1. STEVEN KACZMAREK
GENE D. BALAS, CFA
631 574 2474
Info@EastEndWealthManagement.com
www.EastEndWealthManagement.com
May 2013
Introduction to Theme -Based Investing
a portfolio, many
them
When investors createsmall cap value, “styleofboxes,”
often think of the well-popularized
such as large cap growth,
etc. Perhaps
they look at earnings trends over the next few quarters
and valuations. Maybe they pick an allocation just
because it looks like “the market” or because it seems well
diversified and balanced. That may be the case even if
they don’t know why they have a given amount in bonds
or stocks, let alone what each investment’s overriding goal
is for inclusion in the portfolio. Many investors might
not even know the reason and purpose for each of their
holdings.
Surely, that can’t be the right approach, can it? And
indeed, the reason why something is in a portfolio is just
important as what is in a portfolio. When it comes to
investing, especially for the longer term, one has to think
of what will ultimately drive the demand for a company’s
goods or services. Some of these do relate to broad
economic conditions, but many fundamental prospects
are industry-specific and are driven by powerful macro
themes and trends. It is examining how these trends will
play out that sets East End Wealth Management’s Global
Macro Strategies (GMS) apart from other portfolios.
Let’s take a look at one such theme, the growing
prosperity of emerging economies. The developed world is
languishing, whether one refers to Japan, Europe or even
the U.S. These are powerful economies. However, they
are not seeing the same dynamics of a growing middle
class in the emerging world. As these societies develop
a growing consumer society, they can support global
investment with improved living standards. In doing so,
they need some basic things. Think of hospitals, roads,
bridges, broadband networks, water systems, etc., not to
mention consumer products of all types ranging from
pharmaceuticals to automobile to financial services.
Now think of what goes into building a new road,
irrigation project or communication system. There is
quite a bit of investment required, and a host of companies
doing many different things, all the way up the supply
chain. A dam needs engineers; it needs concrete and steel.
It needs earthmoving equipment. It supplies water to new
agricultural, residential and commercial lands previously
undeveloped.
Those lands will eventually be populated with crops,
houses, offices and factories. Those, in turn, need
fertilizer and seeds, lumber and copper, furniture and
telecommunications. The trends towards growing
urbanization and factory farming in Asia, Latin America
and even Africa are spawning much more demand for
the goods and services provided by the world’s leading
companies, or even those in their own backyard.

2. Example of Investment Impact of One Theme
Basic Materials
Engineering
Infrastructure
Construction
Consumer Goods
GROWING
EMERGING MARKETS
PROSPERITY
Consumer Demand
Financial Services
Healthcare
Water
Changing Diets
Farm Equiptment
Fertilizer/Pesticides/Seeds
These long term themes and trends present investors with
numerous opportunities to invest in a virtually limitless
theme, not an artificially-constrained style box. And
these themes are global, even if an investment is made in a
U.S., European or Japanese company. Thinking globally,
one might invest locally.
It is important, though, to think of the world as an
interconnected space, with many companies, even smaller
ones, having a global supply or distribution chain. The
nature of a globally linked economy allows investors to
have a broad exposure to a big global theme by investing in
companies in developed and emerging markets, large and
small, value and growth. One can get ample diversification
without consulting rigid style box definitions; we would
argue instead that diversity of thought is a much better
way of diversifying a portfolio.
Growing Emerging
Market Prosperity
»» Changing diets and
more agriculturallyintensive protein
consumption
»» Increased consumer
discretionary
spending
»» Establishing
household investment
portfolios as savings
increase
East End Wealth Management
Aging Developed
World Population
»» Rising savings
rate and lower
consumption
»» Increased utilization
of healthcare
services
»» Slower growth due
to reduced labor
force growth
That is how we at East End Wealth Management
approach investing. We look to what the world needs
and focus on investing in those companies which supply
those demands. However, we don’t look at individual
companies. We think of asset categories, often narrowly
defined, that represent an industry sector where some
companies may benefit more than others. By focusing
on the asset class, not the company, we can maintain our
focus on the forest instead of the trees.
Going forward, we will introduce many different bigpicture themes and explain what the themes mean to
investors and what we are doing about them. There
are many different forces at play, and it is important to
consider how some of them interact with others. Here
are some examples of the themes we will consider, among
others:
Infrastructure
»» Building water and
irrigation systems
»» Repairng aging
roads and bridges
»» New residential
developments in
emerging markets
Developed
World Debt
»» Higher taxes and
lower spending
reducing growth
»» Ability to finance
future debt levels
»» Decreased bond
issuance or
continued increase in
debt?
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3. For example of a theme in action, consider some of the
themes noted discussed above. Growing emerging market
prosperity would generally argue for more consumer
products, but then consider the sluggish economies of
the developed world. In Europe, the U.S. and Japan,
wages are barely growing. Wages are growing sluggishly
due to a mismatch with what employers can pay workers
in the developing world versus the high-wage developed
world, combined with a lack of productivity gains that
limits profit growth at the same time as wage growth.
But with slow wage growth, companies have increased or
maintained profit margins.
Can consumers in emerging markets offset weak growth
in the developed world? Possibly, but we need to carefully
consider the effects of two contradictory themes such as
these. There are many examples when different themes
will take us to different types of investments.
We do believe that a theme-based approach to investing
is indeed appropriate for the long term investor, but not
all themes can yield economic benefits right away. It may
turn out that some investments might not be the absolute
best way to capitalize on a theme, if any investments even
exist to do so for a particular trend.
In upcoming newsletters, we’ll explore what’s in
our portfolio and why, giving you the story behind
each investment idea. We’ll cover the economics,
demographics and other big picture forces that lead to
investment decisions. While some of the themes might
not always be topics people consider to be necessarily
positive developments, avoiding discussion of them won’t
cause them to go away, while investing in them could still
be profitable.
Whether the theme is good news or bad, we’ll keep you
informed by bringing you a periodic look at what’s on our
mind, not just for the near term, but looking ahead many
years. After all, that is a time horizon that corresponds to
the duration of many investors’ portfolios.
For more information on East End Wealth Management, including our performance results, please visit our website:
www.eastendwealthmanagement.com
This information is intended to describe a general investment strategy and is not a recommendation to buy or sell any specific securities. The
strategy discussed does not and should not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of
an account’s portfolio holdings. Any investment carries risk, including the loss of principal. Any investment strategy discussed here or available
through East End Wealth Management is not an obligation of a bank and is not guaranteed by the FDIC and may lose money. Some investments are
not suitable for all investors. Past performance is not indicative of future results. We cannot guarantee that this information is accurate or complete.
As with any investment strategy, you should thoroughly discuss your particular investment situation and with your financial representative and
understand any investment recommendation that might be made before investing any money.
East End Wealth Management is registered as an investment advisor with the States of New York, Florida and California. East End Wealth
Management only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
East End Wealth Management
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4. B iographies
STEVEN KACZMAREK
Steve is the President of East End Wealth Management. He has over 30 years of experience in trading and risk
management in a wide range of markets. Most recently, Steve held the position of Managing Director at Legend
Merchant Group. His background also includes the positions of Partner at Schonfeld Securities; a proprietary trading
firm, NYMEX floor trader and Lieutenant, United States Army Reserve. Steve graduated New York University with a
degree in Economics.
As an active member of the investing, planning and trading community, Steve is a member of NAIFA and the Financial
Planning Association. Locally, he is the Chairman of the Southampton Youth Board, focused on youth issues on the
East End of Long Island.
gene d. balas, cfa
Balas has over twenty years’ experience in investment management. He currently writes economic commentary for
TheStreet.com’s RealMoney site. Previously, he was Director of Investments at Genworth Financial Asset
Management. In this role, he performed forecasts on macroeconomic conditions and determined the influences of
thematic drivers to develop investment strategy, He also headed the firm’s manager due diligence efforts. Prior to
GFAM, Gene was Director, Investment Management & Guidance at Merrill Lynch & Co. In that role, he advised
pension funds, endowments and foundations as to appropriate asset allocation strategy. In previous roles, he advised
both institutional and individual investors on asset allocation and manager selection decisions, beginning his career in
1989. He has an MBA from Columbia Business School and a BBA in Finance from the University of Houston, where
he attended on a full National Merit scholarship. He is a Chartered Financial Analyst.
East End Wealth Management
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