Market Matters: January 2021
Global equity markets declined in aggregate in January, but individual markets varied as emerging markets advanced and developed equivalents fell.
Credit/Fixed Income
VantagePoint: Modern Portfolio Diversification
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
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
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.
Market Matters: December 2020
The risk rally continued in fourth quarter, bolstered by COVID-19 vaccine progress and multiple new stimulus measures.
Market Matters: November 2020
Global equities ascended to new all-time highs in November, delivering their best monthly return since 1975.
China’s Onshore Bond Market: An Update
Interest in China’s onshore bond market has been rising steadily since 2016 when the market was thrown open to foreign investors. Foreign holdings of onshore bonds now exceed US$400 billion and are set to rise further. We think the market warrants further attention from global investors, given Chinese bonds continue to offer higher yields and lower correlations than those found in other major bond markets, with the potential to bring portfolio diversification benefits.
Market Matters: October 2020
Risk assets generally sold off in October, but investors found little respite in traditional safe-haven assets.
US Manager Universe Statistics: Third Quarter 2020
This publication presents manager performance for 37 asset classes and substrategies, showing the median, mean, and key percentiles of return. Relevant indexes for each asset class are also included to provide market context.
Not All Liability Hedges Are Created Evenly: Guidance for US Plan Sponsors in Today’s Interest Rate Environment
In an era of historically low interest rates, heightened risk of yield curve steepening complicates pension risk management.