Category Archives: Strategy

Sell Just Before, Not After, the FOMC Meets

A recent academic paper (link here, full citation below) demonstrates that day-to-day stock market returns follow a regular bi-weekly cycle tied to the schedule of FOMC meetings, the Fed’s policy unit. A rolling five day return calculated as the excess return of stocks over T-bills peaks on the day the FOMC meets and then every other week quite consistently thereafter.  The pattern goes back to 1994 when the FOMC began regular announcements of its policy adjustments.  With a series of analyses, Read more [...]

Does active management work in Europe?

Academic arguments may well have “proven” the theoretical advantages of passive investing.  But theory is nothing without experiment; a comprehensive and impartial assessment of where and when active managers have delivered the promised “alpha” - or not - is a necessary and critical component of the debate. Our S&P Index Versus Active scorecard and associated Persistence reports have – for twelve years – quantitatively examined the performance of active mutual funds in the U.S. Read more [...]

Why So Many Worry About Inflation

Inflation fears are everywhere except in the data.  While the Fed keeps reminding us that the inflation rate is below their 2% target, analysts keep arguing that the Fed will be miss signs of inflation.  Any hint of rising prices anywhere – from the CPI to oil to the money supply – is highlighted while reports of little change are ignored.  Is there actually less threat of inflation than most perceive? Why do so many investors expect inflation to appear any moment? The numbers: The latest Read more [...]

July 31st: More Sellers than Buyers

Stocks closed down today with the S&P 500 and the Dow Jones Industrials both down 1.8% despite yesterday’s stronger-than-expected GDP report, numerous earnings reports which beat Street expectations and no hints of early interest rate moves from the Fed.  Bearish or negative news stories weren’t much different from the day or week before – unrest in the Middle East, sanctions on Russia in response to fighting in the Ukraine and an on-going argument between Argentina and a hedge fund over Read more [...]

Big Week for Economic Numbers and the Fed

By lunch time next Friday (August 1st) we will have many more numbers about the economy, maybe we will know more about the economy.   The week starts slow with pending home sales on Monday, likely to show that sales of existing home are okay. Tuesday brings the S&P/Case-Shiller Home Price Indices; recent months revealed that the pace of price increases is slowing.  After warming up with two days of data, Wednesday brings second quarter GDP and the Fed’s announcement following its two day Read more [...]

Back to the Future for Small-caps

Suppose you were a financial advisor during the height of the financial crisis in the first quarter of 2009, and you presciently theorized that the market was bottoming as Federal Reserve policies and emergency U.S. Treasury rescue programs took hold to reestablish confidence in capital markets. Your theory was to favor small-cap stocks because you believed massive monetary stimulus would result in strong fundamental growth and multiple expansions for this group. The challenging question you would Read more [...]

S&P 500 Pensions and OPEB: good for companies, not good for our retirement

S&P has released their annual S&P 500 Pension report (which is available on its website at www.spdji.com or directly at bit.ly/1jPIDiE ). The short bottom line is that, in aggregate, pensions and OPEBs have become an acceptable and manageable expense for S&P 500 issues with respect to their underlying assets, earnings and cash-flow. For individuals, the additional responsibility has been shifted from corporations to them for pensions, and is already well underway for OPEBs, with the Read more [...]

Why is the VIX so high?

No, our crack proofreading team didn’t muff the headline.  After several weeks of seemingly unanimous commentary about how investor complacency has resulted in VIX® levels that are “too low,” we want to ask the contrarian question.  Rather than being too low, why is the VIX so high? The question is germane because there has been hardly any volatility in the S&P 500®. Realized volatility has been running at roughly 6%-7% annualized. And although the VIX is a measure of implied, or Read more [...]

The Mind of the Fed

The saying goes, “if the only tool you have is a hammer, everything looks like a nail.”  That is the difficulty Fed chair Janet Yellen sees in monetary policy: if the only tool is raising or lowering interest rates, then everything – bubbles, inflation, unemployment, excessive risks, yield hunting or systemically important financial institutions – looks like nails.  In a lecture at the IMF earlier this week (here), Mrs. Yellen answered questions about future bubbles and rate increases by Read more [...]

Practical Considerations for Implementing Alternate Beta Strategies

Recent financial crises have exposed the shortcomings of the traditional approach to asset allocation and have led an emerging shift, especially among institutional investors, towards dynamic asset allocation, hinged on the diversification across risk factors. While there are numerous research papers that explore this topic, they tend to be theoretical and it is for this reason we have written a research paper which has a stronger focus on the practical aspects of implementation. (Click here to access Read more [...]