Empirical Support for Tail Risk Strategies
The conventional wisdom is that put options are too expensive to use as “tail risk” insurance against extreme losses in equities. But reports earlier this year of their spectacular success in a fund advised by Nassim Nicholas Taleb prompted me to evaluate whether investors should use them.
The 2020 Survey of the Top 50 Hedge Funds
The value of this year’s annual hedge fund performance survey was turned on its head when a pandemic shut down the global economy and sent securities plummeting. But a deeper look at consistently performing funds revealed managers that as a group have largely been able to weather the storm better than the market and their peers.
This Is Nuts…Again. Reducing Risk As Tech Goes 1999
When looking at the acceleration in the price of the Nasdaq, and particularly within the small group of stocks driving that advance, you can begin to fathom our concerns. Furthermore, the divergence between the Nasdaq and the S&P 500 index is emulating the late 90’s.
2020 Mid-Year Outlook: Municipal Bonds
The first half of 2020 was dominated by the COVID-19 pandemic, which hit the municipal bond market hard. State and local governments experienced a sharp and sudden drop in revenue, and an increase in expenses, amid stay-at-home orders and business shutdowns.
Midyear Outlook: Bond Investing in the Era of Low and No Yield
Low yields plus rising defaults seemingly leave little ground for bond investors seeking safety or income—or both. But for investors who remain flexible, those objectives aren’t as distant as many think.
Five Reasons EM Are More Resilient Than in the Past
In a new white paper, the GMO Emerging Markets Equity Team argues that Emerging Markets in aggregate are more resilient today than in prior periods, an important consideration as investors evaluate the rebound the asset class has experienced since late March.
The Latest Look at the Total Return Roller Coaster
Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $15,442 for an annualized real return of 8.72%.
Disconnected Fundamentals and Market Valuations
The P/E for the S&P 500 is about 25, near historic highs. Credit spreads in both developed and emerging markets are tight. Real government bonds yields are negative. Companies have repurchased own shares at record levels for almost 10 years, reducing outstanding stock of marketable securities. Asset price volatility has been extraordinary. Contrast that with market fundamentals: the U.S. economy entered recession in February; total hours worked in May were 12.5% below Q1 average; total wages paid were down 8.5%; and governments have provided cash transfers and guaranteed loans to support incomes.