Keeping Portfolio Balance in Election-Driven Market Volatility
Electoral surprises spur stock and bond market turbulence, but sensibly diversified and balanced portfolios don't depend on political outcome.
Accounting’s Mistreatment of Intangible Assets Distorts Equity Market Valuations
Intangible assets comprise some four-fifths of S&P 500 companies' total value, but they don't show up in balance sheet and valuation analysis unadjusted. About that growth-to-value market rotation…
Fed Fuels Record High-Yield Bond Market Issuance and Investor Inflows
Amid a massive return since the March low, the default rate has nearly tripled from year-ago levels as recovery rates deteriorate. "Kicking the can down the road" as vulnerability grows.
A Macroeconomic Snapshot from an Active Management Shop
Thornburg's investment team keeps an eye on the macro but focuses squarely on the fundamentals and portfolio fit of each stock and bond selected. This July 17 macro overview is a sample of an internal weekly note to our distribution team that features big-picture highlights from the week that was.
The Fed’s “Not Thinking” Singular Focus
Supporting the beaten-down labor market is the Federal Reserve's "major focus," not inflation nor risk asset prices. Doing "whatever we can and for as long as it takes."
How COVID-19’s Deflation Shock May Spawn Inflation Outbreak
Coronavirus has sent economies swooning, toppling consumer price indices. Rebounds in stock and bond markets on policy stimulus don't mean market volatility is over, or that inflation is dead.
Actively Managed Equities Funds Proved Resilient to COVID-19 Volatility
A review of academic research on actively managed funds backs data on active manager outperformance during February's coronavirus-fueled markets fallout.
On Coronavirus and Volatility in Equities and Bond Markets
COVID-19 and the socio-political responses to it present an opportunity for both market timers, those who try and trade around the shifts in market direction, and long-term investors.
Don’t Fight the Fed, as the Fed Fights Coronavirus
The Fed chopped its key rate after equities and bond markets tanked last week. The move risks fueling already frothy risk asset prices amid weakening global growth due to COVID-19, which has badly disrupted global supply chains and increasingly damped some services industries.
Market Selloff Goes Viral, Injecting More Value into Prices
Coronavirus-induced market volatility is another in a long string of blows to the global economic recovery. But investors should look through the disruptions for free-cash-flow companies with healthy balance sheets and resilient, if not robust earnings.
Powell Tempers the Fed’s “Hawkish Cut”
While the Fed met expectations in its latest interest rate reduction, it signaled that hikes are a long way off.
Repo Market Rate Spikes, Bank Regulation and the QE Misnomer
Recent stress in repo markets reflect the confluence of a shrunken Fed balance sheet amid steady economic growth and increasing capital and liquidity regulations on banks.
What's Driving the Market Rotation from Growth to Value?
A rising Treasury yield amid better economic data, easing macro risk and a few more monetary injections may be spurring the rotation. Corroborating, so far, a "mid-cycle adjustment"?
Portfolio Allocation Amid the Tidal Effects of Renewed Fed Easing
The Fed is poised to join the global easing bandwagon, fueling a surge in risk asset prices. As market distortions from easy money grow, so does the importance of security selection and portfolio allocation.
The Perils of Inflexible, Formulaic Investing
As downward pressure on negative bond yields builds, a flexible approach helps in the search for attractive, relative values.
The Fed’s Dueling Mandates
The Fed is tasked with keeping prices stable, unemployment low and long-term interest rates moderate. The monetary alchemy with such unstable elements is coming under review.
Smaller Muni SMAs Leave a Bad Taste in SALT-Seasoned Market
Big-ticket, ultra-short notes force muni SMAs with low minimums to buy longer-term paper at rich prices, likely giving clients more heartburn than total return.
The Fed’s "Financial Conditions" Conundrum
Spectacular first-quarter market returns are quite a bounce back from the December 26 lows, when all anyone could think of was fleeing risk exposures. Many markets saw their best quarter...
Rerating the Judgment Factor Amid Smart Beta's Derating
Turns out price matters for excess returns, and that what's worked before doesn't necessarily persist into the future. "Many factors aren't real."
Muni Bond Sales Surge as Issuers Ride Demand Wave
Caveat emptor: current technical supply and demand flows favor issuers more than buyers. But diligent, disciplined investors can always find attractively priced, fundamentally sound bonds.
Understanding the Brexit Quandary
While investors should be cognizant of the complexities and risks around Brexit, they should be just as aware of the opportunities in select U.K.-based businesses.
Suffering Liquidity Withdrawal Syndrome, Market Gets Its Fix
It appears the "Powell Put" has been exercised as the Fed chief declares no "pre-set" course on rates and no "hesitation" to change its balance sheet runoff. But does the economy still need Fed accommodation, or do markets just want it?
Not Dovish Enough? Thornburg’s Brady on the Fed and Markets
The U.S. Federal Reserve has roiled markets with its latest rate hike and comments from Chairman Jerome Powell, who disappointed many investors as insufficiently dovish in his December 19 remarks.
The Presidential Put, the Powell Put, and China’s New Playbook
The trade conflict and Fed rate policy are buffeting markets at a time China was already grappling with debt challenges at home. But the volatility may be masking good economic fundamentals globally, reform efforts in China, and attractive investment opportunities.
Investing on U.S. Election Results? Caveat Emptor
Conventional market wisdom two years ago didn't look right for long, as gains in industries seen as politically favored faded while one sector expected to suffer quickly rebounded.
Hurricanes, the Muni Market, and the Duct Tape Effect
Preparations ahead of a hurricane and rebuilding after it temporarily boost tax receipts in affected areas. But longer-term effects on muni markets are usually negligible.
Market Rout May Spur Rotation from Growth to Value
Even before the market selloff, downtrodden value stocks were perking up as pricey growth stocks stumbled. But durable index-level shifts are harder to call than individual stock price disconnects from business fundamentals.
Beware High Yield’s Siren Song
High-yield returns have been great lately, as technical flows, fundamental factors and good economic growth align. But tight spreads, lofty net leverage and event risk don't make for smooth sailing ahead.
Parsing Long/Short Equity Liquid Alts Performance, Fees and Net Exposures
Investors interested in long/short equity mutual funds would be well advised to consider more than their much-more competitive fees vs. private hedge fund peers. To genuinely hedge the long components of a portfolio, look for lower net long exposures in a long/short equity allocation, and added value on the short side even in rising equity markets.
The Efficiency Factor in Stock vs. Index Picking
If the efficient markets hypothesis is questionable at the stock level, it's more so at the index level. As the number of indices skyrockets, the number of companies declines, and passive flows grow, active price discovery becomes more and more valuable.
VRDOs Give Muni Investors Ammo to Protect Against Rising Rates
The volatility of short-term rates, however, means the variable rate structure isn't a silver bullet.
The Beautiful Game: Surprising Insights from the World Cup about Strategy and Teamwork
Team performance matters more than star players or a large resource base. And in a rapidly changing world, Totaalvoetbal can help teams adapt.
Italy’s Politics Drives a Wedge Between Its Stocks and Sovereign Bonds
Risk to the euro resurfaces in an unlikely governing coalition and challenging economic agenda, but Italy's top stocks don't face the same perils as its government bonds.
Portfolio Allocation When Safe Havens Get Stormy
High-quality bonds and defensive stocks are on the ropes. And U.S. blue-chips look poised to roll over, if history is any guide. But what if it isn't?
The Upside of Munis’ Down Market
Bond supply is plummeting, but so is demand. And rates are rising. Where are the silver linings?
10-Year Treasury Yield Upshifts past 3% as Fear of Curve Inversion Grows
Stocks slide on rising rates and yield curve inversion concerns, but a recession doesn't look likely, judging by other economic data and the high-yield bond market.
After #ZuckerbergHearing, Investors Don’t Unfriend Facebook
Facebook's margins could ebb this year, but they remain at elevated levels and profits could still grow meaningfully.
Regulators Seeking to Tax or Break Up U.S. Tech Giants Face Tough Task
While U.S. tech giants are effective monopolies, they are so in an unconventional way, making taxing them easier than breaking them up.
Who’s Afraid of Higher Wages Driving Inflation?
Not necessarily the Fed, whose own research suggests wage growth is not a reliable indicator of future inflation. But markets, it appears, aren't sure what to think.
U.S. Stocks Fall into Correction Territory, But Investors Should Keep Their Chins Up
Investors worried about wage and inflation data should appreciate the underlying strength of the economy, not to mention strong corporate earnings. The market volatility is creating better entry points for longer-term investors.
Guess What Delivered in Spades in Thornburg’s Internal 2017 Global 3 Stock/Security Competition?
At the beginning of every year, a number of investment professionals at Thornburg voluntarily place their informal, internal-only bets on which three securities—from stocks to currencies or other financial assets—might together produce the best beta-adjusted returns in the year ahead. In 2017, the winner was Sean Sun, whose three picks included bitcoin. The cryptocurrency skyrocketed last year, of course, helping Sean win the prizeless competition by a wide margin.
A Megatrend is Underway
Four-hundred million Chinese millennials will soon account for more than half of China's domestic consumption. As a group, they are larger than the working populations of the U.S. and Western Europe...
Falling Correlations Put Stock-Specific Attributes in Driver’s Seat
As third-quarter earnings season gets underway in earnest this week, equity market participants are expecting company fundamentals and reported results to be larger drivers of performance for large...
As Fed’s QE Dismantling Begins, Questions Around Growth, Asset Prices Linger
The U.S. Federal Reserve has announced the October start of the slow reversal in the unprecedented expansion of its balance sheet following the 2008 Global Financial Crisis. Chairwoman Janet Yellen...
Tough Sledding in Multisector Bond Investing? It Depends on the Team.
The Iditarod is considered one of the world's most grueling and dangerous races. Sled dogs travel 1,100 miles through increasingly treacherous arctic terrain. The dogs and mushers traditionally run the entire day and then rest at night...
A Long/Short Bridge Between Stocks and Bonds
Can long/short alternative equity strategies work as a "bridge" between equity and fixed income? It's an interesting question recently posed to us by a wealth advisory team. Both asset classes become...
As Perceived Risks Rise, Limited-Term U.S. Government Funds Offer Shelter
Most U.S. risk asset prices have enjoyed a long ride higher amid slow-but-steady economic growth, scant inflation and still ample central bank monetary support. But if fund flows are any indication of...
Yes, ADRs Do Carry Foreign Currency Risks
A common misperception is that American depositary receipts, which bundle ordinary shares of an overseas-listed company into a U.S.-traded security, don't carry currency risk. Driving the confusion is...
“Death by Amazon” a Real, Though Not Indiscriminate Threat
When the curators at Merriam-Webster convene to select their Word of the Year for 2017, they might consider "Amazonization" for their short list. Since the June 15th announcement of Amazon's...
Are Low Vol ETFs as Smart as They Sound?
"Smart Beta" ETFs and their low-volatility ETF progeny may deliver a lower beta against their relevant benchmarks, but they're not immune to bouts of volatility, and their returns frequently come up short.
On Chaos, Butterflies, and Robustness
In the early 1960s, a meteorologist undertook a mission to predict the weather. Unique to his approach at the time was his extensive use of computers to assist in the predictions. He began running...
Bank Loans Beat High Yield Amid Rising Rates? Don’t Bank on It
Bank loan funds have been widely touted as a great way to help fixed income investors ride out a rising interest rate cycle. Also known as levered loan or senior loan funds, they are, after all, high...
More Overseas Outperformance May Be In Store
After years of excellent equity returns at home, U.S. investors appear increasingly interested in moving their chips into less crowded trades abroad, where economic growth is on the upswing, earnings cycle...
Yellen at the Markets: Don’t Worry. Low Unemployment to Trump Transitory Low Inflation
Despite weaker economic data of late, the U.S. Federal Reserve matched market expectations in raising its benchmark interest rate June 14, 2017 a quarter point, setting its new range to a still highly...
Goodhart’s Law, Greenwashing and ESG
"When a measure becomes a target, it ceases to be a good measure." This insight comes from economist Charles Goodhart, whose precept refers to the tendency of individuals or organizations...
The Mirror Image of the Weak Q1 GDP Reading
It's the Rorschach economy. After much weaker-than-expected U.S. first-quarter gross domestic product (GDP) data, it seems economists' views range from....
Trump Trade? The More Likely Reflation Trade is in Europe
European asset prices have surged since independent Emmanuel Macron emerged as the decisive winner in the first round of the French presidential election...
ETFs’ Total Costs Underappreciated
Morningstar's director of exchange-traded fund research penned an interesting article April 12 on the total cost of ETF ownership, which we also wrote about in a recent article examining the latest...
Managing Risk Exposures Amid Fed Balance Sheet Normalization
The U.S. Federal Reserve has released the minutes from its March monetary policy meeting, suggesting that the unwinding of trillions of dollars in debt on its balance sheet could start later this...
U.S.’s So-so Hard Economic Data May Weigh on Buoyant Consumer Sentiment
Recently, much has been made about the divergence between hard and soft data on economic fundamentals in the U.S. On March 28, the Conference Board reported that its consumer confidence...
The Fed’s Regime Change
The U.S. Federal Reserve shifted gears at its March 15, 2017, monetary policy meeting, lifting its key Federal funds rate a quarter-point to a 0.75-1.00% range. Although the increase was widely flagged...
Market Shrugs off Fed Rate Hike Warning
After leaving its benchmark interest rate near zero for eight years and then lifting it just once in each of the last two, the market has grown accustomed to discounting U.S. Federal Reserve indications...
Trump Trade to Trump Fade
In the wake of Donald Trump's November electoral victory, investors focused on his pro-growth agenda of tax reform, deregulation and infrastructure spending, not on his protectionist and...
What’s Past isn’t Prologue So Far in 2017
Markets this year have gotten off on the right foot. Over the first three weeks of 2017, the S&P 500 Index added 1.3% to its 12% gain in calendar 2016, while the Bloomberg Barclays U.S. Aggregate...
Can Bank Loan Funds Float to a Narrow Outcome?
Many investors might see bank loans as "fixed income" without duration risk, given their floating-rate structure. They may use them as a way to reduce their exposure to rising risk-free rates without...
The Flip Side of the Muni Market Selloff
Recent municipal bond market movements mark a transition from a period of significant overvaluation to fair or even under-valuation. This can be a painful process for muni market...
December Jobs Data and Defensive Fixed Income Positioning amid Lurking Inflation Risks
The December U.S. jobs report wasn't particularly surprising, though a couple of nuances are worth considering for fixed income investors. While the economy added 156,000 jobs, which was a bit...
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