The View from New York
Pramit Ghose
Pramit Ghose

The Bernstein Annual Strategic Decisions Conference takes place annually in New York. Now in it’s 35th year, it is where roughly 80 CEOs of mainly US companies attend and present their longer term strategies and outlook.

The event is hosted by global investment management and research firm Bernstein Alliance and provides a great opportunity to meet with close to twenty companies over three days, and to get a sense of the US investment climate. So here are some of my key observations from this year.

This year’s overall tone was definitely less upbeat than previous years, not downbeat as such, simply less confident than previous years. Perhaps the growing trade tensions that week, including the surprise Mexico tariff proposals on the Thursday night, dampened the mood a bit. Perhaps after several years of good earnings growth CEOs were just a bit more cautious – who knows, but don’t get me wrong, the tone was not pessimistic, just conservative.

It appears the US consumer, who drives two-thirds of the domestic US economy, is in good shape. Spending is positive, wages are still growing, with JP Morgan foreseeing fractional strengthening in Q2. Goldman Sachs see the US economy growing at over 2% for 2019, while on the corporate side, CEO confidence is still high (although it peaked in Q2 2018) and M&A transactions are strong. Bank of America highlighted that US companies are still investing while their small firms surveys indicate that confidence remains high.

There was little mention of trade wars or of Brexit, although one or two companies felt the escalation with China is to be taken seriously and that China will be patient. A weaker Europe was mentioned a few times.

Banks, as an investment theme, were clearly out of favour. At previous conferences, there had been standing room only at the JP Morgan and Goldman Sachs presentations if you were a little late, this time the rooms were barely a third full (JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley and US Bancorp). A contrarian “buy” signal – US banks have underperformed this year as many investors believe that lower interest rates constrain banks’ profitability.

In the past, banks ranked themselves by size of assets or market capitalisation, now they seem to rank themselves by IT spend. The bigger banks are spending $10 billion + a year on IT. The main thrust is to develop better digital apps that can process loans, cheque payments, manage customers’ bank accounts, while also speeding up approval and regulatory protocols. Improving the app user experience is also key. The bigger banks view the improved app capability as a marketing advantage over smaller banks who have less IT resources; they think the apps are more valuable to customers than higher deposit rates, and some use the app route to gain new customers and enter new areas instead of opening new branches. Technology is having a strong positive impact on banks’ businesses – on costs to service customers, stickier relationships and more effective distribution of other products via mobile device apps, higher retention levels and strong operating leverage.

In fact the most consistent theme from the conference was the ongoing level of IT spend and investment in digital technology and app products, in social media, in e-commerce, in e-payment systems, in the use of technology to improve pharmaceutical research and developments. Robotics was also a major theme, from re-stocking shelves in Walmart stores to autonomous vehicles, to improving surgical outcomes in operating theatres.

Another consistent theme was “agility”. More and more large companies are setting up “agile teams” to develop new products and services quickly and efficiently, by setting up small but effective teams with the necessary experience (compliance, marketing, underwriting and IT for example), which have the necessary empowerment from senior management to push things through rapidly.

Emerging Markets, particularly China and India, seem to be back in favour. There had been little mention at recent conferences, so it was noteworthy to hear so many companies talk again about the EM opportunities and growth potential (particularly with the looming trade war tensions).

The presence of female fund managers and analysts was quite scarce, making up maybe 5% to 7% of the attendees. This is strange in my view given the highly analytical requirement of the profession. In the late 1990’s my Friends First investment team was 50/50 females/males. We never regarded this as unusual or newsworthy, we were simply a dedicated and talented investment team that enjoyed working together.
On the fashion front, suits are still in vogue for men, but not ties! I’d say 80% of men wore suits but less than 50% wore ties. Digital notetaking via iPads and other devices was widespread, for maybe 75% of attendees.

While the tone may have been more subdued than normal, this year’s conference suggests one should not be too pessimistic about the 12-month outlook for equity markets, and that the pace and breadth of technology spend and innovation still has plenty of momentum.

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