Resources/Weekly Insights

Volume 14, Edition 17 | May 25 - June 1, 2025

Avoiding Unnecessary Complexity

Doug Walters, CFA

We can’t help but notice an increase in complex, less-regulated financial products being pushed down to individual investors often with high fees. Many of these would chip away at the clarity and confidence that we seek in our client portfolio strategies.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

A recent article in the Financial Times debated a provocative question: are stablecoins banks, ETFs, or money market funds?

The fact that thoughtful people can debate this seriously tells us something: the lines in finance are blurring. Innovation is challenging old definitions—and investors are being asked to place trust in things they may not fully understand.

The evidence-based investor in me cringes. At Strategic we pride ourselves on providing clarity and confidence through a straightforward approach. If the experts cannot even agree on what something is, then it is not going to pass our sniff test.

But this isn’t just a stablecoin story. It’s a broader theme. The growth of private equity, private credit, cryptocurrencies, and other new assets seem to have some common threads… complexity, opacity, high fees and lower regulatory guardrails.

Take private credit for example. It has ballooned to over a $1.5+ trillion asset class. Why the fast growth? Stricter capital and lending standards were placed on banks after the Great Financial Crisis to help avoid a repeat of that calamity. As banks stepped back, private lenders, not subject to the regulations, stepped in. Add the promise of higher yields… and voila… private lending takes off!

It’s not hard to see the parallels with the pre-2008 era—regulation was lax, structured credit boomed, complexity multiplied, and risks accumulated quietly until they suddenly didn’t.

But this isn’t meant to be a scare story. Rather it is one of common sense. Private credit isn’t inherently problematic. But the proliferation of increasingly complex instruments and the efforts to push them and their high fees down into portfolios of individual investors is. There are other, more liquid, less expensive ways to get high yield credit exposure if that is what you seek.

Reading this article back, I worry it might sound a bit curmudgeonly. I’m actually a science and technology nerd and we are big fans of innovation. Whether it is smarter ways to access investment factors, innovative risk management solutions, or harnessing AI… if it improves client outcomes… we are all in! As a fiduciary partner, we view it as our obligation.

Still, the past is littered with painful lessons about what happens when complexity masks risk in the financial system. Investors don’t need to fall into those traps. We believe you should always know what you own, know why you own it, and have access to it whenever you need it. It may not be sexy (though I’d argue otherwise), but it’s undeniably evidence-based and straightforward.

$44 Billion

NVIDIA’s reported revenue for the first quarter of 2025. Not a bad three month’s haul.

Headline of the Week

Tariff Whack-a-Mole!

An obscure US Court struck down the legal justification for a broad swath of tariffs. Now, the administration will seek to appeal and alter their legal basis for the tariffs and thus, the game begins anew. And if this increase tariff uncertainty wasn’t enough, progress has stalled between the US and China with the President broaching further tariffs and sanctions.

One of the cleverer acronyms in recent memory (TACO – Trump Always Chickens Out) has helped mute market reaction as May looks to be one of the better months for equities in a few years.

Separately, the Fed’s preferred inflation measure showed continued progress in bringing inflation back to target. Recent Fed minutes further confirmed that policymakers want to see harder data around inflation’s retreat before resuming rate cuts.

The Week Ahead

The European Central Bank and Bank of Canada will announce their rate decisions this week. Additionally, the Purchasing Managers Index, an updated Gross Domestic Product report from Europe, and a jobs report will be released on Friday.

Homework

Friday’s non-farm payroll report is eagerly awaited and will be preceded by other employment reports.

130,000 is the number expected for new jobs created in May.
April jobs were stronger than expected, so it will be key to watch any revisions.
Impacts of Liberation Day and DOGE spendings cuts will also get some mentions.
The purchasing managers’ index from the Institute of Supply Management (ISM) is expected to improve slightly from previous release thanks to de-escalation of trade tension with China.

Cut and run!

The European Central Bank is expected to make a ¼ of a percent cut in rates on Thursday.

However, another cut is not anticipated by markets until October and is expected to be the last cut of this cycle.
Any language from the release confirming the base case or disputing it will lead to market volatility.
The economy is holding up better than anticipated and an inflation report on Tuesday is expected to confirm that inflation has been tamed at 2%.
The final bit of intrigue from this meeting may be the future of Christine Lagarde, who has been rumored to be looking to step-down early and take the lead job at the World Economic Forum.

Oh, Canada!

A frail economy, verified with a 2.2% annual Gross Domestic Product (GDP) print for the first quarter should be enough ammo for a cut, but expectations were even weaker at 1.5%.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $2 billion.

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