Greetings from the heart of Fooldom! I’m Shelby Mcfaddin, CFA, analyst here at Motley Fool Asset Management. You may have seen me making the rounds in interviews on CNBC, Bloomberg, Fox Business, NYSE TV, or other financial media.
I’m excited today to debut “McFaddin on the Markets,” a monthly newsletter that builds on these interviews and lets me go more in-depth than I typically have time for on TV. Each month, I’ll be sharing perspectives on the financial markets, how investors can stay “above the fray” of financial headlines, and how my team is thinking about investing in the face of current trends or challenges.
I want to start off by discussing a topic that’s been in the news A LOT recently: Tariffs. But before I dive in, let me tell you a little bit about my background and experience.
Prior to becoming a full-time Fool, my path took me from South Jersey, where I was born and raised, to George Washington University, where I studied international relations and economics. I didn’t know then that I would be a stock picker, but those subjects—even suffering through linear algebra—gave me an invaluable foundation and global perspective that continue to inform my process every day.
I was fortunate to be offered an internship on an ultra-high-net worth investment team at a large Swiss bank and to study abroad for three terms at The London School of Economics, where I had the opportunity to learn from some of the most renowned scholars in the field. This experience helped me better understand the U.S.’s position in the global economic and social order.
After graduation, I dove into institutional portfolio management for real estate and private equity. In what turned out to be a serendipitous moment, I was “temporarily” assigned to work with the public equity portfolio managers and quickly became fascinated by how this team analyzed individual stocks. Digging into attribution, using factor models, and engaging in quarterly calls with managers sparked my interest in direct stock picking, which eventually led me to Motley Fool Asset Management, where I’ve worked since 2021.
While our team at Motley Fool Asset Management invests using a bottom-up approach, I’ve never lost my roots in economics or my fascination with the macro environment. Like many of us, I sometimes worry that I read too much news, but the knowledge of the bigger picture is vital to our work.
Which brings me to my main subject for today: Tariffs. How will they impact the economy? And how do they impact our decision-making when it comes to individual stocks we’re considering for our ETF products?
First off, you’d be hard-pressed to find any economist who’ll argue that tariffs are a good thing, broadly speaking. That’s the point of the iconic scene from Ferris Bueller’s Day Off that you may have seen resurface on the internet lately. Fun fact: Ben Stein, the teacher in the scene, is a trained economist and improvised his lesson about the Hawley-Smoot Tariff Act on the spot based on his actual knowledge. His lesson was that one way or another, tariffs punish consumers, economies, and the financial markets.
Of course, tariffs are nothing new. Previous administrations have used tariffs as bargaining tools in international trade agreements or as a method of punishing those we might see as “bad actors” on the global trade stage. But they generally come at a cost to consumers and companies at home.
I recently explained how our team at Motley Fool Asset Management thinks about tariffs in an interview with NYSE TV. In essence, federal policy isn’t going to affect how we pick stocks. We remain “bottom up” investors focused on our four pillars of quality investing.
But policy might affect how we allocate within our portfolios and our prognosis for each company’s potential moving forward. We cannot ignore the macro environment or the risks that environment poses to our current and potential holdings.
Tariffs have implications for intellectual property, the quality of goods produced, and a company’s raw material inputs like steel and aluminum (hence the urgent call between the president and U.S. auto executives on March 5). I’d happily kick off my own detailed lesson about the dynamics of global price setting and deadweight loss but, *checks watch* I think we’re a little short on time.
By investing in what we see as the best of the best stocks in terms of company quality, we hope to have “pre-insulated” our portfolios to some extent. But as we model out future possible scenarios for each of our holdings, we have to include current and prospective tariffs among the factors we’re considering.
In essence, we think investors should be looking for certain kinds of companies in such an environment. Companies whose products and/or services face a relatively stable income elasticity of demand from their consumers should, theoretically, fare better in a higher-price environment. On the supply side of the equation, we look for companies that we believe have relatively more resilience to absorb rising input costs or weather temporary changes in consumer behavior.
While tariff considerations don’t alter our fundamental stock-picking process, they do factor into our analysis as we consider macroeconomic trends’ potential impact on our holdings. Identifying long-term trends like deglobalization or increased protectionism might lead bottom-up investors like us to be more cautious about companies that operate within complex global supply chains.
With the rapid pace of change, now could be a good time to consider actively managed investment portfolios like the kind we run at Motley Fool Asset Management. These ETFs effectively put our investing team to work on your portfolio, picking the stocks, tracking company performance, and keeping up to speed on macro trends in the economy—like tariffs!
Even our passive ETF products track indexes based on the active stock picks of professional investors at The Motley Fool, LLC, so every MFAM ETF relies on real humans with real convictions about which companies they believe are poised to deliver for shareholders. You can check out all of our ETFs by following the link below.