Category: Newsletter

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.

Flirting With a Bear Market: How Did We Get Here, and What Comes Next?

Quite simply, this has been the worst start to a year since the 1930s:

  • One of only 19 quarters since 1976 when both bonds and stocks posted negative returns;
  • One of only six of those quarters when bonds have underperformed stocks;
  • The worst four-month return for the S&P 500 since 1939.

2022 to date has featured a myriad of macroeconomic factors coming to a head: inflation at its highest level since the 1980s, the Federal Reserve responding with aggressive rate hikes, and increasing concerns about the health of the consumer leading to a possible recession. An evolving pandemic, a war in Eastern Europe, and draconian lockdown policies in the world’s second-largest economy and largest manufacturing hub have further added to the problem and complicated the solution. With these macro headwinds and uncertainties driving markets year-to-date, Marquette’s fixed income, U.S. equities, and non-U.S. equities teams discuss the impacts on their asset classes and weigh in on the outlook from here.

Read > Flirting With a Bear Market: How Did We Get Here and What Comes Next?

 

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.

Observations on Fidelity’s Bitcoin–401(k) Announcement

On April 26th, 2022, Fidelity Investments announced plans to offer bitcoin for 401(k) plans. For Fidelity, this plan is a natural next step. As shown in Exhibit 1, Fidelity began exploring digital assets in 2014. Soon after, bitcoin-centric custody solutions began to emerge, followed by a private fund and spot-based ETF. While Fidelity’s embrace of bitcoin could be seen simply as bandwagon hopping, the trend below suggests that bitcoin may be part of a broader long-term digital asset strategy.

In this edition of DC Perspectives, we cover the implications of Fidelity’s announcement for bitcoin and digital assets broadly, for the investment industry, and for defined contribution plan sponsors.

Read > Observations on Fidelity’s Bitcoin-401(k) Announcement

 

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.

Low Volatility: Factor or Fad?

The beginning of 2022 represented a change of pace for equity investors, as increased geopolitical and macroeconomic uncertainty drove the S&P 500 to its first negative quarter in two years. In light of recent performance trends and the potential for continued asset price fluctuation, market participants may be interested in assessing the viability of strategies with lower risk profiles that still offer the potential for long-term gains similar to those of the S&P 500. One such strategy is low volatility equity investing. Though it has fallen somewhat out of favor in recent years, low volatility is a generally accepted risk premia factor (akin to value, size, quality, etc.), meaning investors can theoretically expect to earn excess returns by allocating to lower volatility equities over the long run. This newsletter seeks to understand the rationale and evidence for this premium, explain recent performance of low volatility stocks, and examine the prospects of the style going forward.

Read > Low Volatility: Factor or Fad?

 

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 Rising Possibility of Recession

Over the last several weeks, the risk of an economic downturn in the United States has increased with inflation continuing higher, Russia’s invasion of Ukraine triggering unprecedented sanctions, and the Fed beginning its rate hiking cycle. While inflation and the anticipation of rising rates have been driving markets for several months, the invasion of Ukraine in February and the resultant economic sanctions on Russia have added a new dynamic to the equation, driving up commodity inflation and making the Fed’s job of controlling pricing pressures without triggering an economic slowdown even trickier. With many U.S. stock indices dipping into correction territory this year, every new data point and indicator will be heavily scrutinized.

In this newsletter we examine these dynamics and try to provide perspective as it relates to the current market environment.

Read > The Rising Possibility of a Recession

 

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.

OCIO Momentum Continues

One of the most significant evolutions in our business over the last decade has been the growth of our Outsourced Chief Investment Officer (“OCIO”) services platform. What at first seemed like chance requests over a decade ago from a handful of clients looking for additional help managing their portfolios has become increasingly mainstream. More than half of our prospective client engagements last year inquired about OCIO services. Our experience is certainly reflective of a broader industry trend as OCIO assets under management have grown from $90 billion to an estimated $2.7 trillion over the last fifteen years.¹ Given the industry growth and increased interest in OCIO services from our client base, we thought we’d share our experience as to why institutions are asking about OCIO and what the major challenges are that Marquette has helped these clients solve.

Read > OCIO Momentum Continues

 

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.

Life During Wartime: Assessing the Market Impact of the Russia/Ukraine Conflict

Recent days have seen an escalation of political tensions in Eastern Europe, and on February 24th, Russian forces began conducting large-scale military operations in Ukraine. These actions have drawn widespread condemnation from the international community, with NATO repositioning troops along its eastern flank and both the United States and European Union announcing intentions to impose sanctions on a variety of Russian financial institutions. The conflict has also threatened the stability of global markets, particularly those areas of the world economy that are most sensitive to energy and the performance of emerging market countries. The aim of this newsletter is to assess the ramifications of Russian actions vis-à-vis the broad market and determine the potential implications of further escalation of the conflict going forward, including:

  • Equity index performance
  • Index exposure to Russia and Ukraine
  • Commodity market expectations
  • Central bank policy and inflation impacts
  • Historical impact of similar exogenous shocks on equities

Read > Life During Wartime: Assessing the Market Impact of the Russia/Ukraine Conflict

 

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.

New Year, New Plan: Resolutions to Support Your Participants in 2022

As 2022 kicks off and resolutions for the new year are finalized, we have decided to compile a list of suggestions for defined contribution plan committees that can serve to support their participants as annual reviews and quarterly meetings begin.

In this newsletter, we review:

  • Automatic features in plan design including auto-enrollment default rates and auto-escalation cap rates
  • Participant communication campaigns
    ⋅ Online account set-up
    ⋅ Beneficiary elections
    ⋅ Participant rollovers

Read > New Year, New Plan: Resolutions to Support Your Participants in 2022

 

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.

Certainty Over Uncertainty: Biden Nominates Powell for Another Term as Fed Chair

In a move especially pivotal given today’s elevated inflation as the economy is resuscitated out of the pandemic, President Joe Biden announced yesterday morning (November 22nd) that he would nominate the incumbent Jerome Powell for another term as Chair of the Federal Reserve. Additionally, Biden nominated Lael Brainard as Vice Chair. Both Powell and Brainard had been under consideration for the Chair role in uncharacteristically lengthy deliberations on the part of Biden, who had interviewed both for the position on November 4th.

This newsletter provides background on Powell and Brainard, covers the market reaction to Biden’s announcement, and analyzes expectations for interest rates and inflation in the coming years.

Read > Certainty Over Uncertainty: Biden Nominates Powell for Another Term as Fed Chair

 

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.

Holiday Supply Chain Woes Linger

Headlines continue to buzz with worries of supply network dysfunction that seem to span every link of the chain, from truckers and shippers to commodities and semi-conductors. Clearly, the delicate balance of supply and demand is off kilter. Supply chain disruptions began when global economies locked down amid the outbreak of COVID-19, and the problem has only been exacerbated by stop-and-start re-openings that have taken place in recent months.

This newsletter seeks to understand current supply chain dynamics and what they might mean for investors and consumers alike as we move into the holiday season. We cover the three-prong problem of prices, transport, and labor, which market participants will likely feel the squeeze tighter than others, how companies have continued to grow their margins, inflation considerations, and what to expect in the short and long term.

Read > Holiday Supply Chain Woes Linger

 

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.