Leveraged and Inverse Funds

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.

It is probably hard to remember after a week or so of coronavirus fears, but during Q4 2019, “risk” assets once again outperformed “haven” assets. This was after two quarters of “haven” asset outperformance.

What makes an investment philosophy or product ESG-friendly? The answers may surprise you.

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?

The longest bull market in history keeps rolling along. And the recipients of this bull market’s run are losing money hand over fist. There are more than 40% of listed companies in the U.S. that lose money – the highest level since the late 1990’s outside of post-recession periods.

According to James Montier, now is the time to allocate away from U.S. equities and into emerging markets.

Late-cycle markets can unnerve high-income investors. But we see ways to generate a healthy level of income while potentially decreasing overall portfolio volatility.

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...

The accompanying chart is a way to visualize real GDP change since 2007. It uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics.

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.

As we head into 2020, municipal bonds will likely remain attractive for many tax-sensitive investors, but their performance potential could prove to be relatively muted compared to 2019, according to Sheila Amoroso, director of our Municipal Bond Department.

Every instance of financial speculation today is termed a “bubble”, but true financial bubbles are rarer than most investors believe and they go beyond the financial markets and pervade society.

"Travel on all roads and streets changed by -0.1% (-0.1 billion vehicle miles) for November 2019 as compared with November 2018. Travel for the month is estimated to be 260.3 billion vehicle miles." The 12-month moving average was up 0.47% month-over-month and up 1.4% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) was up 0.40% month-over-month and up 0.9% year-over-year.

The trouble currently is that global short-term interest rates are still close to, or below zero, and cannot be cut much more, which has deprived central banks of their main lever if a recession strikes.

Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2020 and beyond.

FINRA has released new data for margin debt, now available through December. The latest debt level is up 2.8% month-over-month.

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.

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 can provide tax-planning services to grow their client base and provide more value to the people who trust them with their hard-earned money.

Advisors have at least one thing in common with great athletes. Failing to acknowledge and correct a glaring weakness in their skill set will lead to their undoing.

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.

Last New Year’s Eve, most would not have forecasted the extent of the gains experienced by the U.S. stock markets this year. On the heels of the worst December since 1931, the Federal Reserve’s (the Fed) 180-degree turn, from restrictive to accommodative policy, fueled the S&P 500’s roughly 30 percent surge and pushed the U.S. economic expansion into record territory.

2019 was a very unusual year. Domestic growth whipsawed from strong (over 3%) to concerning (just over 1%). This volatility was compounded by both domestic and global headline factors: a very public trade dispute and very weak global growth.

The problem with low interest rates for so long is they have encouraged the misallocation of capital. We see it everywhere throughout the entirety of the financial system from consumer debt, to subprime auto-loans, to corporate leverage, and speculative greed.

The Trump administration's unilateral approach to trade and foreign adversaries like Iran is reminiscent of the Reagan administration's strategy against the Soviet Union. Both game theory and the historical record show that aggressive "non-cooperation" can be effective, but only if it is used carefully.

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.

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.

We expect emerging market (EM) fixed income asset classes to continue to perform well in 2020. Though the sector appears to be starting from less attractive valuations than a year ago, in a low-yielding world, we see opportunity for relative performance in credit and local rates and a tactical tailwind for EM currencies.

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

The January edition of Macrogram highlights the current state of the economy. The chart-based newsletter shows the weakness in manufacturing, calls attention to the current slope of the yield curve and covers key macroeconomic indicators. Macroeconomic insights at-a-glance.

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.

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.

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.

In Part 1 of this forecast I described my relatively benign outlook for the next 12 months. The calm may last into 2021 and even beyond. But beneath the surface, pressure will still be increasing. It will grow slowly, almost imperceptibly, but eventually explode.

Will 2020 be more of the same? Our teams are encouraged by differences they see in the new year; but they remain alert for unexpected downturns.

With this article I am going to present several ways that investors, especially retired investors, can beat the market without fail. However, what I will be presenting may not be what you are expecting, particularly if you have a narrow notion of what beating the market means.

The US investment grade (IG) corporate bond market is coming off an exceptionally strong year. Declining interest rates coupled with sharply narrower credit spreads contributed to strong absolute and relative returns.

2019 was a triumphant year for the US large cap equity market, with the S&P500 index up 31% on a total return basis. The resolution of two major concerns in the year, namely the US Fed being too aggressive on rate hikes, and the US/China trade relationship hanging in a total impasse, drove the market higher, particularly in 1st and 4th quarter.

Franklin Equity Group’s Jonathan Curtis explains why he thinks businesses will need to invest significantly more in digital technology in the coming years to better understand and service their customers and to reduce costs.

A few months ago, I wrote about the mechanics of value investing and the many decisions that go into building value portfolios. Many investors believe that all value-based strategies will produce a similar performance. But in reality, the many portfolio construction decisions that value managers make...

Markets appear to expect the Federal Reserve to hold interest rates steady during 2020. In this environment, we think the outflows seen in leveraged loan mutual funds are likely to abate, and possibly change directions.

Trump's decision to take out the Islamic Republic's most celebrated military leader, Qassem Soleimani, was a timely reminder that we face many problems. An armed conflict between the US and Iran is clearly one of them but far from the only one. Here is a list of the ones we worry mostly about, going into 2020.

Expect a steeper yield curve, according to Jeffrey Gundlach. Investors should be “defensive” with respect to long-term bonds. Gold will go up, inflation will be subdued, there is a 30% to 35% chance of recession and – his “highest conviction” idea – the dollar will weaken. His most surprising prediction was who will be the Democratic nominee.

The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes. We discuss seven key macroeconomic themes we expect in 2020 and implications for investors.

Let’s walk through the first 20 years of the new millennium and the lessons for the next 20 years.

A combination of spread compression and reduced US Treasury base rates contributed to double-digit gains in the high yield corporate credit sector in 2019. However, unlike many years with similar returns, lower-quality, CCC-rated credits meaningfully lagged their higher-quality counterparts. At this point in the extended credit cycle, investors appear wary about the performance of lower-quality credits.

Following another year of strong returns, Emerging Markets (EM) fixed income has outperformed developed bond markets by a significant margin over the past four years. The outperformance is likely to continue in 2020, because EM fixed income remains attractively priced both in absolute terms and relative to bonds in developed markets as well as under-owned and well-supported by an improving fundamental backdrop.

Welcome to the 2020s. Some weren’t sure we would make it this far, but we did. Now we face a new decade and new challenges. How we handle them will determine what kind of conversation we have in 2030.

One of the striking things about bull markets is that they often end in confident exuberance, while simultaneously deteriorating from the inside. We’ve certainly observed this sort of selectivity during the past year. The market advance in 2019 fully recovered the market losses of late-2018, fueled by a wholesale reversal of Fed policy, hopes for a “phase one” trade deal, and as noted below, a bit of confusion about what actually constitutes “quantitative easing.”

To celebrate another great year of doing the work I do with my firm’s valued clients, this week’s column is devoted to resolutions I hope you are able to make and keep in your businesses.

As we wave goodbye to the bull market of the 2010s, here are the rules for investing in whatever comes in the next decade.

The economic calendar is very light and interrupted by the mid-week holiday. We can always see volatility when volume is low, but many market participants will be on an extended holiday. This includes much of the A-team punditry, but someone will be left to fill the airtime.

How do you build a moat around your client base?

David Ellison manages the Hennessy Large Cap Financial Fund (HLFNX) and the Small Cap Financial Fund (HSFNX), both of which have outperformed their benchmarks since their inception in 1997. Dave has been recognized by Morningstar as the most tenured mutual fund portfolio manager in the financial services sector. I spoke with Dave on December 12.

While some cook with a dash of this and a dash of that, the best chefs follow a recipe to a T. Without abiding by a set of instructions, you’re at risk of inconsistent results or worse, omitting steps altogether. Sugarless baked goods rank right up there with eating cardboard. And too much of even basic spices can ruin any dish. Overcooked foods can be dry or burnt. Undercooked foods can cause illness. Clearly, following a recipe precisely is essential.

President Trump called it “amazing,” and U.S. Trade Representative Lighthizer said the China deal is “remarkable.” In my view, however, it is merely the best trade deal in the last 36 months of Chinese history, and it falls well short of two key objectives. Because the deal sets highly unrealistic goals for U.S. exports to China...

Rick Rieder and Russ Brownback argue that contrary to the many year-end outlooks foreseeing either a recession or a rebound in 2020, the most likely path for the economy and markets is more moderate, which can be encapsulated in their theme of “1.8.”

While US-China trade tensions and other concerns prompt a cautionary stance when it comes to risk assets, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer nonetheless remain positive about the US equity market in the year ahead, citing a number of long-term growth drivers that still remain in place.

Now that the US and China have agreed to begin easing trade tensions, the fog over China’s markets is starting to lift. Investors should consider Chinese equity opportunities that have been overlooked because of tariff fears.

If the Fed is papering over problems in the overnight funding market, we are left to question its understanding of global funding markets and the global banking system’s ability to weather a more significant disruption than the preview we observed in September.

Brexit and trade talks provided lots of uncertainty this year. Last week saw progress on both fronts.

Predicting a major economic or financial event—whether that’s a recession, market downturn or even your own retirement—requires that you also take action. Otherwise your prediction was meaningless.

Insured bonds continue to pay interest and principal even if an issuer defaults.

Research Affiliates discusses why they believe value investing is still alive and well and explains how changes to the display of expense ratios seek to enhance clarity for investors.

Fear among bond investors is focused on rising rates, but Jeffrey Gundlach says you should worry about something more sinister. In his webcast yesterday, he also offered his updated 2020 presidential election prediction.

The recent repo squall shined a spotlight on “sponsored repo” transactions, a growing segment of the U.S. overnight funding market.

Positive returns across asset classes in 2019 may limit tax loss selling in closed-end funds, but we see potential long term value in select sectors where investors can still buy assets at a discount.

The hedge fund firm Renaissance Technologies, founded by James Simons, has been an object of amazement, admiration, and envy for years, because of the incredibly high investment returns of its flagship Medallion fund. In a new book, author Gregory Zuckerman explains how Renaissance did it. He also shows how a key Renaissance employee used his riches to get Donald Trump elected president.

While many risk assets have rallied in 2019, the lower-rated tranches of collateralized loan obligations (CLOs) have weakened. Is this a sign that the credit cycle is turning?

Improvements in accessibility are expected to accelerate further inclusion in the near term.

The recent half-cycle has been admittedly difficult. My bearish response to historically-reliable “overvalued, overbought, overbullish” syndromes proved detrimental in the face of zero-interest rate policies that amplified speculation, and we’ve adapted our discipline to give priority to our measures of market internals – which we use to gauge that speculation.