Are California Carbon Allowances an Attractive Investment?
Yes, California Carbon Allowances are an attractive investment opportunity, though they come with political tail risk.
Authored by: Celia Dallas
VantagePoint: Strategic Portfolio Construction in a Changing World
In today’s dynamic environment, strategic thinking and flexibility are essential. This edition of VantagePoint revisits the core principles of best-in-class investment strategies, exploring how investors can allow wealth to compound by remaining disciplined, diversified, and focused on long-term opportunities while adapting to change.
VantagePoint: Avoiding Five Key Investment Pitfalls
The start of the year is an ideal time to review investment practices and procedures to ensure you are set up for success. In this edition of VantagePoint, we outline the following five key investment pitfalls that can steer investors off course and offer guidance on how to avoid them: 1) Taking too little risk; 2) Firing excellent managers after a bout of underperformance; 3) Sizing individual positions too large; 4) Misunderstanding liquidity risk; and 5) Failing to exercise strong governance.
2025 Outlook: Cross Asset
We expect global equities to outperform bonds, as near trend economic growth should support continued corporate earnings growth and healthy risk appetite. Stock/bond correlations should be lower than the 2023–24 peak levels, even as protectionist US policy may drive global economic uncertainty higher.
2025 Outlook: Interest Rates
We expect most major central banks to continue cutting policy rates, which should allow bonds to outperform cash. With breakeven inflation rates likely to be range bound, returns of inflation-linked and nominal bonds should be similar.
2025 Outlook: Diverse Manager & Impact Investing
We expect California Carbon Allowances (CCAs) to recover from 2024 losses as clarity on supply reductions emerges. Meanwhile, impact private investment flows will favor strategies with faster distributions and commercial validation. Additionally, headwinds for private diverse manager allocations should ease, but the overhang of emerging funds may lead to consolidation or shutdowns, challenging managers.
VantagePoint: Deconstructing US Debt Dynamics
Despite alarming headlines about rising US debt, investors should resist making drastic portfolio changes. While an immediate crisis appears unlikely, the risk could increase if the United States fails to manage its debt effectively. Therefore, reviewing potential portfolio adjustments at the margin that might enhance future returns is prudent.
Should Investors Diversify Away From Mega-Cap Tech Stocks?
Yes, investors should diversify in a risk-controlled manner, as mega-cap tech stocks have delivered exceptional fundamentals but are expensive and represent an outsized share of the equity markets.
VantagePoint: As the Narratives Turn
In this edition of VantagePoint, we find that consumers, corporations, and the banking sector remain in good shape, and while US/global economic growth is likely to slow in the second half of 2024 relative to the first, we expect it will remain positive. Although market concentration risk is elevated, given its focus on highly profitable AI-related tech stocks, we would seek to be measured about diversifying such risks.
VantagePoint: Building Resilient Public Equity Portfolios
Building outperforming portfolios in long-only equities is hard work but worth the effort. Engaging in deep research to identify firms with a repeatable competitive edge and strong organization that can stand the test of time is far more relevant than analyzing short-term performance. Selecting the right managers is only the first step. Constructing portfolios requires careful consideration of manager and market dynamics to adjust for shifting factor exposures and avoid unintended bets for which investors are unlikely to be compensated.