Category Archives: Strategy

Fed a Small Step Closer to Raising rates

Fed a Small Step Closer to Raising rates Today’s FOMC statement published after the meeting is more upbeat than the last one in discussing the labor markets and the inflation outlook.  The FOMC noted “solid gains and a lower unemployment rate” and that the “likelihood of inflation running persistently below 2 percent has diminished somewhat” despite lower oil prices.  In announcing the end of QE, the statement noted “substantial improvements in the outlook for the labor market since” Read more [...]

The VIX Takes a Hairpin Turn

I have a neighbor who is cooler than me. He is braver than me. He also has more expansive and expensive medical and auto insurance than I do. How do I know all this? Well, he races street motorcycles. The other day I asked him what was the fastest he had ever gone. His answer: "Very fast, but that's not where the thrill is. The adrenaline rush comes from handling and powering through the curves." The movements in the CBOE Volatility Index (VIX) the past few weeks have made me reflect on this Read more [...]

The VIX is at a crossroads – mind the gap.

As you, dear patient reader, have no doubt noticed, volatility is back. The VIX® has reached levels not seen since the peak of the Eurozone crisis over two years ago. The exact reasons might be debatable, but either way October is living up to its perennial reputation as the cruelest month for equities. Source: CBOE Each time in recent history that the VIX closed above 20, it has rapidly collapsed (see above). And duly following the principle of induction, spikes in volatility are now interpreted Read more [...]

The Best Offense

Some American football coaches are fond of citing the maxim that the best offense is a good defense -- because even if your offense is having an unproductive day, a good defense means that you're always in the game. A related principle applies to investing -- in some environments, the best way to win is not to lose. The first half of October has been such an environment, as defensive indices, laggards in 2013 and for the first three quarters of 2014, have finally come into their own. The chart Read more [...]

Third Quarter Results: Expect Disappointment

This week or next, millions of investors will be receiving statements reporting third quarter performance for their actively-managed mutual funds.  Comparing active results to passive benchmarks has been a frustrating exercise more often than not.  Two observations tell us that the third quarter is likely to be especially painful. We first observe that dispersion is low.  Dispersion gives us a way to gauge the difference between the "best" performing and "worst" performing stocks in a given Read more [...]

Despite sub-6% Unemployment, Economic Growth is Mixed and Investors are Challenged

This morning’s report on September Employment beat expectations and took the unemployment rate to 5.9%, the lowest in six years.  Payrolls gained 248,000 jobs and the labor force rose by 317,000 people.  The stock market responded with a better than 10 point jump in the S&P 500 at the open as the Dow added about 175 points in the first 45 minutes of trading. As nice as the news is, the longer run prospects for the economy are mixed. Sustaining the 4%-plus GDP growth seen in the second Read more [...]

First, catch a rabbit

I was reminded recently of the (regrettably apocryphal) recipe for rabbit stew which began with the words "First, catch a rabbit."  The reminder came from an article by a leading active management shop, which argued that "the more assets that flow to passive strategies, the more potential alpha there could be for successful active managers.,,, Good active managers will be able to benefit from the migration to passive."  Supposedly, the silver lining in the growth of passive management is Read more [...]

Market Myopia

As investors, we necessarily rely on history.  How we analyse that history is particular to each investor – some will look for technical patterns, some at fundamental data, still others will build quantitative models.  But all of us need data, and history is our only source. We may have to rely on history; we don’t have to fall prey to what the behavioural economists would call “recency bias.”  Indeed, taking a longer-term view can provide invaluable perspective.  Two popular views Read more [...]

Sorry, Wrong Number

Last week brought yet another indication that 2014 is proving to be a very difficult environment for active stock selection strategies.  With the majority of large cap U.S. equity managers underperforming the S&P 500, “only performances in 2006, 2010 and 2011 have been as bad or worse than the current year’s pace.” Well, in any series with variation, some years will be better than average and some will be worse, and to readers of our SPIVA reports it’s hardly a secret that most active Read more [...]

Islamic Index Market Update: August 2014

Islamic Indices Outperforming Conventional Benchmarks in 2014 Shariah-compliant benchmarks have outperformed conventional indices in 2014 as Financials – which are underrepresented in Islamic indices – have experienced some weakness, and Information Technology, Health Care and Energy - which tend to be overweight in Islamic Indices – have been sector leaders. Through August 27, 2014, the Dow Jones Islamic Market World Index gained 7.3%, while the Dow Jones Global Index gained a comparatively Read more [...]