Credit/Fixed Income

Decades of Data: United States 1900–2020

, , , | Download

The 2020 US edition of our annual report on the history of financial markets provides context for the range of returns investors can expect from equities, bonds, and cash; reveals the importance of various components of equity returns; examines the evidence for equity mean reversion; and reviews the relationship between initial valuations and subsequent returns for equities and bonds. It also analyzes the historic economic declines and sharp asset price movements that resulted from the COVID-19 pandemic in 2020.

Market Matters: February 2021

, , , | Market Matters Series | Download

Risk assets rallied in February as global vaccination efforts progressed and economic momentum strengthened. However, the rally stalled in the latter half of the month amid concerns about a resurgence in inflation. Value stocks trounced growth. Small caps outperformed large caps for the sixth consecutive month. Sovereign bond prices declined amid sharply rising yields, while high-yield bonds advanced and bested investment-grade equivalents. Real assets mostly gained; oil prices reached their highest levels in more than a year, but gold declined at its fastest monthly rate since 2016. Among major currencies, UK sterling advanced, whereas the US dollar and euro were mixed.

VantagePoint: Modern Portfolio Diversification

, | VantagePoint Series | Download

Investors are facing a challenging period for earning what they spend and achieving adequate portfolio diversification. With most DM sovereign bond yields near or below zero, expected returns for bonds are at all-time lows and diversification qualities are constrained. In this edition of VantagePoint, we evaluate defense and diversification options to identify a modern approach to diversification in this low-yield era.

Playing Defense in a Low-Rate Environment

, | Download

Investors have predominantly relied on developed markets sovereign bonds for defense in balanced portfolios, but low rates have diminished their diversification characteristics. We find that a diversified basket of “defensive” assets has provided comparable diversification characteristics to developed markets sovereign bonds historically. While this basket may not solve all challenges associated with today’s low-rate environment, we view it as better equipped than developed markets sovereign bonds to defend balanced portfolios during future periods of equity market stress.

Review of Market Performance: Calendar Year 2020

, , , , , | Download

The onset of the COVID-19 pandemic caused steep declines in risk markets in first quarter 2020. Safe-haven assets, such as core sovereign bonds and gold, performed strongly during this period and have held on to much of their gains. Large-scale intervention by both monetary and fiscal authorities eventually put a floor under risk markets, driving rapid recoveries and pushing equity markets to new highs.