Services Tags: Asset Allocation

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.

In Context Video: Is the 60/40 Portfolio Dead Forever?

In this video, the authors of our recent white paper discuss the 60/40 model portfolio — a long-time approach to portfolio construction that generally consists of a 60% allocation to equities and a 40% allocation to fixed income. From the decades of success the 60/40 portfolio has experienced (and why) to skepticism about its future viability in light of the current low interest rate and expensive equity market environment and how organizations may still be able to meet their return targets, we seek to answer if the 60/40 portfolio’s efficiency is a thing of the past.

Marquette’s In Context series brings our latest research to your screen, with discussion led by the authors behind Marquette’s papers and newsletters. From current events and trends to portfolio strategy and the broader economic landscape, we explore the questions investors are asking with consideration and the context you need to know.

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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. Marquette is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Marquette including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.

Is the 60/40 Portfolio Dead Forever?

Model portfolios — or those which adhere to a specific set of guidelines surrounding asset allocation and rebalancing — are often utilized by investors because of their rules-based nature, which eliminates the need for constant monitoring. One such model is the “60/40 portfolio,” which consists of a 60% allocation to diversified equities and a 40% allocation to a broad basket of fixed income securities. Due to the imperfect correlation between stock and bond returns, the 60/40 model has enjoyed decades of success at both providing its users with strong absolute returns and suitable protection during market drawdowns. Additionally, there is an intuitive attraction of the 60/40 portfolio due to its relative simplicity of holding just stocks and bonds as its underlying investments. That said, skepticism abounds regarding the model’s viability going forward in light of the current interest rate environment and low forecasted equity returns, particularly for those investors like endowments and foundations with specified spending requirements.

The aim of this paper is to assess the effectiveness of the 60/40 model going forward and provide guidance to investors whose spending targets require an expected return that is consistent with the historical performance of 60/40 portfolios, which has typically hovered around 8%.

Read > Is the 60/40 Portfolio Dead Forever?

 

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.

Q3 2021 Market Insights Video

This video features an in-depth analysis of the third quarter’s performance by Marquette’s research team, reviewing general themes from the quarter and risks and opportunities to monitor through the end of the year. Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.

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Q1 2021 Market Insights Video

This video features an in-depth analysis of the first quarter’s performance by Marquette’s research analysts and directors, reviewing general themes from the quarter and risks and opportunities to monitor in the coming months.

Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.

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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.

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.

2021 Market Preview Video

This video coincides with our 2021 Market Preview newsletters and provides a high-level summary of each, including analysis of last year’s performance as well as trends, themes, opportunities, and risks to watch for in 2021.

Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.

Sign up for research alerts to be notified when we publish new videos here.
For more information, questions, or feedback, please send us an email.

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.