Category: Newsletter

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.

Trump Bypasses Congress with Coronavirus Relief Executive Actions

This past Saturday, August 8th, President Trump issued several executive actions that serve as an emergency COVID-19 aid package. The package includes three memoranda that provide assistance for the jobless, a payroll tax deferral, and an extension of the student loan payment moratorium and an executive order that provides rental and mortgage assistance to mitigate evictions and foreclosures. The executive actions came about because of a stalled Congress as negotiations over the last two weeks fell apart last Friday, August 7th, between the Senate Republicans with their $1 trillion proposal and the House Democrats with their $3.5 trillion proposal.

This newsletter puts these executive actions into context with earlier federal stimulus packages, including an overview of how each action will be implemented and expected economic and financial impacts.

Read > Trump Bypasses Congress with Coronavirus Relief Executive Actions

 

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.

Second Quarter Review of Asset Allocation: Risks and Opportunities

The second quarter of 2020 proved to be as eventful as the first, with slow economic results being largely ignored as markets rallied. GDP growth for the quarter is expected to come in at -35.5% YoY, though 3Q GDP projections indicate a significant rebound is expected as the country begins to reopen to “the new normal.” In addition, the unemployment rate came in at 11.1%, down from the April peak above 14%. Below are some highlights from the quarter:

  • Countries around the globe began reopening businesses amid fears of a second wave of COVID-19 infections.
  • Daily infections reached a new high in the United States at more than 50,000 per day, causing some states to roll back their reopening plans.
  • Weekly initial claims for unemployment insurance have continued to trend downwards.
  • Additional fiscal and monetary stimulus are expected in the second half of the year, bolstering markets.

COVID-19 has proven to be a potentially long-lasting concern as it remains to be seen whether we are in for a V-shaped or U-shaped recovery. Economic data is improving slowly, though markets have seemed to shrug off some of the negative news as the S&P 500 moved into positive territory over the one-year period. Though it may have fallen into the background due to COVID-19, 2020 is a presidential election year. Uncertainty surrounding the election will undoubtedly have an impact on forward-looking expectations. In this newsletter, we analyze what all of this means for each asset class.

Read > Second 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.

Sustainable Investing in a Post-COVID World

Defined as an unpredictable occurrence that is beyond the scope of normal expectations, a black swan event is rare and has potentially severe consequences. Even as COVID-19 spread across the globe in late March, the level of disruption ultimately caused by the virus came as a surprise to most. The global pandemic that followed suit was certainly a black swan event with some economists dubbing it the first sustainability crisis of the 21st century.

From a market perspective, stocks experienced the sharpest sell-off in history; while no sector was left unscathed, some relative winners and losers were identified. Of note was the outperformance of sustainable investing strategies compared to their non-sustainable counterparts. The purpose of this newsletter is to dive deeper into the performance of sustainable investing strategies during the past several months and attempt to provide insight into what investors, investment managers, and companies will be seeking from a sustainability perspective in a post-COVID world.

Read > Sustainable Investing in a Post-COVID World

 

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 Impact of COVID-19 on Not-for-Profit Healthcare Systems

The onset of the global pandemic caused by COVID-19 has created substantial stress in the financial markets and the broader economy. Unlike the Global Financial Crisis (“GFC”), the current pandemic is a health care crisis that has had a much more direct and swift effect on all of our hospital clients’ operations and financial positions. The following newsletter represents Marquette’s key observations regarding the current operating environment for the not-for-profit (“NFP”) hospital sector, as well as an outlook for the remainder of 2020.

Read > The Impact of COVID-19 on Not-for-Profit Healthcare Systems

 

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.

Bank Loans vs. High Yield: Is One Safer Than the Other?

Year-to-date, bank loans and high yield bonds have been subject to a variety of market forces similar between the two sectors, but others have impacted each uniquely. While we typically recommend that clients allocate to both sub-investment grade credit asset classes on an equal-weighted basis in order to benefit from each of their strengths as well as the diversification, it is very sound and well-grounded for investors to ask — especially in light of this unprecedented crisis in which we find ourselves — what the unique advantages and disadvantages are from each. Certain investor situations may necessitate maintaining an overweight to one or the other or holding only one.

In this newsletter, we perform a deep dive into the nuances of the performance, technical factors, fundamentals, and valuations between bank loans and high yield in order to make these distinctions. In summary, we determine the merits of a modest overweight of high yield versus bank loans given the current environment due especially to two dynamics — the Fed’s unprecedented purchasing of high yield bonds and weakened bank loan demand as a direct result of weak CLO demand — explored in more detail in the following pages.

Read > Bank Loans vs. High Yield: Is One Safer Than the Other?

 

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.

Don’t Mind the Gap

On the surface it looks disjointed. We are in the midst of what is likely the worst recession since the Great Depression, but the stock market has rallied back in a matter of weeks and currently sits just 10% off all-time highs. Treasury yields appear to be pricing in an extended period of softness, and high yield spreads have only started to show signs of recovery. While the future is always an unknown, it feels as if we are facing a new level of uncertainty with many more moving parts.

In this newsletter, we explore equity market dynamics to help reconcile the apparent gap between the recent good news from equity markets and overwhelmingly negative news from the economy and bond markets.

Read > Don’t Mind the Gap

 

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.

Brighter Lights at the End of a Shorter Tunnel

Biotech company Moderna’s announcement earlier this week that its coronavirus vaccine successfully helped healthy adults produce antibodies against COVID-19 sent the S&P 500 up 3% and the 10-year Treasury yield rebounding from 0.64% to 0.73% on Monday. In this pandemic, the last week of March marked a pivotal turning point when investors started seeing some light at the end of the tunnel. That week was when new infections and hospitalizations started peaking and declining in Italy and Japan, soon to be joined by New York and Washington state. That week also coincided with the Federal Reserve’s and U.S. Treasury’s — later followed by Congress’s — announcement of their substantial stimulus. Credit spreads have gradually been tightening ever since as stimulus ramped up, a number of vaccines and treatments reached Phase I and Phase II clinical trial milestones, and more recently, various states have started to reopen. Moderna’s favorable results added fuel to this positive sentiment and the market’s upswing.

In this newsletter, we examine the evolution of credit spreads and yields in 2020 to gauge the attractiveness of holding investment grade and sub-investment grade credit. Vaccine development is central to assessing the markets today as it is the ultimate permanent solution, and we detail the prospects of various vaccine candidates as well as discuss how investors should allocate to credit in light of vaccine progress in conjunction with key market metrics. Although the vaccine is a permanent solution, fiscal and monetary stimulus have proven to be critical for mitigating damage to the economy and markets in the interim and are still integral to assessing the markets today. We take a closer look at these lifelines from the U.S. government in an attempt to answer the all-important question: how much runway is there with this stimulus? The hope is that current programs coupled with any future policies will be sufficient to sustain and ultimately revive the economy until a vaccine allows for complete resumption of economic activity. Lastly, we dive into the fallen angels (bonds downgraded from investment grade to sub-investment grade), defaults, and bankruptcies that are threatening the credit markets right now and how to address these as investors. Throughout this discussion, we highlight three perspectives that are critical to measuring the attractiveness of an investment or an asset class: valuations, technical factors, and fundamentals.

Read > Brighter Lights at the End of a Shorter Tunnel

 

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 It Game Over for Value Stocks?

Over the last ten years, growth stocks have outperformed value stocks by an average 5.3% per year, and the differential is even greater for shorter time periods. As this differential widened in recent years, the expectation was that value stocks would provide greater protection in a market downturn as the market should theoretically place a greater emphasis on quality and stability, attributes typically found in value stocks. However, as the market rapidly fell into bear market territory in February and has whipsawed back and forth since doing so, growth stocks have continued to outperform value stocks, a trend which has been surprising to investors. At this point, those who have maintained a value bias in their portfolios are undoubtedly frustrated as the paradigm has failed to play out through this market correction and has likely left market participants debating the merits of value stocks altogether.

To help answer these questions, we have enlisted two of our senior research analysts, Samantha Grant (“SG”) and Jessica Noviskis (“JN”), to discuss the value vs. growth dynamics we have seen over the last decade, and to assess the future performance outlooks for each over the next market cycle. In the following conversation, Jessica covers the topics from a growth perspective while Samantha tackles the questions from the value side. Collectively, their answers should help investors decide if it is finally time to abandon value stocks, or if this is just another long-dated cycle in the equity market.

Read > Is It Game Over for Value Stocks?

 

 

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.