We watch investment management industry trends to understand what others are doing and, hopefully, validate our approach. Also, we look for those with similar approaches to ours— hopefully, successful. And we look for innovative approaches to complex investing subjects. We have all three this quarter.

What’s the latest trend for wealth managers and asset managers? Cooperation. “Wealth and asset managers will focus on renewed growth triggered by strategic partnerships and M&A” (mergers and acquisitions). The article discusses this trend against a backdrop of previous trends: ESG investing, private equity investing and AI investing, each losing steam for reasons of “wokeness,” illiquidity, and too early to tell, respectively. The tying together of backroom operations of wealth and asset managers will aid in “capturing investors’ wallet share.” For simplicity, we’ll call wealth managers client-facing and asset managers product producers. “This transformation can involve a delicate balance. Tech-led mass market production (asset management) must be industrialized while trust-related private banking (wealth management) specialties must be preserved.”

In the first half of 2024, a handful of stocks with large weightings in the S&P 500 Index performed very well, leaving most of the rest of the index constituents underperforming. The S&P 500 Index returned 15.3%, with the seven largest names in the index returning about 31.5% collectively, accounting for 62% of the gains for the entire index, while the “other 493” returned an estimated 7.7 percent. The Invesco S&P 500 Equal Weight ETF (RSP), indicative of what the average S&P 500 stock has done, returned 5.0% year-to-date. The Russell 2000, an index of two thousand smaller-capitalization stocks, was up 5.2% through March, before falling 3.3% in the second quarter.

As we’ve discussed in the past, we are very focused on the sunsetting of existing tax provisions after 2025. The main areas getting the attention of advisors and their clients are “estate taxes, the deduction for qualified business income and federal brackets.”[1] Some of the planning techniques suggested involve “strategic or lump-sum gifts and life insurance held in trusts.” One adviser mentioned in the Financial Planning article lists “spousal lifetime access trusts, gifts, leveraged gifts, loans, family limited partnerships or family LLCs” as available “tools.” The applicability of any of these depends mostly on the specifics of an individual taxpayer’s situation. An election happens in three months, so many taxpayers may have to pick something, if needed.

With sadness, we announce the death of Nelson Jarvie Darling, Jr., 103, of Swampscott, Massachusetts, who died on June 18, 2024, at his home. Nelson once wrote, “There seems a lot to do and too little time to do it.” That intense engagement in all aspects of life seems to have been a theme. His eldest son, William H. Darling, Woodstock’s Chairman and CEO, recalls that when he mentioned he (Bill) was considering retiring from family-owned Woodstock Corporation and Agawam Trust, Nelson’s reply was, “You can’t retire when you’re taking care of other people.”

Our main article for this quarter is suggesting a very optimistic outlook for our investment style. As the article discusses, there are favorable trends and there are things that could happen to disrupt those trends. A recent Wall Street Journal article highlighted “some good news” in areas that are more commonly treated as problem areas.[1] World population increased by 70 million in 2023, adding to available human capital with consequences for increases in family, relationships, friendships, innovation and prosperity. The global economy, mainly due to the use of fossil fuels, grew 3% in 2023 and is expected to grow almost as much in 2024, with consequences for reducing poverty, increasing available health care and more opportunities for “personal growth.”

How many investors reading their asset statement in mid-October of 2022 would have believed that 50% percent appreciation in the S&P 500 was possible over the next two years? Our statement reader had just absorbed a 25% meltdown in the S&P 500 over the previous ten months and was being bombarded by negativity on many fronts. One “talking head” after another tried to outdo the other with a bearish economic forecast or a dire outlook for Federal Reserve interest rate policy. But since October 13, 2022, the S&P 500 has risen from 3,492 to 5,261—up 50.7% on an intraday basis. It has been a nice, nearly two-year upcycle but additional upside potential awaits. This article discusses the reasons for such optimism.

We suppose that there is now a consensus that the “largest corporate tax reduction in the history of the United States” in 2017 was a big success. “The results of the Trump corporate tax reform were more business investment, more growth, more wages for workers, and little impact on government revenue as lower corporate rates were offset by an expanding economy.

What’s the current state of the US private equity market? “Sustained higher interest rates, inflation…damped deal and exit activity” in 2023.  Exits have been extended for years. “The growing need for liquidity options will likely drive an explosion in continuation funds that provide cash-out opportunities and secondary sales by fund investors.” The investment community’s hope is that individual investors will step in to help.

Remarkably, the economy has continued to grow at a healthy pace even as inflation has come down. The Fed’s 5.25 percentage point increase in the federal funds rate over the last two years has had surprisingly little effect on either consumer spending or the job market. US real GDP grew 2.5% in 2023, a much stronger level than previously expected.

A report coming from the Joint Committee on Taxation for a hearing before the Senate Committee on Finance probably should be a warning that certain tax planning techniques may be in for some increased regulation.