Active Management

At the start of 2019, I compiled a list of predictions that so-called “gurus” had made for the upcoming year for a consensus on the year’s “sure things.” It is now time for my final review.

A truly interesting contradiction is developing in stock markets around the world. A number of major corporate executives are calling for businesses to be judged by something other than the net present value of their future earnings or other conventional business/investment metrics.

Fixed income markets are different from equity markets. This statement is absurdly self-evident when put into writing. But it’s not as obvious when put into the context of today’s market dynamics.

Research Affiliates examines how different asset classes perform across full market cycles, and discusses how macro forecasts inform its investment strategies.

In today’s society people are choosing to have fewer children, and delaying having children at all into later, less fertile years. These two factors have driven fertility rates below replacement level in most of the world, but a crucial third factor gets little attention and is having a profound impact on fertility: toxicity. The economic and social ramifications will be severe.

Founded in 1999, Tiger 21 is a peer-to-peer network of wealthy individuals who meet on a regular basis to discuss the issues that matter most to them. Many of those discussions are focused on investing.

In the President’s “State of the Union Address” on Tuesday, he used the podium to talk up the achievements in the economy and the markets. While it certainly is a laundry list of items he can claim credit for, it is the claim of record-high stock prices that undermines the rest of the story. Let me explain.

CLSA predicts that the price of gold will beat the S&P 500 in 2020. The Hong Kong investment firm has an impressive track record when it comes to making market predictions—last year it had a 70 percent hit rate—so it may be prudent to take this one seriously.

The S&P 500 ETFs tracked include State Street Global Advisors’ SPDR (SPY), iShares Core S&P 500 ETF (IVV), and Vanguard’s S&P 500 ETF (VOO).

Overcomplicating things is seldom on the path to investment success. The stunning ascension of Tesla has confounded, in a manner no less than stupefying, the investment thesis of many.

We believe that bonds will continue to provide benefits in terms of both portfolio diversification and return. However, with absolute yields at low or even negative levels in some markets, these benefits may be muted relative to historical patterns. These dynamics heighten the need to take an active, global approach to a fixed income allocation.

After 40 years on Wall Street, stock market expert Marc Chaikin, whose technical indicators are industry standards, introduced a suite of groundbreaking tools to provide a directional edge for investors and advisors. Chaikin Analytics was launched in March 2011 and is a suite of research tools and portfolio management services that help pick winning stocks and ETFs and drop losers ahead of market shifts.

Read Harold Evensky's latest newsletter.

Private assets are popular today as investors are reaching out on the risk spectrum for return. This behavior is always interesting to us since history shows it often leads to losses. We wanted to dig into private markets and see if excess returns are easily earned.

US healthcare is always a political hot potato, and volatility is expected to rise as the November elections approach. But investors can find good opportunities in the sector in companies with strong long-term business drivers that are relatively immune to political noise.

Pricing dislocations in Europe, performance dispersion across the credit spectrum and shifts in the political landscape should likely provide abundant opportunities for select hedge strategies in the year ahead, according to K2 Advisors. The team shares some macro themes and questions its focused on, and shares its outlook for various hedge strategies.

Quantitative Easing (QE) policies in developed countries triggered a flight from yield in EM as investors pursued capital gains in developed markets instead. As the capital gains in developed markets fade and with yield nowhere to be found, a search for yield in EM has finally begun.

Although European equities performed well in 2019, there’s still a significant value and performance gap compared to US stocks, according to Franklin Mutual Series Portfolio Manager Katrina Dudley. Here, she gives reasons why she’s optimistic about the backdrop for European value stocks and discusses some potential market-moving events she’s monitoring.

Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020.

With US equities trading at relatively high valuations, earnings growth will be essential for investors to generate returns in 2020. That’s a tall order in today’s environment. Finding standout companies with sustainable growth potential will be especially important.

Have you ever considered launching your own podcast, but stopped because you weren’t sure if it would be worth the time and the effort involved?

We think investors should not extrapolate too much from who wins the early contests, including Iowa.

You can build the best portfolio for your clients, but if they don’t stay invested, their chances of reaching their goals will be diminished.

On Wednesday, the Federal Reserve concluded their January “FOMC” meeting and released their statement. Overall, there was not much to get excited about, as it was virtually the same statement they released at the last meeting. However, Jerome Powell made a comment which caught our attention...

Two topics seemed to dominate at this year’s Inside ETFs conference: the rise of ESG investing, and the emergence of so-called “nontransparent” ETFs. Both promise some big changes to financial markets.

As you will see today, sometimes I get it really, badly, completely wrong. Thankfully, not too often.

Valid until the market close on February 28, 2019.

The S&P 500 closed January with a monthly loss of 0.16% after a gain of 2.86% in December. All three S&P 500 MAs are signaling "invested" and all five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index ETF (VNQ), Vanguard FTSE All-World ETF (VEU), iShares Barclay 7-10 Year Treasury (IEF), and PowerShares DB Commodity Index (DBC) — are signaling "invested".

Understand this. The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time. Whatever they’re doing, it’s not “investment.”

The top 3 Medical DistributorsAmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson Corp. (MCK) dominate the distribution of pharmaceuticals and are estimated to represent 90% to 95% of the market. Moreover, each are dividend growth stocks, and as a specific subsector group all appear significantly undervalued.

It’s been 3-1/2 years since the United Kingdom voted to leave the European Union, and the process known as Brexit has been far from smooth. Now that the deadline to leave has passed, what’s next for the United Kingdom, and for Europe?

In 2018 I hit a midlife crisis. Some people get a red convertible; I started to pay attention to my health.

By moving our USD emerging debt strategy benchmark to the diversified (issuer-capped) version of J.P. Morgan’s EMBIG benchmark, we will limit our exposure to the ballooning issuance of low-return-potential, opaque countries. Our objective is to retain the “high dividend sovereign equity” nature of this asset class for our investors...

The current drawdown has been by far the longest as well as the second largest since July 1963, eclipsed only by the tech bubble from 1997 to 2000. Arnott, Harvey, Kalesnik, and Linnainmaa examine the potential causes of value’s underperformance and provide estimates of value’s performance relative to growth’s performance under different revaluation scenarios over the next decade.

Matthews Asia CIO Robert Horrocks, PhD, and Investment Strategist Andy Rothman offer their perspectives on the Coronavirus and its possible impact on China's governance and economy.

Equities saw strong 2019 performances across the globe, so the big question for investors is whether the bullish momentum can continue. Templeton Global Equity Group’s Alan Bartlett and Tony Docal provide a look at what drove the positive performances around the globe in late 2019, and how they are poised to take advantage of any potential dislocations in the year ahead.

The outlook for the muni market is favorable for 2020, but investors should be prepared for twists and turns. Staying flexible can help keep investors on track.

Today the National Association of Realtors released the December data for their Pending Home Sales Index. According to the National Association of Realtors®, "Pending home sales fell in December, taking a step back after increasing slightly in November."

Questions about environmental, social, and governance (ESG) issues are becoming central to commodity markets and capital allocation discussions.

This year, 2019, may be remembered as the year to be invested in large-cap growth stocks, with the Russell 1000 large-cap growth index returning over 30% year-to-date. One of the standout funds this year is the William Blair Large Cap Growth Fund (LCGNX), which has returned over 35% with less than a week to go in the year. But its strong track record extends back even longer. It has returned 9.78% annually over the last 15 years, beating the Morningstar large-cap growth category average by 47 basis points.

In prioritizing stability over all other objectives, China is borrowing from future growth while reducing policy ammunition to counter future shocks.

Because it’s the first of the 12 zodiacs, the Year of the Rat is seen as a time of beginnings and renewals. That brings us hope, especially paired with the recent positive development in the U.S.-China trade war.

The idea that interest rates directly affect stock prices is a commonly held belief among many investors. There are some that even go as far as to say that the only reason the stock market is up is because interest rates have been artificially kept low by the Fed.

Alongside pockets of weakness in credit markets come pockets of opportunity for active managers who focus on rigorous bottom-up research and careful credit selection.

2019 proved to be a very strong year for almost all financial assets, as equities and bonds rallied in tandem. The Federal Reserve (the Fed) was compelled to play defense against a weaker global economy (particularly in Europe) and continued uncertainty related to the trade dispute between the U.S. and China.

In a low-yield, late-cycle environment, the right mix of credit securities and government bonds can help fixed-income investors boost income and tame volatility.

Has passive investing helped drive the outperformance of mega-cap stocks?

In this piece, let’s do what Batista should have done – spend a few minutes focusing on the “stay rich” part of the equation. If you’re an investor who has already amassed great wealth and “won the game” what’s the right market approach that will help you keep (and potentially even grow) your wealth?

Since 2002, S&P Dow Jones Indices has published its SPIVA reports, which compare the performance of actively managed equity funds to their appropriate index benchmarks. It also puts out a pair of scorecards each year that focus on persistence of performance. Here are the latest results.

Advisors and allocators have struggled for years with a simple question:

How can my clients get the diversification benefits of leading hedge funds, but in a mutual fund or ETF with reasonable fees and less downside risk?

In this webinar, Andrew Beer will explain how hedge fund replication is a potential solution. Hedge fund replication, broadly defined, is a strategy that seeks to match or outperform hedge fund returns with lower fees, daily liquidity and less downside risk by mimicking the core exposures and trading strategies of high cost, illiquid hedge funds. The webinar will cover key educational topics, such as

• What are the different forms of hedge fund replication?
• What’s worked well and what hasn’t?
• Why do some replication-based strategies outperform actual hedge funds?
• Why should advisors consider a hedge fund replication-based mutual fund or ETF today?

The presenters will be available after the presentation to answer attendees' questions live.

Even as global stocks climbed in 2019, market volatility persisted. By some measures, lower-volatility stocks now look quite expensive. But in fact, high-quality stocks that can help protect portfolios can be found at reasonable prices, if you know where to look.

Nikko Asset Management’s Global Head of Investments examines key factors that has driven the diverging roads of performance by Sony and Panasonic, as well as the key lessons that can be learned from their stories.

The recent runup in valuations has reduced the margin for error in today’s markets.

A strong economy will help U.S. consumers meet their financial resolutions in the new year, while residents of France and Australia have bigger worries.

A decade of central bank easing and the resulting low-volatility environment have made many investors complacent about risk management. We believe the next 10 years will be more volatile than the last 10 years, and risk management will be central to the delivery of consistent alpha.

Good things are happening, too, and will keep happening as we move through the 2020s. Occasionally I like to note them, and that’s what we will do today.

Among the biggest contributors to the bitcoin rally is the hope that 2020 could finally see institutional investors move into the digital field en masse, prompted by growing client demand and more attractive ways to get exposure.

Now is the season for forecasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models.

Almost by definition, value investing rarely performs well in the short run. This is especially true when you are in a strong bull market like we’ve been in since March 2009. Most companies as represented by the S&P 500 are currently trading at fundamental multiples that are significantly above historical norms.

As the worries mount, it’s worth addressing whether these concerns are truly warranted, or overblown to an extent. Let’s dive right in and tackle this, as well as look at how much of a handbrake such a high level of debt may have on Chinese growth.

Quantitative value investors have traditionally relied on price-to-book as the metric to classify stocks. But new research shows that price-to-enterprise value is a more powerful tool to construct portfolios. That research also sheds light on the question of whether the value premium is risk- or behaviorally-based.

Every year, the markets provide us with lessons on prudent investment strategies. Many times, markets offer investors remedial courses, covering lessons it had taught in previous years. That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t yet know.

As Mark Twain once said, history never repeats itself, but it does often rhyme. The House vote to impeach President Trump coming in mid-December of 2019 certainly feels like a couplet with the Clinton impeachment, which occurred in mid-December 21 years ago. Indeed, there are similarities, but also key distinctions.

Despite Sauron and Einstein’s failed attempts at unified theory, 2019 was simply the tenth year whereby interest rates were low and went lower, credit remained both cheap and plentiful, the economy was “good enough,” and those who can print money re-dedicated themselves to a willingness to print money. The logical conclusion to this set of events is to buy and hold U.S. equities. Drop the mic—again.

One of our favorite financial writers is Bloomberg’s John Authers. He recently wrote a tongue-in-cheek article about an investment company by the name of Hindsight Capital. In hindsight, or in the company’s case, Hindsight Capital, he talked about what the firm did and what you should have done over the last ten years to produce outstanding returns.

A new decade, seismic shifts and the importance of diversification.

Research Affiliates provides its outlook for 2020 and discusses where it sees attractive return opportunities across the globe.

The substantial economic calendar features inflation reports and housing, but also includes Michigan sentiment, the Fed’s Beige Book, and NFIB sentiment survey. We will also get the first earnings reports for the Q4 season.

What really is a bet? How does one make decisions under uncertainty and with imperfect information? In his latest memo, Howard Marks weaves his own life story to discuss the process of thinking in bets, parses the world of gambling, and draws parallels between investing and games of chance.

With markets continuing their upward trajectory, it is easy to assume central banks are in control and things are going well. Some insights from how people interact with their environment in traffic reveal a very different perspective, however.

Foreign trade ends up being cleared through international money – a currency that the world accepts as final payment, even in places where it is not legal tender.

Value investing is an active management strategy that considers company fundamentals and the valuation of securities to acquire that which is undervalued. But as Graham and Dodd defined it, passive strategies are not investing; they are speculating.

For nearly three years we’ve been tactically recommending overweighting large caps (S&P 500) and underweighting small caps (Russell 2000)—time for an update.

With simmering trade tensions, sputtering growth worldwide and a historically long, but slow, U.S. economic expansion, investors will have to brace themselves for a challenging investment environment in 2020. Change, adaptability and diversification are the key words. Here are steps you can take early in 2020 to position your investment program well for the rest of the year.

The US economy is not in an economic boom, but growth has been consistently faster than during the Plow Horse phase from mid-2009 through the end of 2016. Real GDP has grown at a 2.6% annual rate since the start of 2017 versus 2.2% beforehand.

We expect European investment grade bonds to post slightly positive excess returns in 2020. We believe the sector stands to benefit from healthy supply and demand balances, likely offsetting tight valuations and weakening fundamentals.