Gold Outperforming Since Fed Rate Hikes

Since the Fed raised rates last month, gold has outperformed most major asset classes, according to a recent Bloomberg article. Though counterintuitive, the article says, gold’s strong performance has become the norm since the global financial crisis. “Unless greenback weakness reverses,” says Bloomberg intelligence analyst Mike McGlone, “gold should shine.”

Interest Rate Sensitivity and Low-Vol Investing

Interest rates have a significant impact on security prices, according to an article by Morningstar’s Alex Bryan, CFA, the firm’s Director of Passive Strategies Research, North America. Bryan writes that, unlike bonds, which have a finite life and fixed cash flow, the impact of rates is more difficult to anticipate for equities. He explains his theory that firms that are “more sensitive to the business cycle tend to experience greater cash flow growth during economic… Read More

Pimco Strategist on Trump and the Global Savings Glut

A study conducted by economists at the Bank of England found that the vast majority of the 450-basis point decline in global interest rates since the 1980s was due to a decreased desire in saving and investing rather than lower potential economic growth. This according to a Bloomberg article by Pimco managing director Joachim Fels, who shares his thoughts on the potential impact of the Trump administration in this regard. Fels argues that “quite a… Read More

Active Investors Get a Chance to Shine

From the investor’s standpoint, a low level of unemployment isn’t necessarily good news, says a recent Bloomberg article. However, it can bode well for active versus passive investors. When more people are working, it says, “Wage growth can exceed economic growth, putting pressure on corporate profit margins. Interest rates can rise, tightening financial conditions. Inflation can rise, putting more pressure on central bankers to remove liquidity from the system.” For active investors, however, it presents… Read More

Hedge, But at What Cost?

Crowded trades can undermine investors’ attempts to find safe havens, according to an article in last month’s Wall Street Journal. “Now it is more expensive to insure against losses in utility and consumer-stapes stocks and related trades than numerous assets world-wide.” Defensive stocks “soared” in the first half of this year, the article says, “as ultralow bond yields drove money flows into shares of high-dividend companies.” But this flow has fallen off in the third… Read More

What Rising Rates Mean to Low-Vol Investors

“Confusing risk with volatility can be dangerous,” says a recent report by Greenline Partners, as it “can lead to seeing things that do not exist.” This according to an article published this past May in Chief Investment Officer. Greenline, the article states, found that low-vol strategies outperformed the index by nearly 1%-2% annually over the last 50 years, but two-thirds of this period coincided with falling rates. A recent report published by the asset management… Read More

How Could Rising Rates Affect Small-Cap Stocks?

As we continue to wait for the Fed to move on rates, questions loom as to how a rising rate environment will affect the markets. In a recent article for Proactive Advisor magazine, Validea CEO John Reese shared his thoughts on how this could specifically impact small-cap stocks. Conventional wisdom, he explains, says that rising rates can negatively affect small-cap performance (companies with market capitalizations of between $250 million and $2 billion) since: It leads… Read More

Jason Zweig on Why Interest Rates Matter

When shopping for sale items, it’s customary to look at the price tag and see how much an item has been “marked-down”. You’d rather browse the “30% off” rack than the racks with lower discounts. Why? Because it affects the item’s value. On a much more sophisticated level, stock values and interest rates have a similar relationship. In a recent Wall Street Journal article, Jason Zweig describes how interest rates are an important factor when… Read More

To Bolster Returns Large Investors Will Have to Come Up the Risk Curve

Gone are the days when a conservative bond portfolio will provide a decent return. Low interest rates and a sluggish economy are forcing investors to accept higher risk to get the same returns they would have twenty years ago (by buying and holding investment-grade bonds). The Wall Street Journal recently reported that research conducted by Callan Associates, Inc. (which advises large investors)  shows that in order to make a 7.5% return today, a portfolio’s bond… Read More

The Only Fed Voice that Matters – Listen to Yellen

James Grant of Grant’s Interest Rate Observer recently weighed in on Federal Monetary Policy in a Bloomberg Report video. Grant believes the Fed “conceives its principal work to be suppressing or distorting the free play of interest rates or prices.” Asked what the Fed should do or not do to make the prices rule, Grant said the Fed has missed its mark, explaining that it had six or seven years to orchestrate a return to… Read More