Bond yield spreads appear to be normalizing after the crisis-induced selloff, but Deputy Global Head of Fixed Income, Gene Tannuzzo, believes headline data is obscuring the full story. In this paper, he examines current areas of opportunity and risk within the credit markets.
Our five-year capital markets forecast in January anticipated a recession sometime in the next five years, but not this year. Anwiti Bahuguna, Head of Multi Asset Strategy, discusses how the pandemic-driven recession brought forward its effects on asset classes earlier than anticipated, but did not materially alter the long-term outlook.
Additional reading: The Long Road to Higher Ground Ms. Bahuguna assesses the recovery ahead, the positive forces at work and what to look for as the economy rebuilds.
Two quarters of market volatility appear to have only honed market trends that were in place prior to the pandemic: the persistent strength of growth stocks and narrowing market leadership. Jason Wang, global head of Quantitative Research, reviews the current equity market landscape.
Record new issuance in the convertibles market could be changing that market permanently. Dave King, our convertibles portfolio manager, talks about why this new influx is different and could result in permanent change for the asset class.
Since the last analysis by the Global Asset Allocation Team, the longest expansion on record was brought to a screeching halt because of the coronavirus. We expect a large hit to growth in 2Q 2020 and a recovery to begin in the second half of the year. Given their quick round-trip, our equity market forecasts for the U.S. are, by and large, unchanged, but we expect slightly higher returns in international markets.
Were investors too optimistic as stock market indices rose sharply from their March lows? Chief Investment Officer Colin Moore considers whether equity markets got too far ahead of the economic data as they closed in on prepandemic levels.
In many ways, the coronavirus outbreak and economic shutdown merely exacerbated already bleak trends for retailers. Retail Analyst Mari Shor looks at how the pandemic is effecting change in the U.S. retail industry—it is not all bad news.
It’s unlikely that we will return to a world that’s the same as it was prior to the pandemic shock. It’s very likely that we’ll see structural changes and an acceleration of trends that were already in play—in the healthcare and energy industries to name two. Our investment team surveys past recoveries for clues as to how the current recovery may play out.
An intentional shutdown instituted to slow the spread of COVID-19 brought one economic cycle to an end and started a new one. Anwiti Bahuguna, Head of Multi-Asset Strategy, evaluates the current recession and recent positive economic data and reminds us that for the foreseeable future, any optimism regarding a recovery will be tempered by the realities of the pandemic.
While this new market cycle is relatively young, it appears that many of the factors driving the market prior to the pandemic’s outbreak were resilient in the face of the market turmoil. Jason Wang, Global Head of Quantitative Research, briefly reviews where some key indicators stand in this suddenly new market environment.
The relationship between stock market volatility and oil price volatility has been fairly stable—until recently. Josh Kutin, Head of North America Asset Allocation, looks at the relationship between oil prices and the equity market to conclude that oil price volatility may be affecting equity volatility and could have spillover effects in other asset classes.
Oil prices dropped below zero for the first time ever in April. Marc Khalamayzer, Senior Portfolio Manager, and the Columbia Threadneedle Energy Equity Analysts examine why and provide their views on demand, supply, storage and pricing.
The U.S. economic recovery depends the rate of COVID-19 spread. We currently expect a "u-shaped" recovery, meaning that it will take 10 calendar quarters for the U.S. to get back to prior levels of activity. The attached chart illustrates how we could get there.
Chaotic market selloffs reaffirm the need for a rational investment approach. Raghavendran Sivaraman, Head of Systematic Strategies, reviews the recent and historical drawdowns to suggest a way for investors to frame an eventual recovery.
An intentional pause in economic activity has sent unemployment claims skyward, Anwiti Bahuguna, Head of Multi Asset Strategy, looks at how long and how deep a contraction it may be. It’s an unusual situation because the current recession is unlike any that have preceded it.
Colin Lundgren, Global Head of Fixed Income, and Gene Tannuzzo, Deputy Global Head of Fixed Income, provide their views on appropriate positioning for the current market. In the short run, challenging liquidity conditions can exaggerate price moves, but historically, investing when credit spreads are at these levels has yielded positive returns over a forward 12-month horizon.
Chief Investment Officer Colin Moore discusses how the market’s response to the spread of the coronavirus is driven by both the actual slowdown in economic activity and an exaggerated response to virus fears. This is a temporary phenomenon, Moore believes, not a structural change in the global economy, and investors need to remain focused on their long-term investment goals.
As quickly as the coronavirus appeared and threatened the global supply chain, it has just as swiftly impacted global demand. Anwiti Bahuguna, Head of Multi-Asset Strategy, evaluates the current and potential risks to the economy as virus mitigation efforts shutter whole countries and collapsing oil prices destabilize markets.
Josh Kutin, Head of North America Asset Allocation, and Anwiti Bahuguna, Head of Multi-Asset Strategy, evaluate the current and potential impacts of the spreading coronavirus. While the market response may create opportunities to add to risk, the uncertainty about containment and the impact on the global economy suggests an extended level of caution.
Factor investing endured a rough year as the cheap got cheaper and already highly valued stocks led the market higher. Jason Wang, Global Head of Quantitative Research discusses just how unusual 2019 was and how a lack of investment themes worked to counter normally robust quantitative strategies.
The technological and monetary promise of the internet came to fruition last decade, while demographics, consumer preferences and the financial landscape underwent radical change. We asked our research teams to identify significant trends that will continue to shape investment decisions into the next decade.
Dara White, Head of Global Emerging Markets Equity, provides an assessment of the impact the coronavirus outbreak may have on global and emerging markets, and where it stands in comparison to the SARS outbreak in 2003.
Everyone loves momentum on the way up, but on the way down, not as much. For market cap weighted indices, there is a clear pattern observed in the performance of the largest constituents: after hitting a peak weight, crowded trades can weaken quickly, writes Preston Schwartz, Quantitative Analyst, and Jason Wang, Global Head of Quantitative Research. For active managers, these can be critical periods to deliver outperformance.
While the U.S. was dominating global equity markets, Japan quietly outperformed China, emerging markets and Europe over the last ten years. The past decade's results were shaped by domestic corporate reforms and cultural changes, as well as the growing demand for technology, explains Daisuke Nomoto, Head of Japanese Equities. These are positive trends, we believe, that will drive the Japanese market for years to come.
The Federal Reserve put in place its third and final rate cut for 2019 during the quarter, moves that reversed three out of the four rate cuts in 2018. This seemed to restore calm in the markets, as the 10-year Treasury yield, in decline for much of the year, was range-bound for the remainder of the year. Our U.S. Fixed Income Team reviews fourth quarter market drivers, as well as their near-term outlook for bonds.
Forecasted returns have declined since the last analysis by the Global Asset Allocation Team. Even before trade policy risks intensified, financial markets were signaling caution — culminating in certain parts of the yield curve inverting. Implied returns are lower for equities and bonds because nominal growth expectations are lower, and valuations for both equities and bonds are stretched. Review our semiannual update of capital market return forecasts used in strategic portfolio allocations.
In the absence of more stimulus, such as government spending or tax policy changes to induce additional consumption, we expect economic growth to slow to trend levels in 2020, with the pace of job growth likely to slow down relative to 2019 explains Anwiti Bahuguna, PH.D., Head of Multi Asset Strategy.
Hard to see. Hard to define. Hard to value. Intangible assets are a critical component of a company's value. Columbia Threadneedle Investments, in conjunction with Institutional Investor's Custom Research Lab, researched the topic of intangible assets and the importance of fundamental analysis in uncovering hidden value.
Uncertainty does not signal a retreat from the market writes Gene Tannuzzo, Deputy Global Head of Fixed Income. Economic risk may be on the rise, but there are areas of the fixed income market that can still provide investors with attractive levels of risk and return.
Equities are currently enjoying their longest ever bull run. Bond markets, meanwhile, have been trading upwards for almost four decades — to such an extent that almost a third of the global bond market now trades on negative yields. Add to that a growing likelihood of a recession within the next five years. This adds up to lower expected returns, says Joshua Kutin, Head of Asset Allocation, North America. Positive, but lower.
High yield bonds and leveraged loans are often compared due to their diversifying and income enhancing characteristics. But Chris Jorel, Client Portfolio Manager, High Yield Bonds, points out the current dynamics of the two markets, and discusses how the outlook on rates may affect relative opportunity.
Value has become more locked in to economic factors over the last few years, observes Jason Wang, Global Head of Quantitative Research. Any continued resurgence of value strategies will be tied to increased economic certainty and improved global dynamics.
The yield curve is a somewhat simplified measure of inflation according to Anwiti Bahuguna, Head of Multi Asset Strategy. Luckily, there are a variety of other inputs to consider as we assess recession risk.
Additional reading: Interest Rate Outlook It is easy to see us getting to a zero fed funds rate, and there is a high likelihood of that happening the next five years, says Ed Al-Hussainy, Senior Interest Rate and Currency Analyst, as he and Kris Moreton, Fixed Income Client Portfolio Manager, discuss the outlook.
Alex Christensen, Associate Portfolio Manager, Multi-Sector Fixed Income, considers the end of the credit cycle and argues that late cycle prognostication may be prone to oversimplification. More intensive analysis can uncover opportunity for investors when the consensus has decided that the credit window is closing.
A reversal in the momentum factor has made it clear that investors must stay mindful of the related risks, explains Jason Wang, Global Head of Quantitative Research. The flip side of momentum is the potential for sudden loss, especially in environments with heightened market volatility and economic uncertainty.
Europe has considerable forces weighing on the region's growth, particularly the debt overhang as a result of the financial crisis. Will the long-term outcome be similar to Japan's, or is there a way for the region to overcome the deflationary forces that have shaped Japan for a generation.
Alex Rivas, Analyst, Global Asset Allocation, examines how the current low interest rate environment has opened the door for income-generating equities and evaluates their prospects in periods of rising and falling rates.
China’s massive credit expansion has been overshadowed by trade news argues, Paul Smillie, Senior Investment Analyst. Markets are underpricing a potentially greater systemic risk to the Chinese economy: namely the rapid and worrying expansion of credit in recent years.
An environment of slow growth and easy money is a tailwind for fixed income, but investors should not throw caution to the wind argues Senior Portfolio Manager, Gene Tannuzzo. Historical parallels may help bond investors set expectations in the second half of the year.
Additional reading: Fixed Income Quarterly Review Our U.S. Fixed Income Team reviews the 2nd quarter, during which 10-year U.S. Treasury yields fell below 2% and the yield curve inverted. The market has been responding to well-known domestic economic pressures, as well as trade and tariff tensions.
Has the small-cap factor been arbitraged away? Larger and growthier stocks continued to outperform smaller and cheaper issues in the first half of 2019, and their performance gap, as a group, has reached historically high levels. Jason Wang, Global Head of Quantitative Research, looks at the persistent underperformance of the value factor, as well as the diminishing predictive ability of size as a factor.
Expectations for long-term performance are lower across asset classes, as the trade war and the Federal Reserve's pivot on rates are factored into calculations by the Global Asset Allocation Team. The semi-annual update of capital market return forecasts used in strategic portfolio allocations is now available.
Additional reading: Components of Market Returns Global Asset Allocation analyst, Alex Rivas, looks at a building blocks approach to decomposing equity and fixed income returns. By evaluating the components of return, a portfolio manager can create forecasting models such as those used in our 5-year capital markets outlook.
Mac Ryerse, Lead Analyst (U.S.) of Responsible Investment discusses an approach to finding actionable insights within a quantitative framework that evaluates financial stewardship and ESG management. By applying a materiality lens — such as that established by the Sustainability Accounting Standards Board (SASB) — investors can focus on the key ESG performance factors.
The Federal Reserve Bank of New York presents their research on using the shape of the yield curve, notably yield curve inversions, as an indicator of economic activity, including their probability of U.S. recession chart*.
After a year of record stock buybacks, Portfolio Manager, Scott Davis looks at buybacks, dividends and the ways in which corporations utilize cash to create long-term sustainable value for shareholders.
As governments and corporations added debt to their balance sheets in the years since the financial crisis, U.S. consumers plotted an opposite course, shedding their debt burden over the last ten years. Jason Callan, Senior Portfolio Manager, Head of Structured Assets and Thomas Heuer, Senior Portfolio Manager, talk about the current environment and how the changes in underwriting rules, in addition to consumer delevering, have bolstered the asset class’s credit quality.
U.S. stocks staged a major comeback in the first quarter, but once again, there was a marked dispersion between growth and value returns. Jason Wang, Global Head of Quantitative Research, considers the current value conundrum and how different approaches to value investing can yield dramatically different results.
What happens when no one wants a building by a highway? Bryan Sanchez, Chief Investment Officer, Lionstone Investments, discusses the challenges of late-cycle real estate investment, property obsolescence and the importance of a data-driven approach.
How should investors handle the flood of ESG data? Mac Ryerse, Lead Analyst (U.S.) of Responsible Investment and Kirk Moore, Global Head of Research, sat down with Pensions and Investments to discuss an approach to finding actionable insights amid the wealth of available ESG data.
David Lucca, Samuel Hanson, and Jonathan Wright at the Federal Reserve Bank of New York, Liberty Street Economics, examine the sensitivity of long-term interest rates to movements in short-term rates and show that this relationship has changed markedly since the year 2000. Their study has implications for the transmission of monetary policy and our understanding of news shocks and their impact on long-term rates.
The argument that “quantitative easing (QE) was good for the stock market, therefore the opposite must be bad” has an appealing logic says, Anwiti Bahuguna, Head of Multi Asset Strategy, but that argument is wrong. Bahuguna argues that Quantitative Tightening is not the cause of recent market volatility.
Alex Rivas, an investment analyst on our Global Asset Allocation Team, examines the relationship between Robert Shiller’s CAPE ratio, expected returns, and the benefits of a "faster signal" version of the valuation metric.
A decade after the Lehman bankruptcy, there are still some corners of the global banking system that have not fully resolved. Mark Burgess, Deputy Global CIO and CIO, EMEA, evaluates the different methods countries used to address post-crisis banking issues and the problems posed by the countries that have failed to fully address their banking issues.
After a rocky first three quarters of 2018, a diversified approach roared back in the fourth quarter of the year. Joshua Kutin, Head of Asset Allocation, North America reviews the sharp change in market dynamics and discusses the prospects for diversified asset allocation heading into 2019.
Daisuke Nomoto, Head of Japanese Equities, believes that the reforms taking place in Japan will provide a foundation for longer-term secular growth and a boost for Japanese equities. Are investors positioned to take advantage of the changing dynamics?
Joshua Kutin, Head of Asset Allocation, North America and Anwiti Bahuguna, Head of Multi Asset Strategy, provide their views on the historically narrow market that we have seen in 2018, and on the prospects for growth as tariff rhetoric continues to escalate.
Additional reading: Our view on U.S. Equities Joshua Kutin, Head of Asset Allocation, North America, discusses the relative appeal of U.S. equities within an overall equity allocation.
Jason Callan, Senior Portfolio Manager, Head of Structured Assets, discusses the current state of the securitized bond market. In addition to new regulation, the strength of the economy has provided support for the asset class, while still allowing opportunities for active research and management to add value.
For asset allocators, it is not only important to make the correct asset class decisions, but also to allocate efficiently within those asset classes. Joshua Kutin, Head of Asset Allocation, North America, looks at fixed income and the various decisions his team confronts when investing in the asset class.
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