Executive Summary Risk parity comprises strategies whose goal is to define a more “efficient” mix of assets that is more diversified across the risks caused by different asset classes and economic environments, and that yields a higher Sharpe ratio than more traditional approaches. In practice, risk parity aims to achieve this by balancing the volatility…
Beginning May 30, Qatar and the United Arab Emirates (UAE), with a combined weighting totaling about one-third of the MSCI Frontier Markets 100 Index, will graduate to MSCI’s emerging markets indexes. This transition will require frontier index funds to sell down their holdings of the countries’ 22 stocks and to buy larger stakes of the…
Why do investors have real assets in their portfolios? The usual answer is to hedge against inflation. However, given recent muted inflation levels globally and the poor performance of common inflation hedges, many investors are increasingly questioning why they hold any real assets at all. In the end, we believe real assets deserve a place…
The last few days have brought more seismic shocks to growth stocks, continuing a trend seen throughout the last two months. On Friday alone, Amazon.com shed $15 billion of market value and a popular social media exchange-traded fund dropped 5.3%. Since this particular brand of sell-off began on March 5, the hardest-hit stocks have been…
Michael Lewis’ new book Flash Boys has sparked a fierce debate on the practice known as high-frequency trading (HFT), with Lewis and his supporters claiming markets are “rigged” by high-frequency traders who front-run other market participants and engage in a number of other unsavory activities. Unfortunately the truth is more mundane. HFT—the name given to…
Since bottoming on February 5, the MSCI Emerging Markets Index has returned more than 10%, dragging year-to-date returns into the black. Yields on EM debt, meanwhile, have fallen sharply, and many EM currencies have posted strong gains. At the same time, Chinese growth appears to be slowing and debt problems mounting, while the “Fragile 5”…
Given the tremendous growth in debt-financed activity, investors are rightly wondering whether China is near a tipping point where its credit boom becomes a credit bust. China recently made headlines when it allowed its first ever bond default. A second smaller bond default has occurred in the weeks since. Add to that various news stories…
We maintain our neutral positioning on Japanese equities The “arrows” of Abenomics in Japan appear to be misfiring: growth is slowing, the yen has stabilized, and recent increases in inflation may prove temporary. Despite the impressive recovery in Japanese earnings they remain 30% below 2007 levels. Whether the third “arrow” of Abenomics will hit the…
Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?” Holmes: “To the curious incident of the dog in the night-time.” Gregory: “The dog did nothing in the night-time.” Holmes: “That was the curious incident.” —Sir Arthur Conan Doyle, “Silver Blaze” Since 2008, US money supply (M2)…
Recent comments by several ECB governors have fueled speculation that the bank might ease further at its upcoming meeting on April 3. While the Eurozone is slowly recovering, unemployment remains elevated and concerns are mounting over deflation. Near-zero interest rates limit the ECB’s options, leading some analysts to believe a more extreme step, such as…