How can equity investors address the triple threat of a low return environment, scarcity of alpha and the tendency to chase performance?
Speaking two weeks after his 88th birthday, Jack Bogle called the fiduciary rule “silly” and said that financial advisors’ fees are heading lower. Indeed, he said, advisors are destined to charge hourly or retainer fees, like lawyers and accountants.
With political uncertainty on the rise in D.C., will market volatility spike? Russ discusses why the economy and credit markets matter more.
Rising interest rates make bond investors nervous. But purging your portfolio of interest-rate risk can backfire—even in a rising-rate environment. There’s a better way to balance risk and return.
Should you reduce allocations to U.S. equities given the conventional wisdom that prices are “rich” and “due for a correction”? Jeremy Siegel says no; investors should expect 5% real returns from stocks over the long term. But Robert Shiller thinks that number should be much lower.
The vast majority of businesses manage their operations according to a plan. That plan may be as simple as an entrepreneur writing down a few goals on a napkin, or as complex as a massive set of instructions covering the day to day, month to month, year by year, or decade by decade actions required to maximize profits.
Volatility is remarkably low today, but it’s not likely to stay that way. Alternatives have the potential to provide diversification and reduce risk when markets get stormy again. But what’s the best way to design an alternatives allocation?
This is one of the more important pieces I’m sharing with you. It’s a candid look at where we are in the economic cycle and what that likely means for the global markets.
My friend Mark Hulbert once had a philosophy professor at Oxford, who distinguished two ways of being wrong: “You can be just plain wrong, or you can be wrong in an interesting way.” In the latter case, Mark explained, correcting the wrong reveals a lot about the underlying truth.
Is it better to jump in all at once, to average-in over time or to wait for a market correction?
Robert DiMella is an executive managing director and co-head of MacKay Municipal Managers team, overseeing approximately $20 billion in municipal bond assets. In this interview, he discusses the opportunities for muni bond investors and the outlook for the coming year.
This letter will cover the philosophical underpinnings of my thinking. I’ll also introduce some investment tools (which I will give you access to through a link later on in the letter) that express that philosophy, but you could also design a different answer that fits your own (or your client’s) portfolio construction.
The Fed story may well command attention. I classify it as an important story, but not an urgent one. I have some strongly-held viewpoints:
The defined contribution (DC) community has been buzzing about lifetime-income products lately. It’s a topic that’s been dormant for several years, but there are good reasons for renewed interest.
K2 Advisors’ Founding Managing Director David Saunders is speaking at the prestigious SALT conference this month in Las Vegas, where he’ll discuss the liquid alternatives landscape and why he thinks now’s the time for investors to consider this asset class.
Investors have a tendency to prefer home cooking when it comes to their stock portfolios. In the latest GMO Asset Allocation Insights, Rick Friedman writes that US-based investors are paying steep prices for domestic equities. but straying from their home market presents more attractive prices.
When looking to help diversify a multi-asset portfolio, one of our experts presents the case for when and why an investor might consider senior loans.
Fund managers have become more bullish, but not excessively so. Cash balances at funds remains high, suggesting lingering doubts and fears. Of note is that allocations to US equities are near their lowest level in 9 years: this is when US equities typically start to outperform.
Russ talks about why bond yields remain low this year, despite expectations of a rise.
After stumbling out of the gate, a 2.5% rally in the second half of April left the broad-market S&P 1500 1% higher on the month.
There is a really big crisis coming. Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble. But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today.
When Ronald Reagan entered office in 1981, forward return expectations were a high 18.91% (see chart below: green line, left-hand side). Equally important was that risk of loss was a low -4.29% (red line, left-hand side). The prior bear market reached its end, yet few knew it. Scream as one might, clients weren’t buying.
We have a very quiet week for economic reports. The housing data are quite important, but it will be a Tuesday story without legs. The White House drama will be compelling for the media. Whether investors like the idea or not, we should expect another week of news that is mostly political.
In this issue, Research Affiliates offers insight into its CPI-based secondary return benchmarks, its business cycle modeling and continued opportunities in emerging markets.
Driverless cars may be the wave of the future. But when it comes to bond investing, it’s best to keep your hands on the wheel. Anything less could do serious damage to your fixed-income portfolio.
Doubt can be a pesky thing. Once you’re infected, it’s hard to shake off. It makes you second guess what you thought you were sure of, it’s contagious, and there’s no vaccine for it.
Russ discusses the important trends that emerged from a compelling conference of finance, business and political leaders.
It’s hard to say how healthcare reform will affect the broad municipal bond market. But any new law with the potential to cause millions to lose insurance would be a bitter pill for hospitals. Investors should tread carefully.
The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for April came in at 104.5, a decrease of 0.2 from the previous month's 104.7. The index is at the 97th percentile in this series. Today's number came in above the Investing.com forecast of 104.0.
DALBAR’s report is commonly cited as “proof” that mutual fund investors have historically made poor market-timing decisions. While DALBAR does not publicly disclose its approach, in this article I use a transparent and industry-accepted methodology, based on publicly available data, to demonstrate that investors’ returns have not been nearly as bad as DALBAR claims.
I presented at a recent advisor conference alongside a famous economist. He told a story about an investment manager who told him, “You know… it is easy to pick out the investment amateur in any room.” He said, “He’s the person who says, ‘it’s different this time’.”
We have a quiet week for data. The ObamaCare drama is finished for now. The Fed meeting is over. Earnings season is past the peak. Don’t worry! The punditry will find something new. Analysts will look deeply into the charts and ask: What is the message of the market?
US equities rose for a third week in a row, to new all-time highs. Trend persistence like this normally leads to higher highs in the weeks ahead. It's true that volatility has dropped to significant lows and that volatility risk is to the upside.
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 $18,319 for an annualized real return of 12.17%.
During the first four months of 2017, we were relatively active on the buying and selling front. With a reasonable amount of information to report on individual positions, we will dispense with any broad economic and asset class commentary and dig right into each of the transactions that occurred between January and April.
A bottom-up look at major industries around the world reveals significant potential for productivity growth.
With risks abounding in the markets, Russ discusses the case for health care as a defensive sector.
A spending rate is a key factor for retirees' success. Just as budgeting and savings discipline are bedrocks to reach your retirement objectives, having a personal spending plan during your retirement is critical to prevent you from potentially outliving your dollars.
In a new quarterly letter to GMO's institutional clients, head of asset allocation Ben Inker addresses "perhaps the most common question I get from clients: What keeps you up at night?" ("Up At Night").
Political risk may have ratcheted lower after the first round of the French presidential election. But the latest jump in asset prices across Europe appears to have tailwinds well beyond politics.
US equities ended the month of April above or near new all-time highs. There are no significant extremes that suggest the trend higher will suddenly end. But the upcoming "summer months" are normally marked by lower price appreciation and larger drawdowns.
We wrap-up our three-part series on Behavioral Finance in this issue of the Outlook with a discussion of Emotional Biases, which often adversely affect investors’ outcomes. This discussion and the tie-in with Sir Isaac Newton is found in the second half of this quarter’s Outlook.
I enjoy reading 720 Global’s research blog. Quick, crisp and to the point. The message in their most recent piece is about human behavioral tendencies and ego. Ultimately, it’s about how to weave behavior and ego into our investment thinking.
Lower correlations, coupled with greater dispersion of volatility across sectors, highlight the importance of asset allocation and could lead to more opportunities for outperformance by active managers over passive beta strategies.
The Asset Allocation Channel
Getting More From Your Equity Allocation
How can equity investors address the triple threat of a low return environment, scarcity of alpha and the tendency to chase performance?
Jack Bogle on the Limits of the Fiduciary Rule and the Future of the Advisory Industry
Speaking two weeks after his 88th birthday, Jack Bogle called the fiduciary rule “silly” and said that financial advisors’ fees are heading lower. Indeed, he said, advisors are destined to charge hourly or retainer fees, like lawyers and accountants.
Keep Your Eyes on the Credit Markets, Not Washington
With political uncertainty on the rise in D.C., will market volatility spike? Russ discusses why the economy and credit markets matter more.
Keeping Your Balance as Rates Rise
Rising interest rates make bond investors nervous. But purging your portfolio of interest-rate risk can backfire—even in a rising-rate environment. There’s a better way to balance risk and return.
Jeremy Siegel versus Robert Shiller on Equity Valuations
Should you reduce allocations to U.S. equities given the conventional wisdom that prices are “rich” and “due for a correction”? Jeremy Siegel says no; investors should expect 5% real returns from stocks over the long term. But Robert Shiller thinks that number should be much lower.
Our Five Year Forecast for the S&P 500
The vast majority of businesses manage their operations according to a plan. That plan may be as simple as an entrepreneur writing down a few goals on a napkin, or as complex as a massive set of instructions covering the day to day, month to month, year by year, or decade by decade actions required to maximize profits.
Don’t Wait for Rough Markets to Take a Look at Alternatives
Volatility is remarkably low today, but it’s not likely to stay that way. Alternatives have the potential to provide diversification and reduce risk when markets get stormy again. But what’s the best way to design an alternatives allocation?
On My Radar: Near Term Looks Good, Long Term Looks Scary
This is one of the more important pieces I’m sharing with you. It’s a candid look at where we are in the economic cycle and what that likely means for the global markets.
Being Wrong in an Interesting Way
My friend Mark Hulbert once had a philosophy professor at Oxford, who distinguished two ways of being wrong: “You can be just plain wrong, or you can be wrong in an interesting way.” In the latter case, Mark explained, correcting the wrong reveals a lot about the underlying truth.
Comparing Different Strategies for Getting into the Market
Is it better to jump in all at once, to average-in over time or to wait for a market correction?
The Benefits of Active Municipal Bond Management
Robert DiMella is an executive managing director and co-head of MacKay Municipal Managers team, overseeing approximately $20 billion in municipal bond assets. In this interview, he discusses the opportunities for muni bond investors and the outlook for the coming year.
The Great Reset: How Should We Then Invest?
This letter will cover the philosophical underpinnings of my thinking. I’ll also introduce some investment tools (which I will give you access to through a link later on in the letter) that express that philosophy, but you could also design a different answer that fits your own (or your client’s) portfolio construction.
Will the Fed Change Course?
The Fed story may well command attention. I classify it as an important story, but not an urgent one. I have some strongly-held viewpoints:
DOL Throws New Lifeline to Lifetime-Income Solutions
The defined contribution (DC) community has been buzzing about lifetime-income products lately. It’s a topic that’s been dormant for several years, but there are good reasons for renewed interest.
Why Liquid Alternatives Now
K2 Advisors’ Founding Managing Director David Saunders is speaking at the prestigious SALT conference this month in Las Vegas, where he’ll discuss the liquid alternatives landscape and why he thinks now’s the time for investors to consider this asset class.
America Is Great. Home Country Bias Ain’t.
Investors have a tendency to prefer home cooking when it comes to their stock portfolios. In the latest GMO Asset Allocation Insights, Rick Friedman writes that US-based investors are paying steep prices for domestic equities. but straying from their home market presents more attractive prices.
Senior Loans in a Multi-Asset Portfolio?
When looking to help diversify a multi-asset portfolio, one of our experts presents the case for when and why an investor might consider senior loans.
Fund Managers’ Current Asset Allocation
Fund managers have become more bullish, but not excessively so. Cash balances at funds remains high, suggesting lingering doubts and fears. Of note is that allocations to US equities are near their lowest level in 9 years: this is when US equities typically start to outperform.
The Yield "Melt-Up" That Wasn't
Russ talks about why bond yields remain low this year, despite expectations of a rise.
Don’t Wait for Rough Markets to Build an Alternatives Allocation
Volatility is remarkably low today, but it’s not likely to stay that way. Alternatives have the potential to provide diversification and reduce risk when markets get stormy again. But what’s the best way to design an alternatives allocation?
April 2017 Market Commentary
After stumbling out of the gate, a 2.5% rally in the second half of April left the broad-market S&P 1500 1% higher on the month.
The Unavoidable Pension Crisis
There is a really big crisis coming. Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble. But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today.
On My Radar — Reagan’s 1981 vs. Trump’s 2017
When Ronald Reagan entered office in 1981, forward return expectations were a high 18.91% (see chart below: green line, left-hand side). Equally important was that risk of loss was a low -4.29% (red line, left-hand side). The prior bear market reached its end, yet few knew it. Scream as one might, clients weren’t buying.
Should Investors Fear Another Watergate?
We have a very quiet week for economic reports. The housing data are quite important, but it will be a Tuesday story without legs. The White House drama will be compelling for the media. Whether investors like the idea or not, we should expect another week of news that is mostly political.
All Asset All Access, May 2017
In this issue, Research Affiliates offers insight into its CPI-based secondary return benchmarks, its business cycle modeling and continued opportunities in emerging markets.
Passive Bond Strategies: A Road to Nowhere
Driverless cars may be the wave of the future. But when it comes to bond investing, it’s best to keep your hands on the wheel. Anything less could do serious damage to your fixed-income portfolio.
Disease of Doubt: Investors Must Combat Doubt and Confirm Convictions with Portfolio Positionings
Doubt can be a pesky thing. Once you’re infected, it’s hard to shake off. It makes you second guess what you thought you were sure of, it’s contagious, and there’s no vaccine for it.
What I learned at the Milken Conference
Russ discusses the important trends that emerged from a compelling conference of finance, business and political leaders.
Healthcare Reform: Healthy for Munis?
It’s hard to say how healthcare reform will affect the broad municipal bond market. But any new law with the potential to cause millions to lose insurance would be a bitter pill for hospitals. Investors should tread carefully.
NFIB Small Business Survey: Index Dips Again in April, Still High
The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for April came in at 104.5, a decrease of 0.2 from the previous month's 104.7. The index is at the 97th percentile in this series. Today's number came in above the Investing.com forecast of 104.0.
Testing DALBAR’s Claims about Mutual Fund Investors
DALBAR’s report is commonly cited as “proof” that mutual fund investors have historically made poor market-timing decisions. While DALBAR does not publicly disclose its approach, in this article I use a transparent and industry-accepted methodology, based on publicly available data, to demonstrate that investors’ returns have not been nearly as bad as DALBAR claims.
On My Radar: It’s Different This Time
I presented at a recent advisor conference alongside a famous economist. He told a story about an investment manager who told him, “You know… it is easy to pick out the investment amateur in any room.” He said, “He’s the person who says, ‘it’s different this time’.”
Weighing the Week Ahead: What is the Message of the Market?
We have a quiet week for data. The ObamaCare drama is finished for now. The Fed meeting is over. Earnings season is past the peak. Don’t worry! The punditry will find something new. Analysts will look deeply into the charts and ask: What is the message of the market?
Weekly Market Summary
US equities rose for a third week in a row, to new all-time highs. Trend persistence like this normally leads to higher highs in the weeks ahead. It's true that volatility has dropped to significant lows and that volatility risk is to the upside.
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 $18,319 for an annualized real return of 12.17%.
Quarterly Letter
During the first four months of 2017, we were relatively active on the buying and selling front. With a reasonable amount of information to report on individual positions, we will dispense with any broad economic and asset class commentary and dig right into each of the transactions that occurred between January and April.
Productivity: A Surprise Upside Risk to the Global Economy?
A bottom-up look at major industries around the world reveals significant potential for productivity growth.
Preventive Medicine: Playing Defense with Health Care
With risks abounding in the markets, Russ discusses the case for health care as a defensive sector.
Retirement Spending As Important as Saving
A spending rate is a key factor for retirees' success. Just as budgeting and savings discipline are bedrocks to reach your retirement objectives, having a personal spending plan during your retirement is critical to prevent you from potentially outliving your dollars.
GMO Quarterly Letter
In a new quarterly letter to GMO's institutional clients, head of asset allocation Ben Inker addresses "perhaps the most common question I get from clients: What keeps you up at night?" ("Up At Night").
Trump Trade? The More Likely Reflation Trade is in Europe
Political risk may have ratcheted lower after the first round of the French presidential election. But the latest jump in asset prices across Europe appears to have tailwinds well beyond politics.
Weekly Market Summary
US equities ended the month of April above or near new all-time highs. There are no significant extremes that suggest the trend higher will suddenly end. But the upcoming "summer months" are normally marked by lower price appreciation and larger drawdowns.
April 2017 Outlook
We wrap-up our three-part series on Behavioral Finance in this issue of the Outlook with a discussion of Emotional Biases, which often adversely affect investors’ outcomes. This discussion and the tie-in with Sir Isaac Newton is found in the second half of this quarter’s Outlook.
On My Radar: Rick Barry and The Wisdom of Limiting Losses
I enjoy reading 720 Global’s research blog. Quick, crisp and to the point. The message in their most recent piece is about human behavioral tendencies and ego. Ultimately, it’s about how to weave behavior and ego into our investment thinking.
Shifting Tides: Correlations and Multi-Asset Investing
Lower correlations, coupled with greater dispersion of volatility across sectors, highlight the importance of asset allocation and could lead to more opportunities for outperformance by active managers over passive beta strategies.