Results for search of category: Risk-Adjusted Returns

Re-Configuring the S&P Sectors

Well-designed sectors make portfolio management easier, but that means that the definitions need to be reviewed and refreshed on a regular basis. We believe we have arrived at that moment in the US. We propose splitting the Tech sector into two, combining Materials with Industrials and Energy with Utilities. We find that it is easier to generate systematic outperformance using the new definitions.  [Read More... ]

Asia: First In, First Out

The recent volatility shock is as big as the one in the middle of the GFC and it isn’t over yet. It has also happened three times faster, in three weeks rather than nine. Fear is inevitable, but the are some interesting opportunities, especially in Asia. Countries like Taiwan and South Korea have managed the corona virus better than the US or Europe, while China is already recovering. If you wait for the bounce in the West, you may miss it in the East.  [Read More... ]

Chairman Mao is Coming to Dinner

Apple and Microsoft both look significantly overbought relative to US equities. Other US stocks with similar scores have underperformed by about 15% over the next three months. If this happens to the two largest stocks in the index, US equities will probably fall.  [Read More... ]

Rhyming or Repeating

Our asset allocation models suggest that we may be close to an episode when individual threats to equity returns combine to create a “super-risk”. These episodes are too complex to forecast with any certainty, because financial market participants will respond differently than they did a year ago, when we last saw this pattern. In the short term, investors should prepare to go to maximum underweight in equities.  [Read More... ]

Whistle-Stop Tour

We finally have the bounce in risk assets that we expected in the run-up to Christmas, but it is not yet strong enough to break any of the downtrends that developed earlier in Q4. We are at maximum underweight in all our equity vs bond models and similar levels of risk aversion apply in our fixed income and equity sector models. The only exception is that we have an overweight on Emerging Markets in our global equity model and may be about to downgrade the US to underweight.  [Read More... ]

Little Ray of Sunshine

Our models are de-risking as fast as they can, with one exception - emerging market equities. Our individual country analysis suggests that high-quality emerging markets are becoming more attractive than high-quality developed markets and that high-risk EMs are doing the same versus high-risk DMs. Investors can make the switch from DM to EM without changing their short-term risk profile. This doesn’t happen very often.  [Read More... ]

How Low Do We Go?

Our asset allocation model cannot get much more bearish. In our view the reason for the recent weakness has been the need for US equities to adjust to PE ratios in line with their long run average now that everything else - real interest rates, risk conditions and earnings growth – is also approaching its own average. We are less concerned about the prospect of a US recession, partly because we see no warning signs from the credit markets. Our model is unlikely to get more optimistic in the next six weeks, but this may happen just in time for Christmas.  [Read More... ]

Almighty dollar

Many clients are surprised by our low exposure to US Equities given the strong dollar and their performance relative to global equities. It’s a direct consequence of the way we structure our asset allocation model. We could use a currency-based rather than an asset-class approach, but it doesn’t perform as well over the long-term and it doesn’t offer as much downside protection in the event of a correction. In any case, the risk-adjusted returns from US Equities have been bit underwhelming in 2018 to date.  [Read More... ]


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