We maintain our advice to overweight European equities and underweight European bonds Macro data in Europe are slowly improving, but growth outside the Eurozone has been much stronger; corporate profits have also been lackluster but growth and/or cheaper currencies would help. European equity valuations are reasonable and reflect these weaknesses; they are attractive relative to…
Asia’s economic development continues to attract global investor’s interest. Yet, investing in Asia-focused hedge funds has proved challenging due to illiquidity, shorting constraints, and underdeveloped legal systems. Moreover, Asia consists of many diverse economies and heterogeneous cultures, each presenting unique challenges and at different stages of economic and financial market evolution. In this report we:…
For plan sponsors that wish to de-risk, the Agg is not the solution Some defined benefit pension plan sponsors that have not begun to de-risk are hesitant to shift out of Agg-based fixed income allocations toward longer-duration mandates in the current environment, citing the specter of rising interest rates. Lengthening the duration of the existing…
The trickle of banks leaving the commodity space has become a veritable flood. Over the past six months some of the biggest global banks have announced plans to either dramatically scale back operations or exit the physical trading business entirely, leaving the space increasingly in the hands of specialized merchant banks—e.g., Mercuria and Tudor Pickering—and…
As US small-cap valuations have grown increasingly extreme, so has our conviction in underweighting them Small caps have benefited from the recovery in US economic conditions since 2009 and the perceived safe-haven status of domestic US assets. Investors have earned low single-digit nominal returns from historical valuation levels equivalent to those today, an unappetizing prospect…
The big drop in US Treasury yields this year has once again confounded the consensus. Benchmark ten-year Treasury yields have declined from 3% to around 2.5% in under five months. Investors that took duration risk were handsomely rewarded, as 30-year long bonds have returned 12.2% year-to-date through May 23, the best performance over this period…
On May 6, Chinese e-commerce giant Alibaba filed a registration statement in the United States, its first official step toward becoming a public company. In addition to its size and nationality, Alibaba’s plan to list under a dual-class voting structure is noteworthy. Multi-class share voting structures are frequently criticized for exacerbating the agency problem created…
Today’s estimated global overhang is $909 billion net of fees, with US private equity, European private equity, and real estate the primary contributors. With capital appearing to be deployed at a slower pace than historically, the overhang is larger than expected. Too much overhang and the pressure to put capital to work before it expires…
Parts of China’s “shadow banking system”—broadly defined as the non-bank credit and funding markets—have some troubling similarities to US securitization markets circa 2007–08. Specifically, the “guaranteed returns” and off–balance sheet nature of certain products—as well as a “borrow short and lend long” asset-liability mismatch—are worrisome features, particularly considering that the area, which barely existed in…
Our views across equity markets have not changed given a quiet start to the year for both developed and emerging markets stocks. Given stretched valuations in markets like the United States it may take considerably better earnings and macro data to push stocks higher, while in comparison European earnings have been more lackluster (and growth…