Posts Tagged ‘Asset Allocation Decisions’
Robert Arnott: Too far too fast?
Friday, July 17th, 2009
In his latest newsletter, Robert Arnott, founder of Research Affiliates, and innovator of FTSE-RAFI(tm)Fundamental Indices, asks the question “Too far too fast?,” and provides a comprehensive analysis of the market and his outlook. Here is an excerpt:
The tremendous comeback in financial assets that began in March and extended through the second quarter of 2009 has proved a welcome relief to investors of all types, a blessed batch of showers for our drought-ridden portfolios. The classic 60/40 stock (S&P 500 Index) and bond (BarCap Aggregate) mix advanced 10.2%, experiencing its third best quarter since 1988. As we predicted coming into 2009, in a broadly diversified GTAA context, some of the most dislocated credit categories from last fall-high-yield, emerging market bonds, convertibles, and bank loans- were some of the biggest winners in the fi rst six months of 2009 as all four dramatically outperformed mainstream stocks and bonds.
Undoubtedly, most portfolios are still well underwater (60/40 is still down 21% from its October 2007 high) and likely have many years of catch up. But the respite has allowed investors to assess their portfolios and begin to make asset allocation decisions with an eye toward the future. A thorough exercise of asset class valuations reveals that many once beleaguered asset classes may have come too far, too fast in this recent rally. Accordingly, now is likely a time to take profi ts and to resume our cautious vigilance of 2008.
Read the whole newsletter here.
Hat tip: Investment Postcards
Tags: Asset Allocation Decisions, Asset Classes, Asset Valuations, Bank Loans, Convertibles, Credit Categories, Emerging Market Bonds, Emerging Markets, Fi Rst, Financial Assets, Ftse Rafi, Hat Tip, high yield, Innovator, Portfolios, Research Affiliates, Respite, Robert Arnott, Stocks And Bonds, Valuations, Vigilance, Welcome Relief
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Goldman: Past the Worst?
Wednesday, May 27th, 2009
The debate rages on regarding whether the global business cycle has started to stabilize, with most of the “green shoots” arguments based on softer data such as Purchasing Managers Indices (PMIs) appearing “less bad”. Although this is not the same as “good”, one should be aware of the fact that a bottoming process of the economic cycle has commenced. Importantly, different countries will experience dissimilar rates of recovery that, in turn, will impact asset allocation decisions.
An interesting analysis by the Goldman Sachs Global Economics team suggests that every major economy has possibly already seen its worst rate of GDP decline, either in Q4 of last year or Q1 of this year (see graphs below). “Emerging markets are likely to see a return to trend growth about six months, on average, before advanced economies. Similarly, emerging markets on average will close their output gaps – the difference between actual growth and trend growth – about two years before advanced economies,” said the economists.
Although the Goldman team are not under the elusion that they will be entirely correct on the timing of these events, they do feel more confident about the relative order in which countries/regions will reach the above milestones. The analysis leads them to the following market implications as summarized in the report:
• Equity markets have most likely bottomed and volatility should start diminishing.
• Countries that get back to trend growth sooner will tighten monetary policy sooner.
• Countries that get back to trend growth sooner should see their currencies strengthen.
• As the output gap will take many years to close, there should be limited pressure on prices and wages. Deflation will still be a greater concern in the short term than inflation.
• Emerging markets, particularly Asia, should offer more opportunities for outperformance for equities and forex, and could support commodity prices, especially industrial metals.
Source: Peter Berezin and Alex Kelston, Goldman Sachs - Global Economics Weekly (via Fullermoney), May 20, 2009.
Tags: Asset Allocation Decisions, Business Cycle, Commodity Prices, Debate Rages, Economic Cycle, Economics Team, Elusion, Emerging Markets, Gap, Global Business, Global Economics, Goldman Sachs, Industrial Metals, Market Implications, Metals Source, Monetary Policy, Outperformance, Output Gap, Output Gaps, Prieur, Purchasing Managers, Q1, Q4, Volatility
Posted in Emerging Markets, Gold, Markets | No Comments »
