Are higher yields cause for alarm?
Rising U.S. Treasury yields have unsettled equity markets, but our Chief Investment Officer Colin Moore does not think that the recent activity alters the positive longer term outlook.
Don't worry about inflation just yet
The U.S. appears poised for a period of high growth, and along with rising GDP prospects, inflation hawks have begun sounding alarms. Anwiti Bahuguna, Head of Multi-Asset Strategy, writes that the potential for rising inflation is something to take seriously, but the inflation story is not so simple — partly because the Federal Reserve has been clear that its reaction will be different this time.
A Better Approach to Risk Parity
The tenets of risk allocation are widely accepted, so why has risk parity felt like such a disappointment over the recent past? The problem, according to Joshua Kutin, Head of North America Asset Allocation, is borne out of a static or “strategic” approach to risk allocation, which locks in tight ranges of risk weights regardless of market conditions.
U.S. GDP Expectations Revised Higher
We're increasing our U.S. growth forecast for 2021, writes Head of Multi-Asset Strategy, Anwiti Bahuguna, given increased fiscal spending. But a lot depends on the successful distribution of vaccines.
Long-Term Trends Drive Emerging Markets
Emerging markets will continue to benefit from the convergence of many long-term trends according to Dara White, Head of Emerging Markets Equities. A growing middle class, buoyant domestic demand and strong corporate managements are just a few of the factors he believes will drive EM in the coming years.
Fixed-Income Outlook: Focus on Credit
In 2021, credit analysis will be the primary source of bond market outperformance according to our fixed-income team. Financial strength and relative valuation will be key levers for downside protection in a bond market with an imbalance of opportunity.
Emerging Markets: Alpha Potential Through Responsible Investing
Emerging markets are a perfect opportunity set for the application of responsible investing principles, contend Young Kim, EM portfolio manager, and analyst Kyle Bergacker. They believe Columbia Threadneedle's environmental, social and governance research framework enhances traditional datasets in a complementary manner to better identify quality companies within emerging markets.
High-Yield Forecast: Defaults Have Peaked, A Return to Normal
Our High-Yield Credit Research Team's forecast indicates that defaults have peaked and that over the coming months a return to an environment more in line with long-term historical averages is likely. Any downside would most likely come from higher-than-expected defaults in the energy, real estate, leisure and transportation sectors.
Not Just a Matter of Style: International Stocks Should See Rotational Benefits
International stock returns are linked to the growth/value cycle, explains Fred Copper, EAFE Portfolio Manager. He sees both value and non-U.S. stocks as the beneficiaries of a new economic cycle.
Vaccines, Lockdowns and Equities
COVID-19 cases are rising at an alarming rate in the U.S. and Europe. So why are equities reaching new highs? Toby Nangle, Global Head of Asset Allocation, seeks to unravel this market dynamic.
Too Few Eggs: Index Concentration, Style and Portfolio Risk
The response to vaccine news was an indication of how quickly market leadership can shift. Jason Wang, Head of Quantitative Research, discusses issues facing growth and value investors in a market that has been dominated by a small number of stocks.
High Yield Bond Default Forecast
The uneven nature of this recession and recovery has placed a premium on credit research. Kris Keller, Head of High Yield Research, discusses our most recent credit default forecast, noting the contribution “fallen angels” have made to the quality of the asset class.
Additional reading: Fallen Angels and The Importance of Credit Research
Data shows that, as a group, fallen angels have outperformed the broader high yield asset class after entering the index. Chris Jorel, Client Portfolio Manager, highlights the importance of credit research as a flood of downgrades has increased opportunity within high yield.
Biden Passes 270: What Does it Mean for Investors?
While we await certification, Joe Biden appears on track to be the next president of the United States. Global Chief Investment Officer Colin Moore explains how a divided government and narrow victory may impact Biden administration policies — and the potential sector impacts.
Election Anxiety and Long-Term Investing
Elections don't have as much influence on market cycles as you might think, suggests CIO Colin Moore. He puts the 2020 race in perspective for investors in his latest paper.
Big Deal? China Added to WGBI Index
Is the inclusion of China in the FTSE World Government Bond Index significant or symbolic? Fixed-income analysts Ed Al-Hussainy, Senior Interest Rate and Currency Analyst, and Lin Jing Leong, Senior EM Asia Sovereign Analyst, look at what this next step in China's capital markets development may mean for global fixed-income investors.
Credit-Worthy Consumers Buttress Structured Bonds
Does investing in the consumer sector still make sense? Kris Moreton, Client Portfolio Manager, looks at the current data on consumer loans and provides an outlook on mortgage- and asset-backed securities.
How a Biden Win Could Change the Investment Environment
If Joe Biden wins the election, sector winners and losers are likely to change — the degree of which will be influenced by the Congressional election outcome. The Columbia Threadneedle research team has been delving into this issue and has compiled a sector-by-sector analysis of the potential implications for a Biden victory.
Brazil Equities on the Cusp of Change
Dara White, Global Head of Emerging Markets Equity, explains how a perfect storm of lower rates, technology adoption and deregulation is laying the foundation for a new era of equity investing in Brazil. Dara also discusses what investors should consider in their emerging market allocations as a result.
COVID-19: Estimating the Impact of Market Disorder on Asset Prices
Asset prices contain enormous amounts of information. Toby Nangle, Global Head of Asset Allocation, examines how asset allocators may be able to differentiate the impact of market expectations versus liquidity conditions on current prices to make better informed allocation decisions.
Downgrades, Defaults and Dispersion
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.
Positioning for a Slow and Gradual Recovery
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.
The More Things Change…
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.
Convertibles Take Off
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.
Recovery: 5-Year Capital Market Assumptions
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.
Are Financial Markets Ahead of the Economy?…And Should They Be?
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.
The Other Shoe Drops
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.
The Consequences of the Shutdown
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.
Where to from Here – A Quantitative Assessment
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.
Oil Prices and Market Volatility
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 Tank
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 Shape of the Recovery
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.
Regroup, Reframe, Recover
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 Shutdown
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.
Credit Spreads Reach Historic Levels
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.