Trends Watch: May 10, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman. 

This week, Elana talks to Varkki Chacko, Managing Principal, Chief Investment Officer, Credit Capital Investments.

What is your outlook for alternatives?

Much has been written about the growth of ETFs and the efficacy of passive investing -- and rightly so -- but we are firm in our belief that alternative managers with a proven, rational investment process will always have seat at the table.  As 2018 began, risk appetites were quite high, sentiment extremely bullish, volatility at depressed levels and risk markets were poised to and did reach new all-time highs.  While we do not see the start of a bear market for U.S. equities, the first quarter has demonstrated that such optimal conditions are unlikely to persist long term and alternative managers who can identify key investment themes and protect the downside in a more uncertain risk markets regime will prove themselves quite valuable. 

What is your outlook for the economy?

We expect the economy to expand as the recent tax changes will provide some marginal benefit to growth, and a gradual move higher in real interest rates will not be a deterrent, but we are particularly intrigued by shifts occurring within the economy.  The U.S. economy is undergoing profound and disruptive change in key sectors. The energy and power sector is being reshaped by climate change concerns (impacting, for example, diesel consumption), growth of liquefied natural gas (LNG) and low-cost renewable energy. The erstwhile distinct media and telecommunication services arena is morphing into a new communication services arena where players are providing both the “pipe” and the “content,” linear content is being supplanted by multiple over-the-top offerings, and some tech companies are morphing into media giants. In the technology arena, the growth of cloud, big data and artificial intelligence are rapidly impacting both hardware and software offerings.  Fintech is impacting the payments arena, and big data and blockchain technology could have far reaching impact on insurance and other subsectors of the financial sector. The transportation sector, contending with electric cars and trucks as well as Uber and advanced driver-assistance systems (ADAS), and the retail sector (with e-commerce and augmented reality on the way), are also confronting dramatic change. We do not recall a period encompassing this much change across so many economic sectors.

What keeps you up at night?

Taking care of our clients and making sure that we are doing an excellent job for them is our primary concern at all times, day and night! Part of that is to be listening to them and communicating with them as to our work. The other part is our work itself – making sure we are paying attention to developments in the economy and the markets and pursuing consequential investment themes and ideas.  As we noted above, there is a lot of change underway, and change represents both risk and opportunity. We must remain clear-eyed about assessing all the information we gather in the pursuit of performance. Finally, political turmoil in the White House and mixed developments overseas (the outcome of the recent Italian elections, removal of term limits for the Chinese President, uncertainty around the path of Brexit, potential for North Korea talks) mean that black swan events could intervene and dramatically impact the U.S. and the global economy.