Results 101–150 of 175 found.
GMO Quarterly Letter
The past five years have been challenging for long-term value-based asset allocation. We do not believe this constitutes a paradigm shift, dooming such strategies in the future. The basic driver for long-term value working historically has been the excessive volatility of asset prices relative to their underlying fundamental cash flows, and recent history does not show any evidence of that changing. Outperforming the markets given that pattern requires either betting that the excessive swings will reverse over time or accurately predicting what those excessive swings will be. The former strategy amounts to long-term value-based investing, while the latter requires outpredicting others as to both what surprises will hit the markets and how the markets will react to them. Our strong preference is to focus on long-term value, despite the inevitable periods of tough performance that strategy will entail.
The Stock Market as Monetary Policy Junkie: Quantifying the Fed’s Impact on the S&P 500
In a new white paper, James Montier and Philip Pilkington of GMO's asset allocation team examine one of the stated goals that the Fed has been pursuing since the Global Financial Crisis: raising asset prices. They note that it does not seem to be the lowering of rates that has caused any asset price increase, but rather the "influence that the FOMC announcements have on market sentiment or 'animal spirits'."
GMO Quarterly Letter
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker examines U.S. high yield corporate bonds, an "asset class that had a notably bad year," concluding, "at current spreads, high yield seems to be no worse than fair value and probably better than that... In today's environment, that makes it one of the best available risk assets for investors" ("Giving a Little Credit to High Yield").
Market Macro Myths: Debts, Deficits, and Delusions
In the context of the role that debts and deficits play in overall economic policy, in this paper I focus on the philosophy known as “sound finance,” which includes adherents who believe that governments should seek to balance their budgets. I, however, take a different view, and believe that the role of government when dealing with budget deficits should be one of “functional finance,” which ensures that the policies implemented help to reach the overarching goals of macroeconomic policy (generally held to be full employment and price stability).
GMO Quarterly Letter
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker examines whether emerging-market equities might be a "value trap," and if U.S. equities are "deserving of trading at a premium P/E to the rest of the world" ("Just How Bad Is Emerging, and How Good Is the U.S.?"). In part two of the letter, chief investment strategist Jeremy Grantham provides "a list of propositions that are widely accepted by an educated business audience ... but totally wrong. ...
Who Ate Joe’s Retirement Money? Sequence Risk and its Insidious Drag on Retirement Wealth
Defined Contribution (DC) plan participants are haunted by an invisible risk called sequence risk (sometimes called sequence-of-returns or path dependency risk), that is, getting the “right” returns but in the “wrong” order. Sequence risk in the retirement phase has been studied extensively. Sadly, not as much attention has been paid to sequence risk during the accumulation phase, but it is equally important.
The Idolatry of Interest Rates Part II: Financial Heresy
In many ways this is perhaps my most personal essay, not because I’m about to share some deep and dark personal revelation (I can almost hear the collective sigh of relief), but rather because this essay reflects my views and mine alone. Others at GMO should not be tarred with the brush of my beliefs, and I have no doubt that many will disavow any association with the views I express here. In fact, my colleague Ben Inker’s “rebuttal” follows this piece.
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker examines the impact on a range of global asset classes of "price-insensitive market participants" who may "buy assets for reasons other than the expected returns those assets may deliver."
What Do High-Yield Maturities Tell Us About Timing the Credit Cycle? Another Take on the Wall
Not only did the maturity wall tell investors to be complacent right before the market was about to sell off, it told investors to be more cautious just as the market was about to rebound. The point is not that debt maturities are irrelevant. Rather, based on the experience of the last three credit cycles, there seems to have been much larger forces at work that ultimately caused the cycle to turn. From the perspective of an investor trying to formulate a high-yield outlook, it seems to GMO that focusing too much on the maturity wall is probably unhelpful.
The Idolatry of Interest Rates Part I: Chasing Will-o’-the-Wisp
First is the idolatry of the “equilibrium/natural/neutral” rate of interest displayed by central bankers around the world. The second idolatry is the modern-day belief in the world’s greatest con: that monetary policy matters.
Are We the Stranded Asset?
In part two of the letter, chief investment strategist Jeremy Grantham examines the factors behind declining estimates of U.S. and overseas GDP growth, and offers an outlook for the coming years ("Are We the Stranded Asset? (and other updates)").
Breaking Out of Bondage
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker provides the basis for future bond returns: "For while it is unlikely that stock investors are going to achieve anything like as strong a return over the next 30 years as they did over the last, it is basically impossible for bond investors to duplicate their feat." ("Breaking Out of Bondage").
The Case for Not Currency Hedging Foreign Equity Investments: A U.S. Investor’s Perspective
In a new white paper, Catherine LeGraw of GMO's asset allocation team explains GMO's approach to currency hedging, a topic which has gained relevance as the U.S. dollar has strengthened.
De-risking Goes Beyond Interest Rate Risk: The Case for Dynamic Asset Allocation in an LDI Solution
In this piece, we introduce a measure of valuation risk, and demonstrate how rotating growth assets into a valuation-aware dynamic strategy can help to reduce risk, improve long-term returns, and help improve funded status in the case of a reversion to the mean.
Is Skill Dead?
As investment boards and committees gather to discuss performance for 2014, eyebrows will most certainly be raised as people review the performance of many of their equity managers. Depending on which database they are looking at, between 80% and 90% of active U.S. equity managers will have underperformed their benchmark this year, making it one of the worst years for active management in the recent past.
Why Were We So Surprised?
Chief investment strategist Jeremy Grantham examines the sources for the "unique decline" in the oil price since June, and offers an outlook for the coming years -Why Were We So Surprised? The Oil Glut, Saudi Decisions, and the Uniqueness of U.S. Fracking
Ditch the Good, Buy the Bad and the Ugly
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker provides background on why, "as the New Year begins, we in Asset Allocation find ourselves slowly selling down even our beloved U.S. quality stocks in favor of the various problem children of the investing world" ("Ditch the Good, Buy the Bad and the Ugly").
Is This Purgatory, Or Is It Hell?
GMO is often accused of being a glass half empty investor, and I admit that in a year that has seen the S&P 500 rise 8.3%, MSCI All-Country World rise 3.7%, and the Barclays U.S. Aggregate rise 4.1% through the third quarter, the words Purgatory and Hell are unlikely to come to mind to most investors when opening their brokerage statements. It has been a dull year, perhaps, but certainly not a hellish one. So what is bringing Danteesque visions of damnation into our slightly warped minds?
Bubble Watch Update
As you may remember, the January Rule serves as a kind of barometer for the behavior of the market in the coming year. Historically, when January was down, the rest of the year had over twice the declines than one would expect randomly, far more mediocre months, and a very sub average return. But it is far from perfect and it had the unusual problem this year of bumping into the positive signal from the Presidential third year, which started for us on October 1.
The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose)
The quality of modern life owes almost everything to the existence of fossil fuels, a massive store of dense energy that for 200 years had become steadily cheaper as a fraction of income. Under that stimulus, the global economy grew ever larger, more complex, more inter-related and, I believe, more fragile. Then around the year 2000 the costs of finding oil start to rise at over 10% a year, and with the global economy growing at only 4% oil starts to fall behind in affordability.
A Farmland Investment Primer
Farmland is a real asset that combines solid investment fundamentals with the potential for attractive cash yields, inflation hedging, and consistent returns from biological growth. Furthermore, farmland total returns tend to be uncorrelated with financial asset returns, offering genuine portfolio diversification for institutional investors.
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker uses the evolving Boston culinary landscape as a backdrop to examine the tendency of investors to pursue a "free lunch," when they should be looking for the "investing equivalent of an inexpensive and tasty food truck meal instead." In his section, chief investment strategist Jeremy Grantham looks back at investing mistakes made over his 47-year career, paying special attention to his formative investing years and the "painful lessons" learned therein.
Free Lunches and the Food Truck Revolution
Over the past year or so, there has been a welcome change to the culinary landscape of the Boston financial district. After two decades of wandering to largely the same old haunts for lunch, I am now faced with a whole new set of inexpensive and tasty choices literally outside our door, changing daily as the food trucks perform their mysterious nightly dance.
Looking for Bubbles Part One: A Statistical Approach
It is a sensible expectation that reasonable long-term value investors will endure pain in a bubble. It is almost a rule. The pain will be psychological and will come from looking like an old fuddy-duddy? looking as if you have lost your way in the new golden era where some important things, which you have obviously missed, are different this time. For professionals this psychological pain will also come from loss of client respect, which always hurts, and loss of peer group respect, which can be irritating.
Investing for Retirement: The Defined Contribution Challenge
Target date funds are rapidly becoming the workhorse for DC plans. These funds have grown substantially in recent years, partly as a result of automatic enrollment made possible by the Pension Protection Act of 2006. By and large, current target date funds resemble the old investment advisor adage that stock weight should be about 110 minus a persons age. While this satisfies the common-sense intuition that, all things being equal, weight in stocks should go down as a person ages, there are a number of problems with this approach. In this paper we focus on two in particular.
A CAPE Crusader
In a new white paper today, James Montier of GMO's asset allocation team reviews a range of valuation measures to assess current U.S. equity market valuations. He concludes: "We continue to believe that the weight of valuation evidence suggests the S&P 500 is significantly overvalued at its current levels."
Year-End Odds and Ends
In a new quarterly letter to GMOs institutional clients, chief investment strategist Jeremy Grantham offers "Year-End Odds and Ends": Fossil Fuels: Is Tesla a Tease or a Triumph?, Fracking and Yet More Technical Stuff on Fracking, Update on Metals, Fertilizers, and Food, Problems in Forecasting Short-term Prices for Resources, Another Look at U.S. GDP Growth, Investment Lessons Learned: Mistakes Made Over 47 Years
Divesting When Discomfited
Ben Inker explains why, "for our asset allocation portfolios we generally try to trade slowly." He notes, "The slightly odd fact is that moving slowly on value-driven decisions has simply made more money historically than moving immediately would have."
No Silver Bullets in Investing
In a new white paper today, James Montier of GMOs asset allocation team reviews recent "innovation in our industry." He argues, "one of the myths perpetuated by our industry is that there are lots of ways to generate good long-run real returns, but we believe there is really only one: buying cheap assets."
Breaking News! U.S. Equity Market Overvalued!
In GMOs quarterly letter to institutional clients today, co-head of asset allocation Ben Inker outlines the reasoning behind GMO implementing a new forecast methodology for the U.S. stock market. While the new methodology has slightly increased GMOs seven-year forecast for U.S. equity returns, Ben notes, "The basic point for us remains the same -- the U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities."
Ignoble Prizes and Appointments
Chief investment strategist Jeremy Grantham comments on this years Nobel Prize in economics and "the most laughable of all assumption-based theories, the Efficient Market Hypothesis"; candidates to succeed Chairman Bernanke at the Fed; the impact of commodity price rises and the housing bubble in the crash of 2008; and prospects for the U.S. equity market.
The Purgatory of Low Returns
This might just be the cruelest time to be an asset allocator. Normally we find ourselves in situations in which at least something is cheap; for instance when large swathes of risk assets have been expensive, safe haven assets have generally been cheap, or at least reasonable (and vice versa). This was typified by the opportunity set we witnessed in 2007.
The Race of Our Lives
Our global economy, reckless in its use of all resources and natural systems, shows many of the indicators of potential failure that brought down so many civilizations before ours. By sheer luck, though, ours has two features that might just save our bacon: declining fertility rates and progress in alternative energy. Our survival might well depend on doing everything we can to encourage their progress. Vested interests, though, defend the status quo effectively and the majority much prefers optimistic propaganda to uncomfortable truth and wishful thinking rather than tough action.
A Funny Thing Happened on the Way to Equilibrium
The bedrock of GMOs investment philosophy is reversion to the mean. We believe that capitalism should cause the return on capital to be in line with the cost of capital, and that assets that embody similar risks should offer similar long-term returns. These beliefs, in turn, guide our assumptions that equities should trade at replacement cost, that the long-term return to equities should be approximately the same as their normalized earnings yield, and that assets without long return histories should have similar valuations and equilibrium returns as related assets with longer histories
Health Is Wealth: Health Care Spending As An Emerging Market Growth Engine
Amit Bhartia and Alvaro Pascual, members of GMO's Emerging Markets Equity team, write to institutional clients in a new white paper about the correlation in emerging markets between public healthcare spending and domestic consumption.
Hyperinflations, Hysteria, and False Memories
In the past, Ive admitted to macroeconomics being one of my dark, guilty pleasures. To some value investors this seems like heresy, as Marty Whitman1 once wrote, Graham and Dodd view macro factors...as crucial to the analysis of a corporate security. Value investors, however, believe that macro factors are irrelevant. I am clearly a Graham and Doddite on this measure (and most others as well).
We Have Met the Enemy, and He Is Us
If modern portfolio management has a single defining urge, it is almost certainly diversification. We look for diversifying assets, strategies, and managers. A thoughtful investor can argue against almost any asset class stocks, bonds, hedge funds, private equity, commodities, you name it but arguing against diversification is like arguing against indoor plumbing. I dont want to sound like I'm calling for a return to chamber pots and outhouses, so I'm not actually going to argue against diversification.
Investing in a Low-Growth World
This quarter I will review any new data that has come out on the topic of likely lower GDP growth. Then I will consider any investment implications that might come with lower GDP growth: counter intuitively, we find that investment returns are likely to be more or less unchanged a little lower only if lower growth brings with it less instability, hence less risk. Finally I will take a look at the reaction to last quarter's letter, specifically about my outlook for lower GDP growth.
Feeding the Dragon: Why China's Credit System Looks Vulnerable
Edward Chancellor and Mike Monnelly, members of GMO's Asset Allocation team, write to institutional clients in a new white paper about China's credit boom and outlines some worrying recent developments in its financial system. In GMO's view, "China's credit system exhibits a large number of indicators associated with acute financial fragility," including China's debt and real estate bubbles, the belief that the government is underwriting financial risk, the shadow banking system, a proliferation in credit guarantees, among others.
The 13th Labour of Hercules: Capital Preservation in the Age of Financial Repression
James Montier, a member of GMO's asset allocation team, writes to institutional clients in a new white paper on the prospects for preserving and growing capital in a world of slowing growth. Defining financial repression loosely "as a policy that results in consistent negative real interest rates," Mr. Montier poses the question "how does a value investor respond to this? It certainly appears as if the assets one would normally associate with capital preservation are expensive. So can and/or should you substitute other assets such as equities into the role of safe-haven value store?"
Japan: After the Quake, After the Floods
Japan's recovery from the Tohoku earthquake and tsunami of March 11, 2011 has been so astounding that people rarely even think about the tsunami anymore. Even fewer remember that heavy rains in Thailand further disrupted the global production chain at the end of 2011. With so much accomplished, why do so few Japanese companies see bright days ahead?
On the Road to Zero Growth
In a new quarterly letter to institutional clients, GMO chief investment strategist Jeremy Grantham makes the case that, "the U.S. GDP growth rate that we have become accustomed to for over a hundred years -- in excess of 3% a year -- is not just hiding behind temporary setbacks. It is gone forever." He cautions, "investors should be wary of a Fed whose policy is prefaced on the idea that 3% growth for the U.S. is normal."
Reports of the Death of Equities Have Been Greatly Exaggerated: Explaining Equity Returns
Where do equity returns come from? As questions go, it may not be quite as profound as "Why are we here?" or as embarrassingly baffling to most of us as "Why is the sky blue?", but considering the number of people out there who spend their working lives dealing in the financial markets, it is a question asked less often, and usually answered less well, than it should be.
Welcome to Dystopia!
In a new quarterly letter to GMO's institutional clients today, chief investment strategist Jeremy Grantham warns: "We are five years into a severe global food crisis" that in the long term "will threaten global stability and global growth." An accompanying investment commentary by GMO head of asset allocation Ben Inker focuses on risks of eurozone equities, which he describes as "somewhere between fair value and mildly cheap" but not worthy yet of "a table-pounding endorsement."
The Pain in Spain - Is There Time for Hope and Change?
The intertwined problems of sovereign debt, European banking systems, and the euro itsself will continue to be debated despite the measures that came out of Junes meetings in Europe. Yet it is the economic and financial situation in Spain that is driving policy now. The precedents being set because of Spain are in a sense more important than discussions about the euro, for decisions about the euro can be delayed, whereas the pain in Spain is acute and the time for decisions is now.
Results 101–150 of 175 found.