Category Archives: Strategy

The Source of Uncertainty

In 2017 politics, not economics will be the major source of market uncertainty.  The world’s major economies moved past the financial crisis and Great Recession: unemployment rates are at more acceptable levels and central banks are discussing the end of quantitative easing. Equity markets in the US and the UK made new all-time highs while Read more […]

Visualizing Factor Exposures

Measuring the away-from-benchmark exposures of active portfolios (or “smart beta” indices) is not inherently complicated.  To what degree, for example, is a portfolio cheaper than its benchmark, or more tilted toward high quality stocks?  Practitioners typically approach the question in one of several ways: Calculating weighted average differences – e.g., the yield on my portfolio is Read more […]

Surging US Dollar

The US dollar continues to advance against most developed market currencies as analysts point to rising US interest rates and expectations of tax cuts and increased federal spending as reasons to expect further gains. One might expect investors to shift their fixed income investments to markets with higher interest rates. Since rates are currently higher Read more […]

Round Numbers and the Dow

As the Dow Jones Industrial Average approaches the 20,000 level everyone seems to be suddenly fascinated with the figure. People who rarely ask if the market is up or down want to know if the Dow will cross this supposed benchmark today. Journalists   with years sent covering the markets want to know what 20,000 means.  Read more […]

The Turning Point

Thirty-five years ago on September 30, 1981 the 10 Year treasury yield peaked at 15.85%.  With a few bumps it has slid downward ever since – until now. The events of the last few weeks moved interest rates higher and added about 25 bp to the ten year treasury.  Even allowing for some near-term volatility Read more […]

Winners and Losers in Trump’s Electoral Surprise

Donald Trump’s unexpected success initially threatened to send the U.S. equity markets into steep decline.  Yet as I write, the S&P 500 has moved very little since yesterday’s close (it is up a little), while the VIX has fallen dramatically. So why (or how) has volatility remained so low this morning when everyone expected it to Read more […]

The Making of a Passivist

I have few memories of my school French, but one of the fondest is of Moliere’s Monsieur Jourdain, who was delighted to learn in middle age that he had been speaking prose for the last 40 years.  Similarly, I did not realize until recently that I was a “passivist,” as the Wall Street Journal has now anointed the Read more […]

VIX is holding the Trump card

Despite a narrowing election race and a deluge of earnings, the S&P 500 has not seen a daily change greater than 1% in nearly four weeks.  Realized volatility remains remarkably low.  But the CBOE Volatility Index (VIX) – a predictive measure of future volatility that is often seen as Wall Street’s “fear gauge” – has Read more […]

2016 Presidential Election: Can Put Options Help Reduce Portfolio Volatility?

No other recent presidential elections have been as divided as this year’s.  As the objectivity and credibility regarding poll numbers and media coverage of the candidates are being questioned, the U.S. economy and the capital market are facing an unusual level of political risk.  Market participants may seek various tools to hedge the downside risk, Read more […]

Examining Low Volatility’s Performance in Various Market Environments

Rates, volatility and a broad market rally have contributed to the factor’s late-summer slump Late summer has not been fruitful for the low volatility factor. From July 6 to Sept. 9, the S&P 500 Low Volatility Index has fallen by 4.67%, while the S&P 500 Index gained 1.70%.1 This is in sharp contrast to the Read more […]