The Queen’s Gambit miniseries helped propel Netflix to a winning earnings report last quarter, but in fact the chess strategy it is named after has helped propel chess players to winning games for decades.
BlackRock Global Allocation Fund portfolio manager Russ Koesterich explains why he expects volatility to drop -- and cyclicals outperform.
Today I want to discuss an arcane-sounding but incredibly important term you need to know: Yield Curve Control. Several central banks are already using it and I see a strong possibility the Fed will join them. But first we must again consider the Gripping Hand.
In this piece, BlackRock Global Allocation Fund portfolio manager Russ Koesterich discusses the implications of a rise in stock-bonds correlations.
Does time diversification work in the real world? Do portfolios get less risky – i.e., converge to a more reliable expected return – the longer we wait?
Changes in government inevitably bring new priorities and policies, one being the area of taxes. Fiduciary Trust International Managing Director Craig Richards examines possible tax implications for individuals under President Joe Biden’s new administration.
Over the last dozen years, investors holding the classic US 60/40 portfolio were substantially better off than their diversified peers, yet now is not the time to abandon diversification and diversifying asset classes. We believe it is imprudent to trust that escalation in valuations will continue unabated into the next decade...
Global output and demand are likely to rebound strongly in 2021, but we see risks that call for careful portfolio positioning.
With a record high number of SPAC IPOs and the success of some well-documented investments with triple digit returns, investors and advisors might be interested in evaluating a potential allocation to their portfolios. In this article I focus on a few basic criteria of the best-performing SPACs and tips on how to perform your own analysis.
I'm going to assess the state of the profession as we emerge, exhausted, from our tumultuous 2020 experience.
Free from a house view on economies, markets or stocks, J O Hambro Capital Management’s (JOHCM) fund managers invariably see the world in different ways. We asked a number of our managers for their thoughts on the outlook for their asset class next year, what they would like to see and the possible surprises that 2021 could bring.
A nascent global recovery presents both risks and opportunities for fixed income investors. Portfolio Manager Teresa Kong, CFA, discusses why China dominates the universe for EM debt and why Asia may outperform the rest of EM for the foreseeable future.
There is strong demand for steady income. However, most investment products and strategies fail dismally in this regard.
GMO’s new quarterly letter to clients examines the worst 12-month performance for value stocks in history and explores how investors can profit from a period reminiscent of previous bubbles in global markets.
Investors may choose a passive fund because they don’t believe they can distinguish between luck and skill among active fund managers. But new research shows that the issue of luck and skill plays an important role in passive fund returns too.
Recently we discussed the “rotation trade” and examined the performance of the S&P 500 sectors during shifts from growth to value. Another facet of the rotation trade has been a shift from large cap to small. Today we wanted to examine sector performance in another facet of this rotation – a shift from large cap to small cap.
Debt of many emerging market countries can offer robust yields and enhance portfolio diversification, provided the asset manager has the resources and sophistication to avoid potential pitfalls.
As we arrived at the beginning of November, much of the investment community had heightened concerns about the prospects for continued domestic equity growth during what was assumed to be a volatile market environment with the potential for a contested US presidential election.
The better informed the investor is, the better the investment decisions they can make. But being an informed investor can be a very arduous task, and some would even say that conducting research on common stocks is a real snoozer.
Wide performance dispersion underscores the importance of portfolio construction.
Small-cap stocks have underperformed the broader markets since the “discovery” of the size premium in 1981. But research shows that a segment of those small-cap stocks have performed well and that now is a compelling time to invest in them.
A balanced portfolio of stocks and bonds for decades was among the few venerated precepts in investing. Yet doubts about the approach grew after the pandemic hit and turned 2020 into a year like no other.
Amid historically low rates, the income solutions of yesterday are not going to cut it. Global X ETFs has recognized and reacted to this paradigm shift by developing alternative, higher-yielding strategies.
Amid historically low rates, the income solutions of yesterday are not going to cut it. My guest today will discuss how his firm has recognized and reacted to this paradigm shift by developing alternative, higher-yielding strategies.
The data used to construct ESG portfolios differs widely among providers, meaning that funds may not be aligned with your clients’ objectives and beliefs.
GSAM believes the future of investing aligns with the next wave of innovation. Technological innovation continues to disrupt traditional industries and create new structural growth opportunities. The degree to which companies and investors embrace the next wave of innovation will be critical to their longevity and success. We believe the Goldman Sachs Innovate ETF may allow investors exposure to these opportunities of technological innovation, regardless of sector, geography, or market capitalization.
Learning Objectives:
The traditional “60/40” portfolio of stocks and bonds can be saved with a few modest tweaks.
This short article investigates the rebalancing premium that investors may expect from risk-parity portfolios.
Amid the ongoing COVID-19 crisis, we believe that investing in private markets may offer a raft of potential opportunities. Here's why.
In an environment where interest rates are low and the risk of higher Treasury yields has risen, Portfolio Managers from Janus Henderson Investors discuss how allocations to AAA rated CLOs may help investors diversify a traditional fixed income portfolio, offering lower volatility, higher credit-quality and less sensitivity to any rise in interest rates.
Volatility swept across US markets over the last several days as fear and uncertainty surrounding the coronavirus as well as the US presidential election continue to take hold, causing the Nasdaq Composite to post its worst week since March.
Domestic Equities currently hold the number one spot in the Nasdaq Dorsey Wright Dynamic Asset Level Investing (DALI) tool and populate the upper echelon of the Asset Class Group Scores (ACGS) page, confirming the technical strength/leadership from that group.
I present data and observations highlighting how dividends can protect investors from inflation and market volatility. While this is relevant to other applications, I focus on retirement income.
On October 21st, 2020, the First Trust Focus Five Model FTRUST5 turns 11 years old. While many investors have been following this model for years, those of you who have not can read more about the model’s methodology in the First Trust Focus Five Model Fact Sheet, which includes a detailed account of the methodology, the inventory, and performance numbers that go back to inception.
What is impacting investing? How is it different from ESG? Equity investor Eric Rice answers these questions and more in this one-minute read.
The hunt for new hedges is in full gear.
We are roughly two months removed from seeing US Equity make its way back to the number one ranked asset class in the Nasdaq Dorsey Wright DALI (Dynamic Asset Level Investing) tool. This is the eighth time going back to 2000 that US Equity has been the number one ranked asset class.
In this presentation, our Equity Strategist Team examines why client goals guide effective core portfolio construction and how ETFs can serve as essential building blocks to help clients achieve their objectives. Factor-based strategies, in particular, provide exposure to the long-term drivers of returns, and they are now available in the cost-effective and tax-efficient ETF wrapper. Join us as we examine how factor-based ETFs can be used in combination to address clients’ specific risk, return and income objectives.
Investors should consider many angles when evaluating what active managers can offer through a global crisis and an indefinite period of uncertainty.
GSAM has analyzed the asset allocation of thousands of advisor managed portfolios over the years and found that many of those portfolios cluster closely together in terms of expected return and risk characteristics. Model portfolios may help to achieve similar outcomes to what advisors are already getting while also helping advisors realign their time, reduce regulatory and due diligence burdens, establish business continuity, and leverage institutional expertise. Model portfolios, like the Goldman Sachs S&P G-MAPs, maybe a tool to achieve the same results in a simpler fashion.
The S&P 500 SPX and Nasdaq NASD have recently hit a series of fresh all-time highs and the Dow DJIA now sits less than 2% off of its all-time high which has many people wondering if the market is overbought and due for a correction.
A basket of emerging market bonds may offer the same appeal investors have long sought from U.S. Treasuries.
One of the enduring effects of the pandemic will be the structural changes it inflicts on the economy. Some industries – hotels, travel, restaurants – may be obliterated or radically changed. Others, like those that support the podcasting technology I am using now, will be at the forefront of accelerated growth. With the advent of thematic ETFs, investors can position themselves for this structurally evolving economy. My guest today, Jon Maier is here to discuss the role of thematic ETFs in your clients’ portfolios.
Evaluating the unusual characteristics of the profitability factor
September has historically been one of the weakest months for the S&P 500. The momentum factor, on the other hand, has historically been very strong in September.
The Georgetown professor and former PIMCO economist says democracy will have failed if the strategy continues working for decades.
The Absolute Capital Opportunities Fund (CAPOX) uses a flexible approach to value investing. It is sub-advised by a team at Chicago-based Kovitz, led by Mark C. Rosland and Joel D. Hirsh. As of May 31st, 2020 its cumulative return was 29.49% versus 1.03% for the HFRX equity hedge index.
Factor-driven investing, while highly popular among equity investors, has not been as widely adopted in the bond market. But research shows that a factor-based approach to bond investing is superior to attempting to identify top-performing active bond managers.
Everybody is wondering how the stock market can be so high while the U.S. economy is so low. But you don’t hear the same rumbling concerns about the bond market – even though something very similar to ultra-high P/Es is going on in the fixed income side of your portfolio.
Broader equity market returns serve as a poor proxy for an average stock’s return as well as that of a buy-and-hold strategy’s expected outcomes. A much larger proportion of all stocks contribute negatively to overall market’s lifetime returns.
Gold has been on a tear over the last year, rising 32% while global equities have languished. A common objective of gold is to hedge against some type of risk. This paper shows how gold can reduce downside risk during big down markets, but isn’t the most effective inflation hedge.
The odds of a stagflation environment are continuing to rise in our opinion. Over the past few weeks/months we have made this view clear by looking at both sides of the coin, growth and inflation. Over that time, the evidence continued to mount in favor of our view.
Care to guess how well the monthly CAPE predicted future 10-year returns between January 1995 and May 2020?
In addition to its tragic human toll, COVID-19 triggered the sharpest recession in recent history, and efforts to control its spread have transformed the way we work, the way we shop and how we connect with others. We think these changes will last awhile—with implications for asset allocation.
This review will explore why passive investing may not provide the bargain most advisors think they are getting for their clients. This is especially important as most managers have underperformed their benchmark YTD with such cyclical market performance. Although difficult to find, investors should still seek out skilled managers that stick to quality investment philosophy and process.
It identified 244 companies during the 2020 annual proxy season that weren’t doing enough to either prepare their businesses for a warming planet or inform investors about the climate-change risks.
The economic calendar is modest, and many market participants will probably extend their long weekends. The ISM Non-Manufacturing Index and jobless claims data will be the most important.
As you read this, the Financial Planning Association is engaged in one of the most consequential initiatives in its history, and for some reason this important program is getting zero publicity.
After a decade of steady growth and rising asset prices, economies and financial markets were rocked by the COVID-19 pandemic. The global health crisis forced most governments to lock down their communities, halting economic activity almost overnight and causing financial markets to reprice lower at an unprecedented speed.
Admiral James Bond Stockdale was the highest-ranking United States military officer in the “Hanoi Hilton” POW camp during the Vietnam War. His jet was shot down in 1965, and after parachuting into a small village, he was taken as a prisoner of war.
In a post-coronavirus investment world, Jeff argues that investors should be rethinking the role of fixed income in portfolio construction and ask themselves if they are at risk of investing without a parachute?
Rick Rieder, Russ Brownback and Trevor Slaven contend that in the tug-of-war between the considerable economic damage stemming from the coronavirus and subsequent lockdowns, and the fiscal and monetary policy responses put in place, the latter factor is being underestimated by markets. Further, the instruments used by investors in previous years won’t be what’s required for the time ahead.
An overwhelming majority of investors would be open to use so-called model portfolios to guide their allocation decisions -- if only financial advisors did a better job of explaining them.
Over the last several years, we have recognized what has been going on with negative or near negative interest rates in Japan, and is now bleeding into parts of Europe. We never imagined that those troubles from afar would be any more than banter amongst economists and financial doomsdayers. The reality of those environments have now made it to the shores of the good ol’ USA.
New research shows that companies that adhere to positive ESG principles have lower costs of capital, higher valuations, are less vulnerable to systemic risks and are more profitable. But beware; those higher valuations translate to lower expected returns for investors.
Rick Rieder and Jacob Caplain contend that with profound uncertainties still present in the economy and markets, and the dislocations witnessed in many market segments in the past couple months, investors don’t need to resort to lower-quality assets. In fact, to achieve potentially attractive returns, higher-quality spread assets can serve quite well.
For those who believe that capital markets should be free from undue government interference, the Fed’s adoption of expansive programs raises the question of whether it has gone too far.
The Fama–French value factor, and value investing in general, has suffered an extraordinarily long 13.3 years of underperformance relative to the growth investing style. The current drawdown has been by far the longest as well as the largest since July 1963. 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.
The First Eagle Overseas fund (SGOVX) has an exceptional 27-year history. Since its inception, it has returned 9.15% versus 4.03% for the MSCI EAFE index. It was originally managed by the legendary Jean-Marie Eveillard. I spoke with its current management team about how the fund has performed during the coronavirus crisis and why financial professionals should look to diversify outside the U.S. markets.
Russell Investments has long held that it is possible to create investment value while incorporating values into the decision-making. In this blog post, we continue on that theme and highlight a small collection of securities that demonstrate doing well while doing good.
Low Price to Something investing, or “value” investing as it has come to be known since Fama/French introduced the “value” factor has been a disaster for investors over the past 10 plus years.
The spread of the COVID-19 virus has blindsided conventional risk models. By understanding what went wrong, investors can develop a more forward-looking approach to risk management that considers multiple scenarios for a highly uncertain market environment.
By contrasting features of Markowitz 1952 with Markowitz 1991, we offer an evaluation matrix as a tool that challenges the suitability of the advisory industry’s application of MPT investing for an individual’s portfolio.
Despite the important role financial advisors play in the design of client portfolios, we know very little about how those portfolios are constructed. New research shows, however, that the model portfolios used by advisors suffer from a number of structural inefficiencies.
The economic calendar includes several important releases, but few reflect the COVID19 effects. Everyone knows the economic news is dismal. Just how dismal does not seem to matter.
Rick Rieder, Russ Brownback and Trevor Slaven contend that even as markets are gripped with the trauma of wild swings, and continued uncertainties, the seeds of future investment opportunity are being sown.
The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that have historically performed well, namely the value factor. But a breed of products have avoided the plight. ETFs that were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.
The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that historically performed well – namely the value factor, which has severely underperformed growth over those 10 years. But a breed of products have avoided that plight. Funds and ETFs that have were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.
The bear market is challenging defined contribution (DC) plan sponsors to reinforce timeless investing principles while also conveying new rules that bring relief to participants. Good communication practices are a key ingredient to achieving success in both these areas.
It’s been said before, but the truth appears to be this crisis is very different than others we’ve experienced. It's not an asset bubble tied to exuberance, greed, default, fraud or mismanagement of a country, currencies or anything else in our manmade economic system.
With the most dramatic part of the storm hopefully over, the question is whether the market has bottomed. When is the recovery? Before we get into how to visualize market recovery, let’s offer some perspective on the recovery of the emotional trauma.
There are three key areas where the allocation requirements of passive fixed-income vehicles have an impact on the market.
The market’s response to the coronavirus had a stark effect on portfolio values. Less apparent, but more important, was how it reduced the probability that your financial plans will succeed in reaching your clients’ financial goals. Here’s an example of how devastating that may be and how you should communicate this to clients.
Even the most rational clients are subject to emotions, especially during the current coronavirus outbreak, when the threat is both financial and physical.
Equity markets have bounced around rather dramatically in recent weeks (up and down) as investors are trying to get a grasp of the impacts of Covid-19 (aka Coronavirus). While there will clearly be economic softening from Covid-19, the base case is that it will be transitory.
Responsible investing has gathered enough momentum in recent years to reach the mainstream. What is less clear is how far along global institutional investors are in the process of integrating environmental, social and governance (ESG) principles into their investment decisions.
When it comes to investing it’s never different this time; nor, however, is it ever the same. This difficult-to-navigate paradox creates a scarcity of longevity. Today’s persistently low yield environment has upped the ante and put many marquis names out of business.
The Wall Street Journal criticized ESG portfolios earlier this month for being dominated by big technology stocks. But we think technology stocks are integral to a responsible investing agenda when chosen as part of a well-defined process targeting companies that foster environmental, social and governance (ESG) improvements.
Like the three little pigs building their houses, financial advisors have many choices of how they will build their books of business. Many of the most successful advisors embrace fee-only wealth management. In this blog post, we put some numbers to these theories.
Portfolio Building
The Queen’s Gambit Declined
The Queen’s Gambit miniseries helped propel Netflix to a winning earnings report last quarter, but in fact the chess strategy it is named after has helped propel chess players to winning games for decades.
As Volatility Fades, Can Cyclicals Shine?
BlackRock Global Allocation Fund portfolio manager Russ Koesterich explains why he expects volatility to drop -- and cyclicals outperform.
Controlling the Curve
Today I want to discuss an arcane-sounding but incredibly important term you need to know: Yield Curve Control. Several central banks are already using it and I see a strong possibility the Fed will join them. But first we must again consider the Gripping Hand.
The Case for More Cash, Fewer Treasury Bonds
In this piece, BlackRock Global Allocation Fund portfolio manager Russ Koesterich discusses the implications of a rise in stock-bonds correlations.
Does Time Diversification Work?
Does time diversification work in the real world? Do portfolios get less risky – i.e., converge to a more reliable expected return – the longer we wait?
A Taxing Subject: Tax Implications for US Investors Under Biden
Changes in government inevitably bring new priorities and policies, one being the area of taxes. Fiduciary Trust International Managing Director Craig Richards examines possible tax implications for individuals under President Joe Biden’s new administration.
Is Diversification Dead?
Over the last dozen years, investors holding the classic US 60/40 portfolio were substantially better off than their diversified peers, yet now is not the time to abandon diversification and diversifying asset classes. We believe it is imprudent to trust that escalation in valuations will continue unabated into the next decade...
Cyclical Outlook Takeaways: Bounded Optimism on the Global Economy
Global output and demand are likely to rebound strongly in 2021, but we see risks that call for careful portfolio positioning.
An Analysis of SPACs and What to Look for in 2021
With a record high number of SPAC IPOs and the success of some well-documented investments with triple digit returns, investors and advisors might be interested in evaluating a potential allocation to their portfolios. In this article I focus on a few basic criteria of the best-performing SPACs and tips on how to perform your own analysis.
The State of the Profession – and What to Look for in the Coming Year
I'm going to assess the state of the profession as we emerge, exhausted, from our tumultuous 2020 experience.
J O Hambro Capital Management 2021 Outlook - Better Times Ahead?
Free from a house view on economies, markets or stocks, J O Hambro Capital Management’s (JOHCM) fund managers invariably see the world in different ways. We asked a number of our managers for their thoughts on the outlook for their asset class next year, what they would like to see and the possible surprises that 2021 could bring.
Corporate Emerging Market Debt Poised to Shine in 2021
A nascent global recovery presents both risks and opportunities for fixed income investors. Portfolio Manager Teresa Kong, CFA, discusses why China dominates the universe for EM debt and why Asia may outperform the rest of EM for the foreseeable future.
Destroying Steady Income Streams
There is strong demand for steady income. However, most investment products and strategies fail dismally in this regard.
Value: If Not Now, When?
GMO’s new quarterly letter to clients examines the worst 12-month performance for value stocks in history and explores how investors can profit from a period reminiscent of previous bubbles in global markets.
Luck, Skill and Their Role in Passive Fund Returns
Investors may choose a passive fund because they don’t believe they can distinguish between luck and skill among active fund managers. But new research shows that the issue of luck and skill plays an important role in passive fund returns too.
Sector Performance During Past Shifts From Large Cap to Small Cap Equities
Recently we discussed the “rotation trade” and examined the performance of the S&P 500 sectors during shifts from growth to value. Another facet of the rotation trade has been a shift from large cap to small. Today we wanted to examine sector performance in another facet of this rotation – a shift from large cap to small cap.
Harvesting Yield in Emerging Markets
Debt of many emerging market countries can offer robust yields and enhance portfolio diversification, provided the asset manager has the resources and sophistication to avoid potential pitfalls.
Sector Returns Following Presidential Elections
As we arrived at the beginning of November, much of the investment community had heightened concerns about the prospects for continued domestic equity growth during what was assumed to be a volatile market environment with the potential for a contested US presidential election.
Not All Dividends Are the Same Even When Their Yield Is Similar
The better informed the investor is, the better the investment decisions they can make. But being an informed investor can be a very arduous task, and some would even say that conducting research on common stocks is a real snoozer.
Implementation Matters: A Review of the Performance of Alternative Risk Premia Strategies in 2020
Wide performance dispersion underscores the importance of portfolio construction.
Has the Size Premium Disappeared?
Small-cap stocks have underperformed the broader markets since the “discovery” of the size premium in 1981. But research shows that a segment of those small-cap stocks have performed well and that now is a compelling time to invest in them.
The 60/40 Portfolio Is Muzzling Critics With Another Big Year
A balanced portfolio of stocks and bonds for decades was among the few venerated precepts in investing. Yet doubts about the approach grew after the pandemic hit and turned 2020 into a year like no other.
Non-Traditional Sources of Income in a Low-Rate World
Amid historically low rates, the income solutions of yesterday are not going to cut it. Global X ETFs has recognized and reacted to this paradigm shift by developing alternative, higher-yielding strategies.
Where to Find Income in a Low--Rate World
Amid historically low rates, the income solutions of yesterday are not going to cut it. My guest today will discuss how his firm has recognized and reacted to this paradigm shift by developing alternative, higher-yielding strategies.
The Challenge Facing ESG Investors
The data used to construct ESG portfolios differs widely among providers, meaning that funds may not be aligned with your clients’ objectives and beliefs.
Positioning Your Portfolio for the Future of Investing
GSAM believes the future of investing aligns with the next wave of innovation. Technological innovation continues to disrupt traditional industries and create new structural growth opportunities. The degree to which companies and investors embrace the next wave of innovation will be critical to their longevity and success. We believe the Goldman Sachs Innovate ETF may allow investors exposure to these opportunities of technological innovation, regardless of sector, geography, or market capitalization.
Learning Objectives:
Yield Hunters Have Three Options
The traditional “60/40” portfolio of stocks and bonds can be saved with a few modest tweaks.
The Rebalancing Premium in Risk Parity Portfolios
This short article investigates the rebalancing premium that investors may expect from risk-parity portfolios.
Private Markets: Diversifying for the Future
Amid the ongoing COVID-19 crisis, we believe that investing in private markets may offer a raft of potential opportunities. Here's why.
The Case for Collateralized Loan Obligations (CLOs)
In an environment where interest rates are low and the risk of higher Treasury yields has risen, Portfolio Managers from Janus Henderson Investors discuss how allocations to AAA rated CLOs may help investors diversify a traditional fixed income portfolio, offering lower volatility, higher credit-quality and less sensitivity to any rise in interest rates.
“BEACH Stocks” Continue To Make Waves
Volatility swept across US markets over the last several days as fear and uncertainty surrounding the coronavirus as well as the US presidential election continue to take hold, causing the Nasdaq Composite to post its worst week since March.
Using Momentum to Avoid the Losers
Domestic Equities currently hold the number one spot in the Nasdaq Dorsey Wright Dynamic Asset Level Investing (DALI) tool and populate the upper echelon of the Asset Class Group Scores (ACGS) page, confirming the technical strength/leadership from that group.
Dividends: Theory and Empirical Evidence
I present data and observations highlighting how dividends can protect investors from inflation and market volatility. While this is relevant to other applications, I focus on retirement income.
First Trust Focus Five Model: A Case Study for Relative Strength Investing
On October 21st, 2020, the First Trust Focus Five Model FTRUST5 turns 11 years old. While many investors have been following this model for years, those of you who have not can read more about the model’s methodology in the First Trust Focus Five Model Fact Sheet, which includes a detailed account of the methodology, the inventory, and performance numbers that go back to inception.
6 Key Questions About Impact Investing
What is impacting investing? How is it different from ESG? Equity investor Eric Rice answers these questions and more in this one-minute read.
In New 60/40 Portfolio, Riskier Hedges Are Displacing U.S. Debt
The hunt for new hedges is in full gear.
Nearly Two Months Since U.S. Equity Took the Number #1 Asset Class Ranking
We are roughly two months removed from seeing US Equity make its way back to the number one ranked asset class in the Nasdaq Dorsey Wright DALI (Dynamic Asset Level Investing) tool. This is the eighth time going back to 2000 that US Equity has been the number one ranked asset class.
Strengthen your Core with ETFs
In this presentation, our Equity Strategist Team examines why client goals guide effective core portfolio construction and how ETFs can serve as essential building blocks to help clients achieve their objectives. Factor-based strategies, in particular, provide exposure to the long-term drivers of returns, and they are now available in the cost-effective and tax-efficient ETF wrapper. Join us as we examine how factor-based ETFs can be used in combination to address clients’ specific risk, return and income objectives.
10 Active Angles on Today’s Market Challenges
Investors should consider many angles when evaluating what active managers can offer through a global crisis and an indefinite period of uncertainty.
Elevating Your Practice with Model Portfolios: The Why and How GSAM Can Help
GSAM has analyzed the asset allocation of thousands of advisor managed portfolios over the years and found that many of those portfolios cluster closely together in terms of expected return and risk characteristics. Model portfolios may help to achieve similar outcomes to what advisors are already getting while also helping advisors realign their time, reduce regulatory and due diligence burdens, establish business continuity, and leverage institutional expertise. Model portfolios, like the Goldman Sachs S&P G-MAPs, maybe a tool to achieve the same results in a simpler fashion.
Is The Market Overbought?
The S&P 500 SPX and Nasdaq NASD have recently hit a series of fresh all-time highs and the Dow DJIA now sits less than 2% off of its all-time high which has many people wondering if the market is overbought and due for a correction.
Emerging Market Bonds: Part of a Resilient Portfolio?
A basket of emerging market bonds may offer the same appeal investors have long sought from U.S. Treasuries.
Minisode - Thematic Investing in the Era of the Pandemic
One of the enduring effects of the pandemic will be the structural changes it inflicts on the economy. Some industries – hotels, travel, restaurants – may be obliterated or radically changed. Others, like those that support the podcasting technology I am using now, will be at the forefront of accelerated growth. With the advent of thematic ETFs, investors can position themselves for this structurally evolving economy. My guest today, Jon Maier is here to discuss the role of thematic ETFs in your clients’ portfolios.
Is The Market Overbought?
The S&P 500 SPX and Nasdaq NASD have recently hit a series of fresh all-time highs and the Dow DJIA now sits less than 2% off of its all-time high which has many people wondering if the market is overbought and due for a correction.
Picking Highly Profitable Businesses Can Be Unprofitable
Evaluating the unusual characteristics of the profitability factor
September Has Been Weak, but Momentum Has Been Strong: Understanding Momentum Seasonality
September has historically been one of the weakest months for the S&P 500. The momentum factor, on the other hand, has historically been very strong in September.
60/40 Strategy Will Flop Fairly Soon, Paul McCulley Says
The Georgetown professor and former PIMCO economist says democracy will have failed if the strategy continues working for decades.
An Outstanding Hedged-Equity Fund
The Absolute Capital Opportunities Fund (CAPOX) uses a flexible approach to value investing. It is sub-advised by a team at Chicago-based Kovitz, led by Mark C. Rosland and Joel D. Hirsh. As of May 31st, 2020 its cumulative return was 29.49% versus 1.03% for the HFRX equity hedge index.
Factor-Based Investing Beats Active Management for Bonds
Factor-driven investing, while highly popular among equity investors, has not been as widely adopted in the bond market. But research shows that a factor-based approach to bond investing is superior to attempting to identify top-performing active bond managers.
Is the Bond Market as Disconnected from Reality as the Stock Market?
Everybody is wondering how the stock market can be so high while the U.S. economy is so low. But you don’t hear the same rumbling concerns about the bond market – even though something very similar to ultra-high P/Es is going on in the fixed income side of your portfolio.
Stocks for the Long Run? A Handful of Businesses Account for Much of Equity Market Returns
Broader equity market returns serve as a poor proxy for an average stock’s return as well as that of a buy-and-hold strategy’s expected outcomes. A much larger proportion of all stocks contribute negatively to overall market’s lifetime returns.
The Role of Gold; A Less Than Perfect Inflation Hedge.
Gold has been on a tear over the last year, rising 32% while global equities have languished. A common objective of gold is to hedge against some type of risk. This paper shows how gold can reduce downside risk during big down markets, but isn’t the most effective inflation hedge.
Little Growth + Inflation = Stagflation
The odds of a stagflation environment are continuing to rise in our opinion. Over the past few weeks/months we have made this view clear by looking at both sides of the coin, growth and inflation. Over that time, the evidence continued to mount in favor of our view.
The Remarkable Accuracy of CAPE as a Predictor of Returns
Care to guess how well the monthly CAPE predicted future 10-year returns between January 1995 and May 2020?
The Ripple Effect: COVID-19 and Multi-Asset Portfolio Construction
In addition to its tragic human toll, COVID-19 triggered the sharpest recession in recent history, and efforts to control its spread have transformed the way we work, the way we shop and how we connect with others. We think these changes will last awhile—with implications for asset allocation.
The False Bargain of Passive Investing
This review will explore why passive investing may not provide the bargain most advisors think they are getting for their clients. This is especially important as most managers have underperformed their benchmark YTD with such cyclical market performance. Although difficult to find, investors should still seek out skilled managers that stick to quality investment philosophy and process.
BlackRock Shows Resolve and Restraint in Public Climate Test
It identified 244 companies during the 2020 annual proxy season that weren’t doing enough to either prepare their businesses for a warming planet or inform investors about the climate-change risks.
Don’t Look Back!
The economic calendar is modest, and many market participants will probably extend their long weekends. The ISM Non-Manufacturing Index and jobless claims data will be the most important.
The Virtual Externship Opportunity
As you read this, the Financial Planning Association is engaged in one of the most consequential initiatives in its history, and for some reason this important program is getting zero publicity.
Building Resiliency Amid Uncertainty
After a decade of steady growth and rising asset prices, economies and financial markets were rocked by the COVID-19 pandemic. The global health crisis forced most governments to lock down their communities, halting economic activity almost overnight and causing financial markets to reprice lower at an unprecedented speed.
On My Radar: The Stockdale Paradox
Admiral James Bond Stockdale was the highest-ranking United States military officer in the “Hanoi Hilton” POW camp during the Vietnam War. His jet was shot down in 1965, and after parachuting into a small village, he was taken as a prisoner of war.
Investing Without a Parachute
In a post-coronavirus investment world, Jeff argues that investors should be rethinking the role of fixed income in portfolio construction and ask themselves if they are at risk of investing without a parachute?
Today’s Portfolios “Can’t Get No Satisfaction” From Yesterday’s Instruments
Rick Rieder, Russ Brownback and Trevor Slaven contend that in the tug-of-war between the considerable economic damage stemming from the coronavirus and subsequent lockdowns, and the fiscal and monetary policy responses put in place, the latter factor is being underestimated by markets. Further, the instruments used by investors in previous years won’t be what’s required for the time ahead.
Clients Want Model Portfolios, But Most Advisors Don’t Explain Them Well
An overwhelming majority of investors would be open to use so-called model portfolios to guide their allocation decisions -- if only financial advisors did a better job of explaining them.
Looking for Yield in all the Wrong Places
Over the last several years, we have recognized what has been going on with negative or near negative interest rates in Japan, and is now bleeding into parts of Europe. We never imagined that those troubles from afar would be any more than banter amongst economists and financial doomsdayers. The reality of those environments have now made it to the shores of the good ol’ USA.
How ESG Makes Companies Better
New research shows that companies that adhere to positive ESG principles have lower costs of capital, higher valuations, are less vulnerable to systemic risks and are more profitable. But beware; those higher valuations translate to lower expected returns for investors.
There’s High-Quality Opportunity in Fixed Income Spread Assets Today
Rick Rieder and Jacob Caplain contend that with profound uncertainties still present in the economy and markets, and the dislocations witnessed in many market segments in the past couple months, investors don’t need to resort to lower-quality assets. In fact, to achieve potentially attractive returns, higher-quality spread assets can serve quite well.
The Fed is Putting Free Markets at Risk
For those who believe that capital markets should be free from undue government interference, the Fed’s adoption of expansive programs raises the question of whether it has gone too far.
Reports of Value's Death May Be Greatly Exaggerated
The Fama–French value factor, and value investing in general, has suffered an extraordinarily long 13.3 years of underperformance relative to the growth investing style. The current drawdown has been by far the longest as well as the largest since July 1963. 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.
Humility and Patience: Understanding the Long-Term Outperformance of the First Eagle Overseas Fund
The First Eagle Overseas fund (SGOVX) has an exceptional 27-year history. Since its inception, it has returned 9.15% versus 4.03% for the MSCI EAFE index. It was originally managed by the legendary Jean-Marie Eveillard. I spoke with its current management team about how the fund has performed during the coronavirus crisis and why financial professionals should look to diversify outside the U.S. markets.
Doing Well While Doing Good: Where Value and Values Can Intersect
Russell Investments has long held that it is possible to create investment value while incorporating values into the decision-making. In this blog post, we continue on that theme and highlight a small collection of securities that demonstrate doing well while doing good.
Leeching and Value Investing: Wrong Then, Wrong Now
Low Price to Something investing, or “value” investing as it has come to be known since Fama/French introduced the “value” factor has been a disaster for investors over the past 10 plus years.
Managing Risk Models in the Coronavirus Crisis
The spread of the COVID-19 virus has blindsided conventional risk models. By understanding what went wrong, investors can develop a more forward-looking approach to risk management that considers multiple scenarios for a highly uncertain market environment.
The Markowitz Conundrum Part II
By contrasting features of Markowitz 1952 with Markowitz 1991, we offer an evaluation matrix as a tool that challenges the suitability of the advisory industry’s application of MPT investing for an individual’s portfolio.
Advisors are Using Inefficient Model Portfolios
Despite the important role financial advisors play in the design of client portfolios, we know very little about how those portfolios are constructed. New research shows, however, that the model portfolios used by advisors suffer from a number of structural inefficiencies.
Good Questions but Poor Answers
The economic calendar includes several important releases, but few reflect the COVID19 effects. Everyone knows the economic news is dismal. Just how dismal does not seem to matter.
Wall Street’s Believe It or Not
Rick Rieder, Russ Brownback and Trevor Slaven contend that even as markets are gripped with the trauma of wild swings, and continued uncertainties, the seeds of future investment opportunity are being sown.
The Science Behind Multi-Factor Strategies
The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that have historically performed well, namely the value factor. But a breed of products have avoided the plight. ETFs that were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.
Minisode - A Tactical Approach to Factor Investing
The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that historically performed well – namely the value factor, which has severely underperformed growth over those 10 years. But a breed of products have avoided that plight. Funds and ETFs that have were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.
Don’t Panic! Bear Market Communication Tips for DC Plan Sponsors
The bear market is challenging defined contribution (DC) plan sponsors to reinforce timeless investing principles while also conveying new rules that bring relief to participants. Good communication practices are a key ingredient to achieving success in both these areas.
Jae Park and Michael Giles on the COVID-19 Crisis, Credit Cycle and Investing with Conviction
It’s been said before, but the truth appears to be this crisis is very different than others we’ve experienced. It's not an asset bubble tied to exuberance, greed, default, fraud or mismanagement of a country, currencies or anything else in our manmade economic system.
Visualizing Recovery
With the most dramatic part of the storm hopefully over, the question is whether the market has bottomed. When is the recovery? Before we get into how to visualize market recovery, let’s offer some perspective on the recovery of the emotional trauma.
The Impact of ETFs and Index-Tracking and Passive Strategies on the Fixed-Income Market
There are three key areas where the allocation requirements of passive fixed-income vehicles have an impact on the market.
How Financial Plans Must Adapt to Market Crashes
The market’s response to the coronavirus had a stark effect on portfolio values. Less apparent, but more important, was how it reduced the probability that your financial plans will succeed in reaching your clients’ financial goals. Here’s an example of how devastating that may be and how you should communicate this to clients.
How to Reduce Panic with Compassion and Credibility
Even the most rational clients are subject to emotions, especially during the current coronavirus outbreak, when the threat is both financial and physical.
Market Update: Is Panic the Primary Pandemic?
Equity markets have bounced around rather dramatically in recent weeks (up and down) as investors are trying to get a grasp of the impacts of Covid-19 (aka Coronavirus). While there will clearly be economic softening from Covid-19, the base case is that it will be transitory.
ESG Study: How Institutional Investors Embrace Responsible Investing
Responsible investing has gathered enough momentum in recent years to reach the mainstream. What is less clear is how far along global institutional investors are in the process of integrating environmental, social and governance (ESG) principles into their investment decisions.
Commoditizing My Framework For A New Paradigm
When it comes to investing it’s never different this time; nor, however, is it ever the same. This difficult-to-navigate paradox creates a scarcity of longevity. Today’s persistently low yield environment has upped the ante and put many marquis names out of business.
Tech Stocks Should Be Prominent in ESG Portfolios
The Wall Street Journal criticized ESG portfolios earlier this month for being dominated by big technology stocks. But we think technology stocks are integral to a responsible investing agenda when chosen as part of a well-defined process targeting companies that foster environmental, social and governance (ESG) improvements.
Growing a Sustainable Book of Business Based on Advisory
Like the three little pigs building their houses, financial advisors have many choices of how they will build their books of business. Many of the most successful advisors embrace fee-only wealth management. In this blog post, we put some numbers to these theories.