January 31, 2023
Given 2022’s cheapening of asset valuations, some have questioned if we are still in a world of low expected returns. We review what’s changed after 2022, showing that the lower expected return picture has not been substantially altered for many asset classes. We provide some suggestions to potentially ameliorate the pain caused by this environment.
Equities
March 28, 2023
The expected premium for investing in emerging versus developed equity markets is on the upper end of its past 25-year range. At the same time, many of the risks historically associated with emerging markets have secularly declined. We believe there is a strong case for investors to “re-up” their emerging allocations.
February 22, 2023
As part of our ongoing commitment to ESG, we are pleased to share our ESG annual report with you. This report reviews our ESG developments and progress in 2022, while outlining our approach, governance structure, and dedicated resources to this increasingly important aspect of investing.
ESG Investing
February 6, 2023
To help clarify how investors seeking impact through their financial portfolios can affect the direction of corporate decision making, we analyze the two channels of influence – direct control and changing the cost of capital. We argue that there are no other first-order mechanisms for a financial portfolio to have “impact” beyond these. As a real-world example, we apply these insights to the portfolio “net zero” initiative.
Value
Q1 2023
Value has delivered attractive long-term returns but has also weathered difficult short-term periods. While these times are painful for investors, the subsequent recoveries are lucrative for those that stick with the factor. We summarize the evidence for why we believe long/short value continues to be an exceptional go-forward opportunity and how investors can adapt their portfolios accordingly.
Asset Allocation
1Q 2023
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also include two special topics: one highlighting the case for emerging market equities, and the other assessing the impact of large interest rate rises on various risk premia.
Portfolio Risk and Performance
Q4 2022
2022’s drawdown provides a clear picture for the types of strategies that can actually deliver in a “slow burn” market downturn. While some options-based strategies have generated positive returns, in many cases they have disappointed. In contrast, trend following strategies have generally posted very strong returns. Looking ahead, many of the macro conditions that have been advantageous to trend following are still in place—and have historically tended to persist.
Factor/Style Investing
December 22, 2022
Factor investing has been around for several decades, backed by an enormous body of literature, and yet it is still surrounded by much confusion and debate. We examine many of the claims about factor investing, referencing the academic literature and performing simple, yet powerful, analysis to address them.
Trend Following
November 16, 2022
Trend following is having a banner 2022 amidst a year of turmoil for traditional portfolios, but investors exploring an allocation to trend-following may be wondering if they are “late to the trade,” while also anchoring their expectations to the lean 2010s. We show that both the macroeconomic picture and empirical evidence suggest that strong performance for trend-following may persist, making it a potentially valuable source of diversifying returns during a challenging time for the rest of investors’ portfolios.
ESG Investing
September 23, 2022
We examine whether capital structure is irrelevant for enterprise value and investment when investors care about ESG issues, which we denote “ESG-Modigliani-Miller” (ESG-MM). Theoretically, we show that ESG-MM holds if ESG is additive and markets are perfect. Empirically, we provide evidence of failure of ESG-MM, implying that firms and governments can exploit non-additive ESG or segmented markets.
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