Topic Tags: Fixed Income - Global

Q1 2022 Market Insights Video

This video features an in-depth analysis of the first quarter’s performance by Marquette’s research team, 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.

 

Featuring:
Greg Leonberger, FSA, EA, MAAA, Director of Research, Managing Partner
Frank Valle, CFA, CAIA, Senior Research Analyst, Fixed Income
Colleen Flannery, Research Analyst, U.S. Equities
David Hernandez, CFA, Senior Research Analyst, Non-U.S. Equities
Chad Sheaffer, CFA, CAIA, Research Analyst
Josh Cabrera, CFA, Senior Research Analyst, Real Assets
Derek Schmidt, CFA, CAIA, Director of Private Equity
Brett Graffy, CAIA, Senior Research Analyst

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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.

2022 Market Preview Video

This video coincides with our 2022 Market Preview letter from Director of Research Greg Leonberger, FSA, EA, MAAA and provides analysis of last year’s performance as well as trends, themes, opportunities, and risks to watch for in 2022.

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.

Featuring:
Greg Leonberger, FSA, EA, MAAA, Director of Research, Managing Partner
Tanner Maupin, Research Associate
Colleen Flannery, Research Analyst, U.S. Equities
David Hernandez, CFA, Senior Research Analyst, Non-U.S. Equities
Nat Kellogg, CFA, President, Director of Manager Search
Josh Cabrera, CFA, Senior Research Analyst, Real Assets
Derek Schmidt, CFA, CAIA, Director of Private Equity
Brett Graffy, CAIA, Senior Research Analyst

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

 

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.

In Search of Lost Yield

The fixed income space faces several significant challenges in 2022. First, the ability of many bond strategies to generate viable income streams is limited by interest rates that remain at historic lows. Additionally, elevated levels of inflation, which may remain above the Federal Reserve’s long-term target of 2.5% throughout the year, will serve to dilute real returns. To that point, the 5-year breakeven rate, a measure of expected near-term inflation in the U.S., ended last year at 2.9% after reaching a level of 3.2% just a few weeks prior, which represents a record high for the metric since Bloomberg began tracking it in 2002. As displayed in this week’s chart, Treasuries, mortgage-backed securities, and high yield municipal bonds exhibited flat-to-negative inflation-adjusted yields at the end of 2021. Finally, many expect rates to rise this year as the Fed curtails stimulus programs and begins to implement increasingly restrictive monetary policy to combat the rise in price levels. The current landscape begs the question: What can fixed income investors do going forward?

In the coming years, traditional bond investors may need to focus on a wider variety of sectors within the asset class to attain desired yields. Specifically, preferred securities, emerging market debt (EMD), high yield bonds, and senior loans all offer yields that are in excess of the 5-year breakeven rate, even when adjusting for duration. Bank loans may be particularly attractive going forward, as these instruments typically offer floating interest rates that protect investors from increases in short-term yields. Of course, the risks of each of these spaces should be thoroughly considered before any allocation changes are implemented. The EMD space, for example, carries with it significant currency risk, while preferreds exhibit credit risk and are subordinated in the capital structure, providing investors with a lower claim on assets than more senior debt. While all of these sectors are not uncommonly featured in investment portfolios, market participants should investigate the merits and drawbacks of each before creating or modifying target allocations, with a specific focus on duration, credit spread sensitivities, and liquidity terms.

Print PDF > In Search of Lost Yield

 

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.

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.

Featuring:
Greg Leonberger, FSA, EA, MAAA, Director of Research, Managing Partner
Ben Mohr, CFA, Director of Fixed Income, Managing Partner
Colleen Flannery, Research Analyst, U.S. Equities
Nicole Johnson-Barnes, CFA, Senior Research Analyst, Global Equities
Nat Kellogg, CFA, President, Director of Manager Search
Josh Cabrera, CFA, Senior Research Analyst, Real Assets
Derek Schmidt, CFA, CAIA, Director of Private Equity
Brett Graffy, CAIA, Senior Research Analyst

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.

 

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.

Taking the PEPP Out of the Eurozone’s Recovery?

Amid concerns over the Delta variant and signs of a sharp slowdown in the global economic rebound, many central banks have signaled that they will keep monetary policy loose over the near-to-medium term. U.S. Federal Reserve Chairman Jerome Powell, at the annual Jackson Hole summit on August 25th, maintained that rate hikes were not imminent. Though, on the spending front, Powell did indicate tapering bond purchases may be on the horizon, as long as economic progress continues. We expect to hear a similar narrative at this Thursday’s European Central Bank meeting, with a subtle caveat. Given how well the European economy has rebounded, the ECB is expected to slow the pace of their €1.85 trillion asset-buying program — the Pandemic Emergency Purchase Programme (PEPP) — in the fourth quarter.

The chart above shows monthly net bond purchases made under the PEPP since its inception in March 2020. There was a substantial injection in the first four months of the pandemic, which then decreased as the first wave waned and lockdown measures relaxed. Bond purchases remained at or below €70 billion for the next seven months. However, in response to rising bond yields, the ECB increased PEPP purchases in March 2021 and has kept them at a higher pace since. At the coming meeting, ECB officials are likely to agree to trim PEPP bond purchases to roughly €60 billion per month for the remainder of 2021, a 25% drop from the current pace of €80 billion per month.

What impact will this modest tightening have on the European Union’s economic recovery? The pan-European market benchmark, the STOXX 600 Index, posted its seventh straight month of gains in August, the longest winning streak since 2013, on the back of strong corporate earnings, lower unemployment, an adult population that is 70% fully vaccinated, and continued accommodative fiscal measures. We expect ECB hawks to argue for the need to curtail the current inflation trajectory, citing its potential to outpace expectations given supply chain bottlenecks and resurgent household demand. Inflation, as measured by the Eurozone HCIP, was 3% at August month-end, above the ECB’s 2% target. On the contrary, more dovish members will likely be more concerned with ramping up the existing ongoing asset purchase program once PEPP ends. As COVID-19 variants test the need for further abatement measures and restrictions in Europe and around the world, central banks are under increased scrutiny. Monetary policy decisions, particularly the pace of tapering and rate increases, will have lasting effects on global markets for the remainder of 2021 and the next several years.

Print PDF > Taking the PEPP Out of the Eurozone’s Recovery?

 

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 Halftime Market Insights Video

This video features an in-depth analysis of the first half of 2021, reviewing general themes from the second quarter and risks and opportunities to monitor in the coming months.  Our Market Insights video 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.

Featuring:
Greg Leonberger, FSA, EA, MAAA, Director of Research, Managing Partner
Ben Mohr, CFA, Director of Fixed Income, Managing Partner
Evan Frazier, CAIA, Research Analyst, U.S. Equities
David Hernandez, CFA, Senior Research Analyst, Non-U.S. Equities
Jessica Noviskis, CFA, Senior Research Analyst, Hedge Funds
Josh Cabrera, CFA, Senior Research Analyst, Real Assets
Derek Schmidt, CFA, CAIA, Director of Private Equity
Brett Graffy, CAIA, Senior Research Analyst

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.

 

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.

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.

Featuring:
Greg Leonberger, FSA, EA, MAAA, Director of Research, Managing Partner
Brandon Von Feldt, CFA, Research Analyst
Ben Mohr, CFA, Director of Fixed Income, Managing Partner
Colleen Flannery, Research Analyst, U.S. Equities
Nicole Johnson-Barnes, CFA, Senior Research Analyst, Global Equities
Jessica Noviskis, CFA, Senior Research Analyst, Hedge Funds
Will DuPree, Senior Research Analyst, Real Assets
Derek Schmidt, CFA, CAIA, Director of Private Equity
Brett Graffy, CAIA, Research Analyst

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.

 

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.

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.

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.