Results for search of category: Inflation

Adding REITs and TIPS to the mix

Successful diversification using publicly-traded alternative asset classes, like commodities, REITs and TIPS is possible. We can select from a family of systematically-managed portfolios, which allow us to capture the upside of diversification and avoid most of the downside. However, the big takeaway from this process is that multi-asset diversification itself has been largely redundant since the end of the financial crisis, thanks to the actions of the Federal Reserve. Since that time there have been two false dawns, when it looked as though the concept was about to make a comeback and we may be on the verge of another one now. If it turns out to a real dawn, we have the regime management skills to exploit it. If not, we should be able to get out without too much harm.  [Read More... ]

Is it Time for Commodities?

We know how to incorporate commodities into our asset allocation process. Over the last 25 years as a whole, our process would have generated significant outperformance on an absolute and risk-adjusted basis. This is achieved by systematically managing exposure to a limited number of commodities: oil, gold and copper only, and by actively managing a small number of other assets, spread across equities and fixed income. Passive exposures don’t work as well and too many assets create unnecessary and counter-productive complexity. The problem with including commodities is that US exceptionalism in equities, currencies and fixed income has made this strategy unattractive since 2010. If you think that this regime may be ending, it may be time to take another look at commodities.  [Read More... ]

How to Hedge an Equity Sell-Off

Bonds don’t always go up when equities go down. In 2003, holding long-dated government bonds on average offset 50% of local currency losses in developed equity markets. That ratio has fallen steadily in each of the following major sell-offs, 2009, 2016 and 2020. This year, it was effectively zero on average for the seven largest developed markets. For some countries, it was negative - i.e. bonds went down just when you needed them most.   [Read More... ]

How to Manage Falling Treasuries

We think that the best way dealing with falling Treasuries is to stay in fixed income and to seek out situations in the credit markets, which are priced for high levels of risk, and where volatility is still falling. The problem with reducing duration or buying inflation-linked bonds is that the Fed and other central banks can force you to unwind it if they want to.  [Read More... ]

All That Glisters Is Not Gold

Most US investors are convinced that the 30-year bull market in US Treasuries is over, but there is little agreement about what to do next and the fiercest controversy is reserved for Gold.  [Read More... ]

What’s the Japanese for Inflation?

Since the Japanese election,the yen has depreciated by 15% against the dollar and Japanese equities have returned 37%. This is a nice trade for global macro managers, but conventional equity managers, have not been too excited because the TOPIX is only up 17% in dollar terms roughly the same as the S&P 500. However it is now time for the investment community to re-evaluate the Japanese equity market..  [Read More... ]

How Low Can We Go?

It doesn’t matter which currency we choose – sterling, dollars or euro - all our multi-asset models recommend a very low weighting in government bonds. This ranges from 0-3%, which is pushing the edge of envelope, even for a tactical asset allocation model. The obvious question is does this make sense, to which the equally obvious answer is that it depends which currency we are talking about.  [Read More... ]

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