E49: Fourth Quarter Letter 2024 - Nature Calls (a.k.a. Do Something) Edition

This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation, and past performance does not guarantee future returns. This podcast episode recounts a story of a cold October night in Algonquin park with a camper alone in the darkness. If you are easily scared, listen with caution. Today on the Unlimited podcast I review my 2024 fourth quarter client update. I'll tell you what I did one late night in Algonquin park and we'll review equity market valuations, the search for international and income oriented investment opportunities, along with some Gensler wealth let's go. Well, hey everybody. Welcome to the Gensler Wealth Unlimited Podcast. This is the 2024 fourth quarter client update where I, as usual, read my quarterly letter. For those who'd rather hear it than read it, I call this the Nature Calls, also known as the Do Something Edition. And here's the prelude in my last quarterly letter. Oh, let me As I say always, there's some links in here, there are some footnotes, endnotes. I will direct you to genslerwealth.com where you can see this and see all the all those details and footnotes. So I'll try not to highlight them every time. So now I'm going to start again. Here's the prelude in my last quarterly letter, I discussed the benefits of doing nothing sometimes as it relates to investing, but suggested that in my next quarterly letter I would discuss the benefits of doing something. So here we go. Two Gensler Wealth Clients I returned to Algonquin park following the trip with my wife that I wrote about last quarter in the fall, my regular annual trip with my buddies. Avid readers of these letters are there any would know that we prefer this time of year to others, even though the weather can be a bit unpredictable. Unlike the past few years, this October in Algonquin park was warm and sunny, although it definitely cooled down during the nights. At 2am on our last night, I woke up in the tent and nature was calling. When this happens, the goal is typically to jump out of the tent, do what has to be done, and jump right back in quickly. But while I was outside the tent, I noticed that the pitch darkness of bedtime had turned into a bright, moonlit night. The temperature was mild and I did not hear any bears rustling in the woods. Few instead of jumping back into the tent quickly. Nature actually was calling, so I decided to do something. I took a camping chair and walked down to the lake and sat there for a while enjoying the moonlit lake, the solitude and the peace. It was beautiful. Don't tell my campmates, but it was the best part of the whole trip for me. All because I decided to do something. Something what to do now? The last few years have been a boon for equity investors. After a brutal 2022, equity markets seemingly always now led by the Magnificent Seven, roared ahead in both 2023 and 2024. Trump's recent victory has continued to propel US risk assets higher as well as Bitcoin, which has soared almost 47% since the day before the US election. While there are always many reasons why this equity run and risk assets should fall, we wouldn't bet against Trump's ability to boost the US Markets and economy, which is clearly his stated goal. At the same time, central banks in particular in Canada have been lowering interest rates after raising them dramatically in 2022 and the first half of 2023. All the above has led to developed markets, especially the US valuations reaching all time highs, for example, and we have a chart in the letter. The chart shows that the current S&P 500 price to earnings ratio is 41% higher than its 30 year average. And again, I encourage you to take a look on the website and you'll see this chart which highlights exactly that. This is especially true when viewed against international and emerging market valuations. For example, in another chart that we have here, it shows that the current international price to earnings ratio is at a 30% discount to the U.S. s and P500 near historic lows and more than two standard deviations below the average. The above mentioned trends have also led to falling income yields on interest sensitive assets, which has especially impacted our ability to find new structured notes at attractive income levels. And there's a link in the letter to go back to a previous letter where I explain what structure notes are and what we're doing there. So in the Latter Half of 2024 and continuing into 2025, we decided to do something look abroad. Over the past quarter, after many months of due diligence, we have made small allocations to an emerging markets equity fund. Our rationale for doing so is as follows. 1. Emerging markets are large and significant representing 60% of global GDP 2. Emerging markets are growing, growing at greater than two times developed economies and 3 emerging markets are an opportunity for investors with forecasted earnings per share growth of four times developed markets going forward valuations relative to the US at 50 year lows. We have a chart there that shows that and of course diversification benefits While emerging markets investing can be more volatile or risky, the particular fund chosen mitigates some of these risks by pursuing a value investment approach and generally overweights the utilities and infrastructure sectors in the fund, providing more stability of cash flows, a regulatory framework and higher dividend yields. We'll talk about that in a moment. It also generally underweights technology and financial services investments, which carry higher volatility and valuations in the former and higher leverage in the latter. To learn more about emerging market equities, you can listen to episode 46 of this podcast featuring my interview with Rohit Kuller, Lead Portfolio Manager of the Emerging Markets Equity Fund at Letco Braso in Montreal. As we enter 2025, we are continuing our work to identify other international equity opportunities to round out our equity offerings and client portfolios. The Search for Income on the income side during 2024 we introduced a new multifamily real estate fund to our lineup, which, in addition to historically strong growth from operations, pays a 5% distribution that comes in the form of return of capital, meaning it is not taxable when received. This is equivalent to earning greater than 10% on a regular income generating investment for investors in the highest tax bracket. As a side note, during our due diligence on the above fund, we highlighted concerns regarding their redemption terms and respectfully conveyed that we could not proceed with an investment unless adjustments were made. We were very pleased that this multibillion dollar fund acknowledged our feedback and agreed to modify its terms to address our concerns for the benefit of not just skins or wealth clients, but also all other investors. Most recently during the past quarter we added an options income strategy that's in the alternative asset class, which aims to generate a high Yield, currently around 11%. This yield has also historically been highly tax efficient, with distributions often treated as a mixture of capital gains and return of capital rather than more highly taxed interest or dividend income. This has also been accompanied by increasing allocations to Canadian dividend oriented equity strategies through the middle and Latter Half of 2024, which have received renewed interest, no pun intended, as interest rates have been lowered. Speaking of dividends and emerging markets, as mentioned in the section above, international equities are currently offering a dividend yield more than two times higher than US equities and we have a chart that shows this with the emerging market strategy we use. Actually offering a current dividend yield almost three times higher. We continue to seek attractive, tax efficient, income oriented strategies for our clients. What we're Doing at Gensler wealth we are also doing something Some things at Gensler wealth this past year has been one of growth. This has been especially true for larger clients taking advantage of our full family office or personal CFO services. As a result, during this past quarter we welcomed two new investment professionals to our investment team who collectively hold two Chartered Financial Analyst or CFA designations, one Chartered Alternative Investment Analyst or KAYA designation, one Master's of Finance degree and one Licensed Portfolio Manager registration, among other things. We are also busy working on more robust Gensler wealth reporting and a new client portal and mobile app. Stay tuned for invites rolling out over the course of the next few months. Wishing everyone a Happy New Year. I hope you had a chance to do nothing over the holidays and I hope the New Year brings us all the opportunity to do something great in 2025. We're certainly working on it. Thank you for your continued trust, support and confidence. We are available 247 should you need us. Sincerely, me, Brian Gensler, President and CEO One thing I also do in the letter to our clients, which we don't really post up on the Internet on the interwebs, is a little bit of administration or tax and year end planning. So I'll mention it anyways for our listeners, keep in mind, now's the time to think about your RSPs, your TFSAs. Oh sorry, this is Alphabet soup. Your registered retirement savings plans. Your tax free savings accounts where you have another $7,000 of room as of January 1st. If you have children that you're saving for education. Your RESPs registered education savings Plan where the government, if you haven't maxed it already, will provide you with some free money relative to your contributions. So this is the time to be thinking about all that. Thanks for listening. We have a great lineup for 2025 starting very shortly. In a few weeks you'll hear from my former colleague and dear friend David Rosenberg, chief economist and strategist and founder of Rosenberg Research. We're going to get the view of what's coming. The man with the crystal ball. So we'll see all the best and talk to you soon. Take care. Happy New Year all.

The Unlimited podcast is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media. Inslerwealth thanks for listening and see you next time.

Sam.