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Introducing Tim Clift

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[We may not see] huge double-digit returns in traditional asset classes over the next decade because we’ve had such a long run-up in a bull market…so you need to start thinking, ‘How can I diversify my portfolio a little bit more?'

Tim Clift

Chief Investment Officer

In our latest podcast, Adviser’s new chief investment officer, Tim Clift, sat down with Portfolio Manager Jeff DeMaso to discuss what trends Tim is seeing in the markets as we emerge from the bear cave of 2022, including the return of bonds, the resurgence of global equities and the role alternatives can play in a modern portfolio. Tim also spoke about what brought him to Adviser after 30-plus years in the investment industry, including time spent at some of the world’s largest asset managers.

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Episode Transcript

Jeff DeMaso:

Every wealth management firm will tell you that the people, their talent, is what sets them apart. We agree. And I’m thrilled to welcome Tim Clift to the Adviser Investments team as our new chief investment officer. Listen in to hear Tim’s perspective on the markets, inflation, recession and the debt ceiling. Hello and welcome to another The Adviser You Can Talk To Podcast. My name is Jeff DeMaso. I’m a portfolio manager at Adviser Investments. Today, I’m excited to welcome a first-time guest to our podcast, but hopefully not a last-time guest, Adviser Investments’ chief investment officer, Tim Clift. Tim, welcome to the podcast.

Tim Clift:

Thanks. Great to be here.

Jeff DeMaso:

I’m excited you’re here. Great addition to the team. Chief investment officer, so clearly we’re going to talk a bit about markets and our outlook, but let’s start at the beginning. Who is Tim Clift? Tell us a bit about your background, how you arrived here at Adviser Investments.

Tim Clift:

Sure. Yeah, no, I’ve actually just joined in November, but I’ve been in the industry for over 30 years. My career started on Wall Street back in the early ’90s but quickly transitioned into the advisory side of the business. And helped start an RIA back in the mid-’90s, five of us that grew that business. I then worked for a global bank with 20,000 employees. And then most recently had an advisory platform that was serving 100,000 advisers. So, I’ve gone from very small firms to very large ones. I’ve got a lot of different experiences, mostly focused on the investment side of the business as a chief investment officer, chief investment strategist, how to research those types of roles. But I did want to get back to a smaller firm. They can be more nimble and can grow, and Adviser was attractive from that perspective. So, they’ve got a great leadership team, they’ve got great investment professionals and advisers who really care about their clients and want to help them reach their goals.

Jeff DeMaso:

I agree, as an unbiased viewer of the firm. But no, let’s pull on that thread a little bit more in the sense of you’ve seen a lot of different investment firms, you’ve worked at some, you saw a lot of firms and a lot of investment teams. What do you think makes for a good, in air quotes, firm or a firm that can grow and can serve clients well?

Tim Clift:

Yeah. I mean I think it’s a lot of the pieces and parts that you put together. I think if you’re just about investments or just about the markets, it’s pretty narrow. And clients that you’re serving really need to have a more holistic view, and we need to have a more holistic view of their entire situation. Every client is going through something a little bit different, and it could be that taxes are their biggest concern, or costs, or they’re going through a transition in life. And all those things impact the investment recommendations that we might make, and they typically change over time. So, again, being nimble, being there for helping support advisers as their clients are going through these different phases in life is really important. And we want to be able to walk that path with them rather than saying, “Hey, here’s our best investment idea,” and then kind of walk away.

Jeff DeMaso:

Yeah, I agree. When I talk to clients I often say, “If you’re just here for the investment performance, at some point you might be a little bit disappointed in that, some points you’re going to like as well.” But we know that performance is a bit cyclical, and it’s all about that relationship and the value you add over the course of an investment lifetime, and that has different pieces to it. All right, that said, though, you are a chief investment officer, so maybe talk to me a little bit about your investment philosophy. Where do you land in the active vs. passive debate?

Tim Clift:

Yeah, sure. So, much like I’ve been in this industry over 30 years, the industry has evolved and it’s becoming more and more clear that low product fees, the costs, are really important. Managing taxes, managing risk, they’ll have an enormous impact on building and preserving wealth. So, I’ve shifted over time. Before, I was all about active, and that was the only way or place where I thought you could get return, and that was the most important thing. With the rise of ETFs and really just tracking to the markets, I think there’s been a change of heart in the industry. So, leveraging passive investments and individual security as the core of a portfolio, or a foundation, makes more and more sense to me. It’s not to say I’ve given up on active altogether, and we’ll continue to have active strategies where appropriate, but most of the growth of a client’s portfolio comes from the broad market return.

So, if your markets are up 10% next year, hey, it’s great if you can be up 11%, but you could also be down 9% if you’re kind of making a lot of bets within that. Just having exposure to that market, you’re getting the full performance of at least the markets. So, that kind of focus on low cost, time in the market, tax management—those are all I think just as important as picking the right individual strategies. But there are instances where it might make sense to add something that’s more opportunistic or a little less traditional in a portfolio to make sure it aligns with what the client’s looking for.

Jeff DeMaso:

Yeah, I agree. There’s room for active, but those points you mentioned about low cost, tax benefits, diversification—I mean those are controllable, reliable, far more predictable, consistent. They again serve that foundation. But if we’re talking about kind of reliable means for growth and in building the portfolio, we got to talk about 2022 a little bit. Maybe turn and start talking about a bit of an outlook for the road ahead. But it was a tough year for your traditional investors owning stocks and bonds. It was a challenging year. So, how do we put that year in context? And then we can pivot from there and think about what does that mean for an outlook.

Tim Clift:

It was a big reset year for stocks. They’re down nearly 20% depending on what index you’re looking at. But there were a lot of headwinds with high inflation and the Fed increasing interest rates. It is just a tough market for both bonds and equities. And it didn’t really matter what you were in, if you were in an 80/20 or a 20/80 or a 60/40 allocation, everything was down double digits. The good news is that means everything is kind of on sale. From last year to this year, everything is, call it, 20% cheaper, some things are 30%, 50% cheaper. So, resets are healthy in the market. We know that on average equity markets are up 70% of the time, fixed-income markets are up over 80% of the time. So, it always is in the benefit of clients to stay invested. We go through these resets, recalibration of the markets, and it just very often gives us more opportunities in the future for markets to rise and finding opportunities in the markets.

Jeff DeMaso:

Yeah. I like that reset frame. And nowhere did it reset more than really in the bond market, where the Fed went from 0% interest rates to over 4%—big move kind of across maturity, whether you’re talking about the Fed at the very front or at the 10 years. And bonds had a really tough year. So, we’ve heard a lot about the death of the 60/40 portfolio. What’s your view on that? And you hinted at it earlier, just some thoughts on alternatives and how do they fit in.

Tim Clift:

From a bond perspective, I think they’re starting to look pretty attractive these days. So, now you’re getting a pretty good yield in the markets. We know that the Fed, or we believe the Fed, is near the end of raising rates. So, I think there’s more opportunities in bonds than there have been in the past. You typically don’t see back-to-back years of fixed income going down. It’s actually very rare. So, I think bonds going forward are going to be a good allocation and diversifier in portfolios. Now, you also asked about alternatives, and that’s a big category. It can mean a lot of different things, but I think of alts as nontraditional assets. So, traditional is public stock and bond markets that we’re all very familiar with. And they’re very liquid and easily accessible.

Nontraditional is often accessing private markets or something a little bit more tactical or opportunistic. So, I think there’s more opportunities in those areas going forward, and I think a lot of those areas have been, call it, democratized, so they’re more easily accessible to investors across the income range or across the asset range. So, again, that may not be right for everyone, but I think their place in portfolios is increasing.

Jeff DeMaso:

So, how do you think about—when we hear private investments, people often think of double-digit, 20%-type returns, or IRRs, using some in-the-weeds jargon on it. What kind of expectations should people have around—again, it’s hard to say alternatives because you said it’s so broad—but when it comes to thinking about these in a portfolio?

Tim Clift:

When you think of the private markets, there’s private equity, there’s private debt, there’s private real estate, and they all have their own risk profiles. But they also can be a part of an equity portfolio, a traditional equity portfolio, or a traditional fixed income, and really just enhance it and help diversify it and help basically be less correlated than the traditional markets. A lot of folks don’t go into those markets just assuming they’re going to have these huge, fantastic returns. Again, it’s just looking for other areas of the market where you can get return. And I think even though we may have a better situation this year in the traditional markets, I don’t think anybody thinks we’re going to have huge double-digit returns really over the next decade in those asset classes because we had such a long run-up in a bull market previous to that. So, you really do need to start thinking, “Where can I get alternative sources of return? How can I diversify my portfolio a little bit more?” And again, some of these alternatives are places where we think that can happen.

Jeff DeMaso:

And when we think about getting return from different sources, one that actually seems kind of—I don’t know if obvious is the right word, but it’s right there—but that a lot of people have been shying away from, just given how poorly they’ve done over the past decade, decade and a half, are just foreign stock. So, what do you just say to someone who says, “Well, the S&P 500 has way outperformed foreign and that’s all I need.” Should I think about that?

Tim Clift:

Yeah, no. And I’ve heard that same case, too, that “Why should I invest in foreign, seems to always underperform.” But it does go in waves, and the last decade has been tougher. But you have to also think about where that return comes from. And some of it comes from that local growth in that market, but a lot of it also can come from the currency. And the U.S. dollar has been on a tear for many, many years. And when the dollar is stronger, it makes our U.S. economy and the U.S. stocks perform better. But we’ve seen a turn. And certainly, this year, international has been playing out much more strongly. Time will tell if that is going to be a continued and long-term trend. But I’d hate to bet against international markets, where we are a much smaller percentage of the global market every year as the other countries continue to grow. So, we are not the only place where growth can come from. And if you ignore that, that can be a challenge from an overall portfolio return and diversification and risk management standpoint.

Jeff DeMaso:

Yeah. I mean you said it there with diversification; it’s kind of the thread that seems to connect a lot of what you’re talking about here. But you also mentioned growth, so I’ve got to ask the recession question. And we’re seeing a lot more handwringing, more bell ringing when it comes to a recession ahead. So, if it seems like a recession’s maybe more likely, how do we square that to your initial comments, which seem to suggest stocks and bonds are a bit more attractively priced and a little more kind of optimistic-ish, on the optimistic end of things, and thinking about this year vs. last year?

Tim Clift:

So, the recession’s a great question, and I think a lot of people get hung up on the technical definition of recession and whether we’re going to have one or not. And right now, the odds are kind of split on whether we’re going to get one or not this year, whether it’s going to be the middle or the end of the year if we do get it, how deep it’s going to be. And the technical definition that a lot of people look at is negative GDP growth for two consecutive quarters. But there is a team or a group that actually looks at when the recession starts and ends, and they’re the decision-makers on it. And they have something called a dating committee, which is not nearly as exciting as it sounds. But they’re looking at the three D’s, which is the depth of the recession (how much the markets go down), diffusion (how broadly it hits the markets), and then the duration (how long it lasts).

So, those things you typically don’t know until after the fact, and they may or may not call it a recession. The last recession we had was the COVID recession, and that was super short, but the depth was large. It went down 34%. Duration was short, but they still overweighted the other two and called it a recession. So, time will tell, but I don’t think it’s something to get hung up on. And again, I think a lot of that’s already priced into the markets.

Jeff DeMaso:

Okay. So, recession, possible market may already be pricing it in. The other big worry that’s coming up this year is really about the debt ceiling and whether Congress will be able to reach an agreement and enable us to keep paying our bonds back and our debts back. So, what’s your take on the debt ceiling? How should people think about it in context of their portfolio and their overall plan?

Tim Clift:

I think they shouldn’t think about it. It shouldn’t really affect the markets. It’s certainly important because we do need to fund the government and pay our debts, but it also is a political football and it becomes a game of chicken. And we’ve seen this happen many times in the past. Since 1960, Congress has raised or extended the debt limit 78 times, but there’s one party that wants spending cuts and another that doesn’t want to cut, and they bring it right to the threshold of default. We actually had Moody’s downgrade the U.S. not too long ago. I don’t know if you remember when they stopped payments for the military and public parks were closed down temporarily. So, they can bring it right to the edge. And don’t be surprised if that happens in probably sometime midsummer, but they always figure it out. It always gets done. So, again, I wouldn’t put that on the list of top worries; just expect a lot of news about it.

Jeff DeMaso:

Yeah. It seems like as is the case with a lot of things out of Washington, very important, us as citizens and part of this country should care about it. But maybe as portfolio managers and investors, it gets way more attention than it should. So, to that end, as we think about investing, that’s clearly where you and I spend a lot of our time, thinking about the markets, different funds, different vehicles, different portfolios. But as we alluded to at the beginning, Adviser Investments offers much more than that. So, how should someone think about their portfolio and making sure that it’s aligned with what they’re actually trying to achieve?

Tim Clift:

Yeah. I mean a lot of it comes down to what are your long-term goals and what phase are you in. Are you in the growth phase or the decumulation phase, in the spending phase? And you want to make sure that your investments line up with that but also that you have a plan around taxes and estate planning and all the different things that tie together. So, investments are certainly an important part, and that’s the area that we tend to focus on a lot. But when it comes down to it, if you don’t have a big plan that supports all those investments and those investments don’t change over time—right now, you might have more growth companies if you’re younger, and when you’re older, you might want more dividend-producing investments and higher cash flow—you got to make sure that it shifts over time, it’s appropriate for your circumstances and that it’s, again, all tied to that long-term goal.

Jeff DeMaso:

Yeah, I agree. I think having that goal also helps in a year, like last year, when stocks and bonds are down. Your plan’s going to be built knowing that those resets happen, and it’s something you can lean on to try and get you through those years when things are resetting because you know you’re still on track for where you need to be. And if not, then you have the knowledge to try and alter course. All right, Tim, well, it’s been great having you on the podcast. I’m sure this won’t be a one-and-done experience for you, but we’ll get you back on shortly.

Tim Clift:

Sounds great. Thanks for having me, Jeff.

Jeff DeMaso:

All right. This has been Jeff DeMaso and Tim Clift from Adviser Investments, thanking you for listening to The Adviser You Can Talk To Podcast. If you’ve enjoyed this conversation, please subscribe and review our show. You can check us out at adviserinvestments.com/podcasts. Your feedback is always welcome. If you have any questions or topics you’d like us to explore, please email us at info@adviserinvestments.com. Before closing, I’d like to thank our editors and production team, Kailey Steele, Ashlyn Melvin and Tim Veidenheimer. And thank you again for listening.

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