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”…
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…
“The Arithmetic of ‘All-In’ Investment Expenses” John Bogle, Financial Analysts Journal vol 70, no. 1 (January/February 2014): 13-21. Jack Bogle, the founder of Vanguard, argues that commonly cited expense ratios understate the true, “all-in” cost of investing in actively managed equity mutual funds. He estimates the magnitude of the additional costs and concludes that a…
Executive Summary The debate about “active versus passive” investment management has received considerable attention. The average active equity manager regularly struggles to outpace the market; however, some managers perform better than average and studies generally conclude that some managers do exhibit skill. As a result, we attempt to answer a different question: how can investors…
“Equities (Still) for the Long Run: A New Look at the Equity Risk Premium” Michael W. Crook and Brian Nick, Journal of Investing vol 23, no. 1 (Spring 2014): 27–32. The poor performance of equities during the 2000s and the lack of a simple, sound model for estimating the forward-looking equity risk premium have led…
Africa’s changing political and economic landscape over recent decades offers investment prospects worthy of consideration. In this report, we address the key opportunities and risks associated with public (long-only and hedge funds) and private market investing in sub-Saharan Africa, with an emphasis on Frontier Africa. We find that public markets exhibit attractively low correlations to…
U.S. equity valuations have been the subject of intense debate. Investors should maintain their focus on normalized P/E ratios, which indicate that valuations are elevated and that U.S. stocks are priced to deliver low multi-year returns.
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…
While access to the Chinese A-share market is improving, investors should not rush in. Given that the market is still evolving, finding a skilled manager to navigate the challenges facing the A-share market is key.