November 11, 2016
The chart of the week shows the performance of the Mexican Peso from November 8th through the 10th. The Peso served as a barometer of sorts throughout the U.S. Presidential campaign, as Donald Trump had pledged to renegotiate the North American Free Trade Agreement (NAFTA) and stop illegal immigration by building a wall along the U.S./Mexican border.
November 4, 2016
The S&P Dow Jones Indices and MSCI Inc. announced the creation of a new real estate sector, formerly included in the financial sector, within the GICS system which became effective August 31, 2016. The new real estate sector marks the 11th GICS sector and the first time a new sector has been added to the GICS classification since its inception in 1999. The creation of a separate real estate sector recognizes the growth in both size and complexity of the asset class. Real estate, which began as two sub-sectors, has grown over time to now contain a total of 13 sub-sectors.
October 27, 2016
After a tough 2015, emerging market (EM) equities have rebounded nicely, returning 16% through the first three quarters of the year. The asset class has benefitted from a change in the macro environment, including the stabilization and strength in commodities and currencies. Not surprisingly, GDP growth – particularly against developed countries – has started to accelerate and is expected to continue on its upward arc (shown by the blue line in the graph above).
October 21, 2016
This week’s chart of the week looks at the recent spike in the London Inter Bank Offered Rate (LIBOR), which is the rate at which banks charge one another for short term loans. As the chart illustrates, over the past year the 3-month LIBOR rate has increased from 0.32% to 0.88% (an increase of 0.56%), which is the highest rate for 3-month LIBOR since the spring of 2009. While other measures of short term interest rates - such as the Fed Funds Rate (increasing from 0.25% to 0.50%) and 3-month T-Bills (increasing from 0.01% to 0.33%) - have also risen over the past year, the magnitude of the LIBOR increase is significantly larger and warrants further examination.
October 13, 2016
Since markets hit their 2016 troughs back in February, they have continued to rally and hit new all time highs over the course of this year. With the upcoming election, talks and discussions surrounding a market bubble and looming recession, investors have begun to ask themselves if now is the right time to start lowering their equity market allocations to better position and protect themselves.
October 5, 2016
Our Chart of the Week examines the relative performance of Core and Intermediate Government/Credit fixed income strategies in rising and falling rate environments. The chart shows Core’s annual total return since the 1970s as represented in the blue using the Barclays U.S. Aggregate index. Annual total return of the Barclays Intermediate Government/Credit index is shown in orange. We also include inflation in green, using the CPI’s annual change, and the 10-year Treasury yield in gray. As one can see, Core beat Intermediate Government/Credit and inflation when rates dropped during the 30-year bull run for bonds from the 1980s to today. This is because Core features higher yields and longer duration, the latter of which boosts bond prices when rates drop. But Core lags Intermediate Government/Credit and inflation if rates rise significantly, as we experienced during the 1970s oil crisis. This was again because of Core’s longer duration. In other words, Core’s longer-dated bonds took much longer to be recycled out as rates rose and newer, higher-yielding bonds came to market; as a result, returns lagged.
September 29, 2016
While this year’s political election has featured much discussion about jobs going overseas, a larger impact on manufacturing employment has come from technology advances. Over the years, manufacturing companies have replaced jobs with computerized equipment to reduce production costs. However, the considerably more complex equipment demands workers with new skill sets to operate these machines. So while such technological advances helped the manufacturing industry reduce the number of required workers yet increase production, many factories are finding it difficult to find employees with the necessary skills to operate and maintain the advanced machinery. This week’s chart takes a look at the number of manufacturing jobs that are going unfilled even with improving employment rates and the steady addition of jobs.
September 22, 2016
This week’s chart shows the significant growth in direct lending over the last decade, as indicated by the number of funds and amount of capital raised.
Direct lending is defined as a loan made by a private entity to a small - medium size company which generally carries a floating interest rate. The loans have a 3 to 5 year term and are in most cases held to maturity. For some perspective, this space was largely dominated by commercial banks and proprietary trading desks at investment banks leading up to the global financial crisis of 2008 when private lenders had little market share. The landscape has changed since then as banks now face significant regulatory pressure as a result of the Basel III and Dodd-Frank bills, which call for higher risk-based capital charges for non-rated loans and an increase of 25% or more in Tier 1 capital ratios by 2018, making the practice of direct lending an increasingly inefficient use of bank balance sheet capital.
September 16, 2016
Earlier this month China and the United States jointly pledged to ratify the Paris climate change agreement, a monumental step for the world’s two largest polluting economies. Executing a dramatic reduction in greenhouse gas (GHG) emissions will require creative financing, and China is looking towards green bonds to support their commitment.
September 8, 2016
Over the past year, many bonds from energy and metal/minerals issuers which previously held investment grade ratings were reduced to junk bond status, commonly known as fallen angels. These include Freeport-McMoRan, the largest copper producer in the world and Chesapeake Energy, the second-largest gas producer in the U.S. This week’s chart examines this unprecedented phenomenon. Fallen angels now account for a mind-boggling 42% of the energy and metal/minerals constituents in the Credit Suisse High Yield Index. With this influx of fallen angels, energy and metal/minerals now make up about 21% of the high yield index, up from 15% in February.