Did you catch JOYN Chief Investment Officer Aradhana Kejriwal on CBS46 on Tuesday evening and yesterday morning? Sally Sears called her one of the “Queens of Atlanta Finance” in this piece about the stock market and Atlanta companies’ reaction to president-elect Donald Trump.
Aradhana and her fellow panelists, BNY Mellon’s Dana Halberg (left in top photo) and SunTrust’s Sabrina Bowens Richard (right) discussed “The Trump Effect on Atlanta’s Money.” Hosted by the CFA Society of Atlanta, the luncheon also asked panelists to provide 2017 forecasts and other insights about the year ahead.
“I think you’ll find that I’ll be the contrarian in the room today,” Aradhana emphasized at the beginning — right before she explained why JOYN doesn’t believe in forecasting.
“Despite the wealth of evidence that forecasts are regularly wrong, humans crave certainty,” she explained. “Intellectually, we know the future is unknowable, but forecasts provide temporary confidence – a behavioral bias that contradicts logic. We convince ourselves and others that an interest rate hike is imminent, the EU will collapse, or the Brexit vote will fail.
“These faulty prophecies can erode investors’ trust in our industry,” she stressed. “Even worse, flawed forecasts encourage decisions based on conjecture, putting clients’ financial futures at risk. We think it’s time to crush the crystal balls and face reality: the future is unknowable.”
Aradhana then shared some of JOYN’s market insights:
JOYN focuses on valuations
While we can’t know the future, we can study the past, which is why JOYN focuses on data and valuations. The data suggest U.S. markets are now moderately expensive and that Value presents a better investment opportunity than Growth. Thus, we have increased our Value exposure relative to Growth in our model portfolios.
It’s time to be realistic about returns
Over the last two decades, investors have enjoyed superior market performance that today’s economic, business and market conditions are unlikely to deliver. The boomer-driven economic bubble is waning; global growth is sluggish; productivity gains are slowing; debt is increasing; interest rates hit rock bottom and are poised to tick upward. Considering these factors and our belief in reversion to the mean, we recently reduced the planning rates of return for our model portfolios. We believe that investors need a more realistic picture of the investment landscape in order to make informed long-term decisions.
Fed funds fear begs for active bond management
Today’s bond market is complex and confusing, but the fear of Bondmageddon is likely overblown. Even if the Fed raises rates this week, they will still be historically low. Despite five years of fear over rising interest rates, the bond market has continued to outperform expectations, making bonds increasingly expensive. Given this enigmatic environment, we believe investors would be wise to choose nimble, active management for their fixed income allocation.
All of these insights tie to our core belief: Emotional investing is perilous
Through behavioral science, we know that human emotions affect our decisions. And overly optimistic outlooks – for example, forgetting the importance of investing fundamentals like reversion to the mean – can hit a portfolio hard. We have confidence that markets reward fundamentals over the long term. Thus, we maintain a value bias and invest globally, overweighting international.