There is no simple solution to measure the overall risk of a security or portfolio with one statistic. The author recommends that investors use a variety of measures, including spread duration, rating breakdowns, and the average price of securities in each rating category.
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We have begun recommending that investors use recent equity market weakness to rebalance portfolios and lift international equity allocations. We have further suggested that investors prioritize shifting allocations toward international equity strategies with a higher allocation to Japan.
The recent recession has certainly had a major impact on the financial condition of most municipalities. While we believe this may lead to an increase in defaults over the next few years, we do not anticipate widespread defaults or major losses at the bondholder level. Any defaults that do occur will likely be well telegraphed and identifiable through fundamental credit research.
Private equity investing is not without its challenges. However, long-term returns argue for exposure to this asset class for sophisticated investors. The most important considerations are structure of the investment program, access to top-tier performers, and knowledge about emerging private equity firms.
Index-based global portfolios may offer a more efficient way to capture exposure to developed and emerging markets than having separate portfolios for each of the two. By consolidating these two market segments into a single integrated portfolio, investors benefit from lower portfolio turnover and reduced operating costs.
Fears of supply disruptions, regime change and further declines in the U.S. dollar are helping to drive oil prices higher. Yet, there seems to be sufficient capacity to offset supply shortfalls. Looking forward, fossil fuels and renewable alternatives both need to be developed to help secure our energy independence.
Sustainability has become a hallmark of market leaders. While sustainability is hard to measure, it has clearly become a prime concern of corporate management and we believe that it has reached a point where no prudent investor can ignore it.
The global financial crisis has debunked several myths about liquidity, including that long-term investors do not need short-term liquidity and that short-term investors are a reliable source of short-term liquidity. Instead, the most important source of liquidity is unleveraged contrarian investors who are willing to take the other side of an overcrowded trade.
The emerging market corporate bond market has become appropriate for a wider range of investors due to its size, liquidity, and dedicated research platforms. This paper highlights 10 key characteristics of this market segment as well as the fundamental risks and market risks for fixed-income investors.
If inflation is going to rise globally, it will most likely surface first in emerging market countries. But this also reflects why emerging markets are so attractive in the first place – their growth outlook is more robust and output gaps (where they exist) are closing much more rapidly than in the developed world.