Municipal securities continue to provide yields in excess of Treasuries, despite their tax-favored status. For tax-exempt accounts, we continue to see opportunities in corporate debt, both investment grade and the highest quality non-investment grade, as well as in select international sovereign debt issues.
Multiple constraints limit the use of leverage, the nature of the assets that can be leveraged and the acceptable levels of total portfolio and asset-specific risks. These constraints can make leverage efficient for only a narrow set of portfolios. Leverage is also subject to concerns such as unanticipated capital calls and illiquidity spirals.
We recommend a baseline allocation in our asset allocations in terms of stocks versus bonds and cash, but we also recommend the following tactical allocations: leveraged loans within the bond allocation, dividend-focused stocks within the U.S. large-cap stock allocation, and an allocation of 55% value and 45% growth within U.S. large-cap equities.
Master limited partnerships offer daily liquidity, simplified tax reporting, and in some cases, the transformation of unrelated business taxable income to other income. This paper examines not only the benefits but also the implications and costs of master limited partnerships to help individuals make informed investment decisions.
Investors must be aware of the liquidity risk inherent in each asset class, establish a methodology to monitor and measure the liquidity risk premium of each asset class, and factor that into decisions about the appropriate mix of liquid and illiquid investments needed to serve their particular situation.
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.
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.
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 thro...
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.
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.
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.
Studies show that "emerging" hedge fund managers tend to outperform their larger, more established brethren. However, this additional alpha should not blind investors to the need for proper operational due diligence, say the authors, who suggest practical tips to ensure meaningful due diligence and risk mitigation.
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 over...
While most investments are driven by economic supply and demand, the performance of managed futures is driven by market factors, such as price persistence, volatility, and price dislocation. This provides benefits for portfolio diversification in a world of unpredictable market events.
Researchers demonstrate that a portfolio with a specific beta constraint can be improved by moving toward a leveraged bond position. When that is permitted, replacing a specific beta target with an acceptable "beta range" adds the flexibility needed to achieve even better returns.