Category: Newsletter

Real Estate Is Where the Heart Is

Core real estate investments experienced a sharp post-pandemic rebound, with the NFI-ODCE¹ benchmark returning 22.1% over the year ended September 30, 2022, more than double the index’s pre-pandemic 5-year average of 8.5%. In the fourth quarter, however, momentum shifted, with macroeconomic uncertainties impacting property level underwriting, cap rate assumptions, and asset pricing. Uncertainty has increased within the asset class due to inflation, rising interest rates, and geopolitical conflict, though real estate continues to offer long-term thematic tailwinds for institutional investors.

This newsletter explores a few crucial factors currently impacting real estate markets, as well as opportunities outside of core real estate that may be relatively better positioned amid these challenges.

Read > Real Estate Is Where the Heart Is

Is the Sky Falling? An Early Analysis of the 2023 Debt Ceiling Crisis

The U.S. debt ceiling was initially established in 1917 as a limit on how much the federal government was allowed to borrow. At the time, the ceiling was enacted to simplify the borrowing process, but more recently, it has become a political tool that can threaten the stability of our economy and financial markets. Modifying the debt ceiling began as a routine act of Congress — there have been more than 100 changes to the debt limit since the end of World War II, with “clean” increases enacted under both Democratic and Republican leadership. Since 1980, however, increases to the debt ceiling have been increasingly intertwined with partisan spending and deficit reduction initiatives, with the eleventh-hour agreement in 2011 the most extreme example to date of how far parties are willing to go.

This newsletter places the 2023 debt ceiling crisis into historical context, analyzing what outcomes are likely from here and potential impacts on the government, markets, businesses, and consumers.

Read > Is the Sky Falling? An Early Analysis of the 2023 Debt Ceiling Crisis

 

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.

The Real Game of Thrones: Evolving Geopolitical Dynamics and the Potential Impact for Global Investors

Following the Saudi-led OPEC+ announcement that the bloc will cut oil production by 2 million barrels per day, reports emerged that Saudi Arabia will soon join the BRICS alliance and deepen economic cooperation with China. Despite recent tensions with the U.S., the Kingdom’s preeminent role in the Belt and Road Initiative and potential admission to the BRICS alliance could drive global infrastructure development, technology research, and capital market expansion across global markets, potentially benefiting investors with long-term global and emerging market exposure.

This newsletter summarizes the Belt and Road Initiative (BRI) and BRICS Alliance, provides a brief history of Saudi-U.S. relations, and analyzes the Kingdom’s Vision 2030 efforts to diversify Saudi Arabia’s economy, ultimately concluding with the outlook and risks for investors.

Read > The Real Game of Thrones: Evolving Geopolitical Dynamics and the Potential Impact for Global 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.

International Equities: Waitin’ on a Sunny Day

In recent years, international stocks have underperformed their domestic counterparts by a significant margin. Specifically, the MSCI ACWI ex-US index has compounded annual returns at just 3.3% over the last decade through the end of October, compared to an annualized return of 12.8% for the S&P 500 index. This current stretch marks the longest period of relative outperformance on a trailing 5-year basis for either index since the early 2000s.

This newsletter examines a host of factors that have contributed to this pattern of performance, including differences in composition between U.S. and international equity indices, currency movements, and geopolitics and analyzes the diversification benefits of international equity allocations within portfolios despite performance challenges.

Read > International Equities: Waitin’ on a Sunny Day

 

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.

Are HSAs the Next Retirement Account?

A Health Savings Account (HSA) is a type of savings account that allows an individual to set aside pre-tax money to pay for qualified medical expenses, such as doctors, dentists, vision care, and prescriptions. Individuals are eligible to contribute to an HSA if they are covered under a High Deductible Health Plan (HDHP), most often offered by an employer.

This newsletter covers the growth of HSAs as a potential savings and investment vehicle for retirement, reviewing how HSAs work, contribution limits, and the recent trend by defined contribution plans to provide a consolidated holistic view of a participant’s retirement assets.

Read > Are HSAs the Next Retirement Account?

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.

Emerging Markets: Why Your Active Manager May Be Underperforming

2022 has been a challenging year for investors as both bonds and equities have produced substantial losses. This unusual environment is the product of a kaleidoscope of macro headwinds that have unfolded throughout the year. Against this backdrop, active emerging markets equity managers have generally failed to protect to the downside, with the average manager underperforming the index year to date through September.

There are several potential reasons why active managers have struggled in 2022. The Russian invasion of Ukraine in February caught most market participants off guard and resulted in substantial losses. China’s underperformance relative to the broader index has also served as a headwind for many investors. China is the largest exposure in the MSCI EM Index at 31% and has been challenging for managers to navigate this year given the country’s Zero-COVID Policy, property sector struggles, and negative investor sentiment amid geopolitical tensions. And lastly, the factor environment has dramatically shifted this year, with both Growth and Quality underperforming the broad benchmark. This newsletter further explores the impact that the underperformance of Quality has had on active manager returns this year.

Read > Emerging Markets: Why Your Active Manager May Be Underperforming

 

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.

It’s Always Darkest Before the Dawn

Diversification has been said to be the only free lunch in investments. Since the inception of the Lehman/Barclays/Bloomberg Aggregate index,¹ there have been only 18 of 187 quarters (9.6% frequency) with negative returns in both the bond and equity markets, as measured by the Aggregate and S&P 500 indices, respectively. Comparable results are seen in the monthly data: Of 561 months, only 83 times did both the fixed income and equity markets deliver a negative total return (15.2% frequency). Over the last 45+ years, there has never been a calendar year that recorded negative returns in both indices, though that looks likely to change this year.

This newsletter analyzes 2022’s equity and bond market performance and the importance of diversification and discipline amid such negative momentum.

Read > It’s Always Darkest Before the Dawn

¹Actual data goes back to 1986; backfilled data back to 1976

 

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.

A Tale of Two Markets

Leveraged loans have been the asset class of choice this year, with fixed income investors drawn to the floating-rate nature of these securities in a rising rate environment. Investors have piled into the asset class since the beginning of 2021 at the expense of other segments of the market, including high yield bonds. High yield bonds are typically the first to show signs of deterioration in stressed credit markets and tend to be subject to more volatile trading patterns. Below the surface, however, the overall quality of the loan market has deteriorated relative to high yield and changes at the issuer level have impacted the perceived safety of the asset class. Investors who have flocked to loans may need to pause and consider that it could be the loan market — not high yield — that signals trouble on the horizon.

This newsletter provides background on leveraged loans and analyzes historical and recent performance and flows, shifts in quality, and seniority and covenants.

Read > A Tale of Two Markets

 

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.

The Business Cycle Diaries

Even the casual observer of market dynamics is likely aware that the world economy appears to be on uneven footing. Elevated price levels, increasingly restrictive monetary policy, and geopolitical turmoil have plagued securities markets during the first half of the year and are now dampening expectations for global GDP growth going forward. Given this myriad of macroeconomic challenges, many investors are now assessing the possibility of a prolonged slowdown in economic activity for both the United States and the rest of the world.

The aim of this newsletter is to gauge the extent to which the global economy is at risk of such a downturn by examining the state of the current domestic business cycle, inferring its likely next stage, and reviewing which asset classes and investing styles tend to be the most attractive during each phase of the cycle.

Read > The Business Cycle Diaries

 

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.

Can Bond Investors Outsmart the Market?

While it is generally accepted that successfully and consistently timing the equity market is a loser’s bet, the same sentiment is not heard as often in the bond market. However, timing interest rates is just as difficult as equity markets and can lead to the same patterns of underperformance over multiple market cycles. Nonetheless, the recent rate volatility may be a temptation to shorten duration in anticipation of further rate rises. The following analysis examines why this strategy could be difficult to execute successfully, and why we recommend that clients stay the course and remain invested in line with their investment policies.

Read > Can Bond Investors Outsmart the Market?

 

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.