Category: Newsletter

The Current Commercial Real Estate Picture

September 2011 Investment Perspectives

The NCREIF Property Index’s (“NPI”) second-quarter return of 3.94% was the sixth straight quarter of positive performance and the second strongest quarter of performance since the downturn beginning in September of 2007. While property income level has slowly risen, fluctuating in the 1.25% to 1.70% range per quarter, appreciation of property values has been the primary catalyst of real estate’s positive return. Spurring the underlying property value appreciation is the transaction volume increase, up 132% year-over-year, coupled with cap rate compression.
year£, coupled with cap rate2 compression.

Given the upward trajectory of real estate values, investors have started to wonder if the recovery has gotten ahead of itself, and which segments of the market offer the best opportunities for future returns. In the following, we assess the current recovery as well as future opportunities.

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Impact of Rent Levels on Inflation

August 2011 Investment Perspectives

The collapse of the housing market coupled with the massive wave of foreclosures has created an increased demand for rental properties as former homeowners are forced to find new places to live. Given the finite supply of rental properties, some have speculated that the greater demand for rental properties will drive rents higher, thus contributing to elevated inflation (as measured by the Consumer Price Index).

The following article investigates how changes in rents influence inflation figures, most especially in light of the housing market collapse.

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Analysis of Debt Ceiling Debate

July 2011 Investment Perspectives

As the August 2nd deadline for a resolution to the debt ceiling debate quickly approaches, many questions are emerging about the ramifications for investors in the U.S. truly does default on its debt obligations. Not surprisingly, opinions differ on what the bottom line impact will be for financial markets and investors. Unfortunately, the only consensus among market pundits is that there is no consensus. It should be noted that the current situation is extremely fluid, so portions of this newsletter may be out of date by the time it is read.

The following analysis tackles the biggest questions debated by analysts and market participants:

  • Will the U.S. Treasury default on its debt?
  • Will a major rating agency downgrade the U.S. credit rating?
  • What impact could a downgrade have on the U.S. fixed income market? U.S. equity? Non-U.S. equity?

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Short Duration vs. Core Bonds in a Rising Rate Environment

April 2011 Investment Perspectives

In today’s low rate environment, interest rate risk has emerged as a primary concern for market participants. Given that the Fed has held interest rates near zero for over two years, many investors are worried about the effect of an increase in rates on their portfolios. As interest rates rise, the discounted value of future cash flows to bond investors falls, causing a drop in the price of bond portfolios.

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2011 Market Preview

2011 Market Preview

Overall, 2010 was a positive year for investors, as capital markets continued their upward swing and economic growth showed further signs of progress.

Most major stock indices (U.S. and non-U.S.) posted double-digit positive returns in 2010, with small caps generally outperforming large caps. The bond market benefited from another fall in interest rates, therefore delivering positive returns to all of the major indices, with sectors such as high yield and senior secured loans again recording the largest gains. Alternative asset classes had more of a mixed 2010: hedge funds disappointed, while real estate and private equity began to show signs of life. On the economic front, GDP growth continued its positive trend, while inflation remained low. Despite these facts, many questions still remain. Will the stock market experience a correction in 2011? What should we expect from alternative asset classes? Is inflation a threat to the economy? Will the unemployment rate improve?

In the following articles, we will take a closer look at each asset class, examining the major news items from 2010, as well as critical issues for 2011. 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. Articles are offered for the following asset classes: fixed income, U.S. equities, non-U.S. equities, hedge funds, real estate, infrastructure, and private equity. As a launching point, we take a broad view of the economy and examine some crucial macroeconomic topics as they pertain to the U.S. economy.

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3Q 2010 Investment Perspectives: Details of QE2 Released

In a move widely expected by investors and analysts, yesterday the Fed announced details of further quantitative easing (“QE”), commonly referred to as QE2. Similar to the first round of quantitative easing initiated between January 2009 and March 2010, QE2 will feature the Fed expanding its holdings of Treasury securities in an effort to promote growth, maintain low interest rates, and reduce unemployment.

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2Q 2010 Investment Perspectives

Financial Reform Bill Signed into Law
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21, 2010. Broadly considered to be the most notable overhaul of financial regulation since the 1930s, the bill targets a wide variety of topics related to financial reform. The following article highlights the major points of the legislation.

Potential Impact of Pending Legislation on Stable Value Investments
With nearly 700 billion dollars in assets, stable value funds are an important part of many retirement plans. Stable value funds have proven popular as a conservative investment option for investors striving to maintain principal while earning a higher return than cash.

Due to pending financial regulation legislation, stable value funds could potentially face a different regulatory environment going forward. As stable value is an important asset class for many retirement investors, Marquette Associates has been actively monitoring the possible effects of new financial regulation on the stable value market. This article will first explain how stable value funds work, and then discuss why they could be affected by new regulation, and what those potential effects may be.

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1Q 2010 Investment Perspectives

Proposed Financial Reform
Note: this article was written in early April, before various changes to the proposed legislation were made.
As we stand in the aftermath of the most severe economic downturn since the Great Depression, we must reflect upon several of the causes that led us to this point.  The primary causes of the downturn were a result of poor risk management, oversight, and regulation. In response to these factors, lawmakers have proposed a bill that attempts to address several of the shortcomings in our current regulatory/financial system. The bill authored by Chris Dodd and the Senate Committee on Banking, Housing, and Urban Affairs intends to address the following primary issues:

  • Protect/educate consumers
  • Identify systemic risks
  • Eliminate loopholes
  • Streamline bank supervision
  • Input on executive compensation
  • Transparency and accountability for credit rating agencies and financial products
  • Strengthen oversight to prevent fraud and manipulation

Today’s Environment: An Unusually Steep Yield Curve
Today’s interest rate environment is unique in American post-war economic history. With the federal funds rate at the zero lower bound and likely to stay low for an “extended period,” the yield curve is as steep as it has ever been since the 1950’s.

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