Displaying items by tag: international

Macro conditions are currently tumultuous, with inflation rates surprising on the low end and unemployment figures exceeding expectations. This uncertainty makes it a challenging time for investors, as the debate continues over whether positive news is beneficial for markets. 

U.S. equities are trading at high levels, prompting louder calls for caution and diversification. Asset managers, like BlackRock and State Street, are adjusting their model portfolio strategies, with BlackRock leaning into U.S. growth and quality fixed income, while State Street is increasing international equity exposure. 

These adjustments to model portfolios reflect a broader trend toward diversification amidst uncertain economic signals. As we move forward, monitoring these strategies can provide insights into navigating the market's complexities.

Finsum: As models recalibrate maybe its time to do the same in your own portfolio, but keep in mind this is a natural perk of active funds.

Value investing has underperformed over the last 15 years. Flows have followed this performance, with allocators favoring growth strategies. As a result, the number of practitioners of pure value investing has dwindled, especially in the US. Further, many are questioning, whether, it’s still a viable strategy.

There was some optimism that a period of higher interest rates and economic growth would revitalize value stocks especially following the speculative surge of many growth stocks in 2021. However, this turned out to be fleeting as the boom in artificial intelligence (AI) in 2023 sent many growth stocks to new, all-time highs, undoing value’s brief period of outperformance. 

However, the story is much different from an international perspective, where value stocks have been outperforming for a meaningful period. This lends credence to the argument that value’s underperformance is more about the US and technological disruptions than a change in how markets operate. Disruptive technologies like cloud computing and artificial intelligence have allowed a handful of companies in the US to grow to unprecedented scale, which has distorted the growth vs. value dynamic. 

History also shows that markets adapt to these technologies quite rapidly. Over time, margins and profits compress. The long-term benefits of the technology will be realized by the companies that are able to successfully implement the technology to operate more efficiently. 

Finsum: Value investing has underperformed by a significant degree over the past couple of decades. Yet, it’s a different story from an international perspective. 

2024 has proven to be a much more challenging year for financial markets than 2023. Entering the year, the consensus was that the economy would continue to weaken, inflation would keep trending lower, and the Fed would be proactive and aggressive in cutting rates. 

Clearly, this has not happened. Amid this new paradigm, allocators are understandably looking to make appropriate adjustments to portfolios. Here’s why they should consider increasing exposure to active strategies.  

With fixed income, active investing can allow for precise exposure to a specific theme. For instance, those who don’t believe that inflation will keep trending lower may want to have higher exposure to short-duration debt. Another benefit is that active managers are able to quickly change strategies depending on how events develop, which makes them particularly useful in the current environment. This means that holdings can be optimized for the current environment of ‘higher for longer, but then managers can quickly pivot once the Fed actually starts cutting rates.

Active strategies can also be useful in other asset classes, such as international equities, which currently appeal to many investors due to favorable valuations relative to US equities. With active management, there is more focus on bottom-up, fundamental-focused analysis, which can result in more alpha in less efficient markets. Further, it can also lead to more diversification and risk management than is typically found with passive investing.

Finsum: The first quarter of 2024 has had several unexpected developments. Here’s why allocators should consider active management to navigate this tricky environment. 

Based on research published by Mattison Public Relations in London, more than half of the companies in the FTSE 100 now have board-level ESG committees. The data was compiled by reviewing the latest annual reports from all 100 companies. While the overall percentage was 54% of FTSE 100 companies, the research showed that the percentage varied by industry. For instance, 100% of oil, gas, and mining companies had board-level ESG committees, while only 13% of the non-bank financial services sector had these committees. Companies in the non-bank financial services sector include insurers, asset managers, and retail investment platforms. Within the 54%, 56% were made up entirely of non-executive directors. This would allow those companies to add directors with ESG expertise to provide greater oversight of the companies' ESG performance.

Finsum:Based on recent research, 54 companies in the FTSE 100 now have board-level ESG committees to evaluate a company’s ESG performance.

Inflation may be peaking, or at least that is what Treasury bulls are thinking. A rally started at the 20-year note and worked its way to shorter term rates this week: the 30-year yield fell 13 basis points and the ten-year yield fell by 12 basis points. Declining yields were driven by investors flooding into these treasury markets. Still, investors are pricing in a half-point rate increase by the Fed in the next two meetings with an almost 100% chance of reading the tea leaves in the options markets. The rally was really suppressed by Bank of America’s Forecast which said inflation peaked in March and will be on the decline. Similar patterns took place on the long end of the government bond market in the Euro areas as well with Germany and the U.K. seeing their yields fall.

Finsum: The flood in the TIPS market suggests that bond investors still see some persistent inflation in the near term.