Morgan Stanley's Sherry Paul: Embrace volatility in the market to capture higher returns

Geopolitical tensions continue and the election, of course, inches closer. Our next guest sees some continued upside in stocks. Despite what might be a volatile environment, she says investors should lean toward healthcare, technology and industrials as we said. Morgan Stanley Private Wealth Management’s Sherry Paul was just named one of Forbes Top Wealth Advisors. By the way, congratulations. Thank you. Mike points out earnings have done their job. You, you go along with that, yeah, I mean, but basically we had a good earnings season. And I think right now the most important pivot that we want to encourage investors to make is to move away from the 1000 foot view and come back into the 10,000 foot view, which you know is is a fantastic view for thematic investing around AI, artificial intelligence and this new cost cutting, productivity enhancing bull trend. Along with we saw dividend increases, we’re seeing buyback, we’ve got $6 trillion sitting in cash, M&A is heating up. Those are all terrific conditions for investing. And so we want clients to get away from separating and understanding that how we invest money, where we make money is in the markets, but where people tend to live in their money is in the economy. And we want to separate those two because how you feel things are going in the economy is different than a thematic investing opportunity which is where we want as portfolio managers to take clients focused. So what does that mean as far as particular strategy? Well, what it means is that it’s really seriously time to break apart the S&P and stop looking at where the S&P as a whole may in the year which is 1000 foot view and start looking at the sector based opportunities that are going to be the primary beneficiaries of the installation of this industrial revolution, which you know is artificial intelligence beyond chip stocks. Yeah, absolutely. In fact that’s why Healthcare is one of our top sectors because when you take a look at the the innovation capacity, there’s so many different articles now they’re coming out about vaccines that can be generated that we can’t even as a human conceive. That should power things forward and obviously industrials are a terrific place to be because we have to not only accommodate the reordering of the global world order, which deals with manufacturing and geography of Labor, but here in the United States, how we’re going to set ourselves up for this for this next moment and how economies and humans are going to run. Is the obsession over whether the next move is a cut or a raise? Is that also 1000 foot? Yeah, I mean in my opinion it is because it’s either right or wrong, right. So we want to be directionally correct in portfolios and investing which is the time value compounding rate of return. And so 1000 foot view is right or wrong. I’ll tell you the view where I think there’s consensus which is we’re at peak rates for the Fed. So if we’re at, we’re closer to the top of rate hikes than we are. So we we know that we’re going into a cutting cycle. We can be directionally correct on that. We know that that right now for almost every investor there’s a risk adjusted portfolio that has a fantastic set of whether it’s 5% bond yields, it’s dividend oriented stocks, it’s staples and growth stocks actually having an equal opportunity to outperform in the market that we’re in. And those are the thematics that we’re leaning into. Also the use of cash, right. You’re looking at dividend increases, share buybacks increasing, what sectors, how do you spot the winners there? Well, I’m so glad you brought up cash because cash is like the big head fake going forward, right. It feels very secure psychologically to get that you know 5% rate of return. But if we’re in a declining rate environment then that’s that’s a creative against cash versus dividends where we’re in an increasing dividend environment. And so we’re pivoting clients into a more balanced approach to income while also at the same time playing a little game that we call. It’s not what you make, it’s what you keep with a very strong eye on taxes and whether or not we see a pivot in tax policy or we see the 20 in 2025, the sunset occur within the current tax legislation because those are all things that speak to client net worth. And as a private wealth advisor, we’re looking for the total return of a client. You’re talking about the sunset of the Trump tax. Yeah. The Trump tax. Yeah. So what would that what would that mean for your clients? The, the win is if you’re in a, if you’re in a high tax state, the win is that salt goes away. So are you know, your ability to deduct. That’s a big one. That’s in the win column. But in the other column, we would see a reduction in the estate tax exemption, basically get cut in half and an increase in just your ordinary income tax rate. So that requires you know that that and now we have bills you know on the horizon in terms of increasing capital gains based on current your current income. So what we’re advising clients and what we’re working on is if it makes sense to take a look at going from you know IRA to Roth conversions and taking the tax hit or accelerating capital gains and resetting basis and then using advanced estate planning strategies for clients that want to be mindful about how they they leave their hard earned money to the next generation. So but the the tax policy is another right or wrong perhaps is is the idea not to make any sudden moves ahead of the election. Yeah so it’s you know planned for today and project for tomorrow that’s that’s how we approach this. And so no sudden moves but thoughtfully progressing and being prepared to take action if this legislation passes. Now for the, for the, for the current proposals, we’re a few years out. We’ve got an election. We’ll see with the sunset. It’s a little bit more tricky because there’s a higher hurdle rate to actually get that extended based on the number of votes that are required in the Senate, which is different than what we’ve seen in the past. It’s going to get complicated. We should be doing like net worth money movers. We’ll come back and do that segment on how to like that. Sorry. Thanks. Good to see you. Sorry, Paul.