Markets expect elevated volatility surrounding the U.S. Presidential election, now just six weeks away. The VIX futures curve currently peaks in November, but as long ago as April a close observer could detect expectations of electoral volatility. Increased volatility may create an unusual opportunity for sector allocators. To understand why, we need to remember that…
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The co-movement of returns that emerged from the interconnection of global markets has important consequences in terms of portfolio hedging and risk management. In our paper, Regional Relevancy of S&P 500® and Dow Jones Industrial Average Futures® in Asia, we highlighted three characteristics of S&P 500 and Dow Jones Industrial Average (DJIA®) futures could potentially…
Philosophers have long argued that courage is the most essential human virtue, because without courage, all other virtues lie in jeopardy. Remarkably, the theorizing of ethicists has an implication for practical portfolio management. We can illustrate this with a simple example in Exhibit 1. It’s Dec. 31, 1999, and a professional investor is considering buying…
S&P Dow Jones Indices (S&P DJI) announced major changes to the 124-year-old Dow Jones Industrial Average® (The Dow®), effective on the same day (Aug. 31, 2020) as Apple’s (AAPL) four-for-one stock split. Specifically, Salesforce.com (CRM) will replace Exxon Mobil (XOM), Amgen (AMGN) will replace Pfizer (PFE), and Honeywell International (HON) will replace Raytheon Technologies (RTX)….
2020 has certainly been an extremely unusual year as economies, companies and individuals have grappled with the impacts of COVID-19. Although this year’s market movements have arguably been even more difficult to predict than usual, and many active managers were wrong-footed earlier this year, investment outlooks have kept at least one eye on the outcome…
In politics, “regime change” denotes the replacement of one governmental structure with another; in economics, we use the same term to indicate a shift in the interactions of various parts of the economic or financial system. Political regime changes are easy to identify (after all, a military coup is hard to miss). Defining when an…
Volatility, dispersion, and correlation are elements of what we’ve elsewhere characterized as The Active Manager’s Conundrum. Active managers should prefer: Low volatility, which is typically associated with higher returns High dispersion, which means a larger payoff for correct stock selections High correlation, which reduces the opportunity cost of a concentrated portfolio The conundrum arises because…
After a volatile start to 2020, many investors were looking at double digit declines and were probably re-evaluating their 2020 expected returns. But while COVID-19 continued to determine market sentiment, Q2 hosted a remarkable recovery. The S&P 500 (+20.54%) and the S&P MidCap 400 (+24.07%) posted their highest quarterly total returns since 1998, while the…
The evolution of indexing is one of the most noteworthy trends in modern financial history. The rise of passive investing is the consequence of shortfalls in active performance, as regular readers of our SPIVA reports will recognize. Our recent annual Survey of Indexed Assets shows a surge in S&P 500 indexed assets to $4.6 trillion…
We recently held a webinar examining the relevance of the S&P 500 to India-based investors, the potential diversification benefits of incorporating U.S equity exposure to an existing allocation, as well as showing how difficult active managers have found it to beat the index, historically. You can watch a replay of the webinar here; here are…
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