Doug Sandler is the Head of Global Strategy at Riverfront Investment Group, an $8.5 billion investment advisory firm that preaches “process over prediction”. He has been in the business for more than 30 years and joins the ETF Think Tank to offer his views on the markets, the economy, and where things could be headed next.
Sandler’s approach to portfolio construction is that his company buys ETFs and views them as an efficient way to express their opinions on the market. In years past, client portfolios would consist of a mix of stocks, bonds, and ETFs. Today, about 80-90% are ETFs. Using ETFs allows him to gain exposure in almost any sector or theme and do so in a cost-efficient way.
In terms of strategy, Sandler looks for secular bull markets, which he believes we are in right now, and tries to avoid getting spooked by short-term events. In his view, long-term secular bull markets return about 10 times from bottom to top and last many years. Sandler notes that we have a way to go before we reach that mark today. He will adjust client portfolios along the way based on cyclical factors, but generally only does so in minor adjustments. Today, his firm is positioned cautiously and is modestly underweight in equities.
Sandler says that the latest monetary policy decisions by central banks should make investors focus more on fundamentals today than in the past. Zero interest rates and QE became the rising tide that lifted all boats, but investors need to adjust to the current liquidity contraction and tightening conditions. Today, we need to look at things, such as cash flows, revenues, and quality management in the security selection process, things that investors hadn’t needed to worry about in the past.
Sandler is still long the dollar and short euros and yen. He bases that decision on the United States’ relative position on growth and inflation. Both the U.S. and Europe have inflation problems. He uses an example saying that we have an economy that’s going at 100MPH, and Europe has one going 5MPH. As central banks continue hitting the brakes, it is easy to see who is positioned to handle it better. He does note that he believes a lot of the dollar trade has played out, but he’s still long for the moment.
One area that Sandler really doesn’t like is China. As a high-level principle, he doesn’t like areas that have a lot of government intervention or a lack of transparency. China has plenty of both and that changes a company’s entire risk/reward outlook. He tries to avoid situations where shareholders are riding in the back of the bus and feels that China is one of those. He also cites the fact that many companies no longer single source from China, the country’s structural problems, trade wars and COVID as additional risk factors.
Other key takeaways:
- Supply chains are like old engines. Even though they start up, they need time to run optimally again. The important parts of the supply chain are running well, e.g., you’ll find most of what you need from the grocery store. The service channel isn’t there yet, but it will come around.
- Sandler feels like job seekers have been paid to window shop. He believes that can work in reverse as well and we’re starting to feel that a bit with layoffs and hiring freezes.
- Sandler is not looking at fundamental signals because the market tends to move before those come around. He likes to look at technical signals and breadth, which are looking good at the moment.
- What is the best approach to building a process? The most important thing to building a process is that it should match what you’re trying to accomplish.
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