We continue to advise an overweight to Eurozone equities versus US equivalents given attractive relative valuations, greater potential for earnings growth, and tailwinds from the improving macro environment Eurozone equities have performed strongly year-to-date but may have more room to run given valuations and weaker medium-term performance. UK equities have similar valuations but are less…
We continue to find high-yield bonds uncompelling; select opportunities in high-yield energy credit may offer attractive alpha Solid credit fundamentals and 6%+ yields in a low-return environment have lured some investors back to high-yield bonds, but current coupons will serve to cap future returns and offer little protection in the (somewhat unlikely) event the credit…
Talks between Greece and its Eurozone creditors to extend its bailout may again break down and thus trigger more volatility for local assets, but the potential for contagion to other asset markets is contained for several reasons. All involved parties have strong incentives to eventually reach an agreement. Even if they can’t, the fact that…
A number of companies have blamed the strengthening dollar for disappointing fourth quarter and 2015 earnings guidance. With about 65% of S&P 500 companies having reported, headlines that around 75% of firms are beating expectations obscure the reality of forecasts that have steadily been marked lower. Growth for the quarter (year-over-year) is expected to be…
Better earnings growth and attractive relative valuations support a slight overweight to Japanese equities versus US equivalents The multi-faceted nature of the Japanese earnings recovery has made Japanese equities more attractive. Further, structural reforms in Japan have been more successful than many thought would be the case early last year, and prospects for further success…
2014 has been a perplexing year for many investors and 2015 may prove no less vexing. Weighing the macro, micro, and “known unknowns,” portfolios may struggle to generate returns next year comparable to those in 2013 or perhaps even those seen this year. In this piece we briefly review the year nearly past and then…
The Bank of Japan’s (BOJ) surprise announcement that it would dramatically ramp up its QE efforts is a tacit admission that “Abenomics” is stalling, and supports our view about the underlying health of the Japanese economy: excessive debt levels, demographics, and overdue structural reforms are serious headwinds to growth. To briefly recap, on October 31…
Claims that Europe is becoming the next Japan have grown louder in recent months, after Eurozone GDP growth flat-lined in the second quarter and consumer prices increased just 0.4%, the lowest level in nearly five years. Clear parallels do exist between the current Eurozone macroeconomic environment and that which started to take shape in Japan…
Most emerging markets debt assets are not priced to achieve investors’ objectives Over the last decade EM currencies have appreciated significantly against the US dollar in real terms and seem unlikely to generate attractive returns going forward given limited carry. Local currency EM sovereign bonds have attractive nominal yields, but real yields, which drive returns,…
Stories about equity volatility plunging to “historical lows” have been ubiquitous in the financial press recently. When accompanied by references to above-average valuations and “over-heated” markets, the implication seems to be that investors should rush to buy protection via equity puts or volatility index options, presumably because some decline in equity markets (and thus increase…