The Asset Allocation Channel

GMO Quarterly Letter

In a new quarterly letter to GMO's institutional clients, head of asset allocation Ben Inker considers the hypothetical question posed by chief investment strategist Jeremy Grantham in his third-quarter 2017 letter, "What should you do if you are tasked with managing Stalin's pension portfolio?" ("Don't Act Like Stalin! But maybe hire portfolio managers that do?").

How to Rescue an Underfunded Retirement

Americans have under-saved and will need more than withdrawals from savings to survive retirement. An optimal withdrawal strategy and asset allocation, delaying Social Security, annuitizing, tapping home equity and possibly working longer need to be evaluated. Let’s take a typical American couple and evaluate which options improve retirement consumption.

Unconstrained: How Bond Investors Can Embrace Volatility

Untethered to traditional bond benchmarks, unconstrained bond strategies can respond to current changing market conditions in various ways.

Quarterly Letter

The end of 2016 through the beginning of 2018 had been one of the least volatile periods in recorded stock market history. It was THE least volatile by one measure – for the 404 trading days through the beginning of February, the market never had a five percent correction – the longest streak on record.

On My Radar: The Volatility Flash Crash Explained

One of my big risk concerns is the unknown amount of money in the risk parity trade. Essentially, volatility drives the weighting decisions. If equity market vol is low, then equities get a weighting. If equity market vol picks up, then, by rule, the risk parity strategies rebalance their exposures… in this case, reduce equity market exposure. They are mathematically-driven strategies and all essentially use very similar volatility measurements.

The Advent of a Cynical Bubble

James Montier, a member of GMO’s Asset Allocation team, has just published a new white paper -- "The Advent of a Cynical Bubble” – examining the nature of the bubble we find ourselves in, noting the concept that “the US equity market is obscenely overvalued can hardly be news to anyone.”

NFIB Small Business Survey: "Now is a Good Time to Expand"

The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for January came in at 106.9, up 2.0 from the previous month. The index is at the 99th percentile in this series. Today's number came in above the forecast of 106.2.

How to Know When Active Management Performs Best

Active equity performance depends on the stock-picking skill and market conditions. Recent academic research confirms that returns to stock picking rises in tandem with increased stock return cross-sectional dispersion and skewness, along with greater market volatility.

Peak Hubris: Challenging Dalio and Grantham

In the past month, two well-known and highly respected money managers have made confident assertions about the markets. Their comments would lead one to believe that the future path of the market in the coming months is known.

After the Selloff, What’s Changed? Not Much

Russ reviews the landscape after the selloff and discusses how little has actually changed.

What To Do About Bonds Now

It has been a long time since we had something that resembles normal interest rates and normal economics. Some even called the financial environment we live in as the “New Normal”. Retirees and savers have suffered the most during this prolonged low rate period.

Why a Dynamic Multi-Asset Approach Matters During Volatile Markets

We believe that a multi-asset investing approach is instrumental to navigating today’s market volatility. Here’s how it’s working for us.

Without Missing A Beat, Global Equities Continued Their Rally Into 2018​

Global equities roared out of the gate in January, notching their best start to a new year since 1994. The price of oil made an even larger jump than equities, reaching its highest price since 2014, while the U.S. dollar endured its largest monthly decline in nearly two years. Even though bond-market inflation expectations have risen to a three-year high, the Fed kept its overnight interest rate unchanged at its January meeting.

Mind your P’s and F’s: Don’t confuse leveraged ETPs with ETFs

As the recent market volatility made clear, there’s a big difference between plain vanilla ETFs and leveraged products making big bets with big risks.

2018 Outlook: Looking Beyond Market Volatility

With the dramatic spike in market volatility over the past week, many investors are asking what comes next.