There’s $7 Trillion in Money-Market Funds. That’s Bullish for Stocks, Says This Investment Pro.

Jack Ablin, chief investment strategist of Cresset, likes founder CEOs, private-market assets, and dividend-paying companies.

Jack Ablin, founding partner of Cresset (PHOTOGRAPH BY SAÚL MARTÍNEZ)

Jack Ablin is a founding partner of the multifamily office and wealth management firm Cresset, where he serves as chief investment strategist. Cresset was launched in late 2017 to serve families with at least $5 million in assets. Today, the firm manages more than $70 billion.

A onetime trader of mortgage-backed securities, Ablin has been tracking markets for decades, along with the macro forces that sway them. Before Cresset, he spent 17 years at BMO Harris Bank, where he served as chief investment officer.

Ablin considers the S&P 500 index about 27% overvalued today, based on the divergence between corporate earnings and dividend growth and S&P 500 returns over time. But that doesn’t mean stocks can’t keep climbing, he says, especially if a drop in interest rates spurs investors to pull cash out of money-market funds and redeploy it into equities.

Barron’s spoke with Ablin on July 24 about returns under founder-CEOs, future artificial-intelligence winners, wealth management strategies, and the attraction of dividend stocks. An edited version of the conversation follows.

Barron’s: Many Cresset clients are company founders and CEOs. You have been researching the benefits of founder-CEOs. What have you learned?

Jack Ablin: There are probably close to 45 pretty widely held companies that are run by their founders or co-founders. Think about BlackRock, Blackstone, Capital One Financial, and Palantir Technologies. I’m going back in time to study stock performance under founder versus nonfounder CEOs. The difference in results is dramatic. When Steve Jobs ran Apple, the stock returned roughly 33% a year. Under Tim Cook, it has returned about 18% annually. Google, now Alphabet, returned 27% a year under co-founder Larry Page, versus 15% under the current CEO, Sundar Pichai. On a capitalization-weighted basis, the current portfolio of founder-led companies is running circles around the S&P 500, but that portfolio is heavily concentrated in Nvidia, Meta Platforms, and Palantir.

There are many reasons why Apple’s or Alphabet’s annual returns may be lower under their current bosses, including the law of large numbers. But what is it about a founder-CEO that makes a difference?

They understand the business and the culture, and they also tend to have an enormous stake [in the company]. Plus, that stake usually represents an enormous share of their wealth. You can’t get more closely aligned than that.

Public markets are at all-time highs after selling off sharply earlier this year. What is driving the renewed exuberance?

At the start of the year, corporate earnings were expected to grow by 13.5%. After the president announced new tariffs on “Liberation Day” [April 2], expectations fell through the floor. Analysts slashed their earnings-growth estimates in half for the year, to about 6.5%. We raised our recession probability to something close to 40%. And then, there was widespread talk of stagflation. A lot of it is that we expected the worst. Companies are still posting reasonable results, however, and relative to expectations, things are still strong.

Investors also are infatuated with the promise of AI. Will reality match their expectations?

History suggests that innovation evolves in three phases: the hardware phase, or the Nvidias of the world; the platform phase; and then, what I’ll call the beneficiary phase. The good news is that this time around, companies are making a lot of money in the hardware phase. Nvidia and companies like it are generating huge amounts of cash flow. If you dial back to the dot-com era, Cisco Systems was profitable, but a lot of the platforms, such as Netscape and AOL, weren’t profitable.

If we use the development of the internet as a guide, the beneficiaries will see the biggest returns. These are companies outside the field of AI that will harness AI and either transform their businesses or create a new opportunity. Amazon.com isn’t an internet company. It was a retailer that transformed its business using the internet. And that is what we are on the lookout for today.

What could trip up the stock market this year?

Something that could constrain liquidity, such as credit-quality deterioration that would widen the premium that lenders require to extend credit to lower-quality borrowers. But I see a bigger opportunity for more liquidity. There is a little more than $7 trillion in money-market funds that yield about 4.5%. If that yield gets knocked down to 4.25% or 4%, that could prompt more investors to redeploy cash into stocks, perhaps.

Then, there is investor psychology, which can be a contrary indicator. One of the things that we continually look for is overwhelming bullishness or bearishness. During the height of the Liberation Day uncertainty, I had never seen bearishness so low relative to bullishness. I had to readjust our models to account for it.

Since Liberation Day, many of the announced tariffs are lower than we originally feared. While tariffs will likely compress [profit] margins in the second half of the year, earnings expectations should rise as analysts reassess their original forecasts.

How do you expect President Donald Trump’s tariffs to play out for the U.S. economy?

I view [tariffs] as essentially a national consumption tax on goods. The cost of imported goods goes up, which means demand comes down. On the flip side, we export a lot of stuff. By putting reciprocal tariffs on goods that are exported, that creates surpluses and deflation. Look at corn prices, which have plunged. Typically, what we don’t talk about with regard to tariffs are the many items we export. We are going to create deflation and surpluses in those goods.

We knew the soft [economic] data were weakening, but now some of the hard data are confirming [weakness]. The jobs data for May and June were revised downward; about 260,000 fewer jobs were added in those months than originally thought. Plus, only 73,000 jobs were added in July. Growth in gross domestic product slowed in the first half of the year. Inflation is ticking higher.

Do you worry much about Trump pressuring the Federal Reserve to lower interest rates?

I don’t expect the Fed to be co-opted under current Chair Jerome Powell. The next Fed chair may be more willing to cut rates. The federal-funds futures market indicates expectations for two rate cuts in 2026 after Powell’s term ends next May.

During [President Richard] Nixon’s term during the 1970s, Nixon unduly influenced [Fed Chair] Arthur Burns. Rates probably stayed lower for longer than they should have. Due to the oil embargo and other factors, we ended up with double-digit inflation and double-digit unemployment. I don’t expect that to happen again.

We had a lot of cost-of-living adjustments built into our union labor contracts then, which don’t exist as widely now. But if there is a perception that the Fed isn’t acting on its own initiative and is targeting full employment at the expense of price stability, let’s say, we could see the dollar continue to decline. It’s the worst start of the year [for the dollar] in 50 years. Continued dollar weakness could undermine our position as a financial superpower.

Wealthy individuals and families tend to own a lot of private-market assets. What is the attraction?

One of Cresset’s value propositions was access to and expertise in private markets. I came from a bulge-bracket private bank where our clients were second- and third-generation beneficiaries of family fortunes. Cresset’s clients are young, in their 40s, 50s, and 60s. Many are CEO-founders who accumulated wealth by starting a business or owning real estate. We wanted to make sure we could continue investing for them in markets where they are pretty comfortable.

A premise that I brought to the firm was goals-based investing. We have arranged our asset allocation along different time horizons rather than by asset class. We have “liquidity,” which is zero to three years; “diversified income,” which is three to seven; “growth,” which is seven to 15; and then “aspirational,” 15 years and beyond. The asset allocation is customized for those cash flows.

In that three-to-seven-year strategy, we like core private credit, which is direct lending to companies. We also like satellite private credit, or royalty payments, leases, and other kinds of lending strategies. It is generally an income-focused portfolio, and up to 20% of it is in private markets.

Do your clients invest in funds, or co-invest in fund holdings?

Mostly our clients invest in funds, but we have the wherewithal to co-invest. Peakline Partners, an affiliated company, is a sponsor of mostly direct and co-investment private equity, development real estate, private credit, and venture investments.

In public markets, you favor quality companies with dividend growth. Which companies are emblematic of this theme?

In an environment where profit margins may be under pressure if we get a slowdown and credit spreads start to widen, we want to own companies that are generating adequate cash flow and don’t have to rely on capital markets to fund their growth.

The best expression of this is companies that have paid and grown their dividends consistently over time. You could build an entire portfolio of these companies, with dividends sufficient to meet your annual spending needs. History shows that dividend growth, particularly at companies like these, has far and away exceeded the rate of inflation. Because of the quality, they aren’t going to eliminate or cut their dividends.

Some examples include the property-and-casualty insurer Chubb, which has a dividend yield of 1.4% and expected dividend growth of 8% over three years; Johnson & Johnson, with a dividend yield of 3.1% and expected dividend growth of 4.3%; and IBM, with a dividend yield of 2.6% and expected dividend growth of 0.8%.

Thank you, Jack.

Write to Abby Schultz at abby.schultz@barrons.com