Foreword The impact of fossil fuels on climate change is an important topic on the minds of many investors. We have been a part of many discussions with our clients about the decision to divest fossil fuel investments. There are thoughtful and passionate arguments on both sides of the issue, and we have a deep…
Bankers are fond of saying “bad loans are made during good times.” With equity markets reaching new highs, volatility and interest rates hovering around historic lows, positive economic growth, and increased merger activity, we could characterize today’s environment as the “good times.” Since credit markets run in cycles alongside the broader economy, investors need to…
While valuations continue to support a tactical overweight to emerging markets equities today, the rationale for a permanent or structural overweight is weaker Many of the classic arguments for a strategic overweight to emerging markets (potential for faster economic growth, underrepresentation in indices, diversification, and inefficiency of markets) lack convincing support or have diminished in…
Even as the European Central Bank worries about deflation, the United States has recently seen some hints of inflationary pressures. In recent weeks, a variety of inflation metrics have indicated that consumer prices rose sharply in April, surpassing consensus forecasts. Few investors can claim a distinguished record of successfully forecasting inflation—and we’re not about to…
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…