While worries about tax reform and pension underfunding dog municipal bonds today, their relative appeal and fair value absolute valuations keep them a solid option for high-bracket taxable investors.
Some of the reflation trades that received a boost from the US election look to be merely taking a breather as investors square positions; however, the fundamental support for others—particularly the outperformance of US small-cap equities—is challenged.
This chart book presents representative long-only and hedge fund manager performance for fourth quarter 2016. The median US Small-Cap Value manager posted the highest median return for fourth quarter 2016 (10.7%) and the year (24.2%). The median Global ex US Bonds manager posted the lowest median return for fourth quarter 2016 (-6.9%), while the Global Growth Equity ex US median return was lowest for the year (-1.1%).
Investors navigating the marketplace in 2016 witnessed uneven advances in equity markets, record low yields in bond markets, and a recovery in commodity markets. This chart book reviews returns and other metrics for the calendar year.
Change is in the air and the prospect for a bit of sunshine to break through the overhang of slow growth and lower-for-longer yields is palpable. Of course, the sun doesn’t shine forever, and overall our views are little changed. The things we have been worried about for some time—high valuations for certain risk assets, record-low interest rates, slow economic growth—have not gone away. The surest call to make for 2017 is that higher growth expectations will be paired with the distinct possibility of negative outcomes, putting a premium on diversification and liquidity management.
Please see Sean McLaughlin, “Long Muni Bonds: Unloved, Orphaned, and Perhaps Safer Than You Think,” Cambridge Associates US Market Commentary, March 2011. Some muni bondholders in 2011 were terrified by a sky-is-falling prediction when Meredith Whitney, who made her name with a prescient call on bank shares during the lead up to the financial crisis,…
For now, bond yields and interest rates have probably hit their lows for this cycle, assuming fiscal stimulus across the developed world becomes a reality in 2017.
In light of markets’ initial reaction to the victory of Donald Trump in the US presidential election, we wanted to remind clients of our approach to portfolio management by providing thoughts from our Chief Investment Strategist, Celia Dallas.
This chart book presents representative long-only and hedge fund manager performance for third quarter 2016.
Low rates have distorted markets and generated unintended problems for investors and lenders. Central bankers are increasingly aware of these consequences and are slowly moving to press the pause button. It will take even more courage for them to begin to reverse the unprecedented interventions in bond and other markets.