Author: cvernon

U.K. Domestic Banks Spike After Tory Triumph

In what has been called a landmark victory, Prime Minister Boris Johnson and the Conservatives handily defeated their Labour party opposition in the Thursday, December 12th U.K. general election, winning 364 of the 650 Parliament seats. This landslide gain locks in a Tory government majority, which should enable Johnson to fulfill his campaign pledge to “Get Brexit Done.” The win also provides the broader market with greater certainty about the direction of Brexit, as Johnson will now have the votes necessary to complete the steps needed to make the existing divorce deal law and to take Britain out of the European Union by the end of 2020.

Brexit has been a major overhang on U.K. stocks, as evidenced by the FTSE 100 being the worst performing European Index year-to-date. In this chart of the week, we show the London stock market response to the election results. The FTSE 100 Index rallied on both the Friday and Monday after last week’s election, up 1.1% and 2.3% respectively based on closing price. In intraday trading on Monday, December 16th, the U.K. blue-chip index surged to its highest level in four months, up nearly 2.7%. Of note, those businesses acutely impacted by the domestic U.K. economy saw a meaningful boost. British financial service firms were among the major climbers during the rally, with Hargreaves Lansdown, Barclays, and Lloyds Banking Group (shown in the chart) up over 4%.

Print PDF > U.K. Domestic Banks Spike After Tory Triumph

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Defined Contribution Plan Legislative Update – 4Q 2019

Since our 2Q 2019 DC Legislative Update, both chambers of Congress have moved forward with legislative enhancements for retirement savings. Under the leadership of Rep. Richard Neal (D-MA), the House has passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). In the Senate, Sen. Charles Grassley (R-IA), Chair of the Senate Finance Committee, formally introduced the most recent version of the Retirement Enhancement and Savings Act (RESA). The bulk of this update discusses the similarities and differences between the two pieces of legislation and what plan sponsors can expect going forward.

In this update, we summarize various pieces of legislation and recent topics of interest for DC plan sponsors:

  • SECURE Act vs. RESA
  • Release of Final Regulations on changes to the hardship withdrawal process by the IRS
  • IRS 2020 401(k) contribution limit increases

Download PDF > 4Q 2019 Defined Contribution Legislative Update

As always, your consultant will be able to address any specific questions you may have regarding these changes. For a broader view of Marquette’s approach to defined contribution consulting, see our previous research including A Roadmap for Defined Contribution Plan Sponsors and Defined Contribution Plans: A Look at the Past, Present & Future.

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Illinois Sustainable Investing Act

As sustainability factors are increasingly being incorporated into the underlying investment processes at the corporate, manager, and investor levels, it’s not surprising that the Illinois General Assembly has taken up the issue in recently passed legislation. The Illinois Sustainable Investing Act (the “Act”), formally cited as Public Act 101-0473, was signed into law by Governor Pritzker with an effective date of January 1st, 2020. The goal of the Act is to recognize that sustainability factors play an important role in an investment’s overall performance and the creation of long-term value.

In this update, we summarize the Act and offer next steps for impacted clients, including:

  • Stated goals and purposes of the Act
  • The role of sustainability factors in investment performance and value
  • The duties of public agencies and governments
  • Implementation of the Act

Download PDF > Illinois Sustainable Investing Act Legislative Update

As always, your consultant will be able to address any specific questions you may have regarding these changes.

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Private Equity Position Paper – 2019 Update

This position paper explores the fundamentals of private equity as an asset class. Particularly, we examine the subcategories of venture capital, growth equity, buyout, direct lending/ mezzanine debt, and distressed, and the investment styles within them; mechanics of investing in private equity including fund structure, commitment period, cash flow, and the J-curve; investor fees and performance; and recent trends. Recommendations and guidance towards the investment manager search process and making an allocation to the asset class are also included.

Download PDF > Private Equity Position Paper

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Will the Good News Continue for U.S. Equities?

Domestic equity returns have surprised investors to the upside this year. The S&P 500 is up ~24% and the S&P has posted 26 new highs in 2019. Over the past 10 years, the S&P has recorded 233 new highs and a 481% cumulative return. The chart shows that many of the market highs were backloaded into the second half of the current recovery as economic growth and investor confidence increased. The S&P 500 did not reach its post-recession peak until 2013: four years after the financial crisis. During those four years, market volatility was elevated, but steadily decreasing.

2019’s market environment has been very different from 2009. The first contrast is valuations. In March 2009, the S&P 500 traded at 11.2 times forward earnings and today it trades at 19.2 times forward earnings, higher than its 10-year average of 16 times. Second, while market volatility on average has decreased by 50% since 2009, volatility (measured by the VIX index) ­— as shown by the orange diamond — remains elevated since 2017’s lows. Lastly, geopolitical risk has predominantly shifted from Europe and its sovereign debt crisis to the U.S.-China trade war, the latter of which is still not resolved. Luckily, U.S. businesses and especially U.S. consumers have proved resilient through these stressors. If the status quo continues into 2020, we can only hope for more of the same: positive equity returns albeit with higher market volatility and geopolitical risks.

Print PDF > Will the Good News Continue for U.S. Equities?

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

What Does an Election Year Mean for Equity Investors?

Prior to each presidential election, there is inevitable talk about market reactions to candidates and how policy changes could impact investors. As shown in the table, election years tend to exhibit more muted returns (as measured by the S&P 500 index) and greater volatility compared to the years leading into the presidential election. Year-to-date, 2019 has continued the Year 3 trend of strong performance, but if history is any indication, the 2020 outlook is less optimistic.

When it comes to Republicans vs. Democrats, political pundits often try to show one is better than the other for equity market returns. The reality, however, is that there isn’t enough of a sample size to draw any meaningful conclusions about parties, given the number of combinations of who controls the Presidency, Senate, and House of Representatives. Even in the case of 2016 with Trump’s unexpected win, markets initially sold off but quickly rebounded to their previous levels. No matter the candidate or the policy, markets care most about clarity and dislike uncertainty. As a result, we are expecting greater volatility over the next 12 months as we head into the 2020 presidential election. While the election will certainly not be the sole driver of market volatility, it will undoubtedly contribute to further uncertainty over the coming months.

Print PDF > What Does an Election Year Mean for Equity Investors?

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Should Investors Worry About the Growing Deficit?

Americans have seen tax cuts and strong historical returns across asset classes since the Global Financial Crisis. However, though the general populace has been flourishing, the decrease in revenue flowing to the government and an increase in defense spending have contributed to the deficit increasing each year since 2016. Is the increased deficit a systemic risk or simply a side effect of a low rate environment?

This week’s chart of the week shows the United States’ deficit since 2007 in absolute terms as well as a percentage of GDP. The deficit spiked during the financial crisis at $1.4 trillion dollars as the administration took action to provide stimulus to the nation while in a recession. Shortly after, the deficit began decreasing as the economy moved towards recovery. More recently, the deficit has been increasing and is projected to reach $1.1 trillion dollars in 2020, an amount not seen since 2012. On an absolute basis, the deficit has been moving upward, but has this been offset by an increase in GDP? The blue line on the graph shows the deficit as a percentage of GDP. This metric has also been steadily increasing since 2016, though it is still much lower than during the Great Recession.

One area of potential concern is that during past expansions the deficit was decreasing or low, while now the deficit is moving in the opposite direction. If a recession were to occur, the government would have to borrow even more to stimulate the economy, pushing the debt level even higher and possibly raising concerns about the U.S. financial system. On the other hand, a theory of economic thought called Modern Monetary Theory (“MMT”) has gained traction due to the proposal of large increases in government spending by left-wing presidential candidates. MMT states that a country that prints its own currency does not have to worry much about debt as it can pay it off simply by adding to the monetary supply. Thus, the thought is that the only target for central banks should be inflation.

In all, deficit spending is a crucial means of financing public programs and stimulating the economy, no matter which economic viewpoint is applied. The U.S. deficit has ebbed and flowed over time and will continue to be a point of political contention for years to come.

Print PDF > Should Investors Worry About the Growing Deficit?

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Will Argentina’s New President Drive Losses for Hedge Funds?

When Argentina President Mauricio Macri was elected in 2015, he brought along a pro-business agenda, which reopened the country’s financial markets bringing investors ­— including hedge funds — back into the country. As hedge funds returned, their investments in both debt and equity were on the presumption that Argentina would not default on its debt, and economic growth would strengthen. Unfortunately, those bets were hit hard following a disappointing showing for Macri in August’s primary election. Bonds across the Argentina complex sold off to distressed levels as investors expressed concerns that Alberto Fernández, the Peronist candidate, would return the Peronist movement back to power. Investors feared market overhauls made by Macri would be undone by Fernández and the Peronist party.

On October 27th, the Peronist movement was voted back into power when Fernández received 48% of the vote. Despite the election result, hedge funds remain invested across the Argentina debt complex with the view that Fernández will not allow Argentina’s bonds to default. It remains to be seen if that will happen, but hedge funds remain long on this distressed credit despite taking a large haircut to their positions in August. These managers have quite the hole to climb out of and only time will tell if they are on the right side of this trade; for those with exposure, all eyes will be on Fernandez and any new policies that arise from his regime that could impact these investments.

Print PDF > Will Argentina’s New President Drive Losses for Hedge Funds?

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Live Videos: 2019 Investment Symposium Presentations

The six flash talks by our research team at Marquette’s 2019 Investment Symposium on October 4th are now available to view on our YouTube channel.

View each talk in the player above — use the upper-right list icon to access a specific presentation.

  • The Investment Case Behind ESG Investing and Implementation in Practice
    Nat Kellogg, CFA, Director of Manager Search
  • Beyond Traditional Real Estate: Exploring Opportunities in Non-Core Real Estate
    Jeremy Zirin, CAIA, Senior Research Analyst, Real Assets
  • So Many Risks, So Little Time: What’s Next in Global Risk?
    Nicole Johnson-Barnes, Research Analyst
  • U.S. Against the World: Should Investors Still Own International Stocks?
    David Hernandez, CFA, Senior Research Analyst, Non-U.S. Equities
    Samantha T. Grant, CFA, CAIA, Senior Research Analyst, U.S. Equities
  • Machine Learning for Investing: How is Artificial Intelligence Being Used in Asset Management?
    Ben Mohr, CFA, Director of Fixed Income
  • Pick Your Portfolio Poison: Recession or Inflation?
    Greg Leonberger, FSA, EA, MAAA, Director of Research

Marquette encourages open dialogue with our consultants and research team. For more information, questions, or feedback, please send us an email.

Luncheon Keynote with Mohamed El-Erian


Excerpts from Mohamed El-Erian’s Keynote Presentation at Marquette’s 2019 Investment Symposium

Mohamed El-Erian is Chief Economic Advisor at Allianz, Chair of President Obama’s Global Development Council, author of two New York Times bestsellers, and former CEO and co-CIO of PIMCO.

Please contact your consultant or send our marketing team an email for the password to view the excerpts.