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…
Looking ahead to 2014 we are focused on several key themes, among them the evolution of global monetary policy, the likelihood of European equities exceeding diminished expectations, and the headwinds, risks, and opportunities associated with emerging markets equities.
Monetary policy is an important wildcard, but deleveraging has faded as a headwind for U.S. economic growth and investors would be unwise to weigh it heavily in their investment decisions.
European Equities: Time to Focus on the Micro European equities trade near a record historical discount to U.S. equities; potential for a turnaround in earnings and improving macro conditions further bolster the case for an overweight position. Europe has faded from the headlines in 2013 as Federal Reserve tapering, Abenomics in Japan, and a slowdown…
Despite the recent sell-off, Japanese equities are up considerably since last October given the promise of Abenomics; however, we remain tactically neutral given valuations and significant structural headwinds.
Given lower yields, returns on high-yield bonds and leveraged loans are likely to taper off, but in a muddle-through or bear market environment their returns should compare favorably with those of equities.
Fallout from the credit crisis has meant that investors can now invest in single-family homes on an institutional basis, but those choosing to do so should screen managers carefully and be mindful of the inherent risks.
Investors worried about rising interest rates have several options; unfortunately, none comes without opportunity costs and implementation challenges.
European equity valuations are not expensive, but political risks justify a discount and the lack of easy fixes to Europe’s sovereign debt crisis may make volatility a recurring feature of the market.
Equity investors are right to be focused on corporate earnings, given that a lackluster recovery and slowing global growth may weigh on sales. However, profit margins may be of lesser concern, due to index mechanics and the limited correlation between margins and returns. S&P 500 companies have enjoyed a stunning rebound in profits since the…