Category: Newsletter

A “Halftime” Review of Asset Allocation for 2018

As of June 30th, the Russell 3000 index was up only 3.2%, a far cry from its 10-year annualized return of almost 9%; the MSCI ACWI ex-U.S. ­— a broad proxy for international stocks — has been even more disappointing, down 3.8% compared to its 2017 return of 27%. Furthermore, most bond strategies are negative for the year, thus dispelling the notion of diversification. However, the year is only halfway complete and as we have seen repeatedly in the capital markets, fortunes can change rapidly and unpredictably. In an effort to formulate explanations and expectations, the following newsletter investigates the disappointing performance from the first half of the year, as well as potential outcomes for the remainder of 2018.

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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 are Volatility Risk Premium Strategies?

Volatility Risk Premium (“VRP”) strategies — also known as defensive equity strategies — are relatively new to the institutional landscape, but have grown in popularity given the current backdrop of historically high equity valuations, low interest rates, and frustration over hedge fund fees and performance. This newsletter summarizes how these strategies operate and outlines key risk and return metrics that will help investors decide if a VRP strategy is appropriate for their portfolios.

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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.

Value Underperformance in the Current Market Cycle

With the value premium seemingly in decline, value investors have had a lot to complain about over the past ten years. Growth stocks continue to soar despite rich valuations and increasingly lofty expectations. However, we are most likely closer to the end than the beginning of this “pro-growth” trend.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice nor 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.

2018 Market Preview

Each year, investors face numerous questions that can impact their portfolios, and 2018 is no different. How will tax reform further impact the capital markets? How much – and often – will the Fed raise rates in the coming year? Can international equities continue to outperform their U.S. counterparts?  Should we be concerned about the levels of dry powder in the private equity market? These topics among many others are covered in the following articles as we offer our annual market preview newsletters. In the links below, readers will find a preview newsletter for each asset class that we cover, as well as a general U.S. economic preview. Each article contains insightful analysis and key themes to monitor over the coming year, themes which will underlie the actual performance of the asset classes covered. We hope that this set of articles can assist you and your committees as you plan for 2018. Should you have any questions about any of the content, please feel free to contact myself or any of the authors or consultants here at Marquette. We also have a webinar recording available by request if you would like to hear a high-level presentation of the topics presented in these articles. Happy New Year!

U.S. Economy by Jeffrey Hoffmeyer, CFA, Lead Analyst, Asset Allocation

Fixed Income by Ben Mohr, CFA, Senior Research Analyst, Fixed Income

U.S. Equities by Samantha T. Grant, CFA, CAIA, Senior Research Analyst, U.S. Equities & Rob Britenbach, CIPM, Research Analyst, U.S. Equities

Non-U.S. Equities by David Hernandez, CFA, Senior Research Analyst, International Equities

Real Estate by Jeremy Zirin, CAIA, Senior Research Analyst, Real Assets

Infrastructure by Jeremy Zirin, CAIA, Senior Research Analyst, Real Assets

Hedge Funds by Joe McGuane, Senior Research Analyst, Alternatives

Private Equity by Derek Schmidt, CFA, CAIA, Senior Research Analyst, Private Equity

How Will Tax Reform Impact Individual Investors?

We recently penned a letter outlining how the Tax Code changes may impact capital market expectations. Although the changes to corporate tax provisions were meaningful, we concluded that the legislation is expected to modestly impact capital markets and that clients need not make material changes to their long-term asset allocation based purely on the passage of the bill. A copy of the report, titled How Will Tax Reform Impact Asset Classes? can be found on our website here. The following newsletter addresses the impacts to individual investors.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice nor 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.

How Will Tax Reform Impact Asset Class Returns?

On December 20, 2017, Congress passed the final version of the Tax Cut and Jobs Act (H.R. 1).  This tax reform bill is estimated to be a $1.5 trillion tax cut and represents the most significant reform to the U.S. tax code since the 1986 tax cut passed under President Reagan.  This newsletter will address the most important changes as it relates to the economy, markets, and our client portfolios.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice nor 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.

When Popularity is an Achilles’ Heel: Bank Loan Re-Pricings

Through October, bank loans are up only 3.7% compared to high yield’s 7.5% return, and the disparity between the two below-investment grade strategies has surprised some investors. The root cause of bank loans’ relatively disappointing returns is re-pricings, which tend to offset the floating rate value proposition of bank loans. Re-pricings have preserved the absolute value of bank loan yields, even with LIBOR rising to its current level of 130bps. As a result, bank loan returns have been muted this year, despite the credit rally in 2017.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice nor 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.

Healthcare Organizations’ Top 3 Investment Concerns for Balance Sheet Assets

Historically, healthcare organizations have covered their cost of debt by investing in a conservative mix of fixed income securities. However, for most of the recovery since the Great Recession, the yield on their debt payments exceeded the Bloomberg Barclays Aggregate (Agg) bond index yield. Therefore, many organizations were forced to consider riskier assets to cover their debt payments as a result of this adverse spread. Now that the Federal Reserve rate hikes are underway, Agg yields are once again approaching parity with healthcare issuer debt yields and thereby reducing the pressure to invest in riskier assets to make up for the spread disparity.

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The State of Real Estate: An Era of Normalization?

Core real estate investments have flourished since the financial crisis. Since delivering six consecutive double-digit annual returns through 2015, the NCREIF Open-end Diversified Core Equity Index (NFI-ODCE) returned a positive 8.8% in 2016 and a positive 3.5% YTD through June 2017. While overall returns are moderating, the relatively lower high single-digit returns remain consistent with our longer term expectations for the asset class and real estate remains an attractive investment relative to other assets classes. Investors may be wondering how much longer the real estate cycle can continue and if it is time to pull back on their allocations. In this newsletter, we address these questions by examining critical drivers of the real estate market, including performance, valuation, leverage, income, and capital flows.

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Don’t You Know, We’re Talking About An Evolution? Addressing The New Challenges Facing The Diverse Manager Community

In recent years, some proactive and thoughtful pieces have spurred constructive dialogue within the investment consulting and plan sponsor communities on the measurable benefits of incorporating “diverse” investment firms within their various investment programs. In short, a diverse investment manager can be defined as a firm that is women owned, minority owned, or a combination of the two.

This newsletter strives to enhance the ongoing series of constructive discussions and solutions featuring Marquette, the diverse investment manager community, and the plan sponsors who wish to advance diverse manager initiatives. It is Marquette’s view that broader conversations about the diverse manager community should deliberately acknowledge the existence of newer structural headwinds that diverse managers face in today’s market. By focusing on these material hurdles – some of which are highlighted in this newsletter – the plan sponsor, diverse manager and consultant communities will be in a stronger position to formulate practical solutions to these challenges.

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