a long track record of good performance tend to get large as more and more investor money flows into them, and this money gets a long time to grow. They were good, so they eventually became large.

Is the opposite true from the point of view of an individual investors choosing a fund? You can’t pick a random large fund and say that just because it’s large it must be good. Equally, you can’t pick up a smaller fund with good performance and say that its performance does not matter and you must not invest in it because it’s small. Apart from good performance, there are many variables that can make a fund large or keep it small.

In fact, the marketing prowess of a big fund company or the reach and clout of its parent among fund distributors are the biggest reasons. There can be other factors too. For example, there are a number of equity funds that started out large on Day One because they had hugely hyped NFOs at the peak of the markets. Some of these have turned out be very poor performers but they are still large.

More importantly, it is also the case that there are a number of relatively small equity funds in the fund industry that have displayed good long-term performance and are definitely worth a look. Whenever an investor wants to invest in such a fund, or when an analyst like me praises them, those selling larger funds dismiss the idea contemptuously.

“But you can’t compare a Rs 5,000 crore fund with a Rs 500 crore one!” they protest. This is a red herring. To the investor, it is irrelevant that a fund is small or a fund company does not measure up in the fund industry’s pecking order. If a fund has a good track record and a high rating from Value Research, then size doesn’t matter.

Does that mean that there are no circumstances under which fund size matters? There are, and interestingly enough, size is actually a disadvantage for some types of large equity funds. For example, large funds focussing on small and mid-cap stocks may not be able to find enough stocks that they can invest in. During negative phases of the stock markets, these larger funds may suffer a double whammy of rapidly declining values as well as poor liquidity.

The bottomline is that if you think (or if someone is telling you) that one fund should be preferred over another on the basis of size alone, then that could lead you to make some poor investing decisions


Systematic Investing And The Rise Of Emotional Intelligence

A trend that I’ve been particularly interested in over the past few years is the market for liquid alternatives. To delve into this topic further, as well as systematic investing in asset management, I sat down with Jon Robinson and Tommy Mayes of Blueprint Investment Partners, a Greensboro, NC-based RIA.

Peter Hans: How did you guys meet and what’s the story behind Blueprint?

Jon Robinson: The history of the strategy really goes back to the early 2000’s when my college buddy, now partner Brandon (Langley), and I, began developing systematic trading strategies as a bit of hobby. After college, I was then in New York working in equity research while Brandon was finishing up his grad degree in Economics and starting a career in risk management. The passion for what we started in undergrad continued to grow, so after researching our techniques and refining our processes over a few years, we launched a Commodity Trading Advisor (CTA) and Commodity Pool Operator (CPO) at the end of 2006.

Tommy Mayes: I have been in the private wealth industry for almost 30 years, and have been advising family offices for over 10 years. In 2013 I met Jon and Brandon and became convinced that their strategies were at the cross-section of several industry trends. Most importantly, the indexation of everything allowing the deployment of efficient risk-managed strategies at a very low total cost. I also saw the power of the strategies from my family office perspective and realized we could democratize what have historically been techniques only available to high net worth investors.

JR: After performing well during the financial crisis, in 2009 one of our early RIA clients asked us to launch a single manager fund. Shortly thereafter, we began researching how to apply our trading techniques to ETFs and Mutual Funds. In 2011, we launched our first ETF strategy on a white label basis for that same RIA. In 2013, we met Tommy and made the decision to launch Blueprint to serve financial advisors and institutions. We now have over $200 million in AUM and a compelling six-year GIPS compliant track record upon which to build future success. In many respects, we owe our success to the financial crisis; our ability to do well during that period was a major catalyst in uncovering the value of downside protection and systematic asset management.

PH: So going from launch to over $200 million in less than five years is pretty impressive. Who is your core client and how do you explain your value proposition?

TM: Today our core client is the independent financial advisor and/or financial planner. Our strategies provide two unique benefits to our clients. First, we offer a dependable, cost-effective, and tax-friendly core allocation to which they can add satellite investments according to their expertise. In addition, our strategies serve as a liquid alternative replacement with favorable characteristics like low drag in bull markets and non-correlation when it truly matters.


PH: So at a high level, how do you go about executing a strategy like that?

JR: We believe the three greatest risks to investors are behavior biases, the loss of compounding from large losses, and the opportunity cost of being too conservative. As numerous studies show, the average investor underperforms the market by aggressively buying at the highs and selling at the lows. Our process slowly reduces exposure in the early stages of bear markets and steadily increases before bull markets pick up steam. These actions solve for all three of those risks by having a calming effect on clients, reducing drawdowns, and capturing favorable return environments.

PH: Interesting, and for what it’s worth I completely agree. That said, human behavior is a tough problem to solve. How do you look at a successful client relationship?

TM: First and foremost, the success of our clients is our success, and nothing can substitute for an advisor who is pleased with our work. We believe that our strategies are well suited for goals-based advisors and financial planners. As alluded to before, we designed our processes to be advisor and client friendly. In the context of achieving goals, our strategies are also behaviorally sound and assist the advisor in managing client expectations during periods of market volatility.

PH: Well we’ve definitely had some market volatility of late. Do you think that this is the start of a larger trend, and is it accurate to assume that would be favorable for your systematic approach?

TM: Given that both of my partners are self-described ‘data nerds’, we have studied everything, including what the data says about market crashes. Market volatility is good for financial media, so the image is difficult to escape. The ironic thing is that just a few weeks ago volatility was near historic lows, we’re simply coming off of a very low base.

JR: Fortunately, the data shows that price shocks are not necessarily something to fear–they are not the catalysts for bear markets. They either represent routine bull market behavior or happen so deeply into bear markets that a robust systematic investment strategy would have avoided them almost entirely. It is a sustained decline in value, which occurs slowly and lasts for many months, or even years, that advisors should be focusing on as it pertains to a client’s terms downside protection. These are precisely the types of markets that we target with our process.

PH: So in some ways, the volatility is good for your strategy?

JR: We are not hoping for a market crash, but we do believe that we can recognize the characteristics when they appear. Most importantly, we think we know how to step aside of a correction in the most effective and efficient manner.

PH: That makes sense. Given all of this, can you break down your core investment philosophy for me?

JR: Our philosophy is summed up in four key tenets. First, is a focus on asset prices rather than making predictions. We believe there is tremendous latent value in that single data point. We like to say that price represents the transformation of “could” into “did”. What better indication is there of what a market is going to do, both good and bad, besides what it’s doing? And what other factor matters more to our clients and their account values? Second, we believe in the importance of preserving compounding by avoiding large losses. We like to make more by first losing less. Third, we think emotions generally have detrimental effects on an investment strategy and, therefore, seek to mitigate this.

One of the major benefits of a systematic process is the ability to counter the results that emotional investing and behavioral biases can have. Fourth, we believe successful advisors (our clients) focus on the needs of their clients rather than market research. With declining investment costs and the rise of indexing and robos, advisors cannot compete on investment performance alone. However, they maintain their edge in the human element and thus should focus their time accordingly.

PH: Earlier you mentioned the fact that you are self-proclaimed ‘data nerds.’ I wouldn’t be representing Harvest very well if I didn’t ask you to elaborate on that. What are some trends in data and the related technologies that you feel are underappreciated?

TM: I heard an MIT data scientist speak at a conference recently, and he reported that much of the low hanging fruit available from machine learning and AI has been captured and is now being deployed. We are closely watching implementation in platforms such as Blackrock’s Aladdin. For investment managers, we believe the most important use of big data is to improve the efficacy of marketing for both the buyer and the seller. The delivery of relevant insights and thought leadership to the right prospective client at the right time is critical. The use of marketing automation to curate prospects and cultivate relationships is a big part of our process. I also see a huge application to the behavioral data that you guys focus on at Harvest. That’s going to be a huge focus for both asset managers and financial planners as the emotional quotient surpasses the IQ in the value chain.

PH: I like that a lot, and agree that the EQ focus represents a really differentiated opportunity.

More broadly, what secular trends do you see as having the most profound impact on investors in the next 10 years? How do you think investors can position themselves accordingly?

TM: A recent CFA Institute study entitled Investment Firm of the Future: Distribution Model Shifts, identified a number of trends in the investment management business. Of course, we took note of the narrative that systematic investing would become mainstream. For us, this entails utilizing the vast array of passive, inexpensive investment instruments as a means for creating sustainable yet competitively priced alpha in a way that is transparent and easy for advisors to convey to their clients. We think systematic strategies can serve as a core component of investment portfolios to combat what we call the “60/40 Problem” or can be an Alternative to Liquid Alts. As we talked about earlier, investors need access to high efficacy alternatives but are becoming much more sensitive to cost and transparency. Technology, low trading costs, and risk management have provided by a disciplined approach to our models will meet this trend towards systematic investment management head-on.

PH: Let’s shift gears slightly. I read a recent Bloomberg article where Cliff Asness attributed a significant portion of AQR’s success to the thought leadership that put out. What is your reaction to that given that there is also a fair amount of market education that your strategy requires?

JR: Well it’s certainly hard to argue with AQR’s success. However, given Blueprint’s objective and somewhat unique place in our space, we see the landscape and thus our success factors through a slightly different lens. We are completely focused, almost fanatical, about the advisor-client experience. This is both in terms of our relationship with the advisor and the advisor’s relationship with their client. As a result, our focus takes shape around three core concepts – transparency, costs, and the delivery of behaviorally-sound investment strategies. So, in that sense, to draw from the great Yogi Berra, our success is ninety-percent relationships and the other half is education.

PH: Building upon investor education, how do you respond to questions or pushback surrounding the underperformance of alternatives and liquid alts – at least when benchmarked against the S&P?

JR: To be fair, anything that was underweight the FAANGs over the last few years suffered on a relative basis. So that story is not unique to liquid alts. What is unique, however, is that the use of alternatives has historically meant a black box investment process and enormous fees. We believe those days are over because it creates friction for investors; they—justifiably—don’t understand the underpinnings of the investments, the investments themselves are expensive and, yet, they’re underperforming Google—really, what could go wrong?!

So, yes, this recipe can distort how people view alternatives during a top-heavy bull market. Still, it’s important to recognize that alternatives are designed to deliver uncorrelated returns. It is our view that when investors begin seeking more portfolio diversification via non-traditional asset classes, their preference and selection criteria will be very different than in the past. To date, only a very small percentage of investors have had the benefit of alternatives due to limited access and excessive complexity. We offer strategies that are liquid, cost-effective and tax sensitive. In essence, we believe this delivers the benefits of alternatives without the costs and complexities.

PH: Thanks guys, this has been really interesting and I’ve really enjoyed getting to know you both a little more. Your overall philosophy really speaks to one of constant growth and improvement. Finally, what would you tell a 20-year-old version of yourself?

TM: I am by far the oldest partner and in fact, I have a 20-year-old name-sake that gets this advice regularly. First, if you keep God, family, and company in that order, life will go well for you. Second, do not be in a big hurry. I was in a mad sprint from high school to career to kids and candidly should have paced myself better. Today’s 20-year-olds are going to live to over 100! What’s the rush? Third, treat everyone with respect and gratitude. Everyone–no exceptions! Living by the Golden Rule will take you far in life. Thanks for asking!

JR: This is an interesting question. Two pieces of advice come to mind. First, I would encourage my younger self to follow the courage of his convictions. To realize that once the work has been done to develop those convictions to start running in that direction–that without fear there is no courage. Secondly, I would tell him to find a mentor–both spiritually and professionally. I am blessed to now have both. It’s been a tremendous impact on my growth as a leader in all aspects of my life.