February 10, 2017
As 2016 performance trickled in, the depth and prevalence of underperformance became very apparent. What made 2016 such a particularly difficult year for active management? Many have cited the tumultuous events throughout the year ranging from the market dip and subsequent recovery in the first quarter, to the Brexit, to the unexpected Trump victory. Rapidly reacting and adapting to these market changes - let alone capturing any alpha - was incredibly challenging.
February 3, 2017
This week’s chart shows asset flows between active and passively managed mutual funds and exchange traded funds (ETFs) in U.S. equities. Over the last eleven calendar years, active strategies experienced cumulative outflows totaling $864 billion, while passive strategies saw inflows of nearly $460 billion.
January 27, 2017
Recent events have strengthened the case for Emerging Markets Debt (EMD). Our chart of the week shows how yields for local and hard currency strategies are above their historical averages and are an attractive opportunity as we begin 2017.
January 20, 2017
As markets continue to reach new all time highs many investors are wondering how much more runway is left for the current 8-year bull market. While different valuation metrics will tell different stories, it can be helpful to look at what Warren Buffett has dubbed the single best measure of long term market valuations.
January 13, 2017
As the investment community continues to debate the role of hedge funds in the future, one thing is for certain, assets continue to flow into this much debated space.
January 6, 2017
January is a time to reflect on the past year and assess what went right and what went wrong, and asset allocation is no different in this regard. Elevated valuations at the start of 2016 did not hold back U.S. equities as they climbed to record highs; small caps were the outright winner with a 21% return. These smaller cap companies received a post-election boost as they were expected to be less affected by the strengthening dollar and potential trade policies enacted by Trump, since they do not typically conduct much international business. The knock-on benefits of a potential lower corporate tax rate also helped propel small-cap equities higher after the election.
December 19, 2016
This week’s chart of the week highlights the recent change in correlation between the stocks that comprise the S&P 500 as measured by the CBOE S&P 500 Implied Correlation Index. On November 18, 2016 correlation among stocks fell to a post-recessionary low of 26.5 compared to an average reading of 59.8.
December 9, 2016
While the above curves are simple in appearance, they can hold great predictive power for investors. Futures curves are just as they sound: future price speculation on a given day. The red line represents the futures pricing of WTI Crude Oil as of November 28th, just a few days before OPEC members decided to cut output in the hopes of combating oversupply and ultimately raising oil prices. Purchasing futures on oil for delivery in July of 2017 would give the futures owner the right to sell oil at a price of about $50/barrel. This investment strategy is often employed by speculators, hedge funds, and producers. Producers are able to hedge their exposure to oil and buy futures as a pseudo insurance policy as it locks in the price at which they can sell oil at some point in the future.
December 1, 2016
This week’s chart highlights recent changes in sector leadership across U.S. equities.
The first half of the year was marked by global growth concerns coupled with reduced expectations for further interest rate hikes in 2016. As this sentiment became priced into the market, a flight to perceived safety ensued which helped to fuel the strong performance of defensive sectors. Telecom, Utilities, Real Estate, and Consumer Staples were the main beneficiaries of this trend. Additionally, these sectors tend to offer attractive dividend yields. Strong interest from yield seeking investors, given the current low interest rate environment, helped propel performance and valuations to elevated levels within these sectors.
November 16, 2016
The election of Donald Trump last week caught the market by surprise and created a significant amount of volatility and dispersion across the U.S. equity market. One area of note was the huge outperformance of small caps (up 7.7% from November 8 - 11) vs. large caps (up 1.2% November 8 - 11). The Republicans made it a clean sweep Tuesday night, winning the White House and maintaining control of the House of Representatives and the Senate. While there is a lot of policy uncertainty as a result of this election, the market now believes there is a high likelihood of corporate tax reform being passed sometime in 2017. Donald Trump’s plan calls for a reduction of the corporate rate from the current level of 35% (one of the highest rates in the world) to just 15%. Paul Ryan previously put forward a plan for corporate tax reform that would lower the rate to 20%.