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Confidential © 2018 Chicago Partners Wealth Advisors
Chicago Partners
Fourth Quarter 2018 Interactive Conference Call
Confidential © 2018 Chicago Partners Wealth Advisors
Quote
2
Postal Service seeks to raise price of a stamp to 55 cents.
“The real long-term risk to you and your family’s wealth is inflation –
not short-term, negative market volatility.”
Chicago Partners, Oct. 2018
Confidential © 2018 Chicago Partners Wealth Advisors3
Yield Curve
Confidential © 2018 Chicago Partners Wealth Advisors4
Yield Curve
Confidential © 2018 Chicago Partners Wealth Advisors5
Fed Funds
The Fed raised rates by 25
basis points in September to
the 2.00% to 2.25% range.
The Fed’s action for the
remainder of 2018 looks largely
determined, with both 75% of
Fed officials and the markets
pricing in one more rate hike in
December to make it four for
the year.
What remains to be seen is
how policy will develop in 2019
and beyond.
Confidential © 2018 Chicago Partners Wealth Advisors
National Debt Clock
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Confidential © 2018 Chicago Partners Wealth Advisors7
Checklist for Optimal Recessionary Conditions
Accelerating Inflation – No
Inverted Yield Curve – No
Employment Declining – No
29 Months After First Rate Hike – Yes, 34 months
P/E Above 17 – No, 16.13
10 Year Treasury Above 6.6% (Normalized Rate of 4.0%) – No, it
is 3.16% as of October 10th
Bonds More Attractive Than Stocks – No
Dividend Yield Decreasing – No, dividends are still increasing
Volatility & Corrections – Currently 0.43%, which implies a 26.7%
of a correction or bear market over the next 1 year
Confidential © 2018 Chicago Partners Wealth Advisors8
Checklist for Optimal Recessionary Conditions
Confidential © 2018 Chicago Partners Wealth Advisors9
Leading Economic IndicatorsNew Economy Indicator
Empire State Manufacturing 6M Ahead Technology Spending – Currently Positive
at 10.6% (Last Quarter: 17.1%)
Economic Survey Results
Consensus response continues to be optimistic.
Conference Board Leading Economic Index
Bloomberg Chart
CEO Confidence Index – CEO Confidence in the Economy 1 Year From Now
Bloomberg Chart
Confidential © 2018 Chicago Partners Wealth Advisors10
Leading Economic Indicator
US Conference Board Leading Index
Last Quarter:
109.50
Confidential © 2018 Chicago Partners Wealth Advisors11
Leading Economic Indicators
CEO Confidence Index – Economy 1 Year from Now
Last Quarter:
7.19
Confidential © 2018 Chicago Partners Wealth Advisors
Market Return (RM) = E + Y + P/E
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Capital Markets Equation
Confidential © 2018 Chicago Partners Wealth Advisors13
Capital Markets Equation
Market Return (RM) = E + Y + P/E
Confidential © 2018 Chicago Partners Wealth Advisors14
Confidential © 2018 Chicago Partners Wealth Advisors15
2018: Market Fundamentals
Year Value
2018 Est. 51.37
2017 48.23
2016 45.08
2015 44.34
2014 40.61
2013 36.30
2012 32.90
2011 28.31
2010 25.07
2009 25.08
2008 32.64
2007 31.92
2006 29.81
2005 27.29
2004 24.70
2003 22.80
2002 21.48
2001 21.53
2000 22.60
1999 23.97
1998 23.89
1997 23.22
S&P 500 Dividend by Year
1997-2018 (Est.)
Confidential © 2018 Chicago Partners Wealth Advisors
S&P 500 Dividend Growth
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YearlyQuarterly
Confidential © 2018 Chicago Partners Wealth Advisors17
Capital Markets Equation
Market Return (RM) = E + Y + P/E
Confidential © 2018 Chicago Partners Wealth Advisors
Yield Alternatives: Domestic and Global
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Market Return (RM) = E + Y + P/E
7.7% = E + P/E
3.4% = Y
Confidential © 2018 Chicago Partners Wealth Advisors19
2018: Market Fundamentals
Confidential © 2018 Chicago Partners Wealth Advisors20
“Is the run-up in the market largely due to the currently favorite
stocks like Apple/Amazon/Other tech and is that where a drop is
most likely to occur in a deep market adjustment? If so, is it still your
thinking that CP-recommended funds like DFA, being more “value-
based”, will not drop as much? In other words, are the DFA funds
less invested in these so-called Tech stocks? What is the current
thinking on emerging market and small-company stock funds?”
Client Question
21
Confidential © 2018 Chicago Partners Wealth Advisors22
Emerging Market Valuations
Confidential © 2018 Chicago Partners Wealth Advisors23
Emerging Market Valuations
Confidential © 2018 Chicago Partners Wealth Advisors24
Emerging Market Valuations
“With oil prices staying steadily above $79, and with all of the
gathering/pipeline construction going on and exporting natural gas,
what are the analysts saying about MLPs continuing to get beaten
up in the market, and not enjoying a value recovery?”
Client Question
25
Confidential © 2018 Chicago Partners Wealth Advisors
MLP Update▲ MIC
– MIC positively surprised on 8/1/2018
– 7 analysts have a consensus of a 21.5% return expectation on
the stock
– 9.23% yield is still attractive
– Remains a watch list security
– Look at your end tax-loss harvesting options with the security
▲ ETP to ETE
– Simplification step
– Should allow the combined ETE/ETP distribution to grow faster
– 19 analysts have a consensus of a 27.6% return expectation on
the security
– Yields 7.15% and that yield is expected to grow
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Confidential © 2018 Chicago Partners Wealth Advisors27
“For the last couple of years the return on my portfolio has lagged
the broader market. We have discussed the fact that DFA products,
which are a large part of my portfolio, have a bias toward value
stocks rather than growth stocks. I have wondered for sometime
whether I should be reducing my DFA exposure and have more of a
blend of value and growth. After yesterday's sell off and the loss of
all 2018 portfolio gains, I still wonder if DFA is too value driven for
the capital markets of 2019. Your thoughts would be appreciated.”
Client Question
28
Confidential © 2018 Chicago Partners Wealth Advisors
US StocksThird Quarter 2018 Index Returns
Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap
(Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI
Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market.
The US equity market posted a positive return,
outperforming both non-US developed and emerging
markets.
Value underperformed growth in the US across large and
small cap stocks.
Small caps underperformed large caps in the US.
World Market Capitalization—US
55% US Market $29.7 trillion
Period Returns (%) * Annualized
Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**
Large Growth 17.09 26.30 20.55 16.58 14.31
Small Growth 15.76 21.06 17.98 12.14 12.65
Small Cap 11.51 15.24 17.12 11.07 11.11
Marketwide 10.57 17.58 17.07 13.46 12.01
Large Cap 10.49 17.76 17.07 13.67 12.09
Small Value 7.14 9.33 16.12 9.91 9.52
Large Value 3.92 9.45 13.55 10.72 9.79
9.17
7.42
7.12
5.70
5.52
3.58
1.60
Large Growth
Large Cap
Marketwide
Large Value
Small Growth
Small Cap
Small Value
Ranked Returns for the Quarter (%)
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Historical Observations of 10-Year Value Premiums(Value – Growth 1937-2017)
Source: Dimensional Fund Advisors, Where’s the Value?, July 2018
Premiums can appear quickly, unpredictably
and with large magnitude
Total Return through October 31, 2016
Year-to-date 1 Year
Russell 1000 Index 5.82% 4.26%
Russell 2000 Index 6.16% 4.11%
Size Premium 0.34% -0.15%
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Total Return through December 31, 2016
1 Year
Russell 1000 Index 12.05%
Russell 2000 Index 21.31%
Size Premium 9.26%
What type of succession plan is set for DFA as there have been
articles that some outside funds have shut down, triggering a tax bill
for investors?
Founder David Booth is still heavily involved but stepped down
as co-CEO, not exec. Chairman
Two new co-CEOs are in their late 40s/early 50s & have worked
at DFA for over 10+ years
Leadership in place to have most senior positions as “co”
managed
DFA has never closed a fund, no plans to as they are not
managed by one person and continue to be managed by a team
Goal is to last through perpetuity, DFA being privately held allows
this
Client Question
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“At 71 ½ years old and with the bull market lasting so long, interest
rates rising, and much geopolitical uncertainty, where should I now
move my money? I only need returns to stay even with inflation but I
do not want to lose any principal during a downturn, recession,
correction, etc. In the long-term, the market always comes back. At
my age, I am not thinking long term.”
Client Question
33
“There is market talk about interest rates increasing and making the
bond market attractive to the detriment of equities. What is CPs
position on that and planning for the potential of that shift?”
“With interest rates rising and expected to continue you have
positioned my portfolio in funds which invest in instruments of a
short duration. However, this does not completely protect from rising
interest rates. Might there be other vehicles in the marketplace
which provide more protection from rising rates and still provide and
adequate return?”
Client Question
34
Confidential © 2018 Chicago Partners Wealth Advisors
Interactive Client Q&A
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Q&A
Confidential © 2018 Chicago Partners Wealth Advisors36
CP 5 Step Process
Confidential © 2018 Chicago Partners Wealth Advisors
IMPORTANT DISCLOSURE INFORMATION
Past performance may not be indicative of future results. Different types of investments involve varying
degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or
investment strategy (including the investments and/or investment strategies recommended and/or undertaken
by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, will be profitable,
equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual
situation, or prove successful. CP is neither a law firm nor accounting firm, and no portion of its services should
be construed as legal or accounting advice. Moreover, you should not assume that any discussion or
information contained in this presentation serves as the receipt of, or as a substitute for, personalized
investment advice from CP. Please remember that it remains your responsibility to advise CP, in writing, if there
are any changes in your personal/financial situation or investment objectives for the purpose of
reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose,
add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written
disclosure Brochure discussing our advisory services and fees is available upon request. The scope of the
services to be provided depends upon the needs of the client and the terms of the engagement.
Please Note: Rankings and/or recognition by unaffiliated rating services and/or publications should not be
construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if
CP is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed
as a current or past endorsement of CP by any of its clients. Rankings published by magazines, and others,
generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.
Rankings are generally limited to participating advisers.
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Disclaimer