Services Tags: Investment Consulting

What Does the Fed’s Rate Hike Mean for 2017?

December 2016

On December 14, 2016, the FOMC announced its unanimous decision to raise interest rates by 25 basis points, bringing the target fed funds rate to between 0.50% and 0.75%. This was the first increase since last December’s, with the hike prior to that occurring in 2006 before the Great Recession.

This move was widely anticipated and well-communicated to the markets. As such, fed funds futures carried a 100% implied probability of a hike going into it, and most – if not all – of the hike was already priced into global markets. Markets over the past one and a half days since the hike have remained relatively calm. The 10-year Treasury yield rose by only 12bp to end at 2.6%, while the one-year Treasury yield rose by just 3bp to end at 0.9% and the 30-year Treasury yield rose by 2bp to end at 3.1%. The Core Aggregate bond index and the Intermediate Government/Credit index were down only 0.5%, while the 1-3 Yr Government/Credit index fell 0.2%; the Long Government/Credit index also decreased 0.2%. The Credit Suisse Leveraged Loan index was up 0.1%, the Credit Suisse High Yield index was down 0.3%, and the JPMorgan emerging markets debt EMBI Global Diversified index decreased by less than 0.1%. The dollar rose while gold declined, as expected. The S&P 500 declined less than 0.1%.

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The Impact of Trump’s Victory on Capital Markets

November 2016

To the surprise of pollsters, analysts, and much of the American public, Republican presidential candidate Donald Trump trampled predictions by winning the presidential election in stunning fashion.

The long-term impact of Trump’s presidency on financial markets is impossible to predict at this point, given the amount of uncertainty around his expected policies. However, the short-term dynamics surrounding his election win are starting to emerge, and we share with you what we are seeing and hearing in the market in this newsletter.

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Supercharged Fixed Income: Direct Lending

October 2016

Direct lending is an established asset class that provides a total return to investors typically between that of high yield bonds and mezzanine debt. It is considered private credit because the assets in a direct lending portfolio are loans originated privately between the direct lending fund manager (acting as lender) and the borrowing company. Due to the private nature of direct lending, the asset class produces attractive risk-adjusted returns supported by reduced competition, lower volatility, and favorable negotiation leverage for the direct lender. Since the financial crisis of 2008, direct lending as an asset class has featured unprecedented growth in deal volume as well as assets under management. This growth is attributed largely to post-crisis regulations that effectively forced banks, the traditional direct lenders of the past, to shed their direct lending operations. Non-bank direct lending asset managers have in turn benefitted from the significant rise in direct lending opportunities.

Read > Supercharged Fixed Income: Direct Lending

A Broad Overview of 529 Plans and the Achieving a Better Life Experience (ABLE) Act

September 2016

While 529 plans have existed for over two decades, recent developments such as the Achieving a Better Life Experience (“ABLE”) Act have provided a new avenue for families with eligible disabled dependents to build a pool of assets that cover qualified disability expenses such as education, housing, and transportation. Like 529 plans, 529 ABLE (“529A”) plans provide a tax advantaged investment vehicle for eligible participants.

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New GICS Real Estate Sector

September 2016

S&P Dow Jones Indices and MSCI Inc. have announced the creation of a new real estate sector within the Global Industry Classification (GICS) system. Effective market close August 31, 2016, real estate officially became its own GICS sector, whereas it was formerly included within the financial sector. MSCI implemented this new classification change as of this date, but S&P Dow Jones indices will not see this change made until their quarterly index rebalance date of September 16th. Russell indices will not be affected since they utilize a separate classification system from GICS.

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Secure Choice Stewardship: Emerging Defined Contribution Opportunities

Live webinar on secure choice stewardship, the second in our defined contribution guidance webinar series. 

One of the newer developments in the defined contribution world, several states have established retirement savings plans for workers lacking access to employer-sponsored plans — and another 20 are exploring their adoption. With secure choice programs, fiduciaries have unprecedented opportunities to place segments of the U.S. workforce on a steadier path towards retirement readiness.

Please join us for the second webinar in our defined contribution guidance series, a discussion on secure choice stewardship. This session will cover key topics from our recently published paper, Secure Choice: The Next Chapter in the U.S. Defined Contribution Story.

Attendees will be briefed on:

  • Three top traits of secure choice programs
  • Evolving DC best practices
  • Three secure choice fiduciary duty priorities
  • The security and choice call to action  

 

Live Webinar – Thursday, September 15, 2016 – 2:00-2:45 PM CT

Please contact us for access to this video.

BREXIT: The Results and What’s Next

June 2016

On June 23rd, the United Kingdom (UK) shocked markets with its vote to leave the European Union (EU). The Remain vote lost to the Leave vote, 48.1% to 51.9%, with a strong turnout throughout the UK. Younger voters sided with the Remain camp by a wide margin, while older voters supported the Leave camp (Exhibit 2). In the weeks leading up to the referendum, global equity/credit markets and the British pound experienced positive price movement in anticipation of a Remain verdict. Using polling information and odds makers as indicators, investors were caught off guard at the Brexit result, leading to dramatic losses for risk assets on June 24th.

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Is the High Yield Market Expecting a Rise in Defaults?

May 2016

Given the depressed oil prices earlier in the year coupled with the recent credit rally, we have gotten many questions from clients about the future direction of default rates, particularly for high yield bonds. In early February, the question was about how high default rates would rise as a result of low oil prices and their subsequent impact on high yield issuers, particularly those in the energy sector. Now, as credit has rallied, investors are wondering if expected default rates are too pessimistic in light of the rally and rise in oil prices. This newsletter contemplates the current implied default rate for high yield bonds and how successfully it has predicted actual default rates, all in an effort to further examine the state of the high yield market. Ultimately, the goal is to provide our clients with guidance on how current conditions in the market could impact their portfolios over both short and long term investment horizons.

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