Macroeconomic volatility is a useful tool for contrarian investors who are seeking fair value in an equity market characterized by continually rising valuations.
In a series of articles we published in 2016, we show that relative valuations predict subsequent returns for both factors and smart beta strategies in exactly the same way price matters in stock selection and asset allocation.
It may not be my money, but it is my job. — Charles Ellis in Investment Policy: How to Win the Loser's Game
A quarter-century before Brexit came “Black Wednesday.” On Wednesday evening, September 16, 1992, the British government announced its exit from the European Exchange Rate Mechanism, prompting a dramatic devaluation of the British pound. Renowned hedge fund manager George Soros’ legendary bet against the pound in 1992 and his $1 billion profit on Black Wednesday defines for many the swashbuckling style of a global macro trader.
In their latest piece, Rob Arnott and Brandon Kunz of Research Affiliates take a look at how the rare combination of exceptional valuation levels, depressed currencies, and powerful price and economic momentum should encourage long-term investors to “throw their hats” into the emerging markets rink.
Mean reversion is as applicable to trading costs as it is to valuation. Today’s costs to trade are at 56-year historical lows; they are due to rise soon. Now is the time to position your portfolio ahead of expected higher costs to trade and lower equity prices.
Now’s the time to get real. Now’s the time, in a world of paltry bond yields and meager dividends, to make an honest assessment of your portfolio’s long-term expected return.