First Quarter 2017: Investment Perspective

There is no perfect investment strategy or manager. As Charley Ellis called it decades ago, investing is a loser’s game—a game best won by avoiding losses. Study after study over the past 20 years has shown that investors in aggregate lose by chasing hot asset classes, strategies, and managers, while abandoning lagging asset classes, strategies, and managers. This truth applies to indexing as well. 

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Fourth Quarter 2016: Investment Perspective

Many market observers have described 2016 as a turbulent year. It certainly felt that way. Fears around Chinese growth in January sent the U.S. stock market down 10%. The market clawed its way back to flat in time for the Brexit turmoil. Then the surprise result in the U.S. election jolted markets upwards. If you only experienced markets through Twitter and the New York Times, it was a turbulent year. 

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Third Quarter 2016: Investment Perspective

If your eyes glaze over contemplating the miseries of sovereign real yields, consider for a moment the stock of Swiss food manufacturer Nestlé. Its current free cash flow yield is 4.40% — a healthy 500 basis point premium to the Swiss 10-year sovereign yield. So investors can pay the Swiss government 0.55% per annum to hold their capital and experience the added insult of a loss of real purchasing power. Or they can own a share of Nestlé’s free cash flow stream at an economic return of 4.40%. 

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Second Quarter 2016: Investment Perspective

Here we are showing the real (after inflation) expected returns for major asset classes over time. There are several points to consider. First, the gap between the 10-Year U.S. Treasury (blue line, 0% expected return) and the equity asset classes is near its widest point over the study period.


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First Quarter 2016: Investment Perspective

The first quarter of 2016 saw global markets sell off and rebound on a volatile round-trip. Assets with more attractive valuations were able to bounce back to new highs while those assets that started the year richly priced struggled to recover. As we discussed in last quarter’s note on “priced for perfection” and “priced for despair,” richly valued assets essentially require everything to go right to justify their high price. In contrast, attractively valued assets benefit when investors’ worst fears fail to materialize. As investors recovered from their initial panic, a newly centered view took hold: prospects for some assets were not quite as good as previously thought and the outlook for other assets was not nearly as bad. While the noise of quarterly returns can cause any given group of strategies to outperform another, the process through which the strategies diverged this quarter is consistent with how valuation influences market movements. This chart plots style portfolios, or groups of stocks emphasizing certain characteristics. Performance for the quarter is on the vertical axis and valuation is on the horizontal axis – the larger the z-score, the more attractive the style’s valuation. The commodity and value oriented emerging markets styles enclosed by the triangle performed well and are among the most attractively valued portfolios. The orange dots represent richly valued momentum strategies. The green dots are where we have overweighted portfolios.

On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market.  We have included the first page of that piece below.  If you would like to receive the full perspective, please contact us.

Download the first page

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