| |The asset allocation decision for holding equities (risky asset) over bonds (safe asset) is inherently a macro decision. This macro decision is one of the most important asset allocation decisions given the large differential between stock and bond returns. The average annual difference is over 625 bps over the last 90 years in favor of stocks. However, bonds deliver lower volatility and reduce portfolio risk … Read more Stock Bond allocations – Using macro factors – Still be care with any equity overweight
| |Hedge fund styles as measured by the HFR indices showed strong positive January performance in tandem with the gains in the stock market. When in a risk-on environment many hedge fund styles are winners … Read more A risk-on environment and the hedge fund world is good
| |The equity reversal was tough on many trend-followers. This reversal spilled-over to US bonds during the month. Good buy trend signals now in both equities and bonds. Dollar strength reversed on Fed pause remarks. Metals and energy both moved higher during the month even with global growth threats. Commodities asset class is not a trend rich environment at this time. … Read more Risk-on- What happened to fears of 2018?
| |It’s all about the “pause” from the “data dependent” Fed at the beginning of the month. It was reinforced with Chairman Powell comments at the end of the month. The data looked at by the Fed is based on macro fundamentals, but the perception is that the Fed is now financial asset data dependent. … Read more Living in the new world of risk-on? Be careful
| |Many investors don’t appreciate that 2018 was highly abnormal for asset allocation. First, the annual excess return from holding equities is generally positive with the exception during recessions. 2018 was not a recession year. Yes, there was a slowdown in the fourth quarter, and growth expectations have slowed but the numbers do not suggest a recession at this point. Second, the likelihood that both stocks and bonds will be negative in a given year is very unusual. There has only been a 4.44% chance of this occurring over the last 90 years using the SPX and 10-year Treasury returns. It is highly unlikely that we will see a similar year in 2019. There have only been seven periods when the equity premium was negative for two or more years in a row … Read more The stock-bond mix and equity premia over time – Never oversell equity exposure
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