The Westwood Report - Financial Firm Dallas

THIRD QUARTER 2019 | REVIEW

The Westwood Report

Compiled and written for clients of Westwood Wealth Management.

Putting Clients First

Inside...

Capital Markets Outlook | 3

Financial Planning | 5

Faces of Westwood | 7

Westwood Welcome

Leah Bennett, CFA

President Westwood Wealth Management

Fall is always my favorite time of the year. Unfortunately, in Texas its arrival always seems delayed. The fourth quarter of 2018 was one that was marked with signi cant downside volatility. We are entering the fourth quarter of this year with much uncertainty, as well as escalating risks. It will be interesting to see how the remainder of the year plays out. At Westwood, our overall investment philosophy is geared toward outperforming in down markets. Hopefully, this continues to give our clients peace of mind.

As we enter the fourth quarter, it is always a great opportunity for people to have a renewed focus on planning. As baby boomers continue to age, many families are impacted by parents or spouses who are su ering from Alzheimer's or dementia. We are proud that one of our colleagues, Shelitha Smodic, has done a considerable amount of research in this area. The paper, "Financial planning with ambiguous loss from Alzheimer's disease," is co-authored by Shelitha and was published in the August issue of the Journal of Financial Planning. In this edition of The Westwood Report, we will share some of her research. In addition, Shelitha will discuss passing on your legacy. At Westwood, we have a history of outstanding investment solutions for clients, but we are so much more than a money management rm. We also have outstanding resources to help clients work through various challenges in life. I think this edition of The Westwood Report, in particular, highlights many of these valuable resources.

Historically, Westwood has been a very entrepreneurial rm. We listen to feedback from our clients and are constantly looking for more ways to create value. The origin of many of our investment solutions came from input from clients. Last year, we added private equity to our o erings. This year, we launched a private bank, which is highlighted in this report. Stay tuned next year as we plan to launch a new, robust client portal. I look forward to sharing more about this development in the near future. In the meantime, enjoy the months ahead!

Next Quarter...

On the Markets

Read our insights on the 4Q19 and our outlook for the new year.

Personal Finance and Financial Planning

With the start of 2020, our advisors will give their insights on relevant topics.

On Our Bookshelf

See what we're reading to kick o the new decade.

2 Putting Clients First

Capital Markets Outlook

Third Quarter 2019 Review

Firm View

Looking back, equity markets ended the quarter modestly higher despite all the same macroeconomic and political headwinds that it has been dealing with for several quarters.

In fact, the S&P 500 ended the third quarter less than 2% away from its all-time high and continued to appear relatively unfazed by the latest tweet, headline or data point. Conversely, bond markets were not as calm -- the yield on the 10-year treasury bond fell another 35 basis points to 1.66%.

This comes on the heels of last quarter's decline, with both now totaling an incredible 75 basis point decline

since the end of rst quarter 2019. Equities responded to the move lower in rates, as historical "bond proxies" like Utilities and Real Estate moved sharply higher and were the top-performing sectors for the quarter.

Investors reverted their "low interest rate playbook" of hunting for yield among the steady and stable business models of those sectors. More broadly, investors further segregated companies into similar buckets across the rest of the market, favoring high-quality, cash-generative businesses over those with large amounts of debt and greater levels of uncertainty over their future earnings and cash ows.

2019 Third Quarter and 1-Year Trailing Returns Across Asset Classes

25

20

15

10

5

0

-5

-10 -15 Alerian MLP -

Total Return

S&P 500 Total Return

S&P MidCap Total Return

S&P SmallCap Total Return

MSCI AC World Index ex USA -

Net Return

Bloomberg Barclays US Government/

Credit

ICE BofAML US High

Yield (Local Total Return)

FTSE Nareit All Equity REITs Total Return

Source: FactSet 3 Putting Clients First

QTD

1 Year

The clearest example today of investors' preferences is the failure of the WeWork initial public o ering (IPO). While chronicling all the happenings surrounding the failed IPO would take many pages, the drama roller coaster began in August for WeWork when they led their IPO documents to go public.

Investors began closely examining their lings, to understand their path to pro tability as well as their management team and structure. There were clear concerns by analysts as they tried to look forward to when and how the company would be able to grow. WeWork needed an increasing and accelerating amount of cash to continue acquiring additional o ce space, as the company was currently not pro table, requiring that cash in order to pay its employees and current real estate lease obligations.

In short order, investors grew skeptical over whether the company would ever be able to turn a pro t. Additionally, serious questions began to arise regarding governance, or how the company's management team was structured and operated. The CEO and cofounder, Adam Neumann, came under re for his leadership style as well as several decisions he made, and he eventually was replaced.

Ultimately, in barely over a month since its debut, the WeWork IPO was postponed for a later date. The valuation for the company over that period had come down nearly 80% from $47 billion to just $10 billion potentially at the end. This serves as a cautionary tale, much like the dot-com era from the late 1990s, for investors when thinking about long-term investment returns from businesses, both small and large.

Businesses with well-established track records of generating pro ts and cash ows trading at attractive valuations may not sound as appealing, but likely come with less risk to permanent capital loss, versus "high iers" and potentially "world-changing" businesses that are unpro table and reliant on raising additional cash each month, quarter and year just to survive. While statistics vary on this, some estimates are that upwards

of 90% of startups fail within ve to 10 years of their founding. While the story of WeWork is interesting, the broader implication remains the same as investors grapple with uncertainty in the markets.

1 Growth remains solidly positive here in the U.S., with the most recent GDP reading of 2%, however, survey data from some industries, like manufacturing which appears to be slowing or even declining, raises the prospect for even further moderation of future growth rates.

Slowing in other parts of the globe remains a concern given the linkages between the major economies, though their data suggests some areas of the economy may be bottoming or turning higher.

The talk of a potential recession has increased as headwinds and uncertainty remains high, which continues to weigh on business con dence and capital investment decisions. However, company fundamentals largely remain solid as many continue to generate strong cash ow and have reasonable amounts of debt.

2 The Fed pivot was completed in July, when it cut their benchmark rate for the rst time since the nancial crisis in 2008, versus the original expectations for rate hikes as the year began. The Fed brought the "punch bowl" back, and so far, has cut rates 50 basis points with expectations growing for another cut before year-end. Investors continue to look for further support from the Fed and other global central banks to bolster global growth, even as the economy is currently still growing and markets remain near their highs.

3 The continued trade war ongoing with China and the U.S. creates near daily headlines regarding either potential progress made or setbacks and snafus encountered. Investors and companies alike are growing weary with the constant stream of (mis)information, but this remains a large, potential swing factor for the U.S. and global economies if there were to be a comprehensive deal struck.

4 Putting Clients First

The media e orts for potential nominees ahead of the 2020 presidential election is also another factor. While many campaign promises are in the process of being made, certain companies and industries are potentially at-risk from these new policies and regulations being promised and remains something else to closely watch for investors.

While the market awaits answers to these questions, we continue to invest as long-term stewards of our clients' investment funds and wealth plans with an eye toward the

future, focusing on creating long-term value for our clients as we have done for over 35 years.

We remain vigilantly focused on protecting client capital during these periods of uncertainty and volatility. We strive to achieve this by investing in high-quality businesses generating strong cash ow and with balance sheets to weather any potentially disruptive storm.

Financial Planning

Determining the Right Time to Give

Shelitha Smodic, CFP? Private Wealth Advisor

The desire to provide support to family members through nancial gifts is a very common goal for parents and grandparents. However, the desire to make nancial gifts to family members may be only one of several nancial goals that a family has.

This leaves many families with the frequently asked question of "When is the right time to give?" The answer is "It depends." The right timing and strategy for gifting varies by family. There are a few key considerations before deciding when to give. Below are two questions to ask yourself before starting to give to provide some clarity on whether now is the right time to start giving.

As any ight attendant will tell you prior to departure, you must put your oxygen mask on rst before helping others. Similarly, when thinking through nancial gifts to others, it

is a great time to re ect and talk to your nancial advisor to determine if you are currently on track to meet all your personal nancial priorities like saving enough for retirement or discharging debt.

As much as giving for family expenses like education may seem like the utmost priority as they may be an immediate need, prioritizing nancial gifts to pay for the education expenses of a family member before making sure that you have enough for your own retirement could negatively impact your well-being in the long run. This could make a well-intentioned gift a nancial burden later in life.

If you are thinking through making a series of nancial gifts or of giving a large nancial gift, a nancial advisor can help you to determine the impact of your giving on your goals, determine an optimal strategy for giving, or even create a family giving budget to show how much you can give without putting your goals in jeopardy.

5 Putting Clients First

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