The Trends That Will Shape Tomorrow's Investment Landscape

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• Asset allocation is always a delicate balance between risk and reward, especially when the macroeconomic landscape is so dynamic.
• While superior portfolio performance is a must for any successful asset manager, Casey Clark, President and Chief Investment Officer of Rockefeller Asset Management, says that consistent, repeatable processes are crucial as well.
• What do those processes look like — and how do they drive an effective investment strategy? What are the trends to watch and how could they shape the markets in the years to come?

In the world of wealth management, portfolio performance matters. That’s a given. After all, it’s how wealth is built. It’s why you’re here, reading about investing.

But what’s underappreciated is “process and style — consistent, repeatable process,” says Casey Clark, President and CIO of Rockefeller Asset Management and a member of the Rockefeller Capital Management Committee.

“Underperformance can happen over near-term cycles. It’s okay if it’s a result of process. For example, if you have a high-quality process and high-quality stocks [that] are underperforming, you can manage through … as long as the long-term trend is higher.”

The $13 billion Assets Under Supervision (AUS) asset management division Casey leads is part of Rockefeller Capital Management, the living legacy of oil baron John D. Rockefeller’s original family office established in 1882. It was the first full-service family office in the United States, launched inside the Standard Oil Building at 44 Broadway in Manhattan. That building no longer exists, but the family office does, headquartered in — you guessed it — Rockefeller Plaza (“45 Rock,” to be precise).  

To talk about what the Rockefeller legacy looks like in practice today, Casey joined host Alan Dunne for a Top Traders Unplugged Allocator episode that covers everything from portfolio composition to the characteristics of great investors and the asset division’s environmental, social and governance (ESG) efforts. 

Read on for highlights of their discussion, including Casey’s take on the macroeconomic forces to watch over the next decade.

‘Outperformance’ evaluation

“There are a lot of different styles of investors,” says Casey. “You can have great growth investors, great value investors, great macro investors, great high-quality investors. … It’s [about] finding that niche, narrowing in on that — honing and differentiating that skill.”

He notes that many of Rockefeller Asset Management’s long-only strategies are high quality in nature: “We believe, over the long term, that’s just going to generate outperformance. How do you define that? Think high return on capital, low net debt to EBITDA, solid operating margin, strong free cash flow.”

An “outperforming” firm, for Rockefeller, features six key characteristics: a strong management team; clear competitive advantages; end-market growth; balance sheet strength; ESG improvements; and valuation. 

“Now, it’s easy to say and communicate, but it’s harder to identify those stocks,” Casey notes. 

That’s how he and his team spend a lot of their time — and it’s a good example of their process-based approach in action.

Megatrends and paradigm shifts

Over the next decade, Casey sees four “megatrends” that will continue to shape economies and markets: tech, healthcare, demographics and climate change. Institutionally, Rockefeller emphasizes “understanding the potential implications of these things and using that information to develop unconventional and differentiated insights,” he says.

Technology “probably requires no explanation for your audience,” Casey points out, although it’s worth noting that virtually every industry and macroeconomic force on earth is untouched by the rapid pace of innovation. So there’s a bit of a megatrend overlap — for instance, Casey expects “dramatic advancements relative to decades past” in the realm of healthcare technology.

Demographics, trend-wise, is “more than just populations getting older — it’s [about] how that impacts the economic machine,” he adds. For example, younger generations often exhibit vastly different consumer buying preferences than their elders. 

But by far, climate change has the most potential to spark radical shifts in just about every aspect of our lives.

“I believe it will transform economies and markets,” Casey says. “We are just at the tip of the iceberg of seeing some of the ramifications of climate change.” 

Can we engineer a kinder capitalism?  

For Casey, the real challenge is identifying attractively priced companies within the four aforementioned megatrends that also exhibit those six high-quality outperforming characteristics.

The greatest challenge for policymakers — “I believe I’m paraphrasing Ray Dalio,” he notes — is to “engineer a capitalist system that raises productivity and living standards for consumers without worsening inequities and instability.”  

Even if policymakers can manage to do that, there’s a real chance that climate change will worsen inequities and instability. Aging demographics, too, could counterbalance any improvements in living standards brought about by advances in technology and healthcare.

“These four forces will, over the long term, create an environment that could potentially lead to higher levels of income inequality, which could be a challenge,” Casey explains. “There will need to be leadership underway to ensure … we’re able to balance these forces in a way that allows for stable economic growth. There are risks if those dynamics aren’t thought through.”

Unwinding the unprecedented

In terms of the U.S. economy, Casey notes that we’re “going through a long and slow period of unwinding” after “decades of unprecedented quantitative easing.” But that unwinding will not happen overnight. 

“There will be more sideways markets. There will be more volatility … with such a rise of growth investing, [we] could have a resurgence of value investing where things like free cash flow matter.”

But he doesn’t foresee us going back to the “Benjamin Graham days of value investing,” given the rapid pace of technological change.

“But there will continue to be, in my view, a focus on free cash flow generation in this high-quality bias,” he explains. “What was interesting is, if you read a Reuters article in December of 2022, it would have said that 60-plus percent of economists were predicting a recession … and 75% of economists said that their GDP forecast was skewed to the downside.”

Last year, economic forecasts were “too negative” overall, but this year, “it seems the market is just too convinced [about] a soft landing,” Casey says, citing the expectation that S&P 500 earnings will grow at a rate of about 11%, yet the consensus also seems to be that the Fed will cut rates six times. 

“It’s just hard to square those scenarios: an economic environment that is supportive of above-average earnings growth and an economic environment needing six rate cuts,” he explains.

In the near term, the truth is probably somewhere in the middle: More robust (or more modest) earnings growth coupled with fewer rate cuts. 

“Even if you reduce earnings growth next year to 7%, you’re still at around a 20 times multiple. It feels a little rich, but it is in an environment where you have a 4% treasury yield. So the market could muddle through much of 2024. It could consolidate last year’s gains,” Casey points out. “This is just emblematic of a world where we are trying to slowly wean off quantitative easing.”

How to think like a Rockefeller manager

To say that Rockefeller Capital Management is a competitive environment would be an understatement. Casey notes that the company attracts “world-class talent” across its divisions. In 2022, 1,450 resumes came in for one analyst role. This coming summer, Rockefeller received 8,600 resumes for 22 internship positions — a 0.2% to 0.25% acceptance rate.

So naturally, Alan wanted to know Casey’s take on what it takes to be that good.

In the absence of a proven track record, a newly minted finance grad or early-career candidate must exhibit the potential for greatness. The two main characteristics Casey looks for are passion and intellectual curiosity. 

A role in high-level wealth management is “challenging and it’s a lot of hard work, and you need to wake up every day excited to take that on,” he says. “I mostly try to convince people not to join the industry. What you want is people who understand that [level of commitment who are also] … unconventional thinkers.”

“You just want to see this relentless pursuit of excellence in investing,” he adds.

Hear, hear.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.