Category: Newsletter

Equities Falter Amid Uncertainty

October has been a tale of two months for equity market participants. While the first half of the month saw solid performance from risk assets, major equity indices have struggled in recent days as investors continue to grapple with political, economic, and public health uncertainty.

In this newsletter, we put the recent volatility and pullback into context, with an update on the resurgence of new coronavirus cases and global responses to the pandemic and a look at expectations for the coming months.

Read > Equities Falter Amid Uncertainty

 

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.

Third Quarter Review of Asset Allocation: Risks and Opportunities

The third quarter of 2020 featured a major rebound in economic data amid an intense battle for the presidency and an uncertain future for COVID-19 cases as some states are seeing higher positivity rates. GDP growth for the quarter is expected to come in at +35.2% YoY, higher than analyst expectations, which helped to propel equity markets higher during the quarter. In addition, the unemployment rate dropped to 7.9% but is expected to remain elevated until additional clarity regarding COVID-19 becomes available. Below are some highlights from the quarter:

  • Biden is favored over Trump in the election race, as mail-in ballots and virtual town halls instead of debates have proven that this election will be unlike any before it.
  • The country has widely reopened, though concerns in some larger states of increased positivity rates have caused some rollbacks ahead of the winter season.
  • A vaccine is in the works and anticipated to be ready by April 2021, with widespread vaccinations likely around mid-2021.
  • Schools have moved to a hybrid model of in-person and online classes, causing logistical problems for parents as many balance jobs and at-home learning.

The election is sure to bring additional volatility through the end of the year. Biden and Trump have vastly different tax plans and a Democratic sweep could drive a sell-off in equity markets. Economic data is still pending through 3Q, though most forecasts show large rebounds in data as states reopened from COVID-19 closures. Big questions regarding vaccines and if the winter will see a resurgence in coronavirus cases remain. We analyze what all of this means for each asset class in the remainder of this newsletter.

Read > Third Quarter Review of Asset Allocation: Risks and Opportunities

 

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.

Distressed Investing: Missed Opportunity?

As the calendar flipped to 2020, many market prognosticators agreed that one of the longest economic expansions on record would continue throughout the year. Unemployment rates were near record lows across most major economies and many were expecting a record year for corporate earnings. The signing of the Phase One U.S-China trade deal helped drive markets to all-time highs in the early part of February. Nobody saw the rapid escalation of a global pandemic that pushed the global economy into recession and global markets into a tailspin.

This newsletter covers the shift in distressed investing this year amid the uncertainty surrounding the length and economic impacts of the pandemic, including a look back at the previous expansion that led to exponential growth of leveraged credit markets. Historically, distressed hedge funds have performed well after a crash, and as companies across many sectors face immense pressure, this current cycle is likely to create a robust opportunity set.

Read > Distressed Investing: Missed Opportunity?

 

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 Changing Landscape in EM Equity

Over the last ten years, the landscape for emerging market equities (EM) has changed. In the first decade of the century, BRIC investing was popular with an emphasis on materials and energy. Since then, the benchmark exposure to Brazil and Russia has halved, sector exposures have changed, and many new companies have entered the index. The number of stocks in the benchmark has nearly doubled, moving from 754 in 2010 to 1,385 in 2020.

This newsletter will review some of the most significant changes to the EM investing arena and what that means for client portfolios.

Read > The Changing Landscape in EM Equity

 

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 VRP Opportunity From Here

Volatility Risk Premium (“VRP”) strategies have struggled this year. The market’s extreme moves led to losses for put writing strategies on the way down and losses for call writing strategies on the way back up. Obviously not to be ignored, but the last six month period has truly been an outlier event. Now with the dust seemingly settled, we assess the opportunity from here. With rates near lows and equity valuations near highs, VRP strategies screen favorably, offering a more independent return stream.

In this paper, we look at correlations between returns and multiples, showing the relative advantage of VRP strategies, as well as the outsized opportunity created by today’s elevated levels of uncertainty.

Read > The VRP Opportunity From Here

 

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.

IPO Market Is Heating Up Again

The IPO market in 2019 generated a record amount of exit value for venture capital investors as large and anxiously awaited IPOs from Uber, Lyft, Slack, Peloton, Smile Direct, Chewy, Pinterest, and Beyond Meat drove the market and dominated the headlines. Entering 2020 — a presidential election year — the markets braced for another round of anticipated IPOs expected to come before the election. However, following the COVID outbreak in Q1 and the resulting global pandemic during Q2, the IPO market ground to a halt. This disruption resulted in a significant backlog of companies waiting to come to the public markets.

In this newsletter, we look at the recent reversal of this IPO backlog with companies coming public at a feverish pace during the third quarter and take a look at further expectations for the remainder of the year.

Read > IPO Market Is Heating Up Again

 

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.

How Will the 2020 Election Affect the Markets?

The 2020 presidential election is fast approaching on November 3rd and key election issues pertaining to the economy will be viewed with respect to a backdrop of crisis and uncertainty more than ever. Curbing the spread of COVID-19 is at odds with reopening the economy while racial injustice remains a focal point. A potential Biden presidency and Democrat-controlled Senate could result in tax increases aimed at stimulating the economy through public projects and providing a social safety net. In contrast, a second term with Trump would likely mean more of the status quo in terms of keeping the 2017 tax cuts, further trade negotiations with China, and his attempt to nullify Obama’s Affordable Care Act.

In this newsletter, we assess the platforms of both Biden and Trump with a focus on Biden’s proposed tax policies and a perspective on how they are expected to affect the economy and markets. We next examine the historical effect of politics on the markets such as equity performance based on which party controls the White House, Senate, and House of Representatives. Lastly, we take a look at 2020 election expectations based on recent polls and markets.

Read > How Will the 2020 Election Affect the 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.

Resilience in U.S. States, Cities, Health Systems, and Universities: Municipal Asset Class Review & Outlook

To date during this COVID-19 pandemic, both U.S. municipal bond issuers as well as municipal bond strategies have proven to be resilient despite the mounting adversity brought on by the nationwide lockdowns and other social distancing guidelines. The broader market recovery has been relatively quick as the S&P 500 is now back to pre-COVID highs, corporate credit spreads are back to pre-COVID tights, and overall volatility has mostly stabilized. The rebound in the economy is proving to be slow, however — with recent signs of leveling off — and is not expected to fully rebound until a vaccine is approved and distributed.

In the following, we provide a quick review of how municipal bonds have weathered the crisis so far in 2020; an assessment of key valuation, fundamental, and technical indicators to formulate a thesis for investing in municipal bonds going forward; and perspectives on how specific segments of the asset class such as investment grade municipals vs. high yield municipals and select sectors of the municipal bond market such as healthcare and education are expected to fare during the balance of the recession and recovery.

Read > Resilience in U.S. States, Cities, Health Systems, and Universities: Municipal Asset Class Review & Outlook

 

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.

Is Now a Good Time for Equity Long/Short Strategies?

The investment landscape looks different post-COVID. Real interest rates have fallen into negative territory. The outlook for investment portfolios built on a fixed income allocation has meaningfully changed. The stock market is just off of new highs, increasingly disconnected from the underlying economy. Are equities unstoppable, or set up for a massive correction on any negative vaccine news or a pullback in stimulus? And how will the November election impact portfolios?

Clearly, there are many moving pieces for asset allocators trying to balance risk and return. Given the current environment, part of the solution may be an allocation to equity long/short hedge funds. Equity long/short strategies can improve portfolio diversification, help protect capital in periods of market weakness or heightened volatility, and increase overall risk-adjusted returns. In August, Hedge Fund Research noted that institutional investors were actively looking to increase exposure to hedge funds in the second half of the year as a direct result of the volatility of the first half. In this newsletter, we outline a few reasons why.

Read > Is Now a Good Time for Equity Long/Short Strategies?

 

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.

We’ve Come So Far, but Maybe It Was Too Fast

It had been smooth sailing in equity markets since the first quarter’s bear market. The S&P 500 index eclipsed the February 19th all-time high and in August the volatility index grazed lows not seen since the beginning of the year. However, over the past week, equity markets have been in turmoil with the S&P 500 falling nearly 7.0% and the NASDAQ 100 falling into correction territory, declining 10.9% in the last three trading days.¹ The turmoil has been concentrated in the most unlikely place: growth stocks.

In this newsletter, we provide a recap of recent volatility in the U.S. equity markets and assess the sources of ongoing investor uncertainty.

Read > We’ve Come So Far, but Maybe It Was Too Fast

 

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.