Results for search of category: Tail risk

Buying Dips & Selling Bounces

Given the likelihood of a second wave of the pandemic at some stage during the rest of this year, we have gone back through 25 years of data in over 40 countries, to see if there are any lessons about what to do in the immediate aftermath of a very bad sell-off. We find that buying the dip is not always a successful strategy and certainly not as successful as selling the bounce. By far the best strategy is avoiding the really bad weeks completely, which is easier said than done. The uplift from doing this is so significant that it dwarfs any other strategy. Even partial success is worth the effort - and the risk of missing out.  [Read More... ]

Income in Dollars, Please

Generating an adequate income from euro-denominated bonds is next to impossible, so investors should abandon the attempt. They should embrace currency risk – not try to hedge it away. They should enjoy the fact that US dollar yields are structurally higher than those in the Eurozone. This means owning long-dated Treasuries and dollar-denominated EM sovereign bonds. Finally, they should consider the source currency of their equity dividends and take another look at the Energy sector.  [Read More... ]

Eurosceptics may win EU elections

We take recent opinion polls for each political party in each country in the EU and compare them with the share of vote and the number of seats they won in the EU Parliamentary elections in 2014. We conclude there is a good chance that Eurosceptic parties may form the largest single grouping after the elections in May 2019. We believe that this scenario has not even been considered by most investors and that it has significant shock value. Some may even regard it as a black swan.  [Read More... ]

International Bears

After last week’s note about excess volatility in the US, we look at the experience of other developed markets in 2000, 2007 and 2015. In a majority of occasions, material increases in excess volatility signalled the onset of a correction and/or the transformation to a full-scale bear market. There are no such signals at the current time, which we regard as comforting, though not conclusive, evidence in favour of our equity overweight.  [Read More... ]

A Bolt from the Blue

Provided that the causes of the next bear market in US equities originate in the US, investors should have time to adjust their asset allocation before the correction turns into a full-scale bear market. The necessary rise in excess volatility (equities minus bonds) takes several months and cannot happen without someone noticing.  [Read More... ]

Goldilocks returns

We stay with our early-year focus on volatility. Many commentators have focussed on the potential for political shocks, but we may be on the verge of an ultra-low volatility regime similar to the Goldilocks period of 2006 and 2007, consistent with abundant liquidity, accelerating growth and fiscal stimulus in many developed economies.  [Read More... ]

Scoping the Downside

Nobody has to invest in equities. No asset-owner, as opposed to manager, has to put up with an environment of rising risk and falling returns. If you think that corporate profits have peaked, our numbers show that it really is worth selling, even if you subsequently miss out on some spectacular bear-market rallies.  [Read More... ]

Crossing the Median

We have constructed a new volatility index covering eleven asset classes over the last 20 years. Since July 2014 this has risen in almost a straight line from an all-time low. It is now at a level which indicates that financial markets have little capacity to absorb any extra risk, and that they could be close to a tipping point.  [Read More... ]

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