When MWM was launched eleven years ago, it was with a clear purpose and vision to help our clients navigate a very challenging market environment in 2008 and 2009.  Many things have evolved in the marketplace since then that are without precedent in financial market history.  Some evolution has been necessary on our part as well. We are motivated more than ever to serve you well, and I have aligned a number of critical resources to do that in this and future market environments.  

I am pleased to announce several new components are in place in our management practice.  As I have reflected on superior long-term performance, two ingredients have emerged which have now been revamped here in the second quarter.  We’ve learned many valuable lessons in the process.  As I will explain, in order to properly implement these changes, I’ve had to search high and low for the best talent that could implement and execute the best process. 

Organizations mature and grow, and in our case the newest iteration of MWM brings together an ideal combination of people who 1) care about you, 2) set a standard for big picture macro-economic analysis, 3) dive deep on company specific research and 4) have a strong emphasis on safely maximizing returns for clients.  We’ve always strived for these goals and have deepened our bench with the addition of Doug Noland and Robert Draper to the team.  The gap we have recently filled is in the detailed analysis required to dig into company assets, company management, and individual company resource allocations.  This has been accomplished by retaining Lila A. Murphy, CFA.  

With this crucial addition in place, we are transitioning to a more broadly diversified portfolio of individual assets, varying from 25 to 40, emphasizing − as we always have − real and tangible assets, but with a far greater emphasis on cash and dividend payment either for reinvestment or income generation.  If a growth theme takes time to play out, we are sure it is easier to wait for it if you are being paid while you wait!

I want to explain both our revised structure and then comment on our process.  Process is driven by people.  In our case, the people necessary to achieve our goal of satisfactory returns within a framework that is properly risk aware are finally in place.  The structure we are introducing you to, which has been in the making for some time, is one where less discretion is left with an individual portfolio manager and a more disciplined process of allocation and risk controls are implemented by an entire team. The process is reviewed daily by the portfolio manager, and as a team multiple times per week. This team approach improves the quality of decision making, drawing out the best analytical strengths and matching them with performance accountability within each portfolio style.    

Structure begins with the team and what each person on the team routinely (daily and weekly) contributes to the project.  The MWM team, working in unison for all MAPS as well as Tactical Short and Non-Correlated accounts, consists of world-class macroeconomic and credit analysts, specialists in bottom-up company forensics and evaluation, and traders able to alter course as fluidly as possible through a variety of market conditions. 

Finally, these internal resources, which are geared towards strong fundamental analysis, are now being complemented by an independent third-party technical analyst able to discern patterns and trends in chart analysis that confirm or question the implementation of our thesis.  In this case we are seeking the sweet spot between macro top-down fundamentals and micro bottom-up fundamentals. Our process puts in place a technical stopgap for portfolios that captures opportunity and provides an additional risk management overlay as a part of the active review and rebalance process by the entire team.

These shifts in structure and process serve as the governing factors for any future allocation shifts, and in our opinion are the missing elements of the past few years.  Thanks for bearing with us.  It has taken time to find just the right people to serve you.  

In many respects our thesis has not changed, but the process of how we approach the markets has − as have the contributors to the team. 

Our thesis is straightforward.  Real assets and hard assets serve as a store of value.  We have a bias for real things.  The industry relationships and in-depth scrutiny necessary for a more diverse list of real assets (real estate, infrastructure, global natural resources, etc.) in the portfolio have required a change in personnel.  We’ve found a kindred mind in Lila Murphy, and are thrilled she has joined the team.  With both hedge fund and mutual fund management experience in building out broad exposures to real assets, she will widen the range of assets and income streams within each portfolio.  

In many instances these real assets serve critical roles in information, power, and transportation utility, and thus provide attractive income and growth profiles organically driven and demographically supported.  In an era of experimental monetary policy and unproven business cycle management techniques, real things with cash flow represent wealth preservation and a “get paid to wait” approach to increasing wealth over time.

When looking for the right asset, several elements are critical to our process.  What is the quality of the asset?  What is the quality of the management? And what is the time frame required to opportunistically allocate to a particular company?  Combining top-down analysis as the team rigorously assesses market structure and stability with studying financials, interviewing management, and when possible visiting operations, allows for a combination of top-down and bottom-up evaluation and reveals deeper company-specific opportunities. 

What does the team look like now? I will assume the lead portfolio manager role for MAPS, supported by MAPS client portfolio manager and trader Robert Draper, MAPS Market Strategist Doug Noland, and MAPS analyst and industry specialist Lila Murphy. 

We’ve updated the “About Us” section on our website to give you a fresh perspective on the people serving you.  As you read through, you’ll notice the biggest shift is that we have retained Lila, who is the founder of Intrinsic Value Partners, an investment consulting firm providing advisory, research, and due diligence services in the asset management industry. She is on the board of Dundee Corporation, a Toronto Stock Exchange-listed natural resources merchant bank.  Prior to 2019, Ms. Murphy was Vice President and Portfolio Manager at Federated Investors, one of the largest U.S.-based investment management firms, with over $360 billion in assets under management.  Based in Dallas, Texas, Lila has deep industry expertise in natural resources and hard assets investing, as well as other related sectors.  She has more than 25 years of investment experience, and previously held senior positions at David W. Tice and Associates and Lee Financial Corporation.  She holds a Bachelor of Arts degree from New York University and is a CFA charter holder.

If you’d like to get to know Lila a little better, don’t miss next week’s McAlvany Weekly Commentary. On that program I will casually converse with Lila and discuss markets and opportunities she sees emerging.

In our opinion, the opportunities we are pursuing are the most exciting we’ve seen in our entire careers. As we count the decades of work behind us, we are convinced that it was all preparation for this moment in time. This provides unprecedented risk for most investors and unprecedented reward for the few that seek unconventional thinking, uncommon wealth preservation strategies, and uncompromising values.

Warm Regards,

David McAlvany