We’re a little more than a week into the 2018 FIFA World Cup, and so far Russia has surprised experts and fans alike. Expectations were low at best. Because of recent setbacks, including a disastrous performance at the 2016 UEFA European Championship and injuries sustained by key players, the federation ranked a dismal 66th place among Fédération Internationale de Football Association teams—its lowest position ever. The only reason it didn’t have to qualify to compete was because Russia is the host nation. (This is the first time in its 88-year history, by the way, that the World Cup has been held in Eastern Europe.)
Traditional index funds match market performance and have negligible trading costs with low tracking error—or do they? Not actually—they routinely buy after high price appreciation and sell after high price depreciation. They also have significant trading costs from adding and deleting stocks. We show how index providers can construct better-performing indices that are less prone to performance chasing and have lower turnover.
Much has been written about residential mortgage modifications, yet hardly anything has been said about the problem of re-defaults on modified mortgages. In large part, this is due to the paucity of accurate data about borrowers re-defaulting. It is time to clearly lay out how extensive this problem really is, what it means for mortgage markets and the dangers it poses for investors.
The U.S. inflation story made further inroads this month, with year-over-year price growth for consumers and producers alike hitting multiyear highs. U.S. consumer prices expanded at their strongest pace in more than six years, climbing to an annual change of 2.8 percent in May. Prices for final demand goods, meanwhile, grew 3.1 percent, their strongest annual surge since December 2011.
The team illustrates the economic background behind the Korean summit meeting and profiles corporate debt.
Imagine that your goal is to maximize the total return of your portfolio. You can either invest your portfolio 100% in stocks or split the portfolio equally between stocks and an uncorrelated strategy with an annual return that is 1% less than stocks.
The Federal Reserve has two primary mandates: maximizing employment and stable prices. Congress also included moderating long-term interest rates as part of the Fed’s overall objective, but that should be the offshoot of stable prices. In May the unemployment rate fell to 3.8% which is the lowest since April 2000.
Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern. But these are different times.
Things just got interesting – maybe. It is hard to write anything definitive given how quickly events are unfolding. Investors were taking turns being spooked by possible trade wars, cancelled (but now rescheduled) Korean denuclearization summits, and elevating unrest in the Middle East. The US market continues its volatile tug-of-war between heavy fiscal stimulus and tightening monetary policy.
Despite the evidence, strong past performance is the prerequisite for manager selection by individuals as well as institutional investors. New research explains why investors are likely to get poor results from performance chasing.