Soundtrack to a Financial Advisor's Life Episode 14 with Andy Hyer
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Asset Allocation Roundup with Andy Hyer of NASDAQ Dorsey Wright for November 2021
CHAMBERS: Hey everybody. This is Trevor Chambers from Olde Raleigh Financial Group here in, actually, sunny Raleigh North Carolina, today. Super pumped today. I’m doing a little bit of – working on a new series with my buddy Andy. And I’m going to have Andy introduce himself here in a second but what we’re gong to do is we’re going to do this kinda (sic) allocation round up. And we’re going to talk about the markets and asset allocation. And I’m really excited about it. I’m really hoping this gets through compliance, right Andy?
HYER: That’s the hope.
CHAMBERS: Exactly. That’s the hope. Okay, so we’re going to steer, you know, you know what I mean – okay anyway, Andy Hyer, it is so – I – I – you were just in town a couple of weeks ago. You were talking to our clients at the Carolina Exotic Car Club. Big shout out to them. How cool was that place?
HYER: It was fantastic. What a cool place.
CHAMBERS: I mean – you’re just starting to get our and talk to clients and everything right, and so what a way to kick off the getting out and seeing the client swing, huh?
HYER: Yeah, no. It was great. Both from the perspective of just being able to shake hands and see people in person. Have a – have a great event but also that venue is something else. Just beautiful place.
CHAMBERS: Yeah, man. Hey, I want to just say, you’re – whatever’s going on behind you is absolutely spectacular man. That – where the hell – are you – where are you? On some sort of spaceship?
HYER: In the office. Just, you know, I thought it’s better than the hostage look with just a blank wall behind me, so.
CHAMBERS: That looks absolutely spectacular. I mean, I get a lot of guests, you know what I mean, and none of them have backgrounds like that. So, I just wanted to congratulate.
HYER: Well, thank you.
CHAMBERS: Andy, so we’re going to talk about allocation. Maybe a little allocation strategy and so to that I – you’re a subject matter expert on this. Could you please introduce yourself and tell us what you do? You’re some sort of allocation superhero so I’d like to talk to you about that. Go ahead.
HYER: No, I appreciate it and I appreciate the – the invitation. You know, so Andy Hyer. I’ve been with Dorsey Wright and Associates for, what almost 20 years now. I guess over 17 years. A firm that you and your team know very, very well. But just a little bit about us, you know, we’re a technical research and money management firm. We have an office closer to – to your neck of the woods in Richmond, Virginia and also, I’m here in Pasadena, California, so. We’re a NASDAQ company and you know, we do some things that I think are interesting and will hopefully be of – of value to – to your listeners.
CHAMBERS: All right. Fabulous. And you’re in – you’re in – it’s tough living in Pasadena.
HYER: It’s a good place. I like it.
CHAMBERS: Yeah, I can see. It’s like – it’s kinda (sic) sunny here compared to your guys is all I’m saying, you know what I mean, but. Anyway.
HYER: Pasadena’s a great place with the Rose Bowl and, you know, it’s –
CHAMBERS: Yeah.
HYER: -- a great – great part of LA.
CHAMBERS: I’ve – I kinda (sic) drove through it one time. I didn’t have – they didn’t let me in. Basically, they didn’t let me in, you know what I mean. They were like nah, not you. You’re, you know, but anyway. But it looked pretty going by. I can tell you that. So, Andrew, what’s going on in the markets? And take – let’s take a kind of a month back. You know, what’s been going on, or, you know, however. You know what, it’s your show, man. You tell me what’s going on and what you want to say.
HYER: You know, what a great time to be an investor. The markets have been so rewarding to – to risk on investments and, you know, one way to look at it, and this is a way that we – we look at it at Dorsey Wright, is we will look at a whole bunch of different asset classes and measure their strength so that we can see what’s strong, what’s weak and if you look at what has been strong and this has been true for years and years, you know, US equities have just been a power house and so for – for, you know, investors, it has been a very rewarding time to – to be in the markets. They’re have been a lot of contributing factors and I think a lot of people would be very shocked given all the things we’ve gone through. COVID and – and just to see the types of returns the equity investors have been able to achieve. So, it’s been a great time to be an investor. We – we – we know that there’s plenty of risk in the markets and I’m not – I certainly am not saying that there won’t be bumps in the road but when we rank – when we rank asset classes from strong to weak, you know, US equities is right at the top. You know, you’ve got commodities, international equities, fixed income, currencies and cash down towards the bottom. So, risk on is – is very much in favor. Risk off, you know, very conservative asset classes are not as in favor. And that doesn’t mean in any way shape of form that people shouldn’t have conservative investments as part of what they do. But it’s been, you know, risk has been rewarded very well this year and the last couple of years.
CHAMBERS: Why?
HYER: Yeah, there are a lot of reasons. You know, I think corporate earnings have been so strong. You know, it’s certainly in a number of sectors so corporate earnings have been very very strong. Obviously monetary policy, the federal reserve does matter. And what they – they do does impact the markets. Them, you know, keeping so much liquidity in the markets, keeping interest rates as low as they have, at zero. And, you know, that favors risk on asset classes. It favors equities and so there have been a whole bunch of things that have really, really helped. I think you look at kind of how – how we handled the last eighteen months, and by we, I mean like the federal reserve and, you know, fiscal policy as well, compared to how it was handled in the financial crisis of 2008, 2009. It seems to me that one of the lessons learned is throw the kitchen sink at the problem at I think that’s what they did and, you know, the markets have responded very favorably to that.
CHAMBERS: Cool. So, I don’t know if you can talk to this but what – this year, what’s been the strong sectors? How many sectors are there, by the way?
HYER: You know, you can either break it down the ten broad economic sectors or sometimes eleven depending on the classification.
CHAMBERS: Okay.
HYER: If you include real estate as a sector, but, you know, industrials, energy, healthcare, technology, utilities, consumer staples and so on. And so, there are a number of ways to break down this – the broad sectors of the economy and the, you know for there have been some that have been stable. Something like technology has been a dominant sector for years. I mean this is not new. You know, technology has just been a power house. What is new is, you know, this year there have been – the leadership has kind of broadened out. It’s not just a one area. There are areas that have been out of favor for years. Something like energy or financials that, you know, in years – the last couple of years have not been as strong. But 2021 has been a great year for those sectors and the other thing that I think is interesting to me is large cap stocks have done so much better than mid-caps and small caps for most of the last five years. That has – large caps are still doing well. But man, small caps and mid-caps have really come on strong this year.
CHAMBERS: And that kind of was – did that kind of start happening around – did that turn happen around COVID or no?
HYER: You know, I’d have to go back and look at the exact –
CHAMBERS: Okay.
HYER: -- (inaudible). It seems to me that early in the year, small caps came in with a vengeance and were doing incredibly well. Then they –
CHAMBERS: Earlie this year?
HYER: -- this year.
CHAMBERS: Earlier this year?
HYER: 2021.
CHAMBERS: Okay.
HYER: And then they’ve – there has been some pull backs along the way but if you look at trailing twelve month returns, small caps have outperformed. Mids – mid caps have outperformed large. And large have done well so it just tells you it’s a broad based, it’s been broad based participation. The areas of the market that maybe have not done as well, you can take some sectors like utilities have not done well, consumer staples have not done as well. So, you know, there – healthcare may not have done as well. So, there, you know, when I look at the breakdown, technology, financials, energy have been among the leaders. Some of those others have been among the laggers.
CHAMBERS: Can you talk to me about maybe, the number one, what influence are you seeing of inflation and are you seeing inflation rippling through in some strength areas of weaknesses in the markets? And the same thing for the supply chain, which may be, you know, it’s tied together so I don’t know if you want to, but, what do you think of that zippy little question? I don’t think it was that good, to be honest with you.
HYER: No –
CHAMBERS: Goa ahead.
HYER: I think it’s a question that’s on everyone’s mind. You know, we’ve gone decade, just decades with CPI with consumer price index running between, you know, zero and three percent and –
CHAMBERS: Yeah.
HYER: -- then all of a sudden, we’re putting, you know, month after month of, you know, readings around six percent. You know, over five percent. So, it’s a – inflation is here. You know, for – for a lot of reasons but it is here. How long does it stay? That’s the debate of the day? You know, how long does it stay. But it’s here for now and, you know, there are companies that benefit in an inflationary environment and there are companies that really struggle. Some of the companies that have strong pricing power that can really pass on that cost to their customers. You know, there are certain companies, trucking companies and there are shipping companies, you know, there are some companies that this is a fantastic environment for them. There are other companies that are really going to struggle to survive in this type of environment and it’s for – for people who own assets, whether it’s real estate, equities. Inflation, you know, it – it can be beneficial. You know, if you don’t own assets, inflations a killer.
CHAMBERS: Yeah. Yeah, that’s well said. What’s going on with – so typically what happens in a inflationary environment from an asset point of view, like what’s the tell, tell, like, well you know when this happens, this happens. I mean, or – historically speaking.
HYER: You know, I think one tell tell, one signal is just when you look at the strength of commodities.
CHAMBERS: Okay.
HYER: For, you know, commodities, if you look at like 2000 and 2009. They did extremely well. The dollar was weak. Commodities were a very strong performing asset class. And then if you look at 2009 to up until about a year ago or so, commodities were just very, very weak. They did very, very poorly. All of the sudden over the last twelve months, you’ve seen commodities really pick up. Crude oil has really gone through the roof. But, you know, base metal, precious metals, they’re have been – there’s been a broad pick up in commodities. That’s just one – and also, you know, real estate. Real estate, you see real estate prices going up. Real estate REITs doing extremely well. So, those are just some signals that you see when inflations, you know.
CHAMBERS: Just money – just money. Right?
HYER: Yeah.
CHAMBERS: Yeah. All right, now hold on. Let’s talk about you more specifically. What you do. You talk strength. Okay. What do you – what the heck do you mean when you say strength? Or for that matter, what do you mean by weakness? I mean, the way I understand it is are more people buying it? Or are more people selling it? Is it in supply or in demand? And then it just – because, you know, can you conceptualize it a little bit more for me because I’m not that smart.
HYER: So, the, you know, there are a lot of ways – there’s a million ways to analyze the financial markets. And analyze investments.
CHAMBERS: Yeah.
HYER: Where Dorsey Wright has really hung our hat is we basically said we’re going to keep this at econ 101 level. We’re going to keep it with supply and demand. And we’re going to evaluate securities based on the supply and demand for the security itself. So, for us, rather than evaluate financial statements, look at income statements and balance sheets and talk to company management and do those types of fundamental analytics. We look at the markets from a technical perspective and we basically say, we’re going to evaluate investments based on the strength or weakness of the security itself. So, it’s kind of rather than going around, you know, looking at all these tangential factors. We’re going to go straight to the security price itself. We’re going to measure the security price relative to others and we’re going to use that as a means of identifying leadership. Now, it – that only is beneficial if there is follow through in the trend. In other words, if you identify securities that are relatively stronger than other securities, if that tells you nothing about the future, then that’s a pointless exercise but what if there’s momentum in the financial markets? What if securities that are strong today tend to continue to be strong in the future. And what if securities that are weak tend to be continue to be weak? And it’s that basic trend following concept that we base our investment approach on and it’s – it’s, you now, there is just all kinds of evidence and research that has been don’t that suggests that yes, there’s absolutely momentum in the financial markets. And so, to us, you know, the goal for – for what we’re trying to do, we want to identify the leadership. We want to identify strong asset classes, strong sectors, strong securities. We want to invest in those securities and then we want to ride that trend as long as we can stay with it. And hopefully we can stay with those positions for years and that’s where we tend to make the most money. So, it’s, you know, looking at things from the lens of strength is critical to, you know, the way that we look at the financial markets. And it’s – it also has the advantage of being extremely pragmatic. In other words, you know, there’s so many investors who they live in a world of this is how the world should be, this is how the markets should be and based on my analysis the markets are eventually going to come around to my way of thinking. For us, at Dorsey Wright, it’s not that at all. We’re basically saying, how is the world? And we’re going to invest in the world as it is, not as we want it to be and, you know, when something is – goes from strong to weak, we’re going to – going to react and we’re going to take the necessary action in the portfolio.
CHAMBERS: And it’s not fool proof?
HYER: No, it is not.
CHAMBERS: It – this isn’t – folks, you know what I mean. All right, this is not a fool proof by any means. Sometimes this works, sometimes it doesn’t. You know, and I don’t think there’s’ one answer when it comes to investing. It’s what you’re comfortable with and what you can – what you can kind of get an resonate. And but it, you know, but momentum does pretty good. I mean, I call it momentum. I mean, I don’t know if that - am I splicing it some other way? I mean relative strength, momentum, I mean –
HYER: We use those terms synonymously.
CHAMBERS: Okay.
HYER: So, whether it’s (inaudible).
CHAMBERS: So there’s not that much of nuance between them?
HYER: No, I mean it’s – there’s a whole bundh of – you can – if I say momentum. There’s, you know, there’s a hundred different ways of calculating momentum or –
CHAMBERS: Sure.
HYER: -- more. But it’s – but at the end of the day, when we say momentum or when we say relative strength, we’re not referring to how strong is the security been over the last week or couple weeks or last month. For us, were saying more intermediate terms. So, over the last year approximately, how strong is the security been relative to everything else? And I think what you said is very well put, which is it’s not fool proof. There – we know very, very well that a percentage of the time, when we buy a strong security in a strong sector, there’s not going to be follow through in that trend. We may sell that position at a loss. But to me, you know, and to us that’s not the end of the world. What’s important is to have a process in place that allows us to, you know, stack the odds in our favor. Identify leadership. Be able to stay with those winners as long as they remain strong. The positions that don’t work out have a – a concise process for rotating those positions out of the portfolio when they deteriorate sufficiently. And so, there’s nothing about perfection in the financial markets. Anyone who –
CHAMBERS: Nope.
HYER: -- approaches this thinking, they’re going to get every trade right –
CHAMBERS: Nope.
HYER: -- not going to happen. But, --
CHAMBERS: Nope.
HYER: -- you know, --
CHAMBERS: Exactly.
HYER: -- if you lock onto to some of those big multiyear winners, man it really covers a multitude of sins.
CHAMBERS: Yeah. Yes. Smiling, you know, I worked in the restaurant business for a long time and but, my family’s restaurant and I did that for about twelve years. Smiling, anybody can handle smiling. Smiling is like -- managing smiling. I can do it all day. There’s – I could do it all day long in my sleep. Anybody can, so when people are happy, that’s wonderful. You’re making money, it’s great. On the downside, but it’s just the way it works, right. And so, you gotta (sic) – but it’s a process. And that’s the key with investing. You know, what’s your process, so. Well, what else – I mean is there anything other things that we should, I mean that we should be talking about at this point? I mean is there anything kind of interesting that’s been going on in the past, say month?
HYER: You know, there’s –
CHAMBERS: That’s surprising you, maybe, or something like that?
HYER: You know, I think the market continues to surprise the upside. I think that’s what’s surprising people.
CHAMBERS: Okay.
HYER: Is that, you know, it surprised to the upside. There are, you know, and I don’t mean to overstate this but look it’s been a great year for equity investors. It’s been a great year for the financial markets. And, you know, no one is saying this is going to continue at this pace forever. That’s not what we’re saying. It’s just that, you know, sometimes when things are good, you just, you know, it’s nice. You take it. You know, this is what – why we invest. We know that the rough times, they will come. But –
CHAMBERS: Oh yeah.
HYER: -- you know, but this has been a great year and, you know, it’s you just keep plugging away.
CHAMBERS: Yeah. And, when those good times come, your process helps you mitigate downside.
HYER: It can. You know, depending on the strategy and you know, --
CHAMBERS: How could?
HYER: -- there – there’s –
CHAMBERS: I should say could. Could help.
HYER: Yeah, I mean there – we run a range of strategies and there are a range of things – ways to invest and some of our strategies are more volatile and tend to have deeper drawdowns in the market and others tend to be more conservative and have – have different mechanisms for playing – playing defense. But you know, I think what is – what’s important is know what you own. Know why you own it and know where it fits in an asset allocation. That’s where, you know, you and your team have a, you know, sit down and be able to construct the right asset allocation that someone can live with. And what – what’s the right asset allocation for one person may very well not be the right allocation for someone else.
CHAMBERS: Most definitely. You know, you don’t want to put anybody at risk. You know, it’s – people underestimate risks, right? Isn’t it amazing how we just like, just waltz through the world completely – but in investing, these good times are great, you know what I mean? But don’t – don’t kid yourself. There’s risks.
HYER: Yep. For sure.
CHAMBERS: We didn’t see COVID.
HYER: No.
CHAMBERS: Didn’t see it.
HYER: Nope. There will be losses. Most definitely there will be losses in the future and it’s just making sure that you got the right mix so that when those losses in the equity markets come, you’ve got the right balance and you can whether the storm. But, you know, financial – love the financial markets. Everything in the world is connected.
CHAMBERS: Yeah.
HYER: You know, politics, economics, everything is filtered in and factored into the markets. It’s, you know, it’s exciting. Every single day is interesting and there’s, you know, it’s a great industry and a great, great place to be and it’s – we’re very fortunate to be able to work with clients and – and look to serve them and meet their needs.
CHAMBERS: Fabulous. Well, my friend. Thank you. This is the first ever asset allocation Friday roundup. I don’t know if any of that made sense to anybody but I thought, Andrew, definitely made sense. I don’t know what I made sense of, but. No, no, no, I’m only kidding. Actually, man, in all truth on this, it’s a – we live in a highly financialized world. And people underestimate the great potential value of advice. Because there’s just too much, right? And we all are trying to live our lives and, you know, I’m sick, I go see a doctor. You know what I mean. And, so it’s just a super financialized world that we live in. I think you would know that. You know, and – and it just there’s so much topography to manage, would you not agree?
HYER: Absolutely. It’s, you know, the challenges, how do you make sense of it all? And how do you bring it –
CHAMBERS: Yep.
HYER: -- down to a level that is – that you can apply it and make specific choices for that particular client and that’s – that’s the challenge. Because there’s so much information. It’s that old adage, you know, drinking from a fire hose and it’s without – without a process.
CHAMBERS: Yeah.
HYER: A way to synthesize it all, to make sense of it and to apply it to anyone –
CHAMBERS: Right.
HYER: -- individual investors needs. You know, it’s overwhelming. They’re plenty of people who – who love the markets and they’re going to do it all in their own but they’re many people who feel like the need financial advice.
CHAMBERS: Well, the thing about it is, you know, there’s – there’s, you know, as you – you and I, we do it – we do what we do, right? You guys are sort of the – one of the engines to the plan. My job as the advisor is to take what you do, show it to the client, get them to understand it. But that part, asset allocation and all that, that’s just – that’s sort of like I consider – that’s one engine. But then the plan is this whole thing, you know what I mean. And integrating it all together and saying hey, this is why we do this because, you know, the plan says that this makes sense. Because it’s within your risk profile and that’s what I love – and again, you know, from our point of view, you guys are one aspect, one part of the investment process for us at Olde Raleigh Financial. We couple it with other things to make it make sense for the client and from the risk profile and all that stuff, right. So, but I will say when we do use NASDAQ/Dorsey Wright and it’s – and show them the graphs and the charts as we say, it’s – it really helps people on a – it really helps people. I mean, I can’t – I can’t think of how many times that you know we’d be discussing particular stock that they had like an emotional attachment to and you show them the chart and it’s like, hey man, that’s a great story but it’s just a story. I don’t see it. Right?
HYER: It is. You know, --
CHAMBERS: It’s so helpful, man.
HYER: -- there’s this picture –
CHAMBERS: It’s so helpful/
HYER: -- a pictures worth a thousand words. It really does put it in context when you can look at a chart of something. It speaks and it tells you, you may think that everything’s perfectly rosy just like you said with a given company. You may think the outlook is – is fantastic. If the chart looks horrible, then you – at a minimum –
CHAMBERS: Minimum.
HYER: At a minimum, you should stop and think about it.
CHAMBERS: Yeah. Yeah, it – exactly. Exactly. Exactly, so. Well, anyway, we can wax and wane about that. All right, but listen, I want to thank you, man. I really appreciate it. I – I’m hoping this gets through and we’re able to do it. And we’re going to make more of these. And, no, but I really think this is helpful. I mean, I really think the people – they’re yearning for this type of information and I just think it helps people. Again, it kinda (sic) helps them make sense. We’ll watch it. You and I will watch it for you, right. But when you want to come in once or twice a year to talk about it, I think Andy and his team are really helpful and help us do that. So, Andy, I want to thank you and I hope that this is going to become a long series that we do. So, what’s going on this week and what are you doing? You got five kids. I’m definitely thinking it’s going to be involving kids.
HYER: So, we got – we got some – some soccer games on Saturday. I’m actually taking – I’m taking my girls to the Harry Styles concert on –
CHAMBERS: Right on –
HYER: -- Saturday night.
CHAMBERS: -- cool dad.
HYER: Yeah, no that’s –
CHAMBERS: My girls, so – my girls caught – my oldest caught that – caught that tour here in Raleigh.
HYER: Okay.
CHAMBERS: Knocked – he’s amazing.
HYER: Well, that’s good to hear. I’m looking forward to it. So, we’ll have a good time.
CHAMBERS: I tell you what, man, are you – his band, okay it’s pop stuff. Okay, all right. But it’s well done. You know, he’s definitely a fan of the Beetles, for sure. And so, you might catch some stuff that kinda (sic) reminds you of that. And also, he’s got like hints of, in my opinion, Pink Floyd. He’s got a little of that in there. But I will tell you what he is a showman. He’s a great dresser. He’s -- my kids – my girls talk about it all the time as I’m sure yours. And then, his band is sick. They are really, really good, so I expect a guitar player and that drummer and that bass player ripping your face off on that one, brother, so. Where are you guys going to see him?
HYER: It’s at the – the Forum in L.A.
CHAMBERS: I mean, Andy, it’s a tough life you got.
HYER: I’m looking forward to it. So, I appreciate the, you know, the endorsement of the concert. It’s – looking forward to it, so.
CHAMBERS: No, man it’s cool.
HYER: I hope you – I hope you and yours enjoy the weekend and get ready for Thanksgiving.
CHAMBERS: Yeah, man we actually have the Syracuse/NC State game tomorrow and so I’m from Binghamton, New York and I actually went to the school right around the Syracuse campus so were going to be doing some tailgating with my partner Blake. My business partner, Blake and I, so. All right brother.
HYER: Sounds good.
CHAMBERS: Thank you so much. All right you guys. Thanks for tuning into the – what the hell’s the name of this? The Soundtrack to a Financial Advisors Life. The Soundtrack to a Financial Advisors Life at Olde Raleigh Financial Group. All right brother, thanks a lot. Have a good weekend. I’ll talk to you soon.
HYER: You as well. Take care.
CHAMBERS: Bye.
(INTERVIEW CONCLUDED.)
Trevor Chambers
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing. Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”
Andy Hyer
Andy is a member of the portfolio management team at Nasdaq Dorsey Wright and is responsible for sales and service of investment strategies across Dorsey Wright’s funds, ETFs and SMA accounts. Since joining Dorsey Wright in 2004, he has authored original research on the subject of technical analysis and speaks and writes regularly on the topic of momentum investing. He is a Certified Financial Planner, Certified Investment Management Analyst, and a Chartered Market Technician. He holds a B.S. from Utah State University with a dual degree in Finance and Economics.