In our 2023 economic outlook presentation, UMB’s Co-Chief Investment Officers, KC Mathews and Abdur Nimeri, share the latest market data to know, and check in with several of UMB’s investment experts to discuss the impacts of economic factors on the markets.

Talking to the experts: What to know going into 2023

Navigating the economic landscape is never easy, especially in the world today. There’s a lot of static clouding the radar, too much noise, not enough clarity. But, as always, our sights are set on what matters most, supporting your vision of an incredible legacy. From takeoff to landing and everything in between, we’ll offer clear financial advice and give you confidence in your wealth-building strategy.

Watch the full presentation below, read the economic forecast here, and review the panel discussion we’ve transcribed and shortened for easy access. Panel begins at time stamp 30:31.

Hear from our investment team on what’s influencing performance and strategy

When you think in terms of what we do as investment managers, our primary objective is to meet your objectives and goals. We know investors have changing investments goals over time – goals may become larger, smaller, or pivot somewhere new. Our job and core focus is to help you articulate and realize your goals

We do this with a team of professionals, including those featured in this presentation and panel:

  • Co-Chief Investment Officer, Abdur Nimeri
  • Co-Chief Investment Officer, KC Mathews
  • Director of Strategic Allocation, Dan Kieffer
  • Director of Fixed Income Research, Eric Kelley
  • Director of Private Investments, Jacquie Ward
  • Director of Equity Research, Will Reese

investment experts group photo 1

Central bank policy

How does the central bank and central bank policy benefit clients from an investment management perspective?

Eric: The inflation problem isn’t just in the United States, it’s around the whole world. We’re much more aggressive on rates than other areas, which brings up a lot of conversations around impacts to risk assets and currencies in those other regions. These factors are intertwined, and it kicks off significant asset allocation questions for global asset management.

Dan: The important thing to think about regarding global impacts and monetary policy is the timeframe difference. Strategic allocation is something we look at for several years – five, 10 years in advance. At the end of the day, what happens today doesn’t greatly affect what happens 10 years from now. So, if you’re thinking about a year forward, yes, policy needs to be in acute focus for tactical decisions, but from a strategic and risk budgeting standpoint, it’s all comes through in the wash.

Eric: We have tactical asset allocation committee that met recently, and we talked through this exact topic. In a shorter timeframe – six to 18 months – these can be impactful factors, and we want to be on the right side of those. But strategically, they don’t pack the same punch.

Dan: When I consider the difference between strategic and tactical allocation, I liken it to the layout of a grocery store. The interior aisles of the grocery store are where you make your tactical plays (i.e. shopping selections). These selections are the variable items you don’t need every day, every week. And depending upon what we’re feeling this week or next, we might pick up a different spice or a different boxed cake for someone’s birthday, but it’s not something you’re buying all the time.

In contract, the outer aisles of the grocery store have the must-haves you always need like meat, dairy, vegetables, fruits. You’ve got to get that meat and potatoes if you’re going to meet your goals. So strategic selections are more like the items on the outside aisles of the grocery store.

Yield curve commentary

Abdur: As a team, beyond the Fed, we are also looking at the yield curve. We’re looking at the curve all day long. On the private investment side, our director of equity research is thinking about the curve as well. So that factors into how we’re thinking about investment management. We think about the central bank strategy, paired with the yield curve, which is a major player in all the markets, to help clients navigate the investment landscape.

Eric: Getting the Fed right is a challenge to do consistently, especially over the short term. It’s a life’s work really to be even pretty good at it. For the strategic cycle, monetary policy becomes incredibly impactful for the next 12 to 18 months.

Global events and China’s impact

Abdur: It recently came out that China has taken significant shares in Alibaba, which affects how we think in terms of our global approach to asset allocation—really our global approach to looking at the entire world from emerging markets, etc. This is something that you have to grapple with because it’s topical for a lot of clients as they consider what their objectives and goals are in their asset allocation.

Dan: We’ve had an environment where the Xi regime has put China on lockdown in response to COVID, and you’ve got one billion and a half people in the population that has been on an intense level of lockdown. Soon, these people are going to become consumers and be able to do things, again, which generates a lot of excitement for increased spending.

From a market participant standpoint, we consistently forget that this is a very different culture than ours. Case in point, you talked about taking share in Alibaba. These golden shares that they just issued themselves, give them the opportunity to elect board members and to elect executives. I mean, they took over control of the largest tech companies in China. That’s no small thing. So, I think there’s a case to be made that you might want to buy these temporarily, but I would say rent, don’t own.

Will: China’s reopening is a catalyst for higher valuations, and China’s 30% of the emerging market index, so it’ll lift the whole global economy. And it’ll likely lift domestic equities as well. Think of consumer package or consumer premium goods. Companies that make goods in China, sell there. That could be a big driver and big catalyst for growth. These impacts are on our minds as we think about where to place client dollars and how we reorganize around that from a goals perspective.

Notes on the recession

Abdur: We are at the point where we are highly considering a recessionary environment. Most economists are expecting some recessionary behavior to happen between now and the next 18 months or so. As we buffer and insulate portfolios, these are hard considerations. For asset allocation, the considerations we have to make now have the backdrop of an inflationary environment, higher yields, and also consideration for recession.

Eric: The simplest thing that changed recently, or I guess it’s in the process of changing right now. For the first time in more than 10 years, I’ve been able to suggest that we talk about adding to fixed income holdings. Three years ago, it was impossible to make that suggestion with yields at zero. But if we do think of recessions coming our way – and yields are 400 basis points higher than they were – we have at least 3, 4 or 5% (what we call yield carry for the first time in 12 years); that’s the simplest conversation.

Private investments

Abdur: As a team, we have to allocate for clients across stocks, bonds, and cash. But another area has experiencing increasing client demand: private investments. We have ambitious return profiles on the private investment side. We have risk controls, et cetera, and we have private investments that can be articulated through equity or the fixed income side through private credit, opportunistic credit and also from the direct equity side.

Jacquie: When you look at an overall asset allocation, the primary driver for having private investments in is return. You take on a higher degree of risk, but you take on a higher degree of potential return as well. When you look at an overall portfolio, some of the things with private investments that you have to balance are liquidity. Traditional funds tend to lock up for a little bit longer. You have to manage market risk, industry focus risk.

Where private investments, especially in a recessionary environment, really tend to excel is for the past two years, we’re managing companies on a granular single balance sheet, dynamic level. We’ve been looking at companies with pricing power, with margins. We’ve been underwriting with the attempt to understand what pricing power looks like in these scenarios and we’ve been preparing ourselves by putting dry powder to the side for recession because that tends to be when a lot of opportunities open in our space.

Looking at private investments as part of a larger allocation, you’ve got access to different opportunities that may not be in the public markets, access to some smaller companies that may not be in the public markets. You have active management. We have a fund with a limited number of companies that we’re providing direct value-added management to and managing on a very daily and granular basis. And then you have more of an industry focus as well. You tend to get managers who are focused on specific industries where they carry expertise and they’re able to drive further value. So, while you edge up the risk, you edge up the reward as well.

And to be fair, market risk is across the board. What you run into with private equity often tends to be liquidity risk. And how does that manage? You’re going to get a higher premium on your money for locking it up a little bit longer. Then, with private credit there’s a lot of vehicles where if you have someone that’s looking for access to private markets but wants a little bit more current income, there’s private credit. We can create an overall private investment structure that has some regular income and current income there.


Abdur: We’re going to give our fixed income colleagues an edge right now, but we’ll probably take it back with equities at some point. This is the group that will organize, with our expanded investment team, around how we think about goals, how we think about asset allocation and how we deliver into the market for our clients, an investible program that helps them meet their objectives and goals.

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