Financial Industry Insights from Advisors Asset Management


AAM Viewpoints – Paying Attention to the “Green Shoots” Allows for a More Balanced Approach to Investment Portfolios

While Old Man Winter remains firmly fixated in our memories, paying appropriate attention to the “green shoots” allows for a more balanced approach, in life and in investment portfolios.


After near-record snowfall in Cincinnati and across many areas of the country, spring is now upon us. Nature and animal kingdoms alike send harbingers of an end to Old Man Winter. One of the earliest signs of spring is the “green shoots” of plant life that emerge from the winter frost. The combination of green shoots and an unseasonably warm day (preferably weekend!) create an experience so jarring, it’s hard not to be left with an optimistic outlook toward whatever endeavor awaits on the horizon.

Looking back, the key themes of Bahl & Gaynor’s 3Q14 and 4Q14 newsletters were fitting for the winter season. Lower global growth. Lower oil and commodity prices. Massive dollar strength. Greater uncertainty and volatility. Our outlooks presented a cocktail of difficult investment themes fitting for a cold and perilous spell.

As we look forward, we are not changing our core views: long-term interest rates will remain “lower for longer” and our call that we are in the early innings of a secular U.S. dollar bull market appears to have legs. The increased confidence in a June or September Fed lift-off has provided fuel for U.S. dollar strength. The United States will be “breaking rank” globally in a tightening stance versus accommodative actions in Europe, Japan and China along with sundry other nations. The extreme relative attractiveness of U.S. government bond yields versus other global benchmarks will continue to keep long-term interest rates in the United States lower than they “should be” for an extended period of time.

Like plant life ready to break through winter frost, there are significant developments afoot beneath the surface of the domestic economy. Unemployment continues to fall. Banks are lending, and this credit creation is further reinforced by rising stock prices and valuations. Consumer balance sheets have been repaired. The much-publicized fall in gasoline prices represent an unquestionable tailwind for consumer saving and, ultimately, consumer spending, as frugality fatigue runs its course.

Digging deeper into the unemployment theme, the most sensitive demographic to changes in employment conditions are those just exiting their education years and entering the permanent job market for the first time. This group encompasses most young adults. As shown in Chart 1 below, the ratio of young adults employed is just now accelerating out of a 5-year stagnation period following the economic recovery. Although the notion of the Millennial generation being “left behind” has some credence, we believe the employment trends disproportionally favor this demographic for the foreseeable future.

25-34 employment ratio

Next, we dig deeper into the consumer theme; we view the Millennial generation as about to take a lead position in our consumer-led economy. As shown below, this age group represents the largest domestic demographic and should be the greatest beneficiary of the ongoing surge in employment.

U.S. population breakdown

The jobs for which Millennials have been trained are finally arriving. Our (underappreciated) thesis centers upon the belief that Millennials are not motivated by structurally different aspects of life than prior generations. We contend that the main difference in generational comparisons today is financial in nature. [Delayed marriage, lower household formation, lagging income and lower net worth are symptoms of a weak job market for Millienials, not structurally different desires than prior generations.]

As a result of this belief, Bahl & Gaynor expects that as employment and income improve, household formation will aggressively follow. Household formations are running substantially below-trend, at approximately a three million household deficit according to demographic expectations. As jobs materialize, we expect there will be a generational tailwind for household formations as this gap is closed by a return to the trend. We view there to be a tremendous long-term investment opportunity for associated sub-industries related to household formation.

What we find so compelling is the following fact pattern:

  1. Millennials represent the largest generation in the United States;
  2. They are entering accelerating spending years;
  3. Job growth and income are accelerating for the group;
  4. Household formation among Millennials is significantly below-trend.

total households: baseline scenario

Bahl & Gaynor remains cautious on the global economic outlook. While Old Man Winter remains firmly fixated in our memories, paying appropriate attention to the green shoots allows for a more balanced approach, in life and in investment portfolios.


CRN: 2015-0511-4760R 

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at For additional commentary or financial resources, please visit

The views expressed in this commentary are not necessarily that of AAM.

This commentary is from Bahl & Gaynor (B&G), a strategic partner of AAM.



Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.


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