Episode 29: Staying grounded: The Truist Wealth Investment Philosophy

Oscarlyn Elder:

There are no guarantees in investing, but we can stay grounded as investors. How? Through an investment philosophy. Today, Keith Lerner, Co-Chief Investment Officer and Chief Market Strategist for Truist Wealth joins me to talk about the three pillars of the Truist Wealth investment philosophy. We'll also share why an investment philosophy is essential for making confident investment decisions.

I'm Oscarlyn Elder, Co-Chief Investment Officer for Truist Wealth, and this is, I've Been Meaning To Do That, a podcast from Truist Wealth, a purpose-driven financial services company. We appreciate you listening. Keith is the ideal person to join me for today's discussion. We're going to talk about what an investment philosophy is, why it's so important, and how each of the three pillars in the Truist wealth investment philosophy helps an investor increase the probability of success in meeting their goals. If you want to take notes on today's episode, we have a worksheet that you can download and print. You can find it by selecting this episode at truist.com/dothat. And in the show notes we also point you to additional materials specifically about the Truist wealth investment philosophy.

Listeners, we are recording this episode in March 2025 and uncertainty is definitely high right now. Each uncertainty index our team follows is reading as significantly elevated, so you are not imagining the uncertainty. And noise with social media and the 24 hour news cycle is also loud right now. Investors are left navigating both the noise and choppier markets and it's precisely times like these that the disciplined, evidence-based, and nimble philosophy we're going to talk about is built to handle. And with me as Keith Lerner, we've been Co-Chief Investment Officers at Truist Wealth since 2021. Keith, welcome to, I've been Meaning To Do That.

Keith Lerner:

Hey, Oscarlyn, very excited to be here, especially with the backdrop that you just mentioned with that key word of uncertainty coming up over and over again.

Oscarlyn Elder:

Absolutely. It's definitely the word of the year at this point it feels like. So Keith, let's start off with explaining to folks quickly what we do and how we work together as Co-Chief Investment Officers. Why don't you go first?

Keith Lerner:

Certainly, and as you just mentioned, we're Co-Chief Investment Officers. We work very closely together. I oversee our portfolio and market strategy team. So think about asset allocation, what are our thoughts on the general markets? I also oversee our equity team. They manage proprietary individual equities as well as our fixed income team as well.

Oscarlyn Elder:

And Keith, you've got over 20 years of experience. You have both a fundamental and a technical approach to the work and I think that brings a really unique focus to what you and your teams do for our client.

Keith Lerner:

Well, thank you. I will tell you it's having that combination of the fundamental side along with the behavioral side has been really important to my career and how we manage money because a lot of what we see day to day is emotion and behavior driven.

Oscarlyn Elder:

And Keith, let me just quickly highlight for folks kind of what my team does. My team is really focused on finding and selecting, analyzing, and researching the investment strategies that our advisors use and constructing our clients' portfolios. My team focuses on mutual funds, for instance, ETFs, exchange traded funds, private equity, private credit, and hedge funds for examples. That's not the entire universe, but those are major categories. And then I also am responsible for teammates who help our team increase engagement with our clients and advisors. So together, when you think about it, you've got your part of the investment advisory group, which is focused on the allocation and the guidance and specific fixed income and equity guidance as well.

And my team, which is focused a great deal on the solutions that are used in the portfolio kind of together, we all make the investment advisory group. We have about 30 investment professionals that make up this team and we're really focused on delivering a unified vision for our clients. Now that hopefully folks understand a little bit more about our roles and how we work together, let's talk about investment philosophy, which I know we both very deeply believe in. How do you think about investment philosophy and what is it and what is it not?

Keith Lerner:

Sure. Well, I'll go back to where we started the conversation. You said the word uncertainty. Well, we know that the world is always uncertain. How do you make decision in an uncertain world? You need to have structure, you need to have a framework, you need to have beliefs of what matters and also how do you filter out some of the noise. So I think it's a way of providing a disciplined, a consistent approach to really help offset some of the emotions. And some of the things that we think about is what's those drivers of long-term returns? How do you balance risk, reward? How do you stay the course when the market is so volatile, Oscarlyn? The one thing I think about sometimes is almost like a pilot and a flight plan where you want to go, you have a detailed plan of how to get there, but you also have some structure in place for safety, direction. What happens if you have some unexpected turbulence along the way? So in some ways the investment philosophy is like that flight plan.

Oscarlyn Elder:

I think that's a great way to think about it. It's about the flight plan. I also think of it as being the foundation to the building. You can't have a structure without a foundation that lasts any time whatsoever. So whether it's that flight plan, which is critical or the foundation philosophy ultimately should deeply be connected to process and should help drive disciplined behavior over time, that helps a client achieve their goals.

Keith Lerner:

That's right. And going back to the emotion side of things, if you are in a high emotional state, often you make poor decisions that's in life but also with investments. So having that foundation really helps at least try to improve that. The decisions you're making are better decisions. You're striving for better outcomes.

Oscarlyn Elder:

So ultimately we have a philosophy because we want to drive better outcomes and it provides that framework we believe to give us a better probability of achieving those outcomes. Our Truist Wealth investment philosophy has three pillars, and the first pillar is that we stay anchored and filter out the noise. So Keith, let's talk through what does this mean to you as you're thinking about how it applies to our investment process capabilities at Truist Wealth?

Keith Lerner:

It keeps us grounded. A long-term view allows you to capture long-term growth opportunities in the market. We also know the mix of assets over the long-term is a significant driver of portfolio return. So we really want to have that foundation of what asset classes do we have in portfolios. And lastly, what we also know from market history is as you extend your time horizon, the probability of success increases. Meaning when you invest, if you start up with one year, you have a certain probability of having higher asset prices. But as you extend out five years, 10 years, 15 years and 20, that probability of success increases. So it's really important to understand why are you investing in the first place, what's the goal?

Oscarlyn Elder:

And what you're saying there is investing is not a short-term endeavor. You got to have a long-term view. And sometimes the noise, like the noise we're in right now really focuses folks in a hyper way on the short term. But if you're going to invest, you need to understand what the long-term view is. I would say that's your first takeaway.

Keith Lerner:

Correct. And when you're investing, what's the goal of that money and when do you need it? Because if you're going to invest over say five, 10, 15 years, the longer you're in, you're going to have these bumps along the way. But we also know that the long-term trend historically at least has been higher for markets.

Oscarlyn Elder:

The second component that you noted was that emotional investing can be costly. Reacting to a short-term stimulus, especially in an emotional way, could lead to a decision that impacts long-term results. And we want to avoid that.

Keith Lerner:

We've looked at some of the work over the last 20, 25 years. If you just miss five days, five best days, I should say, the actual return for an investor hypothetically could be about 30% less by just missing five days. If you miss the 15 best days over the last 25 years roughly, your return could be 60% less than what it was. If you would've stayed in the market and actually gone through some of those ups and downs but stayed the course. Now that doesn't mean not to do anything. We're going to try to smooth the ride just like the pilot will, but also what we've seen is that when you have really high emotion, people or investors sometimes will do things more drastically than that's warranted and can be costly, as we mentioned.

Oscarlyn Elder:

And then the other element that you noted was the mix of assets. And I love the way that we talk about this because within the investment professional world, we talk a lot about asset allocation. I love this way of saying it, which is the mix of assets is ultimately the most significant driver of portfolio returns over that long-term.

Keith Lerner:

We often talk about the short-term or our tactical view of asset classes, but what we find in our work is the mix of long-term assets, meaning stocks, bonds, cash, maybe alternative investments, that mix drives historically more than 70% of returns. So getting that foundation right is really going to be a key driver over time.

Oscarlyn Elder:

And then lastly, you talked about staying true to the plan. You want to have that long-term view because if you stay true to your plan over time, that increases the probability that you're going to achieve what you have in mind from a plan perspective.

Keith Lerner:

That's right. And Oscarlyn, you know I love stats, so I want to bring this home a little bit. I'm going to just use the S&P 500, a benchmark of the US equity market. If you invest in any year, the probability of being up probably around 70%, it could be higher or lower depending on when you start that study, over a five-year period historically it's been closer to about 80%. Over a 10-year basis, the S&P 500, including dividends, has been up 95% of the time and over 20 years it's been up 100% of the time. Now, I may be jinxing that 20-year study, but as you're thinking about it, whether you're investing for yourself, for retirement, for child education, that timeframe really matters. And as you see, as we extend that time horizon, the probability of the market being higher has moved up and we would expect that trend most likely to continue in the future as well.

Oscarlyn Elder:

All right, Keith, I think we've covered our first pillar and we really encouraging folks as they contemplate this element to take that longer-term view to not be emotional and to be connected to their long-term plan. Now that we've explored pillar number one, coming up next, we're going to cover the second pillar. So welcome back and Keith, our second pillar in our investment philosophy is that we lead with evidence to form an actionable point of view. There's a lot out there for investors to look at. Why don't you walk us through how you think about the second pillar and how you lead with evidence to form an actionable point of view.

Keith Lerner:

Oscarlyn, as you know, this is one of my favorite phrases, weight of the evidence approach. No one has a crystal ball, but what we do have is we have a evidence-based approach. And with that evidence-based approach, we're trying to make higher probability decisions and try as much as possible to reduce the emotion part of the equation. So what does a weight of the evidence approach mean? Well, one, it's data-driven. It's two, try to stop from overreacting from the news flow and focus in on what matters. And also very importantly is to keep an open mind as data shifts.

A lot of times in this industry people want to be right. For us, we want to be right too, but as I mentioned before, we don't have a crystal ball and each cycle is a little bit different. So we want to keep an open mind and as the data shifts be willing to adjust with that as opposed to be stubborn and saying, "Hey, I want to be right." I want to be right, but for our team, if they're wrong, it's okay as long as they adjust with the data. It's not okay to be wrong and not to shift with the data.

Oscarlyn Elder:

Will you walk us through, because I think folks would be very interested to know when you're considering making a tactical shift in our guidance, how does this second pillar come into play within your decision-making?

Keith Lerner:

Certainly, and maybe I'll also just define when we say tactical, we're generally thinking of a decision of maybe 12 months to 24 months. And just like that pilot, we still want to strategically get to the destination or that goal, but we may hit a storm that we just want to adjust and have somewhat of a smoother ride. So let me walk you through how we think about this. The first thing is when we see things in markets, whether it's the Fed, the economic cycle, we start with a historical analysis or a historical lens and say, "Have we seen this before? And what tends to happen? How long is a normal expansion? How long is a normal bull market or up move in the equity market?" We don't stop there because as Warren Buffett once said is, "If all you needed was history, the richest people would be librarians." So it's a starting point, historical lens.

Oscarlyn Elder:

Can I just also add in, because I want our listeners to connect this to when they look at what your team publishes, often what they'll see are a number of these historical studies. When they look at how you position, they will see that you'll go back and look at how many times did it happen similarly to this in history? What have been some similar environments? And you like to start the conversation in that context.

Keith Lerner:

Absolutely. And we look at how is it similar and then also just as importantly, how is it different? So we start with that historical lens and then we overlay the business cycle. Are we in expansion? Are we in recession or maybe are we somewhere in the middle? Typically, when you're coming out of the tail end of a recession into a new expansion, that's when you want to be more on offense. And conversely, as you are longer into that expansion and maybe things are starting to slow down, you want to become a bit more defensively oriented. Again, this isn't an all or nothing approach. It's things on the margin to smooth that ride. And then from there, the third layer is fundamental analysis. What are valuations? What are earning trends? Where is there relative opportunity and risk?

And then lastly is market signals. What is the market telling us? What's the primary trend? Is it up? Is it down? What are we seeing on the emotional side? Is there a lot of fear in the market or is there a lot of optimism? In some ways we can use that as a contrarian indicator, meaning when everyone's very fearful, that means there's low expectations, a little bit of good news can go a long way and vice versa. So again, trying to get the weight of the evidence in our favor by looking at the historical lens, the business cycle, fundamental analysis, and market signals, that helps us lead to some type of actionable move, whether that's identifying an opportunity or a risk that we want to take advantage of or mitigate.

Oscarlyn Elder:

So within the second pillar, Keith, what really strikes me again is that the pillar is ultimately connected to process and approach. We know there's lots of data out there. You're looking at a framework for organizing that data and then thinking about how to ultimately make a decision. I think the end result of that is a point of view. We want to be able to take all of that and have that point of view that can be acted upon.

Keith Lerner:

And maybe if I could add one more component towards the end is continue to follow the weight of the evidence and keep an open mind. So markets are fluid and dynamic and so is our investment process.

Oscarlyn Elder:

It's not one and done. It's not that it happens one day a week on a specific timeframe necessarily, but that it's a mindset, it's a framework that really approaches the data over and over and over because frankly the data points, especially the shorter term data points are changing. Some of these data points are changing daily.

Keith Lerner:

100%, and markets tend to move on the margin, so we want to be alert to even marginal changes so we can get ahead of any potential adjustments we may or may not have to do.

Oscarlyn Elder:

Keith, thank you for sharing the second pillar. Hopefully what we've been able to leave folks with is the importance of having an approach to all of the data that's out there in the world today, that it's very important to have a framework. You've articulated your framework, the Truist Wealth framework around historical analysis, business cycle indicators, fundamental analysis and market signals, I think very clearly. So you've provided that additional framework and also the mindset around following the weight of the evidence. So not getting anchored in one given position, but being open to where the evidence may take you to form that point of view. And coming up next, we'll cover our third and final pillar.

Keith, we've talked a lot about the first two pillars of the Truist Wealth investment philosophy. The first, that we stay anchored and filter out the noise and the second, that we lead with evidence to form an actionable point of view. The third pillar is that we build portfolios for our clients with ideas and strategies that matter. The portfolios that we build for our clients are a key component and our clients being better positioned to achieve their financial goals.

Keith Lerner:

That's right, Oscarlyn. And portfolios need to meet the unique needs of each client. It's not a one size fits all. Our team is an extension of our advisor's team who really get to know our clients, understand how much risk they're willing to take, what kind of return are they trying to achieve? And what is the goal of that money for what a client is trying to achieve?

Oscarlyn Elder:

And Keith, in the constructing or the building of the portfolios, it's essential that the advisor, that the client, that everyone involved really has an understanding of the different types of risks that can occur from an investing perspective and how those risks relate to a specific client and the client's unique situation. It's critically important. You can't build a portfolio for a client without understanding what's the client's comfort with price risk, which is in essence, the risk of assets going down in value. There's some folks who are in a situation both I would say mentally as well as financially that they can accept a lot of price risk and there are other folks who will never be comfortable with a wide range of price risk.

So it's important to have that defined. It's important for an advisor to understand the client's overall financial situation and how a portfolio may or may not be needed to cover a specific cash flow need now or in the future. So that liquidity management aspect of the portfolio is essential. Those two examples are not the only two types of risks that we need to be aware of when crafting a portfolio, but they are two that come to mind that our advisors and we would expect both our advisors and our clients to have front of mind when actually putting the portfolio together.

Keith Lerner:

Sure. And I also think that there's risk in markets, but there's also a risk of not investing and not meeting, say a retirement goal or maybe an education goal, whatever goal that you have. So when you invest, you're also trying to keep up with inflation. When people think about risk, it's not just the risk to the downside, it's risk of not achieving that goal.

Oscarlyn Elder:

You're quite right. So you're touching on a risk, Keith, that maintaining and growing purchasing power over the long term and what happens if that doesn't happen and the eroding of purchasing power is a very destructive force and it is a significant risk, one that we've seen elevate in the last few years.

Keith Lerner:

Well, we've had a lot of people concerned about inflation, and I also tell clients cash is not a risk-free investment either, especially if you're concerned about inflation. But Oscarlyn, I was also, as we're thinking about these portfolios, another important element is actually building a portfolio or in building a portfolio is determining that specific investment strategies and the solutions that you use. So once we say we like X, whether that's large caps or international, we have to decide, "Okay, how do we implement that?" Your team does a great job in doing a lot of that work. Can you walk us through that?

Oscarlyn Elder:

Absolutely. Keith, our team spends a lot of time looking at really a wide range of investment strategies and vehicles and by one account I think being fairly conservative with the number that are available, we've counted something like 58,000 strategies or vehicles that are available. So without some type of framework for understanding what those strategies are and in some way of assessing them, it's easy to see how that the universe of strategies that's out there to use in the construction of a portfolio can become quickly overwhelming. We believe it's essential to have the expertise to understand the universe and a framework of evaluating the opportunity set. And one of the ways that we do that within our teams is what's called the five P's. In looking at the five P's, each element starts with the letter P. and first thing you want to be very comfortable with is people who manage the strategy. That's essential.

You got to have confidence in their ability and their ability to be transparent with you, to share important updates. It's just essential. The word trust comes to mind, especially around the people element. The second P is that there needs to be a philosophical grounding to the strategy. So we're talking about our Truist Wealth investment philosophy today. When we're looking at a large cap manager or a small cap US manager or a private equity fund, private equity manager, the philosophical grounding, how that team is approaching the opportunity, like what's the philosophical grounding? The third element, and really my favorite's probably not a surprise to you, because you know me really well is I love process. Having a repeatable, defined process that is supported by the people by the philosophy is just really essential.

Keith Lerner:

That really speaks to how we approach the markets more broadly with our groups. So I think it makes a lot of sense. So, so far we have people, philosophy, process. I can guess what the number four is.

Oscarlyn Elder:

Number four is performance. So we want to understand performance and how's the performance created? That's really important, understanding when it's better than expected, why? When it's not better than expected, why? So we want to understand performance and performance drivers and have an assessment of its likely ability to persist over time given the other elements that we've talked about. And then the fifth element that we look at is pricing. And so understanding ultimately what is the cost of the strategy that's being delivered within the portfolio context. Does it make sense? Is it competitive? So that gives an example, Keith, of kind of the five P's that we believe are very foundational, especially in mutual funds and exchange traded funds, separately managed accounts, a number of the items that are connected to traditional asset classes like stocks and bonds.

Keith Lerner:

Great, Oscarlyn, but how does a team approach more complex investments? Thinking about private investments, private debt, hedge funds, do the five P's apply there as well?

Oscarlyn Elder:

Keith, that's a great question and I'll say first the five P's are applicable I think within any investment strategy opportunity set. The five P's are essential. They apply to both long only managers, mutual funds that are long only as well as private equity, private debt, hedge funds. However, within these more complex areas, what we see often is that the investment results from these more complex strategies can vary greatly. More often than not, there is a liquidity risk element to these, which means they're not easily converted into cash. Often, there is some requirement to lock money up for a period of time. It may be three years, it might be 10 or 12 years. And because of that illiquidity element and the performance differential, we believe it's incredibly important to have an experienced team looking at the investment solutions and selecting and analyzing them and understanding where there could be different sources of risk within the strategy within the firm, within the overall approach.

We're going to look at things like, this is not a comprehensive list, but how does the firm manage and think about liquidity within their solution? What are the alignment of interest between the manager and ultimately, our clients? So how is the manager paid? How are assets custodied? How are they valued? How transparent is the manager that we're looking at? Again, that's not an exhaustive list, but it gives you a sense of some of the additional layers that this team will look at as they're determining which strategies would be appropriate to use within a portfolio construct for investors who are qualified to use the strategy.

Keith Lerner:

Something else you also bring up to me quite a bit is access matters. Not everyone has access with these, whether it's hedge funds or private capital. Can you just speak to that aspect a little bit more?

Oscarlyn Elder:

Absolutely. A number of these managers don't necessarily want investor's capital, which I know that might sound a little awkward to the folks hearing it. But specifically for a number of these strategies, really access has to be earned over time and it has to be earned from the perspective of being perceived as a thoughtful long-term investor. And I'm really proud of our team and over a 35 year legacy of being active within the alternative investment space. That's the access level. It's being able to bring the strategies that we believe are appropriate for clients actually to their portfolios. Keith, there's something that you said triggered an additional thought in my mind, and that is that as we're talking about the investment philosophy and as we've worked on it really to design an articulation that's very accessible, that folks with a non-investing background as well as an background can kind of get their arms around.

It also strikes me that it's really important to have a team that's focused on meeting you where you are and communicating with you in a way that's meaningful and again, accessible, respectful. I just think that it's just critically important. One of the things I really respect about the work of your team and your publications and the advice that you give is that you really think about the client and how the client will receive the information and how best to structure all of the analysis that you do so that clients can understand where your point of view is coming from. And I think that's quite a gift. I just want to call that out and recognize that.

Keith Lerner:

Appreciate it. And you said it's a team effort and you're part of that team as well, Oscarlyn, and this is where we live every day, but we also realize clients may have found their success in other areas. So even though things are complicated, part of our job is to bring it to life and make it understandable, and we don't want to publish or do something where you pick it up and you don't understand what it says. So we do think about the client aspect. Is this relatable? And you think about one of the best investors of all time, Warren Buffett, when you hear him speak, almost anyone can understand him even though he's as smart and can go as deep as anyone out there. And we are not saying we're Warren Buffett, because we are not. But what we are saying is we really do care about how we deliver that message and we want people to be able to understand and really can follow how we make those decisions using that weight of the evidence framework.

Oscarlyn Elder:

Keith, I'm so grateful to have you join the podcast and to share your insights and our team's investment philosophy. It's been grounding for me and I hope for our listeners to remind ourselves of the architecture of our investment philosophy. It's also an antidote to the things that get in the way of sound investment decision-making. On I've Been Meaning To Do That. We have a tradition naming the one thing that you've been meaning to do, but that you haven't done and you're willing to commit to do in the future. What's that for you, Keith?

Keith Lerner:

Well, one of them I checked off today because I've been meaning to do this podcast with you, so we've checked that off. I have a kind of boring one, but maybe other folks can relate to. Since our second daughter was born, we have not updated our estate and we just met with someone late last year and I think I get an email every two weeks about finishing it, and this has been going on, I hate to say this, for months. So I will commit to finishing this estate plan that we spend some good money to do and it's super important. That's why we did it in the first place.

Oscarlyn Elder:

Well, Keith, we're going to check up on you. I'm going to check up on you for that. We talk almost daily, so I'm going to check up on you and see what's going on there. And it is really important. I think you know I went through a similar process maybe two years ago now, and it took a while to get the documents and then it took me a few months to make sure the titles were all updated and that I'd actually followed through on all the other steps. So it's not just signing the documents. That's a great first step, but there'll be some other things that you got to do to go along with it, which I know you know.

Keith Lerner:

Yes, I do, and sometimes there's some tough decisions to make along the way, but this is going to keep me committed to following through. So thank you Oscarlyn, and thanks for allowing me to join today. It's been a lot of fun.

Oscarlyn Elder:

Keith, thank you so much for joining us and for you listening, thank you for joining me today. If you liked this episode, please be sure to subscribe, rate and review the podcast and tell friends and family about it. If you have a question for me or suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning To Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.

Speaker 3:

Keith Lerner and Oscarlyn Elder are investment advisor representatives, Truist Advisory Services Incorporated. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Advisory managed account programs entail risks including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure, which includes program details including risks, fees, and expenses. Alternative strategies are not suitable for all investors. The risk profile of private equity investment is higher than that of other asset classes and is not suitable for all investors.

Asset allocation does not insure a profit or guarantee against loss. Diversification does not insure against loss and does not assure a profit. The S&P 500 is an unmanaged index comprised of 500 widely held securities considered to be representative of the stock market in general. An investment cannot be directly made into an index. Past performance does not guarantee future results. The risk profile of a private debt investment is higher than that of other asset classes and is not suitable for all investors. Hedge funds often engage in leveraging and speculative investment practices that may increase the risk of investment loss, can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors.