Quantitative price-momentum strategies can be sensibly employed by long-term investors, particularly when paired with value-oriented strategies Growth indexes, by systematically screening out the most attractively valued stocks, have underperformed their broad market counterparts more often than they have outperformed, and we believe that will continue to be true. Rather than pairing their value-oriented managers with…
Profit margins are regarded by many as one of the most reliably mean-reverting time series in finance. In a global economy, high margin businesses should, in theory, attract competition that will gradually erode the ability of those companies to sustain significantly higher margins. Following the global financial crisis, US corporate profit margins expanded to new…
Hide and Seek: Profiting by Finding Hidden States of Financial Markets in Real Time Anders Nielsen, Goldman Sachs, September 29, 2014 Market environments can be classified into three different “regimes”: crisis, recovery, and stable. Based on the probability that the economy is in a given regime, equity and bond allocations can be sized to maximize…
Valuations are high, volatility near all-time lows, and policy rates on the rise; investors, meanwhile, are the most optimistic since 1987. On top of all that, the geopolitical picture is arguably more unsettled than at any point since the late 1970s. So who in their right mind would buy equities? With the standard caveat that…
As markets consider the consequences of the Federal Reserve ending its bond purchases and the possible beginning of quantitative easing in the Eurozone, recent news reports have focused investor attention on another dimension of central bank activity: their purchases of equities. Though opaque financial reporting makes detailed accounts of central bank equity holdings difficult to…
Executive Summary Alternative beta indexes strive to aggregate market securities based on objective criteria, weighting them in a way that is not limited to their share price or market capitalization. The weighting factors can include company fundamentals, share price volatility, earnings sustainability, or price momentum, in addition to a naïve equal-weighting approach. Alternative beta strategies,…
As assets managed in passive vehicles hit new highs, reiterating the difficult task faced by traditional active managers as a group has once again become a popular pastime. We concur that the collective group will always be challenged but contend that a small segment of the group is worth it, as defined by historical and…
In first quarter 2014, companies bought back the largest dollar amount of their own shares since 2007. With the S&P 500 Index reaching new highs, should investors be concerned that 2014 might set a new record level for share buybacks? Buybacks previously peaked in third quarter 2007, a famously bad time to buy US equities….
A string of headlines over the last few months has thrust the issue of cash held by the foreign subsidiaries of US companies back into the spotlight. First was Apple Inc.’s announcement that the company was increasing its dividend and buying back more stock while at the same time issuing $12 billion in debt to…
Summary Observations: Fiscal Year 2014 US equities returned 24.6% in the fiscal year ended June 30, 2014, ranking 31st in 114 fiscal years of data. The health care, information technology, and materials sectors all returned above 30%. All developed markets ended the fiscal year in the black, with Europe ex UK the best-performing region and…