Many investors who thought worrying about inflation was “so 20th century” may now be seeing reasons to reconsider: The business cycle in the U.S. is mature, output gaps have closed, trade frictions are mounting and populism is on the rise.
Most global equity markets declined in the first quarter despite the corporate sector generally reporting reasonable fundamental data. As a result, GMO's 7-year equity forecasts mostly improved over the first quarter. Even with these improvements, International and U.S. equities are still forecast to have flat to negative real returns over the next 7 years, with Emerging equities remaining an exception, forecast to have a positive real return of 1.9%.
The economic calendar is normal, with an emphasis on housing. Earnings season begins in earnest, with widespread, high expectations.
To address questions about the benefits of international investing and diversification, we don’t have to look too far back in time.
You’ve no doubt heard that everything’s bigger in Texas. That’s more than just a trite expression, and I’m not just saying that because Texas is home to U.S. Global Investors.
Prospects for a trade war are having an impact on markets, but for bargain hunters, stocks are still expensive. Russ suggests looking outside the U.S.
The high level of volatility in February persisted through March as markets digested the implications of tighter monetary policy, troubles in the technology sector and the prospect of a tariff-induced trade war. The global equity market notched its first quarterly loss and its highest volatility since Q3 2015. Another Fed rate hike in March further tilted the yield curve to its flattest level in more than a decade. The S&P 500 Managed Risk Index saw its equity allocation reduced down to 67% heading into April.
The evaluation of alternatives introduces an extra dimension into the equation that investors don’t need to think about with traditional equity funds. It’s the concept of capital efficiency.
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 $18,495 for an annualized real return of 12.36%.
Recent tax reform has increased the dialogue around state preference municipal portfolios, and some municipal investors are inquiring whether state-specific or state preference portfolios are a good fit in the current environment.
Many are pointing a finger at Washington for the recent spike in volatility. But, as Russ explains, the catalysts lie elsewhere.
Implementing the use of Environmental, Social and Governance (ESG) factors into the investment process presents different challenges for fixed income and equity investors.
Quarterly commentary giving an overview of the markets and the importance of having and implementing a strategy when investing in the markets.
While U.S. equity valuations clearly are at historically high levels, is the outlook as bleak as it seems? Perhaps not. Let’s see why that is the case.
Investing requires bearing risk to reap rewards, but there is no definitive causal relationship here. Just because you might be willing to pack up your wagon and head off into the sunset doesn’t ensure you’ll be rewarded with wealth. Today investors should be particularly diligent in assessing risk before setting off on any journey.
Terri Spath is chief investment officer at Sierra Investment Management. She is responsible for market and economic analysis, portfolio allocation, investment strategy and building client solutions. In this interview, she explains how tactical management differs from market timing, and why it will excel in the current environment.
We maintain a neutral outlook for U.S. commercial real estate prices overall this year, following a 3% to 5% decline from their 2015 peak.
Combining active and passive investments can be a sound strategy. But some advisors use imperfect portfolio construction techniques. Here is a four-step process for selecting actively managed funds that will complement a passive portfolio.
The Energy Information Administration (EIA) estimates the U.S. will become a net exporter of energy by as early as 2022, and the agency recently shared fresh data that supports the narrative that America is on the cusp of taking the throne as the world’s leading energy powerhouse.
Valid until the market close on April 30, 2018.
The S&P 500 closed March with a monthly loss of 2.69% after a loss of 3.89% in February. All three S&P 500 MAs are signaling "invested" and three of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard FTSE All-World ex-US ETF (VEU), and PowerShares DB Commodity Index (DBC) — are signaling "invested".
Clients lie to their AUM-based advisors. Those advisors know they are lying, and are dis-incented from acting as fiduciaries.
Is change in the wind for global investment markets and economies? See what our strategists’ views are for the second quarter of 2018 and beyond.
I came across a book titled The Matter of the Heart by Tom Morris that is a great history of the medical accomplishments and advances for the human heart. Mr. Morris details eleven operations and their evolutionary success over the course of the book.
Viewing investors and markets as emotional decision makers rather than as rational computational entities forces us to reconsider every aspect of how we operate in financial markets. The behavioral financial markets concepts I discuss below provide a framework for rethinking client financial planning, asset allocation, investment manager selection and the creation and execution of investment strategies.
The Federal Reserve (Fed) raised interest rates by a quarter of a percentage point as expected on Wednesday and signaled two more rate hikes for 2018. It also released its Summary of Economic Projections (SEP) for the next few years, which suggests that the Fed is optimistic regarding the future performance of the US economy.
As I told Kitco News’ Daniela Cambone this week, I stand by the $1,500 forecast. Before this week, investors might have been slightly disappointed by gold's mostly sideways performance so far this year. But now, in response to a number of factors, it's up close to 3 percent in 2018, compared to the S&P 500 Index, down 2.4 percent.
Fund managers came into 2018 very bullish equities. Cash levels had fallen to the lowest level in 4 years. Allocations to global equities had risen to the highest level in nearly 3 years. Bond allocations were at a 4 year low. Our view at the time was that "this is a headwind to further gains" in equities.
The global expansion is either nearing its demand-driven peak or in the early stages of a supply-driven renaissance. We share our assessment and portfolio positioning.
Rising US interest rates could pose a challenge for target-date funds (TDFs) that concentrate on “core” US fixed-income exposure. Diversifying across a broad range of bond markets and strategies can create a cushion in a rising-rate environment.
Russ discusses why stocks can still thrive when consumers are confident, but frugal.
Here’s my call for 2018: Most robo-advisors are going to fail. Read on to see why I don’t drink the Robo Kool-Aid that the financial industry and media are serving up.
A number of our clients are watching the markets and becoming increasingly uncomfortable with the ups and downs. We have many retirees and soon-to-retire clients and 2008 is still fresh in their minds. They fear another disastrous downswing in their portfolios.
Emerging market economies are more vulnerable to the ill effects of ESG issues, but because transparency into such issues in these regions has been lacking, and because investors may have different understanding of risks and opportunities than ESG ratings agencies, integration has been difficult," the white paper says.
What should bond investors do when rates are rising and the credit cycle is ending? Perhaps not what you would expect. But getting this right can be critical for the health of your fixed-income allocation.
He was on the receiving end of the passes from Drew Brees that led the New Orleans Saints to victory in the 2009 Super Bowl. But what distinguishes Marques Colston from his fellow ex-NFL players and other retired athletes is his successful post-professional career.
China has dropped norms to allow President Xi Jinping to remain in power after his second term ends. While worrisome at first blush, the populist turn and consolidation of power likely has near-term economic and financial market benefits, and longer-term political risks. Thornburg's Lei Wang weighs in on the populist turn in China, which is among a growing contingent of populist nations.
The period since the financial crisis has been unprecedented in both the duration of the bull market but also the extreme low levels of volatility. As John Authers of the Financial Times recently pointed out, 2017 was the ‘most serenely positive year for world markets in history’.
Prepare clients for active fund volatility.
This is only the third time in the past twenty years when the yield curve has been this flat while at the same time high-yield spreads have been this tight.
Rick and Russ on the new volatility regime, why risk is being misapprehended, and how to navigate these new challenges.
Economic reforms remain critical for emerging economies' attempts to successfully transition from low-wage industrial economies to high-skilled, consumption-based economies.
The more compelling the crowd’s behavior, the more compelling the investment case is for doing the opposite of what the crowd is doing. This is a core tenet of our Behavioral Portfolio Design™ philosophy that tries to help guide investors toward better portfolio decisions.
On inflation and Fed policy, Jeffrey Gundlach disagreed with comments made by Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell. But Gundlach’s views were in line with the consensus on those key issues – inflation will not spike dramatically higher and the Fed will continue with its planned rate hikes.
Are Fidelity Investments’ target date funds too risky? We evaluate the short and long-term risks for a typical participant.
In this issue, Research Affiliates discusses positioning for potentially volatile markets and the link between equity valuations and macroeconomic conditions.
The Asset Allocation Channel
With Inflation Rising, Commodities May Shine
Many investors who thought worrying about inflation was “so 20th century” may now be seeing reasons to reconsider: The business cycle in the U.S. is mature, output gaps have closed, trade frictions are mounting and populism is on the rise.
GMO's 7-Year Asset Class Forecasts Still Favor Non-US Markets
Most global equity markets declined in the first quarter despite the corporate sector generally reporting reasonable fundamental data. As a result, GMO's 7-year equity forecasts mostly improved over the first quarter. Even with these improvements, International and U.S. equities are still forecast to have flat to negative real returns over the next 7 years, with Emerging equities remaining an exception, forecast to have a positive real return of 1.9%.
Weighing the Week Ahead: Is Strong Earnings Growth Already Reflected in Stock Prices?
The economic calendar is normal, with an emphasis on housing. Earnings season begins in earnest, with widespread, high expectations.
Don’t Abandon International Diversification
To address questions about the benefits of international investing and diversification, we don’t have to look too far back in time.
Which Has the Bigger Economy: Texas or Russia?
You’ve no doubt heard that everything’s bigger in Texas. That’s more than just a trite expression, and I’m not just saying that because Texas is home to U.S. Global Investors.
Why U.S. Stocks May Still Not Be "Cheap Enough"
Prospects for a trade war are having an impact on markets, but for bargain hunters, stocks are still expensive. Russ suggests looking outside the U.S.
March Validated February’s Initiation Of A New, Higher Volatility Regime
The high level of volatility in February persisted through March as markets digested the implications of tighter monetary policy, troubles in the technology sector and the prospect of a tariff-induced trade war. The global equity market notched its first quarterly loss and its highest volatility since Q3 2015. Another Fed rate hike in March further tilted the yield curve to its flattest level in more than a decade. The S&P 500 Managed Risk Index saw its equity allocation reduced down to 67% heading into April.
Capital Efficiency Trumps Fees in the Search for Portfolio Diversifiers
The evaluation of alternatives introduces an extra dimension into the equation that investors don’t need to think about with traditional equity funds. It’s the concept of capital efficiency.
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 $18,495 for an annualized real return of 12.36%.
State‑Specific Municipal Portfolios: When Do the Benefits Outweigh the Costs?
Recent tax reform has increased the dialogue around state preference municipal portfolios, and some municipal investors are inquiring whether state-specific or state preference portfolios are a good fit in the current environment.
No, Washington Is Not to Blame for the Volatility
Many are pointing a finger at Washington for the recent spike in volatility. But, as Russ explains, the catalysts lie elsewhere.
The ESG Conundrum: Environmental, Social and Governance Factors for the Fixed Income Investor
Implementing the use of Environmental, Social and Governance (ESG) factors into the investment process presents different challenges for fixed income and equity investors.
Turn Turn Turn
Quarterly commentary giving an overview of the markets and the importance of having and implementing a strategy when investing in the markets.
Beware of the Misinterpretations of the CAPE Ratio
While U.S. equity valuations clearly are at historically high levels, is the outlook as bleak as it seems? Perhaps not. Let’s see why that is the case.
Go West, Young Investor…But Go Wisely: Intelligent Investing in an Unintelligent Landscape
Investing requires bearing risk to reap rewards, but there is no definitive causal relationship here. Just because you might be willing to pack up your wagon and head off into the sunset doesn’t ensure you’ll be rewarded with wealth. Today investors should be particularly diligent in assessing risk before setting off on any journey.
The Keys to Successful Tactical Management
Terri Spath is chief investment officer at Sierra Investment Management. She is responsible for market and economic analysis, portfolio allocation, investment strategy and building client solutions. In this interview, she explains how tactical management differs from market timing, and why it will excel in the current environment.
U.S. Commercial Real Estate: Selectivity in a Range‑bound Environment
We maintain a neutral outlook for U.S. commercial real estate prices overall this year, following a 3% to 5% decline from their 2015 peak.
How active funds should be combined with ETFs
Combining active and passive investments can be a sound strategy. But some advisors use imperfect portfolio construction techniques. Here is a four-step process for selecting actively managed funds that will complement a passive portfolio.
U.S. Energy Is Breaking All Kinds of Records — Are You Participating?
The Energy Information Administration (EIA) estimates the U.S. will become a net exporter of energy by as early as 2022, and the agency recently shared fresh data that supports the narrative that America is on the cusp of taking the throne as the world’s leading energy powerhouse.
Moving Averages: March Month-End Update
Valid until the market close on April 30, 2018.
The S&P 500 closed March with a monthly loss of 2.69% after a loss of 3.89% in February. All three S&P 500 MAs are signaling "invested" and three of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard FTSE All-World ex-US ETF (VEU), and PowerShares DB Commodity Index (DBC) — are signaling "invested".
Why AUM-Based Fees Don’t Meet Fiduciary Standards
Clients lie to their AUM-based advisors. Those advisors know they are lying, and are dis-incented from acting as fiduciaries.
2018 Global Market Outlook – Q2 Update: Shifting Winds?
Is change in the wind for global investment markets and economies? See what our strategists’ views are for the second quarter of 2018 and beyond.
The Heart of the Matter
I came across a book titled The Matter of the Heart by Tom Morris that is a great history of the medical accomplishments and advances for the human heart. Mr. Morris details eleven operations and their evolutionary success over the course of the book.
How Advisors Can Apply Behavioral Finance
Viewing investors and markets as emotional decision makers rather than as rational computational entities forces us to reconsider every aspect of how we operate in financial markets. The behavioral financial markets concepts I discuss below provide a framework for rethinking client financial planning, asset allocation, investment manager selection and the creation and execution of investment strategies.
The Fed Stays the Course Under Its New Leader
The Federal Reserve (Fed) raised interest rates by a quarter of a percentage point as expected on Wednesday and signaled two more rate hikes for 2018. It also released its Summary of Economic Projections (SEP) for the next few years, which suggests that the Fed is optimistic regarding the future performance of the US economy.
Could the Stars Be Aligned for $1,500 Gold?
As I told Kitco News’ Daniela Cambone this week, I stand by the $1,500 forecast. Before this week, investors might have been slightly disappointed by gold's mostly sideways performance so far this year. But now, in response to a number of factors, it's up close to 3 percent in 2018, compared to the S&P 500 Index, down 2.4 percent.
How Fund Managers Are Positioned
Fund managers came into 2018 very bullish equities. Cash levels had fallen to the lowest level in 4 years. Allocations to global equities had risen to the highest level in nearly 3 years. Bond allocations were at a 4 year low. Our view at the time was that "this is a headwind to further gains" in equities.
The Beginning of the End?
The global expansion is either nearing its demand-driven peak or in the early stages of a supply-driven renaissance. We share our assessment and portfolio positioning.
Do Your Target-Date Funds Measure Up to Rising Rates?
Rising US interest rates could pose a challenge for target-date funds (TDFs) that concentrate on “core” US fixed-income exposure. Diversifying across a broad range of bond markets and strategies can create a cushion in a rising-rate environment.
For Stocks, What Consumers Say Outweighs What They Do
Russ discusses why stocks can still thrive when consumers are confident, but frugal.
The Death of Roboadvisors has been Greatly Underestimated
Here’s my call for 2018: Most robo-advisors are going to fail. Read on to see why I don’t drink the Robo Kool-Aid that the financial industry and media are serving up.
When Clients Are Nervous – and You Are Too!
A number of our clients are watching the markets and becoming increasingly uncomfortable with the ups and downs. We have many retirees and soon-to-retire clients and 2008 is still fresh in their minds. They fear another disastrous downswing in their portfolios.
ESG: Improving Your Risk-Adjusted Returns in Emerging Markets
Emerging market economies are more vulnerable to the ill effects of ESG issues, but because transparency into such issues in these regions has been lacking, and because investors may have different understanding of risks and opportunities than ESG ratings agencies, integration has been difficult," the white paper says.
The Surprising Solutions to Managing a Rising-Rate Environment
What should bond investors do when rates are rising and the credit cycle is ending? Perhaps not what you would expect. But getting this right can be critical for the health of your fixed-income allocation.
How a Star NFL Player Achieved Financial Success
He was on the receiving end of the passes from Drew Brees that led the New Orleans Saints to victory in the 2009 Super Bowl. But what distinguishes Marques Colston from his fellow ex-NFL players and other retired athletes is his successful post-professional career.
Understanding the Confucian in Xi's Populism
China has dropped norms to allow President Xi Jinping to remain in power after his second term ends. While worrisome at first blush, the populist turn and consolidation of power likely has near-term economic and financial market benefits, and longer-term political risks. Thornburg's Lei Wang weighs in on the populist turn in China, which is among a growing contingent of populist nations.
In Defense of a Structured and Disciplined Approach to Active Portfolio Management in Int'l Equities
The period since the financial crisis has been unprecedented in both the duration of the bull market but also the extreme low levels of volatility. As John Authers of the Financial Times recently pointed out, 2017 was the ‘most serenely positive year for world markets in history’.
The key to using active funds: Setting client expectations
Prepare clients for active fund volatility.
Rare Bond Market Conditions Set up Complacent Investors for Subpar Returns
This is only the third time in the past twenty years when the yield curve has been this flat while at the same time high-yield spreads have been this tight.
Navigating the New Volatility Regime
Rick and Russ on the new volatility regime, why risk is being misapprehended, and how to navigate these new challenges.
Emerging Markets: Keep an Eye on Reform
Economic reforms remain critical for emerging economies' attempts to successfully transition from low-wage industrial economies to high-skilled, consumption-based economies.
Reverse-Think Your Portfolio to Target Success in 2018
The more compelling the crowd’s behavior, the more compelling the investment case is for doing the opposite of what the crowd is doing. This is a core tenet of our Behavioral Portfolio Design™ philosophy that tries to help guide investors toward better portfolio decisions.
Gundlach Disagrees with Mnuchin and Powell
On inflation and Fed policy, Jeffrey Gundlach disagreed with comments made by Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell. But Gundlach’s views were in line with the consensus on those key issues – inflation will not spike dramatically higher and the Fed will continue with its planned rate hikes.
Retirement Risk: Don't Trade Downside Protection for More Upside
Are Fidelity Investments’ target date funds too risky? We evaluate the short and long-term risks for a typical participant.
All Asset All Access, March 2018
In this issue, Research Affiliates discusses positioning for potentially volatile markets and the link between equity valuations and macroeconomic conditions.