MainStay

Best Blogs of the Week #274

Posted by Anu Heda on Aug 07, 2017, in Best Blogs of the Week , tagged with ,

Five high-quality posts this week made the best blogs of the week (as we pass the 5 1/4 years of cataloging the industry’s blog utilization). We haven’t highlighted five posts in a single week for over 2 years.

Aberdeen – Week in review: Europe grows while the UK slows – The positive news, combined with U.S. dollar weakness caused by President Trump’s political woes and the slower-than-expected pace of U.S. Federal Reserve interest-rate hikes boosted the euro against the dollar to its highest level in two and a half years.

BlackRock – Dispelling 3 myths about the markets and economy – Broad inflation will likely follow unemployment much more slowly during this cycle than it has historically, and it may well not dramatically overshoot the Fed’s 2% inflation target for a long time.

Invesco – What to make of the US dollar’s doldrums? – The results showed a significant -0.75 correlation between the US dollar and commodity prices, with the strongest commodity performance represented by the oval in the chart below.

high-quality

Vanguard – What should clients use as a benchmark for success? – Many clients seem to believe that the S&P 500 is a reasonable performance benchmark. After all, it is the most widely discussed proxy for U.S. stocks and stock market returns.¹ So when they look at the performance of their portfolios and wonder how they’re doing, it’s understandable that the return of the S&P 500 comes to mind. However, while this index is one benchmark for returns, it is certainly not the right one for typical clients, whose portfolios tend to be fairly diversified between stocks and bonds.

Wells Fargo – Are markets on the verge of a correlation shift? – We could be on the verge of another shift in correlations, one that favors equity and credit exposure, unlike the last few years where it paid to invest in very high quality and long maturity fixed income securities.

Best Blogs of the Week #273

Posted by Anu Heda on Aug 01, 2017, in Best Blogs of the Week , tagged with ,

Two posts this week enveloping oft-used terms: smart beta & correlation.

BlackRock – The geekiest (and most important) number nobody is discussing – During the past 25 years, there has been a tendency for correlations to be higher when Fed policy is tighter. With the Fed tightening monetary conditions for the first time since the crisis, stock-bond correlations may be heading higher.

MainStay – Smart Beta: It’s Turning Up Everywhere – Some represent relatively minor tweaks to existing broad-based indexes, while others are more narrowly tailored to capture return from a specific geography, investing style, or asset class. As with any innovation, a great deal of education will be needed to help all different types of investors understand just how these different factors function and which approaches might be appropriate for them.

correlation

Best Blogs of the Week #260

Posted by Anu Heda on Feb 06, 2017, in Best Blogs of the Week , tagged with , ,

Quality posts this week, led by a captivating post comparing this administration to the start of Reagan’s.

Franklin Templeton – The Sectors Most Likely to Cheer US Tax Reform – It’s always tough to gauge the impact of policy shifts in isolation. However, we think broad tax reform combined with other fiscal stimulus measures, such as infrastructure spending and repatriation of foreign profits, could be very effective (at least in the short term) in providing a boost or acceleration in gross domestic product (GDP) growth over the next several years.

Mainstay – Reagan vs Trump: Parallels, Implications, and Results – In 1981, U.S. inflation was just starting to decline from peak levels near 15%, as the Fed lifted rates above 20% to choke off inflation. An elevated unemployment rate in 1981, at 7.8%, with baby boomers still entering the workforce, meant there was considerable scope for workers to return to or enter the job market, once inflation was arrested and broader economic conditions improved. It also meant there was pent-up demand for credit. By contrast, inflation is now inching up from below 2%

Principal – Questions around financial regulation changes – For all of the fighting around Dodd-Frank, it’s one of the primary reasons the U.S. banking sector was able to right itself so quickly after the 2008 financial crisis.

Reagan: Is it morning again?

via Mainstay

 

Best Blogs of the Week #259

Posted by Anu Heda on Jan 30, 2017, in Best Blogs of the Week , tagged with ,

It’s been a memorable first week into the new US administration and the industry’s bloggers kept up, to a degree. This week we highlight a clear take on the administration’s rhetoric as well as multi-factor investing (smart beta).

Mainstay – Is the Tide Turning on the Dollar? – In President Trump’s inaugural address, he stated that “protection will lead to great prosperity.” The U.S. dollar, subsequently, fell.

SSgA – 3 Charts on Recent Smart Beta Trends – We continue to believe that value stocks will be the best performing factor over the subsequent year driven by their attractive valuation relative to history.

Memorable Performance Data - 2016

 

Marketing Volatility – A Tendency to Oversimplify

Posted by Mike McLaughlin on Aug 09, 2011, in Thoughts , tagged with , , ,

Take a look at the following chart:

It’s taken from a recent MainStay Investments piece on volatility. MainStay uses this chart and two others to point out why volatility (standard deviation) matters: despite a significantly higher average annual return (12.6% vs. 7.3%), Investment A underperforms the more-stable Investment B in terms of 5-year total return to the tune of about 9%.

The piece is solid overall. It’s both concise (1 page) and visual (graphics communicate the message). However, I think it also illustrates one of the pitfalls in talking about volatility: oversimplification.

In MainStay’s example, the more volatile product delivers lesser performance. Pointing out the potential pitfalls of looking at average annual returns is ok, but I don’t think a thoughtful investor/advisor is truly challenged by the conclusion here. They can get lower volatility and a better return with the same product. It’s a slam dunk.

But a simple, minor shift in the data creates a much different conversation. For example, what if the Year 3 return for Investment A was -53% (instead of -58%)? In this case, Investment A delivers excess total return of about 4% over the 5-year period, but with twice the volatility. Now we have an interesting discussion. Should people forgo the extra return for a smoother ride?

In these more complicated scenarios is where the illuminating conversations about volatility can be had. As firms continue to incorporate volatility into marketing messages, especially with alternatives, I suspect that the most successful ones will be those that most deeply explore the details of how volatility really matters.

More on volatility later this week…