If US bond rates go higher from here, it is likely to be in response to something we don't yet know, rather than what is already out there. Markets are not nearly as dumb as many suggest.
November 2018 will mark the tenth anniversary of quantitative easing - undoubtedly the boldest policy experiment in central banking modern history. There are five key lessons learned from QE.
Differences in regulation, politics, and transparency between Asian countries are all factors that cannot be captured by passive investing but which represent opportunities for active investors.
The sustainability of global growth depends largely on the US and China. One hopes that someone close to Trump can turn him around before his policies derail the world's long-awaited recovery.
For the first time in a decade, the biggest risks are now stagflationary (slower growth and higher inflation). It would seem that the current risk-off era is here to stay.
For 10 years, the world chased yield - flows into emerging markets were massive. As rates rise, money will move to safer environments. It’s time to protect portfolios against major outflows from emerging markets.
There is quite a bit happening on the geopolitical front right now to concern markets. With all this uncertainty, the best thing to do is nothing. Sit tight and enjoy the show.
Trump and team continue to flaunt virtually every principle of conventional economics. A trade war may well be an early skirmish in a much tougher battle, during which economics ultimately trumps Trump.
This week in Forum Fodder: Susan Lund – a corporate debt bubble?; Aaron Minney - most investors need to eat capital; Michael Furey - Investment faux pas; Tom Switzer - Don’t write off America; Douglas Isles - Beware the trifecta of desire
Since the GFC, the value of non-financial companies' outstanding bonds has nearly tripled. While a correction seems likely, the broad shift toward bond financing is actually a welcome development.
The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
With US unemployment running at just 3.8% (equal lowest rate since 1969), the Fed will have to hike rates four times this year, with the risk that bond yields go not just to 3.5% but somewhere well north.
Over-the-top streaming will become the dominant form of media consumption, and Netflix will be the dominant global provider. Near-term valuation multiples may ultimately prove cheap.
Quantitative Tightening is jangling the nerves of investors around the world. It's unprecedented and so no-one knows for sure exactly how it will play out. But all the evidence points to QT being a non-event.
Welcome to the farrelly's Dynamic Asset Allocation Australian subscriber only area...
The quarterly Dynamic Asset Allocation is published electronically, and emailed to subscribers in early March, June, September, and December. It features farrelly's Editorial; long-term outlook for markets; Forecast in Focus; and three different approaches to Implementation...
Welcome to the farrelly's Dynamic Asset Allocation NZ subscriber-only area...
The farrelly's Dynamic Asset Allocation Handbook features editorial exploring investment strategy "hot topics", farrelly's long-term forecasts for asset classes, a detailed review of the long-term forecasts for an individual asset class (rotating across asset classes each quarter) and three asset allocation models to assist with implementation...
There are now nearly 2,000 cryptocurrencies, and millions of people worldwide are excited by them. As with past monetary innovations, a compelling story may not be enough.
Many asset classes - such as real estate and infrastructure - face the same valuation headwinds as equities and bonds. Practitioners should consider using cash as the diversifier for multi-asset portfolios.
Calm returned to global stock markets in May. But investors should not be lulled into a false sense of security. Equities and bonds face considerable headwinds as the Fed continues to tighten.
Masterclass NZ is a post-graduate extension program focused on contemporary issues that are fundamental to building better quality portfolios. Each year, the one-day program features five research-based, active learning sessions.
It is generally accepted that stock markets provide long-term outperformance over cash. However, a recent academic research paper reveals this is not the case for the majority of stocks since 1926.
In a presidency that has shown little regard for conventional institutional norms, how can one explain Donald Trump's completely reasonable appointments to the Federal Reserve Board?
President Trump's protectionist threats have raised the risks of a serious trade war, the first in over 80 years. It is assumed that this would materially impact US growth - but is that the case?
The consensus view is that the Phillips Curve is dead. To understand it, you must understand the history of the model and the Kiwi who first researched the link between unemployment and wages.
Around the world, populist economic policy seems to be in retreat. Even in Britain, a majority support a “meaningful vote” on whether the final deal with Europe is genuinely better than staying in the EU.
That's the view that Guy Debelle, Deputy Governor of the RBA, outlined in a recent speech. It's a timely warning - but what do we do with it? I think it depends on your investment time horizon, as do so many investment decisions.
Nearly all recent initiatives of the Trump administration will prove to be macroeconomic blunders. The time has come to upgrade the credit quality of investment portfolios and to focus on the currencies of creditor countries.
Fears of a US-China trade war contributed to recent stock market volatility. Practitioners must look beyond the market noise and focus on the medium-term outlook.
The US/China trade confrontation is heating up and market analysts are scrambling to figure out what will come next. It's tempting to rely on historical experience but history is likely to be a poor guide.
Genomic medicine will radically change how diseases are diagnosed and treated. Healthcare valuations do not currently reflect the long-term opportunities in the sector.
The annual Investment Management Research Workshop showcases early stage research in the area of investments to a practitioner and academic audience. It is an initiative of the Investment Management Research Program which is presented by Portfolio Construction Forum, in collaboration with faculty of the University of Technology Sydney (UTS) Business School. The IMR Program succeeds the UTS Paul Woolley Centre.
Around the world, smaller companies are benefitting from robust economic growth, low base rates and balance sheet flexibility. Investors should focus on opportunities in Japan and Europe.
The time has come for national governments around the world to start issuing their debt in a new form, linked to their countries' resources.
There is now a 50% chance that the US Federal Reserve will hike interest rates more sharply than markets expect, leading to a recession in the next one to two years.
Neither policymakers nor markets should bet on the past decade's slow growth carrying over to the next. The best bet is that AI and other technologies will have a much larger impact on growth than up to now.
This lecture instructs IMAC candidates on properties of fixed income markets, the investment features and risks of bonds, the application of the time value of money to the valuation of bonds, and the concepts of duration and convexity and their application to bond portfolio management.
This lecture instructs Investment Management Analyst Course (IMAC) candidates on the fundamental of applied economics with an Australian perspective.
It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur. Most of the coins are little different from railway stocks in the 1840s, which went bust when that bubble – like most bubbles – burst.
The peddlers of the Bond-cano narrative give very different recommendations. Even if we buy the story, it's just not clear what to do - all of which suggests that it is just a wonderful narrative.
In my opinion, the asset-price volatility we have been seeing has little or nothing to do with changes in fundamentals. And the widespread use of machine-driven trading is likely making all of this worse.
It should come as no surprise that enthusiasm for economic and financial globalisation has faltered. Building consensus around a revised unifying paradigm will not be easy.
In nine pages, this paper says all that needs to be said on the ability of any of us to estimate the true value of financial assets. The next two papers produce conflicting findings on the impact of index investing on markets.
Was the recent market volatility predictable? Was the volatility exogenous or endogenous in nature? What lies ahead as regards inflation and interest rates?
When building portfolios, practitioners must consider that inflationary pressures may return and that "beautiful normalisation" may simply not exist.
With unemployment at 30-year lows in many countries, practitioners should consider the possibility that wage pressures may force policymakers to tighten more aggressively, triggering substantial equity market falls.
Let's be absolutely clear - the recent plunge in equity markets has almost nothing to do with inflation or a changing of the guard at the Fed.
The Chinese authorities recognise the potential of blockchain technology and are outpacing the US, in the race to develop an "official" cryptocurrency. If the Chinese experiment succeeds, we may witness the start of a new epoch in monetary policy.
For Australian investors, are international markets still attractive sources of growth? Or is the Australian equity market more attractive? Do Australian sovereign bonds remain an anchor portfolio allocation for well diversified portfolios?
China’s Belt and Road initiative is expected to reshape the global economic landscape. However, the plan is poorly understood. It may generate political "returns" but opportunities for investors will be limited.
To paraphrase Mark Twain, reports of America’s retreat are greatly exaggerated. Even if China can sort out its long-term demographic problems, other big challenges loom.
In 2017, the global economy experienced synchronised acceleration for the first time in a decade. The regime shift now underway will challenge portfolio construction designed for the previous regime.
The diversification benefits of bonds increases in a low yield market, and bonds remain one of the best instruments available to investors looking for liability matching as they approach retirement.
Investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
It is doubtful that "safe" exposures (global consumer giants) will earn investors strong returns from this point – shift gears rather to domestic European exposures.
Consensus appears to assume that electric vehicle adoption rates will increase dramatically. This view is misplaced. The impact on the oil price and equity market leadership is not something that investors are positioned for.
The global economy is approaching peak growth and investors should prepare for increasing left tail risks. This may be an opportune time to increase allocation to bonds as an insurance policy.
Structural change and the resulting earnings growth will always outrun interest rates in the long run, so as change continues to accelerate, investors need growth equities in their portfolio.
Historical asset allocation methods will not generate appropriate returns in the period ahead, driving the need to be more dynamic to increase both absolute and risk-adjusted portfolio returns.
Whether an investor's investment horizon is three to five years, 10 years, or even 30 years, they would benefit from taking a generational perspective to enhance returns.
Data from the larger economies generally support the scenario of synchronised global expansion. The biggest risk to portfolios is strong growth and investors need to position themselves in anticipation of rising rates.
Simply holding bonds no longer diversifies an investment portfolio, with genuine risk diversification better achieved by exploiting currently under-priced risk premia in volatility and inflation markets.
Will global synchronised growth drive earnings growth to a higher gear that warrants current elevated valuations? And should the early effects of technological changes influence investment choices now?
Bond yields may rise by up to 90bps a lot faster than the Fed is suggesting. It's time to consider what happens to your portfolio if bond yields change gears.
Technological change is advancing with unprecedented speed and scale. The early effects of these technological changes on growth, labour, policy and trade should influence investment choices now.
The US might have three to five years of additional growth ahead. Global synchronised growth is likely to drive earnings growth to a higher gear that warrants current elevated valuations.
Are we in for a global inflation shock leading to significantly higher bond yields and a recalibration of relative valuations? Are we close to a one-in-a-generation change in the world's monetary order? Should we be switching gear with portfolios?
Global economies and central banks are changing gear. Should you be switching gear with your portfolios? To answer, you need a laser focus on what is important for you.
Every generation or so, things (in the economics world) break. Indeed, the history of the world's international monetary order is a history of change, occurring on average every 40 years. This current system is, therefore, long in the tooth.
A combination of factors is set to generate an unexpected inflationary shock to the financial markets, leading to significantly higher bond yields and a recalibration of relative valuations.
We are moving ever closer to the date when payment for today's recovery will fall due. Recent capital market gyrations suggest that awareness of the inevitable reckoning is already beginning to dawn.
Markets Summit is THE investment markets scene setter of the year. The program features 20+ leading investment thinkers from around the world - geopolitical specialists, economists, market/asset class experts, and investment strategists - debating their best ideas on the key drivers of and medium-term outlook for the markets in the context of the theme - Changing gears? - and the implications for portfolios.
There are themes and stocks that last for decades. Whether the investment horizon is three to five years, 10 years or even 30 years, it is likely investors will benefit from thinking about the universe of themes and stocks for generations to come.
Infrastructure assets have large environmental footprints. Incorporating ESG factors into the infrastructure investment process can improve risk-adjusted returns.
Every generation or so, things (in the economics world) break. We're probably at or close to one of those once-in-a-generation moments. Watching monetary indicators is key.
The general uptrend in the broader equity market seems set to continue given economic data globally remains robust and central banks very accommodating. Given divergent risks, investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
Technological revolutions often spawn financial booms and busts - but the value proposition of blockchain is profound, and the technology has given rise to cryptoassets. Practitioners will increasingly be required to understand them.
There are five areas where the early effects of technological change on the world economy are believed to be investible today.
Headlines seeming to portend political instability and chaos have not prevented stock markets from soaring. What gives?
It is the time of the year when those in the forecasting business like to lay out our expectations for the coming year. Here are mine...