After a decade of lagging relative returns, value equities delivered impressive performance in 2016, outperforming growth stocks by 10% in the US.
Saudi Arabia and the United Arab Emirates effectively excommunicated Qatar from the Gulf Cooperation Council (GCC); they cut off all transportation links, forced Qatari citizens in the GCC to leave, and closed their airspace to Qatar Airlines’ flights to Europe and the US. The stated goal of these measures is to force the Qatari government to stop allying with the government of Iran and to stop supporting certain political/terrorist groups, like the Muslim Brotherhood, in Egypt and across the Middle East. However, if the Qataris do not accede to their demands, their objective may become to cause regime change in Qatar. The US has a major military base in Qatar and so has a stake in the outcome.
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.
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").
Is the dollar losing its grip on its status as the world’s reserve currency?
Sluggish growth and aggressive central bank actions following the Global Financial Crisis pushed interest rates down to unprecedented levels, even negative outside the US, for longer than many would have expected.
Amar Reganti, a member of GMO’s Asset Allocation team, examines “ultralong” debt in his new white paper “The 100 Year: A Take on the Century Bond.” The recently confirmed Secretary of Treasury, Steven Mnuchin, has indicated that he would "possibly review the issuance of a 100-year bond as an instrument used to achieve that maturity extension."
In a companion paper, “Six Impossible Things Before Breakfast,” we present evidence that asset markets are generally priced for “secular stagnation,” and argue that this requires a number of extreme assumptions on the part of investors.
One of the great joys of working at GMO is the freedom to disagree. Indeed, many moons ago when Ben Inker first approached me about joining GMO, he told me that, having read my work, he believed we were very much philosophically aligned.
Passive “doing-by-not-doing” is no way to run a bond portfolio today.