Services Tags: Investment Consulting

Retirement Basics Video Series

This video series is intended for plan sponsors and fiduciaries and covers a variety of topics related to creating and managing effective defined contribution investment programs. Co-presented by members of our consulting and research teams, these videos present the basics of retirement plans for trustees and investment staff in an educational format meant to provide guidance and insights on best practices and trends in the industry.

The series includes:

  • Fiduciary Checklist, an overview of the roles and responsibilities of fiduciaries including planning, oversight, communication, and documentation;
  • Defined Contribution Topics & Trends, industry trends and recent developments and guidance from the Department of Labor;
  • Investment Lineup Best Practices, considerations and guidance for selecting investment lineup offerings for retirement plans;
  • Target Date Funds, a deep dive into TDFs, from structure and glidepaths to why target date funds have become so popular; and
  • Stable Value Funds, an overview of stable value, exploring structure, important considerations, and recent litigation.

View each episode in the player below — use the upper-right list icon to access a specific presentation.

For more information, questions, or feedback, please send us an email.

One Year Ago, Would Anyone Have Predicted This?

What a year it has been. Officially one year after the equity market’s bottom on March 23rd, 2020, all major indices in the chart above have at least recovered back to ending 2019 levels. The groups that were hit the hardest have also rebounded the strongest, with returns over the last year exceeding 100% for some. Small-cap equities stand out, especially in the U.S. — up 121% over the last year and up 33% over the almost 15-month period since 2019. U.S. mid-cap equities are up 101% over the last year, up 25% over the full period, and U.S. large-cap equities are up 83% over the last year for a 26% return over the full period. Small-cap stocks have also outperformed internationally — the MSCI EAFE Small Cap Index is up 91% over the last year and 18% since 2019, while the MSCI EAFE Index is up 67% over the last year and 12% for the full period. Emerging markets, some of the hardest hit by the crisis last year, have more than recovered, up 78% over the last year for a 22% return since 2019. Fixed income returns have been more muted. Investment grade bonds stayed positive in early 2020 as equity markets fell precipitously and are up another 3% since. High yield bonds, bank loans, and emerging market debt were hit harder but still held up better than equities. Each group has recovered those losses but remains in positive single-digit territory over the full period.

From here, we expect returns will likely moderate. As the vaccine roll-out continues we expect further economic re-openings and renewed growth across the globe, but it seems highly unlikely capital markets returns can continue at this pace beyond the initial recovery.

Print PDF > One Year Ago, Would Anyone Have Predicted This?

 

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.

Commodities: Cycle or Cyclical?

A commodities supercycle is generally defined as a sustained period of broad-based above-trend movement. In the first quarter of 2020, almost a decade of commodities price weakness was capped off with a more than 20% drop, and since then, prices have rebounded more than 40% to levels last seen in 2018, inspiring headlines debating whether this is the start of the next supercycle. Proponents argue reopening demand, a potential uptick in global growth and inflation, and a weaker U.S. dollar, among other factors, point to yes. Skeptics contend that an initial demand normalization complicated by temporary supply disruptions does not a supercycle make, at least yet. Commodity price movements can be especially volatile given lumpy physical market characteristics. Oil prices moving into sharply negative territory last April demonstrate exactly that. Whether this latest move is cyclical and temporary or structural and sustainable is still to be determined.

In this newsletter, we explore a few of the key factors that could support or suppress a sustained commodities bull market.

Read > Commodities: Cycle or Cyclical?

 

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 Latest Stimulus Mean for the Economy and Fixed Income Markets?

President Joe Biden signed the $1.9 trillion pandemic relief package yesterday amidst rising inflation and interest rates since the beginning of the year as the markets price in future growth. With Fed Chair Jerome Powell’s recent reaffirmation of the central bank’s accommodative monetary stimulus, continued vaccine rollout, a drop in COVID-19 cases and deaths, and Biden’s statement that the U.S. will have enough vaccines for every adult by the end of May, a key question on many investors’ minds is, “How much more inflation and rising interest rates could we expect in the road ahead?” This edition of Marquette Perspectives will attempt to answer that question by examining this relief aid in connection with vaccination progress and the economic recovery.

Read > What Does the Latest Stimulus Mean for the Economy and Fixed Income 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.

Fear is the Return-Killer

Frank Herbert’s science fiction novel Dune contains a litany which states that “fear is the mind-killer.” Indeed, anxieties brought on by periods of turmoil can cause individuals to forsake rational thinking and act impulsively, usually to their own detriment. This phenomenon often manifests itself in equity markets, particularly when investors choose to curtail or altogether abandon equity allocations amid (or in expectation of) steep declines in the prices of risky assets. These impetuous actions stem from various emotional biases held by market participants including loss-aversion, which describes the asymmetrical response many individuals feel with respect to gains and losses (i.e., investors derive more pain from a loss than pleasure from a gain of equal value).

The aim of this newsletter is to demonstrate that, save for a modicum of intangible psychological comfort, sales of risky assets motivated by fear and panic provide investors no value, and can ultimately have disastrous impacts on the long-term returns of a portfolio.

Read > Fear is the Return-Killer

 

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.

Small-Cap: Much Ado About Quality

2020 was a year in which some small-cap asset managers flourished while most struggled to adapt to the changing tides of an unprecedented global pandemic. Active managers will not soon forget the difficulty of investing in 2020, but the dynamics that predicated the market may go overlooked.

In this newsletter, we seek to address the underperformance of small-cap active managers over the last several years, focusing on factor fallout and the definition of quality. We will specifically look to address how the rise of thematic versus fundamental investing came to the forefront in 2020.

Read > Small-Cap: Much Ado About Quality

 

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 Is the Most Attractive Segment of the Private Equity Market?

As private equity matures further as an asset class, median private equity returns will continue to move closer to the public markets. Nevertheless, as a result of active management and private market inefficiencies, the top quartile to median spread for private equity is still more than 2x greater than it is for public market-oriented managers. When we take a closer look at fund performance within private equity, there is significantly more upside as well as performance variability for smaller buyout funds as compared to larger buyout funds. As seen in this week’s chart, funds that are less than $1B in size had a median Net IRR of 13%, a 1st quartile range of 21–37%, and a 4th quartile range of -10–6% whereas funds greater than $6B in size had a median Net IRR of 9%, a 1st quartile range of 17–23%, and a 4th quartile range of 2–8%.

This performance dispersion is largely driven by smaller funds sourcing opportunities outside of intermediated processes, leveraging a repeatable and focused operational playbook to professionalize and grow portfolio companies quickly, and a growing list of paths to liquidity, including larger funds with an increasing amount of dry powder that are sourcing investments out of smaller managers’ funds. With that said, larger funds buy companies that are typically more mature, have built-out teams, and are capable of weathering business shocks with greater success, which accounts for the tighter band of outcomes at the larger end of the market.

Due to COVID and an inability to meet with potential investors in person, first-time funds and emerging managers which typically fall in the “small” fund size had difficulty raising capital in 2020. This dynamic is expected to have two significant effects on the 2021 private equity ecosystem: 1) first-time funds and emerging managers fundraising is likely to be more active in 2021 and 2) dry powder has been further concentrated in larger funds, which should create an increasingly attractive exit environment for smaller funds.

Given the compelling upside opportunity of investing in smaller funds and an expected increase in the number of these funds raising capital in 2021, these managers represent an attractive area of the private equity market to be allocating capital towards. Given the greater performance variability of smaller funds, allocations to funds at this size should be focused within a program that allows for a number of high-quality commitments, such as those provided by fund-of-funds.

Print PDF > What Is the Most Attractive Segment of the Private Equity 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. Opinions, estimates, projections, and comments on financial market trends constitute our judgment and are subject to change without notice. Past performance does not guarantee future results. 

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.

Kweku Obed Speaking at DAMI Investment Consultant Survey Webinar 1/26

On Tuesday, January 26th, Kweku Obed, CFA, CAIA will be speaking as part of the Diverse Asset Managers Initiative’s (DAMI) webinar covering their 3rd annual Investment Consultant Survey, released in December 2020.

Kweku will be joining several other panelists from various investment consulting firms to review the survey, discuss the role of investment consultants in the asset management industry, and highlight movement in the field over the past year. The Diverse Asset Managers Initiative seeks to build a vibrant, coordinated effort to change the culture of the financial services industry as it relates to asset managers and to increase the absolute number of, and assets under management by, diverse-owned asset management firms.

For more information on DAMI and the survey, please visit the DAMI website.

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.