Stocks And Bonds
Monday, July 30th, 2012
by Patrick Rudden, AllianceBernstein
A famous Business Week article, “The Death of Equities,” concluded, “Today, the old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared.” Sound familiar? The article was published in August 1979.
The Business Week article discusses how, with “stocks averaging a return of less than 3% throughout the decade,” investors were fleeing equities in favor of cash and real assets such as property, gold and silver. “Further,” it states, “this ‘death of equity’ can no longer be seen as something a stock market rally—however strong—will check. It has persisted for more than 10 years through market rallies, business cycles, recession, recoveries and booms….For better or worse, then, the US economy probably has to regard the death of equities as near-permanent condition.”
The primary economic problem back then was high inflation, which had devastated returns for stocks and bonds but had greatly buoyed the value of real assets such as gold. Of course, Paul Volcker, then Chairman of the Federal Reserve, was soon to unleash his war on inflation, which set the stage for a prolonged period of strong equity and bond market returns.
But the article says other factors contributed to the death of equities: “The institutionalization of inflation—along with structural changes in communications and psychology—has killed the U.S. equity market for millions of investors. We are all thinking shorter term than our fathers and our grandfathers.”
Inflation (at least of the consumer-price variety) has not been the problem it was in the 1970s, but I would argue that structural changes in communications and psychology have been, if anything, more severe. We are all subject sooner and sooner to more and more information. And, as a consequence, we are thinking shorter term than our fathers and grandfathers and, I should add, mothers and grandmothers.
Equities are no more likely to be dead now than they were in August 1979. Indeed, the expected return advantage of stocks versus government bonds is unusually high at present, in our opinion. However, shorter-time horizons may require us to revisit our investment portfolios. In addition to longer-horizon strategies like value and growth, investors may need to consider shorter-horizon strategies, such as equity income or low-volatility stocks.
Finally, for those investors worried about the return of the inflation bogeyman, holding some exposure to real assets is a good insurance policy.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.
Patrick Rudden is Head of Blend Strategies at AllianceBernstein.
Copyright © AllianceBernstein
Tags: Bond Market, Booms, Business Cycles, Business Week Article, Chairman Of The Federal Reserve, Economic Problem, Federal Reserve, Gold And Silver, Grandfathers, Grandmothers, inflation, Institutionalization, Market Rally, Paul Volcker, Prolonged Period, Real Assets, Recession, Rudden, Stock Market, Stocks And Bonds
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Wednesday, July 4th, 2012
Whether gold-bug, permabull, or deflationst; BofAML provides a little something for everyone in the most complete picture guide to ‘financial markets since 1800′. A collection of almost 100 charts on asset price returns, correlations, volatility, valuations and many other market and macro factors for the US, UK, Europe, Japan, and Emerging Markets.
“History does not repeat itself but it does rhyme.”
The Long-run in numbers:
- 1.45%: the yield of US 10 year Treasuries on June 1, 2012; a 220-year low
- 1958: the last time US AAA corporate bond yields were as low as they are today
- 1517: Dutch government bond yields currently at lowest level in almost 500 years
- 320bps: the current spread between European dividend yields and German bund yields, an all-time high
- 63x: the amount EM equities are up since the late 1960s
- $1900/oz: record high gold price reached in September 2011
- 43%: the drop in US real home prices since the 2006 peak, making the current US real estate bear market the greatest since 1921
- 8%: Japan’s share of global equity market cap; close to an all-time low and down from 44% in 1988
- $3,642,000: What $1 invested in US large company stocks in 1824 would be worth today with dividends reinvested
- 1 out of 2: the number of years since 1871 that the S&P 500 has had a negative real price return
- 44%: the share of US Treasuries owned by foreigners; up from just 1% in 1945
- 280mn: the number of people India’s working age population will grow by over the next 25 years; this is more than the current working age population in the US and Germany combined
The Long-run in years:
- 1602: the Dutch East India Company becomes the first company to issue stocks and bonds
on the Amsterdam Stock Exchange
- 1685: Germany establishes the second stock exchange in the world
- 1790: an $80 million U.S. Government bond offering to refinance Revolutionary War debt
becomes the first publicly traded security in the US
- 1792: the NYSE is organized and the Bank of New York becomes the first company listed
- 1810: Russia is the first “emerging market” country to establish a stock market
- 1879: US stocks record their best year ever, returning 57%
- 1891: the first US equity bear market (>20% loss) is caused by the “Baring Brothers Crisis”
- 1918: US Inflation hits an all-time high of 20.4%
- 1931: US stocks record their worst year ever, declining 43%
- 1932: the most volatile year ever for US stocks as volatility hits 68%
- 1981: monthly US 10 year Treasury yields hit an all-time high of 15.8%
- 1982: the best year of total return for long-term Treasuries of 40%
- 1987: on “Black Monday,” October 19th, the Dow falls 23%, the largest daily drop ever
- 2009: the worst year for long-term Treasury returns with losses of 15%
- 2012: a year marked by multi-century lows in many DM government bond yields (including
the Netherlands, France, US)
For your Independence Day enjoyment:
Tags: 10 Year Treasury, Age Population, Amsterdam Stock Exchange, Asset Price, Company Stocks, Corporate Bond Yields, Dividend Yields, Dutch East India, Dutch East India Company, East India Company, German Bund, Gold Bug, Gold Price, Government Bond, Guide To Financial Markets, Macro Factors, Stock Exchange In The World, Stocks And Bonds, War Debt
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Monday, June 4th, 2012
by Tiho Brkan, The Short Side of Long
Equities tend to move in long term generational cycles of about 17 years on averages. Strong upward trends that last about 17 years are called secular bull markets, while sideways trends that also last about 17 years are called secular bear markets. US equities are currently in a secular bear market and have been so since the year 2000.
We seem to be creating a similar outcome to the 1970s secular bear market, where we had a long sideways trading range for about a decade and half. S&P 500 is now approaching the upper range of its trading range, with the current cyclical bull market doubling from its March 2009 lows. Bull markets usually climb a wall of worry, but there is not too many things left to worry about.
Gross profit margins are now at record highs and a mean reversion will eventually follow. Mean reversion in gross profit margins will be fundamentally bad for S&P 500 company earnings, which are also at record highs, and therefore the overall stock market value. Let us remember that all the major buying opportunities since World War 2 have been as low gross profit margins, not at highs – especially record highs.
Interest rates, and therefore bond prices, tend to move in very long term generational cycles known as the Kondratiev Long Waves. These waves tend to last about 50 to 60 years from trough to trough or from peak to peak. The last major inflection point occurred in 1981, as interest rates on the US Treasury 30 Year Long Bond peaked around 15%. Prior to that, rates were rising for about 30 years and since than we have experienced declining rates for about 30 years as well. At the next major inflection point, which is slowly approaching, interest rates and equities should bottom while commodity prices should peak.
Viewing the global macro situation from the closer point of view puts forward a strong correlation betweens stocks and bonds due to the de-leverging cycle Western world is currently facing. Periods or phases of turmoil have so far been associated with “flight to safety” or “risk off” trade, where investors buy bonds (lower interest rates) and sell stocks (or other riskier higher beta assets).
With the risk assets prone to further crisis events out of Europe and potential up-and-coming global recession, bond interest rates have most likely not properly bottomed just yet. Nevertheless, we are definitely in the last euphoric stage of a 30 year bond bull market (from 1981 until present). The final trough in rates will also be associated with a stock market bottom, just like in late 40s and early 50s.
Commodities also tend to move in long term generational cycles and correlate in the opposite direction to the stock market. Here the same type of time frame also applies, where strong upward trends that last about 17 years are called secular bull markets, while sideways trends that also last about 17 years are called secular bear markets. Commodities are currently in a secular bull market and have been so since the year 1999.
While the S&P 500 has been moving sideways for about 12 years, Continuous Commodity Index has been rising over the last 13 years. During the current secular bull market, commodities have experienced two major corrective periods, first during 2001 recession and second during 2008 recession. Currently, commodities are once again experiencing a cyclical bear market correction, within the overall long term secular bull market.
Risk assets like equities and commodities should remain under pressure in coming quarters, while safe havens, even though extremely over stretches, could still benefit during the turmoil. World faces many problems coming into 2013, from US to European debt issues and now a meaningful economic slowdown in Asia, after years of powerful growth. China, the worlds largest consumer of many commodities and a fertile ground for many Western company expansions (especially luxury ones), could have huge implications on risk asset prices shall it suffer a major recession. Majority of the problems will definitely come to forefront as soon as the US elections finishes by the years end, if not sooner.
While many investors think they are doing the right thing being contrarians at present and buying risk assets due to sour negative sentiment, my view is that it will only be useful for a decently strong tradable rally, which I also plan to participate in. Furthermore, these same investors also believe central bankers will backstop any problems with money printing. However, that will most likely not be the case until the QE dosage increases substantially.
At present every major risk asset from Crude Oil to Australian Dollar, from DAX to Copper and from GEM equities to Gold has retraced 100% of their Twist / LTRO multi-month rally and has also failed to better their 2011 highs during the process. This is an extremely negative price action as these types of 100% re-tracements are not common at all, if one was to assume we are in strong cyclical bull market. Most likely the inflation trade from March 2009 lows has ended for some risk assets in May 2011, while for others it has ended just recently in May 2012.
Copyright © The Short Side of Long
Tags: Bear Markets, Bond Prices, Bull Markets, Commodity Prices, Company Earnings, energy, Generational Cycles, Global Macro, Gold, Gross Profit Margins, Inflection Point, Long Waves, Lows, Mean Reversion, Record Highs, Secular Bear Market, Stock Market Value, Stocks And Bonds, Tiho, Upward Trends, Us Treasury, World War 2
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Tuesday, May 22nd, 2012
With both gold and broader commodity indices down significantly month to date, many investors are asking if they should lower or even remove their commodity exposure. I believe the answer is no.
First, it’s useful to put the recent weakness in perspective. Both gold and a broad basket of commodities are down roughly 10% over the past three months. While the losses represent a significant correction, they are in line with the performance of equity markets over the same time period. Even more importantly, here are three reasons for maintaining a strategic exposure to commodities.
1.) Diversification: Commodities typically behave differently from paper assets like stocks and bonds even as correlations between all risky assets have risen in recent years. In fact, based on historic relationships, it doesn’t take a large allocation to commodities – it typically takes less than 10% – to improve the risk-adjusted returns of a strategic portfolio.
2.) Inflation: Commodities tend to perform best when inflation is rising. As I mentioned last week, while I see little risk of double-digit inflation in the near-term, inflation is not completely dead. Core inflation in the United States is rising at 2.3% year over year, a 3 ½-year high. Given the US fiscal position and the unconventional nature of recent monetary policy, there is a non-trivial risk that we may see more than 2.3% inflation over the next decade. Over the long term, even modest inflation would erode purchasing power. Commodities can offer an effective hedge against this scenario.
3.) Potential tailwind from monetary policy: While commodities have suffered recently, the performance hasn’t been awful. The S&P Goldman Commodities Index is down roughly 5% year to date. Meanwhile, gold was up around 2% through the end of last week, returns that still compare favorably with most equity markets outside of the United States.
One reason for the resilience, as I’ve written before, is that commodities and gold generally benefit when real interest rates are negative. In such a rate environment, there’s no opportunity cost for holding commodities, and commodity returns tend to be higher. At least historically, the level of real interest rates has been far more important to commodity returns than either inflation or the dollar. In fact, over the past twenty years, the variation in real interest rates explains roughly 60% of the variation in the annual return of gold. To the extent the Fed, and most other major central banks, are determined to keep real rates negative for the foreseeable future, we’ll be in an environment supportive of commodities, particularly gold.
To be sure, commodity prices are likely to remain volatile – along with just about every other risky asset – in the near term as investors worry about the potential for a disorderly default by Greece impacting the global economy. However, for investors, especially those currently underweight commodities, now may very well be a good long-term buying opportunity (potential iShares solution: NYSEARCA: IAU).
Past performance does not guarantee future results. Diversification and asset allocation may not protect against market risk.
iShares Gold Trust (“Trust”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus and other documents the Trust has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting www.iShares.com or EDGAR on the SEC website at www.sec.gov. Alternatively, the Trust will arrange to send you the prospectus if you request it by calling toll-free 1-800-474-2737.
Investing involves risk, including possible loss of principal. The iShares Gold Trust (“Trust”) is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trust are not subject to the same regulatory requirements as mutual funds. Because shares of the Trust are intended to reflect the price of the gold held by the Trust, the market price of the shares is subject to fluctuations similar to those affecting gold prices. Additionally, shares of the Trust are bought and sold at market price not at net asset value (“NAV”). Brokerage commissions will reduce returns.
Shares of the Trust are intended to reflect, at any given time, the market price of gold owned by the Trust at that time less the Trust’s expenses and liabilities. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them. If an investor sells the shares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price received for the shares. For a more complete discussion of the risk factors relative to the Trust, carefully read the prospectus.
Following an investment in shares of the Trust, several factors may have the effect of causing a decline in the prices of gold and a corresponding decline in the price of the shares. Among them: (i) Large sales by the official sector. A significant portion of the aggregate world gold holdings is owned by governments, central banks and related institutions. If one or more of these institutions decides to sell in amounts large enough to cause a decline in world gold prices, the price of the shares will be adversely affected. (ii) A significant increase in gold hedging activity by gold producers. Should there be an increase in the level of hedge activity of gold producing companies, it could cause a decline in world gold prices, adversely affecting the price of the shares. (iii) A significant change in the attitude of speculators and investors towards gold. Should the speculative community take a negative view towards gold, it could cause a decline in world gold prices, negatively impacting the price of the shares.
Shares of the iShares Gold Trust are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal deposit Insurance Corporation or any other governmental agency.
BlackRock Asset Management International Inc. (“BAMII”) is the sponsor of the Trust. BlackRock Investments, LLC (“BRIL”), assists in the promotion of the Trust. BAMII and BRIL are affiliates of BlackRock, Inc.
Tags: Amp, Commodities, Commodity Indices, Core Inflation, Correlations, Diversification, Fiscal Position, Goldman, Monetary Policy, Nbsp, Paper Assets, Purchasing Power, Resilience, Risk Adjusted Returns, Risky Assets, Same Time Period, Stocks And Bonds, Tailwind, Term Inflation, Three Months
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Friday, April 27th, 2012
by John West, Research Affiliates LLC
For most adults, the New Normal of their personal lives starts not long after saying “I do.” The habits, schedules, hobbies, possessions, and even relationships garnered over the past 10 or 20 years must be altered or outright replaced. Married life changes one’s priorities, and priorities change just about everything. Nowhere is this more evident than in the disappearance of free time. Building a new life together, it turns out, is quite the time commitment. For most men, the big game over the weekend is out—replaced by, paraphrasing Will Ferrell in the movie Old School, “a nice little Saturday” at the Home Depot to buy some wallpaper and flooring. For women, “girls’ night out” becomes a rare treat. Unless the new spouse can find more hours in the day, the discretionary time of our single years fades sharply.
Our 3-D Hurricane1—the interconnected influence of relentless deficits, soaring debt, and an aging demography—is creating a similar demarcation for investors. Old investing patterns—for example, tracking error to the ubiquitous 60/40 blend of mainstream stocks and bonds, the comfortable reliance on “first-world” developed markets, and conventional cap-weighted indexing—may not fit with our new investment priorities: more effective inflation protection, absolute returns and better Sharpe ratios, a greater emphasis on developing economies and markets, and so forth.
In this issue, we explore ways investors can make the break from the “mainstream” investing approaches to which they have become accustomed to approaches that will position them better for the future.
The Volatility of 3-D Hurricane Assets
It is a simple fact that mainstream stocks and bonds empirically do a very poor job of hedging against inflation, especially in the early stages of renewed inflation. It is also self-evident that stock and bond yields—especially in the United States—are both well below historical norms. For these reasons, we suggest that most investors begin building a “third pillar” to their stock and bond allocations. The third pillar would encompass a mix of real return investments. We also suggest that investors adopt a tactical asset allocation component to address the higher volatility and more frequent dislocations found in these asset classes.
Our inflation fighting toolkit includes an array of assets that can shelter us from the growing 3-D hurricane.2 These include both the traditional real return asset classes (TIPS, commodities, and REITs) and a set of “Stealth Inflation Fighters” such as emerging market debt, high yield, and bank loans. Typically, the volatility of these asset classes is higher than mainstream stocks and bonds, as the highlighted lines show in Table 1. For many investors, these asset classes “feel” even riskier, due to their large “tracking error” relative to our classically invested 60/40 peers. After all, while no investor likes losses, there are few more lonely feelings than “wrong and alone,” as Peter Bernstein liked to say.
Given their credit exposure and in some cases currency and political considerations, it is not surprising that the income-oriented assets like emerging market debt, high-yield debt, and bank loans have higher volatility levels than a core bond portfolio. Even TIPS, immune to credit risks, have posted higher volatility than the BarCap Aggregate Bond Index. Likewise in growth assets, we find the upper end of the risk spectrum’s favored 3-D assets have higher risk profiles than mainstream stocks as measured by the S&P 500. Commodities, REITs, and emerging markets equities all provide additional incremental risk. If volatility is your currency, inflation protection is a pricey proposition.
We expect this trend to continue. None of these assets is as widely held as mainstream asset classes, and are among the first to be abandoned in times of crisis. These asset classes also represent much smaller markets in terms of total size, which makes them susceptible to trend chasing.
So, how much would volatility increase with the Third Pillar of real return assets? To estimate the increased volatility, we compare a “Typical U.S. Plan” with one that includes a third pillar of real return assets.3,4 The Typical U.S. Plan shown in Table 2 sports an 80% mainstream markets/20% Third Pillar split, and a projected long-term (10-plus years) volatility of around 9%—not all that different from the realized standard deviation of a 60% S&P 500/40% BarCap Aggregate Bond Index over the past 20 years. We contrast this with a 50/50 blend of mainstream and Third Pillar assets (labeled “Building a Sizeable Third Pillar”), which results in an annual portfolio volatility of 10.5% versus the 9.0% standard deviation level for the Typical U.S. Plan. To be sure, the Third Pillar assets have some diversification benefit, but their near-universal higher volatility levels still result in a 16% increase in total portfolio standard deviation.
When the overwhelming trend is to de-risk client portfolios, such an outcome would be unacceptable regardless of the perceived long-term benefits of such an approach. Even if the headline optics can be overcome, a poor start would likely doom such a strategy (and importantly the investment officer who recommended it!). This situation begs the question, “Can we reduce risk in other areas to allow us to spend more of our risk budget on these 3-D favored assets?”
Luckily, we see a spectrum of attractive options for investors concerned with volatility. As part of our ongoing work on alternative betas,5 we have devoted substantial time and resources exploring why low-beta stocks tend to generate higher returns than their high-beta brethren. Our research suggests that low-volatility strategies do indeed reduce risk and increase return, allowing them to be a critical component of an effective asset allocation for the challenging times ahead. Their potential role is reflected in the third column of Table 2. We’ll come back to this point shortly.
Enter Low Volatility Equity
A natural first step in any budgeting process is to examine the largest outlays for potential cuts first. Risk budgeting is no different. The vast majority of portfolios—pension, endowment, target maturity DC funds, and retail—are dominated by equity risk. Depending on the level of diversification, equity risk typically comprises between 90% and 99% of the total portfolio level of volatility.6 In our effort to “make room” in our risk budget, any reduction of equity volatility is a welcome first step, as long as we don’t have to forego our much-needed “equity risk premium.” At least historically, we don’t!
As you have probably noticed, the arena of non-price-weighted indices (also known as alternative beta) has become quite crowded since we introduced the Fundamental Index® methodology in 2005. Among the new entrants are a number of strategies targeting low-volatility stocks and/or minimum variance. The low-volatility strategies fall into two broad categories: (1) Optimized Strategies, which model expected returns, volatilities, and correlations of individual stocks (using a variety of statistical methods and risk models) to build a minimum volatility portfolio, and (2) Heuristic Strategies, which use rules to exclude high beta/high volatility stocks, and/or assign greater weights to lower beta/volatility stocks.
A detailed review of our research effort into the many flavors of low-volatility equity investing is well beyond the scope of this discussion, but we can highlight a few points here:
- Low-volatility strategies—both optimized and heuristic—produce returns 1–3% above their respective cap-weighted benchmark indices, using U.S. data back to the 1960s. International and emerging markets results offer similar gains over shorter stretches.
- Both Optimized and Heuristic approaches show very tightly clustered risk reduction, averaging about 25% less volatility than the cap-weighted benchmark (e.g., reducing volatility from 16% for the S&P 500 to about 12% for a low-volatility strategy).
- Nearly all methods tested produced sizeable tracking errors (8–10%) to cap weighting.
We can validate these findings by examining the published results of the S&P Low Volatility series, a heuristic-based approach that selects low beta stocks and weights them by the inverse of beta.7 Launched in 2011 with data backfilled to various start dates, Standard and Poor’s has a U.S., a non-U.S., and emerging market variant of the low volatility strategy.
As Table 3 shows, the S&P Low Volatility indices are consistent with our simulated research results. For the U.S. market, the S&P 500 Low Volatility Index produced an annualized return of 10.5% versus 9.3%. This 1.2% percentage point excess return was accompanied by a 25% reduction in portfolio volatility (12.5% versus 16.6%). The non-U.S. and emerging markets low-volatility strategies produced even better risk-adjusted results. And, consistent with our research, the tracking errors for all of these indices are very large—9% to 11%.8
Of course, the traditional backtesting caveats apply to these results, especially in the case of low volatility strategies spanning a decade dominated by the bookend bear markets of the Tech Bubble and Global Financial Crisis. On the opposite side of the ledger, the excess returns for the low-volatility strategies are very similar to other non-price-weighted indices over the same time periods. If such disparate weighting methods as the Fundamental Index methodology and equal weighting produce similar excess returns, then an excess return from weighting by the inverse of volatility should have a similar expected result. Shocking to the casual observer, high-vol and low-vol both beat the market, by comparable margins, as long as the portfolio weights are indifferent to price!
Of course, we are comparing paper portfolios that do not reflect the real friction of transaction costs and market impact. In the real world, these costs are significant and investors should take steps to minimize them. Therefore, an efficient low-volatility equity portfolio ought to:
- maximize liquidity,
- minimize turnover, and
- maintain some semblance of economic representation.
In addition to these portfolio attributes, the construction methodology should be easy to understand and replicate, given the proclivity of passive investors for simple and transparent solutions. Our research has indicated that the current low-volatility indices all fall short on one or more of these goals, so they arguably cannot be used as core strategies.
Putting it Together
A 25% reduction in equity volatility is meaningful. If we can save that much with our dominant total portfolio risk contributor, we should have the risk budget to include higher-risk real return asset classes, right? The answer is “yes,” as we show in the third column of Table 2 (Third Pillar with Low Vol). Here, we replace half of each equity exposure with a comparable low-volatility exposure. Consistent with our empirical findings, we assumed each low-volatility equity strategy would outperform its cap-weighted counterpart by 1% per annum.9 We also assumed the low-volatility strategies would produce volatility levels 25% below that of the cap-weighted portfolios.
Overall, for the Third Pillar with Low Vol option, portfolio volatility declines to a similar level as the Typical U.S. Plan while expected return increases by 80 basis points to 6% per annum. To be sure, this return estimate still falls short of, and in some cases well short of, investors’ targeted returns, which are typically in the 7–8% range.10
Naturally, as with any “new” idea, there will be early critics aplenty. “It’s just a backtest… past is not prologue” or “it’s just a clever repackaging of Fama–French.” But this is not a “new” idea; Low Volatility was touted by Bob Haugen11 20 years ago. And “past is not prologue” has been used to dismiss ideas throughout history—some prematurely.
Regardless of the criticisms, low-volatility equities have important asset allocation implications for investors, especially when the traditional anchor to windward for most U.S. investors—U.S. Treasuries—sport dangerously low yields and rising credit concerns. We think it merits serious consideration.
While my personal experience of hurricanes is fortunately minimal, one nearly postponed my own 2006 nuptials in Baja, California. While we spent a few days fretting, the storm passed with minimal damage a day before the guests began to arrive. Not long after, like many new husbands, it didn’t take long for me to realize that life, as I knew it, had changed. Rest assured, the changes are for the better, but married life was still an adjustment for me—the big screen TV still called on Saturdays! But the miracle of TiVo and the digital video recorder eased the transition.
Today’s investors similarly are confronted with a future that will be different from everything they’ve grown accustomed to over the past 20 or 30 years. As they look to change priorities with relatively constrained risk budgets, we assert that low-volatility equities, like my DVR, can help ease the transition. By no means can they miraculously solve all of investors’ dilemmas, but they can be a simple and low cost tool to effectively broaden diversification and risk posture in the decades ahead. We look forward to sharing more of our research into this investment approach in the coming months.
1. We have written extensively about the rising threat of soaring debts and deficits and worsening demographics for developed markets. For example, see Fundamentals from November 2009, August
2010, and October 2011. This is correctly seen as the other side of the coin described in PIMCO’s “New Normal.”
2, See “A Complete Toolkit for Fighting Inflation,” Fundamentals, June 2009.
3, The “Typical Plan” was defined using a study of public funds published for the California State Association of County Retirement Systems (SACRS).
4. We list a toolkit of liquid asset classes and deliberately excluded hedge funds, owing to the difficulty of forecasting a return for the asset class.
5. See Tzee-man Chow, Jason Hsu, Vitali Kalesnik, and Bryce Little, 2011, “A Survey of Alternative Equity Index Strategies,” Financial Analysts Journal, vol. 67, no. 5 (September/October):37–57. The article
was selected by The FAJ Advisory Council and Editorial Board as a Graham and Dodd Scroll Award winner. The article also won the FAJ’s Readers’ Choice Award.
6. Skeptics should try this themselves with the classic 60/40 portfolio. A passive portfolio invested 60% in the S&P 500 and 40% in the Barclays Aggregate has a correlation of about 99%,
when compared with the S&P 500 over the past 10, 20, 30, and 40 years. The bonds mostly offer risk reduction, with precious little diversification.
7. See S&P Low Volatility Index Methodology: http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs
8. Brennan and Li (2008) posited that the low-volatility outperformance anomaly will be hard to arbitrage away because many institutional investors have benchmarking constraints to minimize tracking
error and so must own higher beta, lower returning stocks.
9. Note, we believe this is a conservative estimate; 1% is at the low end of the empirical results range and is also below the live results of popular non-price weighting methods such as the Fundamental
Index methodology and equal weighting.
10. For more on building a portfolio with a better chance of achieving expected return assumptions, please see our October and November 2010 Fundamentals, “Hope is Not a Strategy” and “The Glad Game.”
11. Former finance professor and head of Haugen Custom Financial Systems.
Tags: Absolute Returns, Bond Yields, Demarcation, Developing Economies, Discretionary Time, Girls Night, Hedging Against Inflation, Home Depot, Hurricane 1, Index Investing, Indexing, Inflation Protection, Investment Priorities, Life Changes, Married Life, Poor Job, Research Affiliates, Sharpe Ratios, Stocks And Bonds, Time Commitment, Tracking Error, Women Girls
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Thursday, April 12th, 2012
by Rich Weiss
Senior Vice President and Senior Portfolio Manager,
American Century Investments
Weekly Market Update,
In this issue of Weekly Market Update, we present the latest installment in our occasional series on diversification. Here we look at diversification as a tool to help address many classic investor failings identified by the science of behavioral finance.
Earlier, in Diversification 101, we explained the rationale behind diversification and how it can be used as a framework for structuring a portfolio to help manage risk and maximize risk-adjusted performance. We also provided an Introduction to Alternative Investments meant to highlight the broad types of alternative strategies that can be used to diversify a traditional balanced portfolio of stocks and bonds. In future months we’ll address such topics as the state of diversification in a post-Financial Crisis world, and when and what types of diversification strategies make the most sense.
One intriguing aspect of diversification is that it is born of modern portfolio theory, which assumes that the market is composed entirely of dispassionate, rational actors. In practice, however, investor behavior tends to be anything but rational and utility maximizing. This has given rise to an entirely new field of research termed “behavioral finance.”
The tension between efficient market and behavioral finance theorists makes for one of the enduring debates in financial and academic circles. But one thing they can both agree on is the tremendous benefit of diversification for investors—modern portfolio theorists because it creates more “efficient” portfolios; behavioralists because it puts structure around investor decisions and can help reduce the frequency and magnitude of mistakes. “Efficiency” in investing terms is defined as maximizing return for a given level of risk, and that investors can effect change in their portfolios’ risk-and-return profile by adding or subtracting uncorrelated assets to their portfolios.
In this regard, it’s instructive to look at market research firm DALBAR’s 2012 Quantitative Analysis of Investor Behavior. DALBAR devotes a portion of its new report to nine key behavioral errors, highlighting ways in which investors behave irrationally consistently and repeatedly over time. Behavioral finance topics in general, and DALBAR’s report specifically, make for fascinating reading. The biases they highlight influence investor behavior in a number of important ways. Here let’s focus on just one behavior—poorly timed buy and sell decisions—and look at how diversification can help mitigate the negative impact on investor performance over time.
One well known investor sell mistake is to react badly to market events, eliminating equity investments and moving entirely to cash, effectively abandoning their investment strategy. Studies of investor behavior refer to this as the “abandonment rate,” or proportion of investors that simply throw in the towel when equity market volatility becomes too great to stomach. Our own analysis of academic and industry literature suggests that investors are prone to bailing out of portfolios that have incurred one or two years of losses.
To be clear, an appropriately diversified portfolio should carry just enough market risk to achieve an investor’s return objectives—and no more. Investment risk is something that should be measured, managed, and carefully considered up front in an investment plan—not something to react to after the fact, in knee jerk fashion.
Poor Timing, Poor Performance
Similarly, a number of studies indicate that the average equity investor dramatically underperforms the market as a result of poor market timing decisions. Indeed, DALBAR’s data show that in the 20 years ended in December 2011, the average equity investor dramatically underperformed the market (as represented by the S&P 500® Index). This is directly attributable to poor market timing decisions—a pitfall more diversified investors tend to avoid.
Staying the Course
Here is where diversification comes in—based on available research, it turns out that investors in well-diversified asset allocation and target-date portfolios have lower abandonment rates1 and do better2 than those outside of such portfolios. In an analysis of investor behavior in retirement plans in the aftermath of the 2008 Financial Crisis, Morningstar found that those in well-diversified target-date funds “bucked a fund-industry trend in which investors tend to pull their money at market lows and chase investments close to their peaks.”3 Essentially all the research we have seen on this topic supports the conclusion that well-diversified portfolios encourage shareholders to stay the investing course despite the vagaries of the market.
To put a finer point on it, reacting to market volatility by selling in the face of volatility or bad news means that the average investors does not remain “invested for sufficiently long periods to derive the benefits of the investment markets,” according to DALBAR. Further, the report says that:
“The result is that the alpha created by portfolio management is lost to the average investor, who generally abandons investments at inopportune times, often in response to bad news. In 2011, as in years past, [systematically diversified] asset allocation (including target-date funds) fund investors have remained invested in their respective funds longer than equity or fixed-income investors. Investors’ tendency to hold asset allocation funds longer is a strong case for their inclusion in an investor’s portfolio.”
To be clear, we talk here about investor behavior in asset allocation strategies and retirement plans as a proxy for diversified and non-diversified portfolios. We cite these reports because they contain the most recent and objective data on the subject.
Whether you build your own portfolio of uncorrelated assets or choose a professionally managed and diversified asset allocation fund is up to you. The point is not how you get there. After all, your portfolio is likely to be a unique reflection of your own goals, risk tolerance, and other life cycle and financial considerations. The point is simply that effective diversification in the manner discussed in Diversification 101 can mean better risk-adjusted performance; a less volatile return pattern; better cumulative returns over time, other things equal; and lower abandonment rates and greater likelihood of sticking with an established investment plan. We believe that is a strategy worth striving for.
Rebalancing: Sell High, Buy Low
There is another way in which a diversified approach can improve the timing of investor buy and sell decisions, and that’s through the process of portfolio rebalancing. Step back for a second and think about diversification—at a high level, it’s a process of spreading assets within and across asset classes in a way that is likely to maximize your likelihood of sticking to your investment goals and objectives over time. You (or your financial professional) create a well-thought-out strategy weaving together all the aspects of your financial life to create a finely tuned, broadly diversified portfolio.
But as financial markets move—and in recent years they’ve moved around quite a bit—those carefully selected asset weightings and relationships get out of balance with your intended targets. Putting those weightings back in balance is called “rebalancing,” in which you sell winning assets and buy those that have underperformed. Let’s use a real-life example from 2008 to illustrate rebalancing in action. In 2008, stocks plummeted while government-backed bonds enjoyed one of their best years on record. We know from studies of investor behavior during the crisis that many equity-only investors sold stocks and abandoned their savings plan at this point.
Contrast that behavior with a diversified investor (with demonstrated lower abandonment rates and longer holding periods) who stuck with their overall strategy and rebalanced their portfolio at the end of the year. Because stocks performed so poorly relative to other investments, they would now be underrepresented in our diversified portfolio, while bonds would be comparatively overrepresented because they’d done so well. Rebalancing to predetermined weightings would mean you were selling bonds after a historic rally and buying equities after a historic sell-off. The contrast with investor behavior cited in the DALBAR and Morningstar studies could not be more stark. In no uncertain terms, then, systematic rebalancing enforces a disciplined buy-low, sell-high strategy that is central to a sound investment plan.
At American Century Investments, we believe strongly that investors would do well to adhere to a disciplined, diversified, long-term investment approach. Future pieces will address various aspects of diversification, among other topics.
Download a PDF of this post.
1 Equity Abandonment in 2008–2009: Lower Among Balanced Fund Investors. John Ameriks, Ph.D.; Jill Marshall; Liqian Ren, Ph.D. December 2009
2 Burgess + Associates, “Outcomes of Participant Investment Strategies 1997-2006,” Study Commissioned by John Hancock Retirement Plan Services, October 2007.
3 Morningstar Fund Analysts, “Target-Date Investors Stick Around, Earn Better Returns,” Fund Spy, March 16, 2010.
Diversification does not assure a profit nor does it protect against loss of principal.
This information is not intended to serve as investment advice; it is for educational purposes only.
Investment return and principal value of alternative investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Due to the limited focus of alternative investments, they may experience greater volatility than funds with a broader investment strategy. They are not intended to serve as complete investment programs by themselves.
The performance results provided here are hypothetical, and are only used for illustrative purposes.
Hypothetical performance results should not be considered indicative of any actual performance results, or any results that could be attained by clients.
The opinions expressed are those of Rich Weiss and are no guarantee of the future performance of any American Century Investments portfolio.
Tags: Academic Circles, Alternative Investments, American Century, American Century Investments, Balanced Portfolio, Behavioral Finance, Diversification Strategies, Efficient Market, Intriguing Aspect, Investor Behavior, Investor Decisions, Modern Portfolio Theory, Occasional Series, Portfolio Manager, Rational Actors, Rich Weiss, Senior Vice President, Stocks And Bonds, Stocks Bonds, Types Of Diversification
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Wednesday, April 4th, 2012
by William Smead, Smead Capital Management
We (at Smead Capital Management (SCM)) have made the case that the poor performance of the US stock market from the end of 1999 to the end of 2008 has caused most institutional and individual investors to dramatically shorten the duration of their equity investments. In many cases, we are hearing that institutions and individuals want their advisors to help them insulate or “prevent” them from having another 2008. In a world of short duration common stock investing, sentiment polls have an increased importance. We like to say that an eye on the crowd is important if you have one foot out the door at all times. Professional investors have been forced by the power of the rebound in the stock market since March 9, 2009 to get invested, but they haven’t trusted the durability of this rebound along the way.
Individuals and financial advisors practice short duration through go-anywhere managers, exchange-traded funds and low-cost trading of individual common stocks. Institutional investors have done this by allocating a large part of their asset base to equity managers who attempt market timing and alternative investments in the hedge fund world. Studies show that the money in “alternative strategies” now dwarfs what is held in US long-only equity. See the chart below:
In a wonderful April 1, 2012 article in the New York Times, Julie Creswell presents the facts about pension fund performance in relation to how committed plans are to alternative investments:
“Searching for higher returns to bridge looming shortfalls, public workers’ pension fund across the country are increasingly turning to riskier investments in private equity, real estate and hedge funds.
But while their fees have soared, their returns have not. In fact, a number of retirement systems that have stuck with more traditional investments in stocks and bonds have performed better in recent years, for a fraction of the fees.”
What Julie describes as “riskier” investments have also contributed to these very low levels of participation in long-only US stocks and especially long-only US large capitalization strategies.
When you breakdown the long-only participation, it is spread between US large cap, US mid cap and US small cap. Since small and mid-cap strategies have outperformed since the peak of the US stock bubble in 1999, it is safe to assume that institutions are the most committed to small-cap and mid-cap long-only strategies relative to the total equity long-only mix as at any time since the 1990’s. You can see this in Request for Proposal (RFP) mandate notices for small cap managers in periodicals like Emerging Manager Monthly. Institutional investors seem to like to close the barn door after the animals have run out. After ten years of outperformance by small-mid strategies, they are vigorously looking to increase their participation. Since small and mid-cap strategies are historically more volatile than large-cap strategies, this triggers an additional urge to time the market and has increased the importance of sentiment polls.
The Investor’s Intelligence (II) poll of investment newsletter writers is the oldest of the major sentiment polls and is the one I have followed during my nearly 32 years in the investment business. Our general view at SCM, as long-term investors by nature, is to not be interested in changing what we own based on 6-12 month stock market gyrations. For this reason, our view is that the sentiment polls are only useful at extremes. Therefore, everything that happens in between the extremes is just noise.
This week’s II poll showed that those writers who are bullish total 50.5% and those that are bearish equal 22.6% of the newsletter writers. Our observation is that it is very meaningful historically when the bullish sentiment reaches 60% or greater. In August of 1987, at the end of a run up in the Dow Jones Industrial Average from below 800 in August of1982 to over 2700, bullish sentiment broke 60%. By October 19th of the same year, the Dow fell to 1738. In February of 1999 and in February of 2001 at around 1240 on the S&P 500 index, bullish sentiment exceeded 60%. The S&P 500 index fell to 761 in October of 2002, a decline of 38.6%.
If history is any guide, it would take a large additional spurt to the upside in today’s US stock market to trigger a 60% bullish reading. We feel this could only come through a dramatic increase in long-only institutional large-cap US stock market participation and/or an end to the massive move into bonds made by US individual investors over the last four years. The bond market devotion would have to be replaced by a very meaningful move into US equities.
In 1987, institutions got heavily committed because of the comfort that derivative -related “portfolio insurance” provided many of them. The insurance was designed to protect against “normal” bear markets, not a drop in the Dow Jones average from 2700 to 1700 in 78 days! Both of these instances (August 1987 and February 1999), where the 60% bullish sentiment marker hit an extreme, saw price-to earnings (PE) ratios at historic highpoints. Warren Buffett, in his Allen and Co. talk at Sun Valley in the summer of 1999 mentioned that the Fortune 500 traded at 30 PE.
In our opinion, those who are very bearish about the US stock market need a substantial price increase to trigger historically extreme newsletter writer sentiment. Those who are optimistic should prefer a temporary correction or sideways movement to reinforce fear on the part of the crowd. This would cause the bullish and bearish readings to gravitate to toward each other and remove the risk of having some temporary “hell to pay” for those of us who seek to practice long-duration common stock investing.
The information contained in this missive represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. Some of the securities identified and described in this missive are a sample of issuers being currently recommended for suitable clients as of the date of this missive and do not represent all of the securities purchased or recommended for our clients. It should not be assumed that investing in these securities was or will be profitable. A list of all recommendations made by Smead Capital Management with in the past twelve month period is available upon request.
Tags: Alternative Investments, Asset Base, Capital Management, Common Stock, Common Stocks, Creswell, Equity Investments, Equity Managers, Hedge Fund, Hedge Funds, Individual Investors, Institutional Investors, New York Times, Pension Fund Performance, Poor Performance, Professional Investors, Retirement Systems, Stocks And Bonds, Traditional Investments, Us Stock Market
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Tuesday, March 6th, 2012
Looks like we are going to see the market’s first significant gap down of the year this morning – no specific reason, it is just “due”. There have been any number of bears who have been turned to the bull camp in the past 2-3 weeks, but one guy consistently bullish has been well known pundit Laszlo Birinyi, who came out with a S&P 1700 call yesterday on CNBC. It would be easy to say “hey that was an obvious ‘call the top’ moment” but there have been any number of similar signals (Roubini bullish, uber bullish Barron cover, etc) over the last month which have led to only more pain for bears. Either way it’s always good to see the ‘other side’ of the argument so below is the video:
- Well-known stock commentator Laszlo Birinyi sees more than a rising stock market. The market bull told CNBC Monday he sees signs of a U.S. economy that may be doing far better than others expect. “This year the bet is GDP of 2 percent to 2.5 percent,” he said. “When I look at the market I see stocks like Cummins and Salesforce.com, Microsoft, General Motors up 20, 30 and 40 percent. That makes me question, maybe the market’s saying something about a good economy. “I just wonder if we’re prepared for a 3 percent to 4 percent GDP? If it does [reach that level] I think we can again have a mirror of 1995 where the market surprised everybody on the upside.”
- The head of Birinyi Associates, who has long stressed picking strong individual stocks that can resist market volatility, last week released a robust forecast for a Standard & Poor’s 500 spiking to 1,700 this year, up over 20 percent. He based the forecast on market patterns showing this year’s rally is remarkably similar to what happened in 1995, when expectations were low for both stocks and bonds.
- “What happened was just the opposite. Interest rates went down, the market went up 35 percent” and had the best year in 50 years, Birinyi told CNBC. “As I’ve often said, the negative case is always more articulate, it’s always more rational, more reasonable because we see it,” Birinyi said. “The market is looking ahead, and I contend what stocks are telling us is a possibility, and I think a fairly good possibility, that something positive is going to develop [and] perhaps we’re underestimating the economy. Don’t disregard the possibility of something good happening.”
Tags: Barron, Bet, Birinyi Associates, Cnbc, Commentator, Cummins, Gap, GDP, General Motors, Laszlo Birinyi, Lazlo Birinyi, Market Patterns, Market Volatility, Negative Case, S 500, Salesforce, Stock Market, Stocks And Bonds, Uber, What Happened In 1995
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Sunday, February 26th, 2012
by Daniel Morillo, Ph. D, iShares
One of the most common conversations we’ve been having with clients recently relates to the tradeoff between the upside potential of an increased allocation to emerging markets equities and the additional risk that such an investment brings into an overall portfolio. Clients are becoming more interested in emerging markets, yet they remain concerned about risk and how the ongoing European financial crisis and the U.S. political situation will affect equity risk in general.
One potential way to increase your emerging markets exposure while also keeping risk in your comfort zone is by using a minimum-volatility approach to investing in emerging markets.
Minimum-volatility portfolios, as I explain in this video, are designed to provide exposure to a particular market with lower risk than a traditional capitalization-weighted portfolio. As might be expected, minimum volatility strategies may sacrifice some upside during strong market rallies. What’s surprising, though, is that over longer time periods minimum volatility portfolios have generally been shown to deliver similar return to their cap-weighted counterparts but do so with lower risk.
How can an investor take advantage of this feature of minimum volatility portfolios in the case of emerging markets?
Consider, as a starting point, a portfolio constructed with a typical 60%/40% allocation split between stocks and bonds. Assume, in addition, that the allocation to emerging markets within the equity portion of the portfolio is 10%, using a broad emerging markets benchmark like the MSCI Emerging Markets Index. Over the last 10 years this 60/40 portfolio would have delivered an average annualized return of 6.3% and annualized risk of 10.6%.
Baseline Portfolio with 6.3% annualized return and 10.6% annualized risk
Now imagine swapping out the traditional cap-weighted emerging market exposure for a minimum-volatility emerging markets strategy, for example the MSCI Emerging Markets Minimum Volatility Index. How would the swap affect your portfolio? Because the minimum-volatility exposure to emerging markets is less risky than the traditional cap-weighted exposure (19.3% vs. 24.4% over the last 10 years), this means that it is possible to increase the allocation to emerging markets while keeping the same total risk of the portfolio.
Portfolio using minimum volatility emerging markets exposure with 9% annualized return and 10.6% annualized risk
In particular, within the equity portfolio it would be possible to go from 10% cap-weighted exposure to emerging markets to about 40% minimum-volatility exposure to emerging markets while keeping to the same 10.6% total risk of the portfolio over the last 10 years.
To compare, a 40% exposure to emerging markets within equities in the form of a cap-weighted exposure such as the broad MSCI Emerging Markets Index would have resulted in annualized risk of about 12% over the same time period. That’s a significant increase over the original risk budget — 10.6% — of the baseline portfolio.
Accessing equity exposure via minimum-volatility alternatives can allow investors to take on more exposure to risky assets, including equities, while keeping to a stable risk budget. A minimum volatility strategy could be compelling in the current environment, where equity risk remains a concern for many investors.
Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.
Asset allocation may not protect against market risk.
 Empirical evidence of this effect has been collected for more than two decades. For early work, including evidence since the 1970s see, for example, “The efficient market inefficiency of capitalization-weighted stock portfolios” by Robert A. Haugen and Nardin L. Baker, Journal of Portfolio Management, Spring 1991, pages 35-40.
 Data is from Bloomberg, in monthly frequency. For bonds I use the returns of the Barclays Capital US Aggregate Bond Index and for stocks I use the returns of the net MSCI world developed index and the net MSCI emerging market index. The returns of the baseline portfolio are computed as the weighted average of the index returns described above with a 10%/90% mix of developed and emerging market index returns for the equity component and a 60%/40% mix between the equity component and the fixed income component. Average annualized returns are computed as the monthly average return multiplied by 12. Risk is computed as the sample standard deviation of monthly returns multiplied by the square-root of 12.
 Data for the minimum-volatility emerging market returns is from the MSCI Emerging Markets Minimum Volatility Index, as provided by Bloomberg.
Tags: Annualized Return, Capitalization, Comfort Zone, Emerging Market, Equity Risk, Financial Crisis, Investing In Emerging Markets, Ishares, Market Exposure, Morillo, Msci Emerging Markets, Msci Emerging Markets Index, Political Situation, Portfolios, Stocks And Bonds, Strong Market, Time Periods, Tradeoff, Volatility, Weighted Portfolio
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Friday, February 3rd, 2012
by Richard Bernstein, Richard Bernstein Advisors
The market generally proves the consensus wrong, and 2011 certainly adhered to that historical precedent because the consensus “must owns” at the beginning of 2011 generally underperformed during the year. What is somewhat startling to us, however, is that conviction has yet to be shaken. The consensus continues to favor commodities, emerging markets, and “any-bond-but-treasuries”.
Our view continues to be that the US markets are in the early stages of a decade of outperformance. US stocks have now outperformed BRIC (Brazil, Russia, India, and China) for more than four years, and the US dollar (as measured by the DXY) troughed in 2008. Long-term US treasury bonds were 2011’s best performing major asset class, and they continued to exhibit our three defining characteristics of an alternative asset class. Unlike when investing in typical alternative investments, however, investing in treasuries doesn’t require the investor to accept high fees and illiquidity.
It’s déjà vu all over again. Investors during the early-2000s were waiting for technology shares to rebound, and ignored the asset classes that were outperforming, such as emerging markets, commodities, gold and REITs. Today, investors are waiting for emerging markets and commodities to rebound, and are generally ignoring the asset classes that are outperforming, such as US stocks and bonds.
We continue to favor US assets as the core of our strategies.
Long-term US treasuries have been perhaps the most hated asset class for several years, yet their performance has been outstanding. During 2011, long-term US treasuries were the best performing major asset class in the world (see Chart 1). This should not be too surprising because quality investments generally outperformed around the world, and US t-bonds are the world’s highest quality asset.
Tags: 2000s, Alternative Investments, asset class, Asset Classes, Assets, Bernstein, Commodities, Consensus, Conviction, Dxy, Emerging Markets, Highest Quality, Illiquidity, Portfolios, Quality Investments, Reits, Richard Bernstein, Stocks And Bonds, Technology Shares, Treasuries, Us Treasury Bonds
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