The New Rules of Investing: Eric Fuhrman’s Take on Markets, Rates & Sectors (Ep. 140)

Speaker A: Transferring wealth successfully starts with asking yourself questions that will give your family a better life now and for generations to come. In this podcast, financial experts John and Michael Paris from Copper Beach Financial Group guide you through eye opening questions to help you discover the truth about your wealth. Now on to the show. Hello and welcome to the Truth about wealth with John and Mike, Michael Paris of Copper Beach Financial Group. But we just have Michael today because, you know, his dad's out doing something, having fun. It's summertime, so he's probably at the beach, right?

Speaker B: Yes, he, he is. And uh, he would have loved to have been here, but he has a good friend that's in town and so uh, it was kind of a fortuitous thing that they were able to get together. So um, I'm flying solo today but, or, or at least on the Copper beach side. But we've got a guest here with us today, uh, so that'll keep things interesting for sure. So I'd love to introduce Eric, uh, Furman from City National Rockdale. Uh, Eric, thank you so much for being here. Great to, great to have you on.

Speaker C: That's a pleasure. Happy to be here.

Speaker B: So Eric, uh, we can, we were chatting a little bit before we uh, started recording here. We can go in a lot of different directions I uh, think with our talk today, but we uh, had the pleasure of talking with uh, your, your colleague Ben Ludwig on a prior podcast kind of about who CNR is, how you guys approach managing portfolio. So for any of our listeners that have uh, maybe not heard that first, uh, episode we did with Ben, I, I would encourage you to go back and listen to that because I think that's going to really provide a really good foundation, uh, probably for what we're going to talk about here today with Eric. But um, love to kind of hear, you know, we're, I mean obviously we're talking to clients all the time about what's going on in the markets and you know, we're living in, in volatile times here to say the least in terms of, you know, whether it's tariffs or trade wars, new tax laws, uh, as we're recording, this just went into effect not too long ago. And so our clients are really, you know, looking to us for guidance here. And I'd love to really kind of, you know, just pick your brain on how you at CNR are really approaching all of this change that's happening and maybe just get into kind of like where are we with uh, kind of the, the, the economy here today? So, I mean, I don't know if that's a uh, good bridge from a starting point, but love to kind of hear you know, how you guys are thinking of things going forward here.

Speaker C: Yeah, that's a completely fair question. So yeah, thank you for having me and happy to discuss all of this. This is a very interesting market obviously and if we think about the past 25, 30 years of investing, we've had a lot of different types of cycles that are impacted by different types of factors. And the market we're in today is definitely one that at least in the last year or so has been very much influenced by external factors. So we would compare thinking um, about policy in particular tariff policy, tax policy, regulation, those having the biggest impacts in the near term on market direction. And we kind of contrast that with uh, periods like the tech bubble or the financial crisis where those are more traditional greed and fear type price movements and fundamental analysis worked fairly well in that time. If you were disciplined and you were adhering to some fundamentals, you could see kind of what was evolving. Um, and if you were disciplined again had success in those periods. This period now is honestly a little bit more similar to the COVID period. Different but where external forces and policy responses were driving markets in the short. Our take kind of on this now is that there's a lot of risk in both directions to both the downside and the upside. And the way we approach our client portfolios, which is a little different I think than some traditional asset managers. We're a multi asset class manager. We deliver custom strategies for each of our high net worth clients. So every client has kind of a North star portfolio allocation that's their long term roadmap. And in different periods within an economic cycle or market cycle, we'll overweight or underweight different asset classes, industries, security types depending on where we are. And in this period given the volatility we've had, we are fairly close to neutral to our long term allocations for the majority of our clients. Understanding that those allocations are set to withstand a multitude of market events and meet client goals from a risk side and an expected return side. And we are fairly close to those in this period. More so than in a lot of our.

Speaker B: Yeah, I mean it's um, like I said, it's very lot is going on uh, to say the least. And so uh, I'd love to kind of also touch on because what one thing that's. I uh, think maybe today even uh, it's going to come out at Fed meeting, right. So interest rates, that's, that's a hot topic today as we're recording this. And you know, are they going to go down? When are they going to be cut? President, uh, Trump, I know, you know, aggressively advocating for a, uh, rate cut. Do you, do you guys see that on the horizon for this year is kind of approaching the end of 2025, or do you think we're going to stay kind of pat with where we're at today?

Speaker C: Our assumptions are, are we're working on the, the assumptions of a range of 0 to 2% or excuse me, 0 to 2 cuts this year. And there's, and the reason that that's a wide range of 50 basis points is there's still a lot of information that needs to be digested. We haven't seen really much impact flow through the data from tariffs yet. Policy themselves haven't set and reaction to those policies needs to be observed for some time. And obviously, as I'm sure you and probably a lot of your listeners are familiar with, the Fed has a dual mandate. Their mandate is to keep inflation at 2% and to keep unemployment relatively full, which is a 4 to 4.5% range. Typically the unemployment side is correlated to growth. So if we simplify that and think about basically inflation and growth as the tool mandates, a lot of uncertainty remains on um, how policy is going to impact both. And obviously in a tariff related inflationary environment, the recipe for that from the Fed is to raise rates. And in a slower growth environment, the recipe is to cut rates. And the Fed is kind of caught in a position like most market participants, where we don't know on the weighing scale of things which is going to fall more heavily and which side policy is going to be required to offset a bigger swing from standard long term expectations. Markets are waiting, I think. Oh, go ahead. Sorry.

Speaker B: No, no, no, please. I thought you were finished. Go right ahead. Love to hear more.

Speaker C: And so right now markets are pricing this in and we are in line with markets and the expectation that we're likely to see a cut than a raise. But the timing of that is really uncertain right now.

Speaker B: Okay.

Speaker C: The Fed has been very disciplined. If you're going back to 2022 where we saw bond markets not pricing in the level of rate hikes that we saw to combat inflation and also bond markets as late as March of 2023, pricing in three cuts at a time where the Fed was really clear they weren't going to cut until we saw close to 2% inflation. At the time we were running at about 6. And so they didn't cut obviously until 2024. And the Fed has shown this, this makeup of the board has shown a lot of discipline in waiting to cut and making inflation a priority.

Speaker B: So how does that, so you say more market neutral. So does that impact how you approach whether it's portfolio construction or asset allocation? Is it obviously because you're managing custom portfolios? I'm sure the answer to that's probably going to vary from client to client to a large degree. But how, how does that topic really impact how you're approaching the management of portfolios?

Speaker C: That is what's leading to us to have a fairly neutral stance when we think about the balance in uh, allocations between overall equity allocations and overall fixed income allocations. Why we're fairly neutral at this time. So uh, the other thing with rates though too is we've seen over the last year, obviously we've seen the short end come down as the Fed is cut, but we've seen the 10 year rise to be at a higher level than it was a year ago. So a lot of lending obviously comes off 10 year in residential mortgages, 5 year commercial, so rates themselves to most consumers and most businesses are in fact higher than they were here. Think about actual lending.

Speaker B: Right. So um, you mentioned tariffs before and it's kind of their inflationary uh, impact on, on kind of the markets. What, what, what are you seeing in terms of impacting that? I'll shift a little bit maybe to the stock market in terms of uh, affecting supply chains and things like that. How, how do you guys approach that? Are there particular sectors or asset classes that you guys are looking at more on the equity side that are maybe will fare better or worse uh, in kind of with, you know where we're heading from a tariff perspective.

Speaker C: Absolutely. And part of that is right now we're a lot more constructive on financials which are much more immune to that. And depending on if there's more capex or there's is onshoring to the U.S. there's going to be a lot more business investment going to behoove financials who are lending to those businesses and they're obviously a lot more insulated from the tariff impact. From an importing standpoint, there's no physical goods associated with financial services. So that's an area that we like. We still like technology even though some of the consumer electronics areas like phones and physical goods will be under some pressure. We still think that the innovation cycle is early to mid especially with regard to artificial intelligence. So we think there's a long Runway there as well. So those are two areas that we like right now. It's uh, going to be a little bit more challenging in healthcare, particularly pharma. Um, tariffs are going to have a big impact there and industrials as well. So we're just from our standpoint we deploy quantitative constraints but have a fundamental stock picking team that's always looking to find the best investments that are going to be resilient, have deep competitive moats and are trading at valuations that we think are achievable and exceedable by those companies. So we're constantly shifting our active portfolios to put them in the best position out.

Speaker B: That's great. What, what about energy? How, what, how are you looking at, at that market or asset class, uh, from a, an opportunity perspective, uh, in light of kind of where we're at today?

Speaker C: Yeah, that's, I mean that's a sector that's really had some, a lot of cyclicality. If we go back a decade and a half or so, um, it was a difficult place to invest in the US because you had a lot of EMP companies that were shoveling capex, basically putting all their earnings back into businesses and chasing after more and more difficult and expensive to obtain resources. There's been a lot more capital discipline and energy lately and that's been an investor call, a lot of activism or uh, less tolerance for lighting money on fire on investment space. And the companies have gotten more efficient so there's a little bit more attractiveness. At the end of the day though, it's a global commodity and global commodities are very volatile and those businesses, especially the EMP companies, are effectively price takers. So they don't have the kind of moats that you could find in other industries. So we have a healthy weight, we're fairly neutral there right now. Um, and again part of that just because of the better operations and capital discipline by those companies where the majority of our client investments are domiciled right now.

Speaker B: Yeah, so I mean, and kind of a similar asset class would be more think like gold, which is on, you know, this year, kind of on, on a tear. Um, do you foresee that continuing in the future? We think we've reached a peak on, on that uh, asset class from a growth perspective, uh, in light of kind of where we've that now halfway or so through the year.

Speaker C: Yeah, so I don't follow that asset class deeply. We don't allocate to it as a core asset class. Uh, it's obviously a fear indicator and it's interesting in a time where equities are performing very well. Over the last several years that gold has seen an uptick. And I think a lot of that is due to fears of global instability, uh, that we've been seeing. You kind of correlate that with some digital assets as well. But at the end of the day, gold's an interesting asset class because its utility is a lot less than its actual price. And so it's not fungible currency. It's been perceived obviously as a store of value for some time and I don't see that going away. But again, that's an asset class. That's not one that's analyzable with fundamentals because it does generate a cash flow.

Speaker B: Yeah. So how, Eric, how would you, I mean, if you're an investor and let's say sell, uh, your business, you, you know, you have chunk of money now and, and you're looking to move into a, a invent a different world really. But from an investment perspective, I mean, what are the things that you guys think about in, in terms of asking that client about how they now want to deploy this capital within, within kind of where we're at now. And again, you're kind of market neutral outlook is, is it something like dollar cost averaging that you would look to, or is it a specific asset class that you would look to like? Uh, can you give our audience a little bit of an insight how you might approach that situation when you're meeting a new investor for the first time?

Speaker C: Yeah, absolutely, Michael. So, you know, we, part of this is really establishing what our plan is going to and there's a lot that goes into that. Uh, but to kind of simplify it, we think a lot about the ability to take risk and the desire to take risk and so how much return is needed for lifestyle, for cash flow, to meet current needs, time horizon of use of assets, whether it's to actually be spent during a lifetime or it's more legacy, um, who the beneficiaries are ultimately and how a family or a person deals with volatility. Because some people just emotionally struggle with downside and we have to be cognizant of that because this is an experiential return stream that we have throughout investment life cycle. So we take that all into account when developing an allocation and we do that. We're obviously we're using a lot of traditional asset classes. We've been bullish on US equities for the last five years. We haven't had a dedicated allocation to developed or emerging markets for over five and Part of that has just been the way the US markets are structured from a regulatory standpoint, from where the growth is, where the intellectual property is capital and the struggles that some other areas in Europe in particular have really had coming out of the financial crisis and their inability to kind of grow. And there are a multitude of reasons we could get into at some point on that. But for us, US equities have been an area that we've been really strong on. Even with this kind of snap back a little bit this year, we're still more constructive there for many reasons. We also then we think about portfolio construction, we think about income generation from different assets because that's despite price volatility. You have two components of return. There's price appreciation, there's income return. Even in difficult markets that income return is fairly ridiculous absent major defaults, especially investment grade side. We haven't seen a default investment grade bonds since WorldCom or Enron. Policy has really changed around fraud liability. And we have the opportunity now to actually generate, not just mitigate risk versus equities, but we can generate a meaningful return in those asset classes now, which kind of changes the landscape for us. There was a period where we were very heavy years ago in dividend equities because that was a place where we could generate a cash flow stream. But we can now get that from corporate bonds, from high yield bonds, private credit. So we have a lot of tools in our tool bag to kind of meet some of those client needs. To answer your question, on dollar cost averaging, when we have clients come in, we typically spend about three months either transitioning a portfolio or if it's cash portfolio, maybe an IRA rollover or something like that. Typically spend three months building that portfolio from day one out. And we take half positions in securities and we're trying to be really thoughtful and methodical about when we take positions and how we, how we move into that. We have certain levels. We'll think about equity markets. If they're more attractive, that'll be quicker process and if they're fairly expensive, that might be even longer process depending on where we stand in the cycle.

Speaker B: Yeah, no, that's uh, that, that's really all very good information and I am actually interested to hear a little bit more if you can, on kind of, you know, the emerging markets or developed international markets versus the U.S. europe as, as well as maybe China and how you guys are positioning yourselves uh, in light of, of sort of their outlook economics wise. I'd love to hear a little bit more detail on that because that Comes up a lot, A lot of, I mean, and I hear this a lot from uh, people in your shoes, even from clients. Almost as if, man, we've really, there's been such a US bias in, in terms of our domestic bias in terms of portfolio management. Or should we be looking at opportunities on the international side or the emerging market side? Are those undervalued relative to where we're at in the US So it is a constant conversation that we're having there. So I'd love to maybe get a little bit more detail on, on that side of things. I think it'd be great.

Speaker C: Sure. And this is all situational. So as a firm, we've been in international markets before and even in our, our core equity strategy, we've had holdings that are non US but just haven't had dedicated sleeves last few years. But that's more situational than dogmatic. Um, and just like for and for reference to, Prior to joining C National Rockdale, I spent 15 years managing global equity strategies. So I like very tuned to non US markets. But we have several dynamics that have made those markets a little less attractive to us, even if the valuations from a static multiple standpoint are fairly attractive. Europe has really struggled to grow coming out of the financial crisis. And the formation of a single currency really held them back coming out of the financial crisis. Because when you think about when times are difficult, they're two hands of policy that work to work countries or economies out of that. Uh, and it's both the monetary and the fiscal policy side of it. And Europe really obviously, as we all kind of know, struggled coming out of the financial crisis because you had companies with very disparate fiscal situations, from Germany's discipline to kind of what's happening in Greece and Ireland and Portugal. So you couldn't apply one cohesive strategy. You had to have austerity in some currencies in some countries. You can act somewhat normally in others, but you just didn't have the ability to have their monetary policy or their central bank work in concert with that fiscal policy. And as a result, Europe had a really difficult time growing out of that period. So it's a lot more challenging for them. Also, we've seen part of this is the investment in the US tech sector, but there's a lot of human capital flight to the US we obviously have had the largest growth engine over the last 10 years, 15 years, 20 years. And if you look at in the tech sector, the largest market caps in the world are located in the US and that has been a strategic advantage to investing in U.S. markets. Uh, and there have been times that we've evaluated going back into non US markets and that's on the table all the time. And something that we would expect will be back having dedicated allocations at some point in the next few quarters. But it's finding that entry point that's difficult. We go back to 2022. There was a lot of fear with the Russia Ukraine war that Europe, which is dependent on importing energy, would potentially be cut off from Russian oil and gas supplies that dramatically impact the German industrial economy or face higher prices from importing from further off locations. And at that time we saw China coming back late from COVID and you saw energy prices spike for a while there. The US is the largest producer of energy right now and we're self sustaining. There's a lot of advantages to being domiciled in the US for those reasons. Europe also had some consumer headwinds as interest rates rose. Because you think about the consumer in the US a lot of homeowners are locked at 30 year or 15 year mortgages. In Europe, a lot of those are adjustable every five to 10 years. So we just keep seeing these headwinds pop up, uh, on the European continent that have made it much more difficult for them to keep up with growth in the US and so from our standpoint, if we can invest in global companies that are domiciled in the US that have better regulatory situations, typically have a little bit more revenue skewed here, have more energy independence, have more tech IP and access to that type of human capital, all of those have been tailwinds. And we've seen the last five years, even with this non US rally this year the US has had somewhere there 2x the return of IFA over the last five years and even bigger spread versus emerging markets. So we're looking for that opportunity. But given that most of this year's outperformance has come from currency changes and currencies tend to mean revert. This is probably not the entry.

Speaker B: Uh, yeah, that's great. The other thing that I hear a lot about and I, I think it would probably be related to what you just mentioned is, is the demographic outlook for a lot of these countries, whether it's uh, whether it's in Europe, uh, Asia as well. And how is that factor into sort of your decision making as it relates to where you want to invest into? Because I mean, I'm sure the United States has its own demographic problems, but as I understand it, not expert in this arena of course. But as I understand it, they're not, we're not nearly as uh, challenged in that department as maybe some other countries, which maybe, maybe it's a longer term issue than a shorter term one. But I don't know if that's something that you guys look at at all.

Speaker C: Absolutely. And that's part of when you think about the calculation of gdp, it's, you know, it's invested capital times labor times total factor productivity. So labor stemming from population growth is a big part of that. And obviously China is reaping the challenges of their one child policy now and it's been a very difficult environment for them. I know you had mentioned China earlier. It's a difficult place to invest for a lot of reasons. Um, obviously the population struggle is a big one. They are in a property bubble. And also the opacity of the data makes it a little bit difficult to get confidence that we're seeing the data matches what's actually happening. And so that's a challenging place to invest. Um, I think from our standpoint, if and when we do go back into international markets, it may be more focused in certain countries, places with higher growth rates like India, areas that we find more interest. China's a difficult place to invest.

Speaker B: Yeah, India seems to be, um, there's a lot of buzz surrounding India from an investment perspective. When I talk to portfolio managers, um, you know, around conferences and things like that. So you know that, that seems to be. Although I think they have maybe some of their own demographic problems. I was reading an article which I, I thought was uh, maybe not as much of an issue, but I mean are they having, I don't know if you know this, more of their demographic problems in terms of slowing population?

Speaker C: Honestly not, not an expert on that topic. I wouldn't want to comment.

Speaker B: Yeah, no problem on that.

Speaker C: Yeah, you know, but that's. Look when we, when we all of the, you know, at the end of the day we're looking for growth, we're looking for regulatory stability, rule of law, all of those go in or factors into where, why you'd invest in certain areas. And I think from our standpoint we were may have been earlier back into non US focused investments but the way the election turned out, we knew that tariff policy was going to be at the forefront coming out of that and in a tariff related world, our expectation, and we still think this is the case, is that the US loses less than other countries. So on a relative basis makes the US stronger. And the other thing was with the outcome of the Election was while our expectation was first half of the year, tariffs would be a focus, deregulation and tax policy was going to be a tailwind in the back half of the year and then onward also both of those being being big tailwinds to U.S. companies. So that, that, that's, those are kind of adding to the reasons why we're positioned how we are right now.

Speaker B: Yeah, that's interesting. Listen, this has been a, uh, great, you know, half hour or so. Love to have you back on at some point in time. But before we sign off, is there anything, uh, maybe that you think is really important for our, our listeners to understand about you guys at cnr? Economy in general, investing world in general. I'd love to hear maybe some closing thoughts if you have them.

Speaker C: Sure. You know, I think there have been, there have been a lot of paradigms investing that have kind of become institutional and there's been a lot of inertia about them. You know, I had come from a world where benchmark sensitivity, beating a benchmark was kind of the gold standard. And at the end of the day from, from my seat now we have clients and we have those. Clients have goals, they have objectives and those are rooted in risk and return. And sometimes that kind of take a pie pick. Some managers hope for the best allocation I think is a little thin. And so from where we sit, we're trying to think holistically about our client, how our investments in all our asset classes interact, how they matter into that long term plan. And being able to be nimble and adjust as markets adjust by kind of being able to see the whole picture, I think is a big difference. And I've seen a lot of client success where we've been able to adapt our allocations to their changing life cycles, to inheritances, to job losses, to buying property or receiving windfalls. And we're constantly shifting our feet for our clients and being able to think about how the whole investment picture really works for those objectives as opposed to just beating a benchmark. I just think it's a much more forward thinking and holistic approach to investment management, which is why made the move here and you know, very happy to kind of stand by that process for our clients and work with them as opposed to just for them.

Speaker B: Yeah, no, that's awesome. I mean the, the investment world's changing all the time. I mean it's, it's, it's, I mean, listen, it's part of, part of the territory. We have to stay on top of that stuff. But um, I, I love that Term kind of a new paradigm because it's, uh, things changing, whether it's retail and more retail investors being able to, uh, get access to, you know, opportunities that maybe were not as otherwise available in the past. I mean, you know, one area we probably maybe not, um, in your expertise, wheelhouse at CNR as much, but, you know, I'm hearing a lot of buzz now around this new initiative of maybe having more private markets investments inside of 401k plans. I mean, that opens up a whole other avenue, Right, in terms of the investment world. So it's just so, I think, important to stay on top of it. If you're a listener, you know, stay in touch with your, with your advisors to make sure that you're, you know, getting up to date on this. Because it's changing rapidly.

Speaker A: Right?

Speaker C: Absolutely. I mean, we're, we're big advocates of alternative investments in client portfolios, especially for our client type. You know, on the higher end of the wealth spectrum, there's a lot of opportunity to receive a higher return in exchange for volatility. We have liquidity risk. And so for clients that can take on a little liquidity risk, the opportunity set is much greater for doing so.

Speaker B: Yeah, no, it's, uh, it's kind of a new frontier for sure. Well, Eric, listen, I really, really appreciate your time today. Thank you so much for your expertise and, uh, all you guys do at cnr and, um, looking forward to having you on again soon. Thanks again.

Speaker C: Thank you. Thank you for having me. M. It was an absolute pleasure. Thank you, Wendy. Great, um, conversation. Looking forward to another one.

Speaker A: All right, well, thank you both. Michael, how do people get in touch with you if they have some questions?

Speaker B: Sure, you can reach us, uh, on LinkedIn. Myself, my father, John. Uh, Copper Beach. Uh, you could reach us on our website, www.cbfg llc.com. uh, you call us on the phone. 856-988-8300.

Speaker A: All right, well, thank you for listening today. Please, like, follow and share this podcast with your friends. And until next time, I'm Wendy McConnell. Thank you for listening to the Truth about wealth podcast. Click the subscribe button below to be notified when new episodes become available.

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