Navigating a Potentially Low-Growth and Volatile Investment Environment

Given today’s uncertain market environment, Beacon Pointe invited three respected investment management firms, First Pacific Advisors, Research Affiliates, and PIMCO to present their thoughts on how institutional and private clients may be able to navigate a possible low-growth and volatile investment environment.  Beacon Pointe’s institutional and private clients attended the luncheon with discussions held by Mr. Brian Selmo, Director of Research-First Pacific Advisors, Mr. Rob Arnott, Chairman & Chief Executive Officer-Research Affiliates, and Mr. John Cavalieri, Executive Vice President-PIMCO.

Mr. Brian Selmo of First Pacific Advisors highlighted several unique aspects of the FPA Crescent Fund and how these may benefit investors:

  • A focus on absolute returns – protecting capital in down markets has been key to the fund’s successful long-term track record.  FPA’s portfolio does not look or behave like any particular index but over time has outperformed most indices while taking less risk.
  • A flexible investment approach – the ability to invest in all market capitalizations and across the capital structure, without regard to benchmark composition, provides the widest opportunity set for the FPA team and investors in its fund.
  • No mandate to be fully invested – in the absence of sufficiently attractive securities, the FPA team may (and does) keep a portion of the fund’s portfolio in cash until valuations fall within FPA’s target range.
  • Emphasis on bottom-up research – a deep and experienced team conducts original fundamental research; its contrarian mindset leads it to securities that may be misunderstood or overlooked by others.  Wal-Mart, Microsoft, and Omnicare were among the highlighted examples.

Mr. Rob Arnott of Research Affiliates and Mr. John Cavalieri of PIMCO provided a big-picture overview, discussed the major macro-economic headwinds investors face today (referred to as the 3D Hurricane), and suggested several strategies suited for the current environment:

  • Deficit – Mr. Arnott argued that the U.S. fiscal deficit is even higher than the official statistics, if calculated under GAAP accounting principles (i.e. taking into consideration the change in national debt, the government-sponsored entities’ debt, and unfunded entitlement programs).

  • Debt – most of the developed world has high levels of net debt/debt service capacity ratios, while emerging countries appear to be in much better shape right now.  The burden of servicing the debt reduces potential GDP growth in the coming years.


  • Demographics – an aging population is a further headwind to GDP growth, especially in the developed world, because GDP growth is a function of 1) the growth in the work force, and 2) productivity growth.
  • Suitable investment strategies – in an environment of constrained GDP growth and limited opportunities in “traditional” asset classes, a prudent approach for investors to consider is adding a “third pillar” to their portfolios.  This pillar includes emerging market equities and debt, alternative investment strategies, and inflation hedges.

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

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