Category: Newsletter

Hedging Rising Inflation and Interest Rates

Rising inflation and interest rates have not been real issues for investors for several years, but both have remained popular topics of concern. While inflation does not appear to be an immediate risk given still depressed GDP and elevated unemployment, the size of the latest proposed $1.9 trillion COVID relief package has many thinking about future implications. Stimulus did not lead to inflation following the Global Financial Crisis, but there are a number of reasons, beyond the sheer size of this effort, that we could see greater inflationary pressures this time: more pent-up consumer demand, well-capitalized banks and healthy consumer balance sheets, de-globalization, and higher operational costs associated with the virus. And while the Federal Reserve has committed to maintaining its ultra-accommodative monetary policy until long-term inflation hits 2% (with shorter-term inflation allowed to rise moderately above 2% for some time), unless the Fed changes its stance on negative rates, rates can only go in one direction from here: up.

Like all things market-related, we do not recommend trying to time inflation or interest rates. In this newsletter, we analyze equity long/short hedge funds as an option for investors to potentially optimize their portfolio for this dynamic environment.

Read > Hedging Rising Inflation and Interest Rates

 

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.

Prospects of Dollar Depreciation in the COVID Recovery & Impact on Asset Classes

As vaccine distribution continues in full force and the global economy’s recovery from the COVID pandemic gains momentum, investors are concerned about depreciation of the U.S. dollar and how this phenomenon might affect various asset classes within a portfolio.

In this paper, we examine the mechanics of dollar depreciation and its subsequent impact on traditional asset classes. We begin by exploring the macroeconomic factors that drive dollar strength or weakness and then examine the impact of dollar depreciation on the fixed income, U.S. equities, and non-U.S. equities asset classes both by covering the potential effects of a stronger or weaker dollar and by assessing historical performance.

Read > Prospects of Dollar Depreciation in the COVID Recovery & Impact on Asset Classes

 

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.

 

Fundamental Disconnect: Understanding the Nature and Impact of Recent Frenzied Trading

In recent years, most major brokerage firms have participated in a “race to the bottom” with respect to commissions on equity purchases and sales, as well as options trades. This phenomenon, in tandem with the rise in popularity of app-based trading platforms like Robinhood, has afforded retail investors greater access to capital markets. While the democratization of the investment world is beneficial in many respects, it can also lead to irrational behavior and a decoupling of asset prices and fundamentals.

In this newsletter, we analyze the recent frenzied trading activity that has grabbed the headlines, including a summary of what has happened so far and a look at the impact and implications of this behavior.

Read > Fundamental Disconnect: Understanding the Nature and Impact of Recent Frenzied Trading

 

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.

2021 Market Preview

2020 was a year like no other and has left investors across the world wondering what the future looks like. Will vaccines prove effective in halting a pandemic that spread like wildfire across the globe? What will the impact of a new administration in Washington be on economies and markets? How much additional stimulus will be injected into the economy? And most broadly, will things ever get back to “normal”? While there are no easy answers to these questions, 2021 promises to be another volatile year, most especially until there has been sufficient roll-out and distribution of vaccines to contain the COVID-19 outbreak that continues to haunt economic growth across the globe.

Remarkably, 2020 ended up as a positive year for financial markets despite a massive sell-off in the equity and credit markets during February and March. Paradoxically, 2021 may be a less eventful year but at the same time a lower overall return environment, given that much of the optimism about economic re-openings and stimulus has already been priced into the markets. Nonetheless, there are a variety of factors worth monitoring over the next year which will directly impact market returns. Similar to past years, we offer our 2021 market preview newsletters for each of the primary asset classes we cover, with in-depth analysis of last year’s performance as well as trends, themes, opportunities, and risks to watch for in 2021.

We hope these materials can assist you and your committees as you plan for the coming year and beyond. We have also produced a 2021 Market Preview video if you would like to hear a high-level summary of the market previews. Should you have any questions about anything related to these materials, please feel free to reach out to any of us for further assistance. Here’s to a return to normalcy in 2021!

U.S. Economy: Are Better Days Ahead?
by Brandon Von Feldt, CFA, Research Analyst

Fixed Income: Poised for Further Recovery with Undertones of Exuberance
by Ben Mohr, CFA, Director of Fixed Income

U.S. Equities: Birth of a New Market
by Samantha T. Grant, CFA, CAIA, Assistant Vice President,
Colleen Flannery, Research Analyst, U.S. Equities, and
Evan Frazier, CAIA, Research Analyst, U.S. Equities

Non-U.S. Equities: Constructive but Cautious
by David Hernandez, CFA, Senior Research Analyst, Non-U.S. Equities, and
Nicole Johnson-Barnes, CFA, Senior Research Analyst, Global Equities

Hedge Funds: Poised for Another Record Year?
by Joe McGuane, CFA, Senior Research Analyst, Alternatives
and Jessica Noviskis, CFA, Senior Research Analyst, Hedge Funds

Real Estate: Finding the New Normal
by Will DuPree, Senior Research Analyst, Real Assets

Infrastructure: An Evolving Opportunity Set, but an Essential Allocation
by Will DuPree, Senior Research Analyst, Real Assets

Private Equity: Both Quality and Growth Shine Brightly in 2020
by Derek Schmidt, CFA, CAIA, Director of Private Equity

Private Credit: Two Steps Forward, One Step Back
by Brett Graffy, CAIA, Research Analyst

Download the combined files > Traditional and Alternatives

 

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.

Tech Bubble Revisited? Contrasting the Current Landscape with the Dot-Com Boom and Bust

Continued strong performance of technology-oriented stocks through disparate economic environments, elevated valuations, and increasing concentration within the growth space have caused many to draw parallels between present-day conditions and those of the late 1990s. Some feel as though investor exuberance surrounding innovative companies is irrational, and that 2021 could bring with it a paradigm shift in terms of sentiment and market leadership.

This newsletter seeks to assess the extent to which the current equity landscape mirrors the Dot-com Bubble with an analysis of performance, sector concentration, profitability fundamentals, and valuations.

Read > Tech Bubble Revisited? Contrasting the Current Landscape with the Dot-Com Boom and Bust

 

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.

Additional Relief Stimulus to Bridge Gap as Vaccine Distribution is Underway

While the recent approval and rollout of the Pfizer and Moderna vaccines would be expected to assist in the gradual economic recovery from the COVID pandemic, the Federal Reserve emphasized last week that approximately six months of both monetary and fiscal stimulus are needed to bridge the gap between now and adequate vaccine distribution to support herd immunity by 2H21. As such, Congress over the weekend finally reached an agreement on an approximate $900 billion fiscal stimulus package, and after passing through both houses Monday, President Trump is expected to sign it into law today.

The package includes aid for many Americans including $300 per week in federal unemployment benefit enhancements and $600 individual stimulus checks, as well as support for small businesses, healthcare, transit, schools, and vaccine rollout. In this paper, we will begin with an assessment of the stimulus packages to date, followed by highlights on key aid to individuals, businesses, and governments in this latest package. Next, we will discuss an interpretation and analysis of this relief deal in the context of key financial market and economic indicators. Finally, we will conclude with a look to next steps.

Read > Additional Relief Stimulus to Bridge Gap as Vaccine Distribution is Underway

 

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 TIPS Be an Effective Inflation Hedge for Portfolios?

With the COVID vaccine’s worldwide distribution and adoption starting last week, many investors are aiming to project an inflation outlook driven by the return of furloughed workers and impending economic recovery and adjust portfolios with inflation protection in mind.

In this newsletter, we examine how key asset classes in institutional portfolios behave in rising or declining inflation environments, and ultimately determine the best asset classes that serve as inflation hedges while also providing strong total return and efficiency ratios. In particular, we investigate if TIPS (Treasury Inflation-Protected Securities) offer superior inflation protection compared to other common portfolio constituents.

Read > Can TIPS Be an Effective Inflation Hedge for Portfolios?

 

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.

Cash Balance Product Alternatives & Recommendations in the Current Ultra-Low Yield Environment

With short-term interest rates seemingly stuck at unprecedented low levels, a key challenge for investors today is how best to obtain compelling yields for cash balances as part of an overall portfolio while maintaining safety and principal protection.

In this newsletter, we examine the current ultra-low yield environment and what options investors may consider in their approach to structuring an optimal cash allocation.

Read > Cash Balance Product Alternatives & Recommendations in the
Current Ultra-Low Yield Environment

 

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.

Why Will Yields Remain Low After COVID and What Can Investors Do About It?

As we head into the 2020 year-end holiday season on the heels of positive vaccine news and an all but formally concluded presidential election, investors are turning their attention to what the state of the world economy and financial markets might look like as we potentially return to normal in 2021 and beyond. One key question being asked is where interest rates and bond yields might be headed.

In this newsletter, we explore why we are in such an ultra-low yield environment as well as what key structural transformations need to take place for rates to meaningfully rise to higher levels. Last, we devise a recommended plan of action for how asset owners can address this persistent ultra-low yield environment — even after a COVID recovery — in order to achieve return or volatility targets.

Read > Why Will Yields Remain Low After COVID and What Can Investors Do
About It?

 

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 the Biden Win Mean for Financial Markets?

On Saturday, November 7th, Joe Biden was declared the winner of the presidential election and will become the 46th president of the United States in January. Markets were surprisingly positive last week despite the uncertainty around results as multiple states were too close to call until all the votes had been tallied. While there is still pending litigation in certain states, it seems highly unlikely that these actions will reverse the election result. Thus, market participants have turned their attention to what the market can expect from a Biden-led White House coupled with a split Congress, while the coronavirus pandemic marches on.

In this newsletter, we tackle this question for each of the “traditional” asset classes: Fixed Income, U.S. Equities, and Non-U.S. Equities. The impact on alternative asset classes such as hedge funds, real assets, and private equity are more nuanced and will be covered in our 2021 market preview to be released in January.

Read > What Does the Biden Win Mean for Financial 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.