GMO 7-year Asset Class Forecast: February 2023

In recent years we have witnessed a surge in sovereign bond defaults in emerging markets.

GMO 7-year Asset Class Forecast: January 2023.

After a bruising 2022 for equities globally, Value stocks in the U.S. have become attractive in an absolute sense and worthy of inclusion in one’s portfolio.

Valuation metrics across all but the U.S. interest rate dimension remain unambiguously attractive.

2022 was a painful year in financial markets with almost all traditional assets delivering significant losses.

The first and easiest leg of the bursting of the bubble we called for a year ago is complete.

GMO 7-year asset class forecast: 4Q 2022.

Deep value offers a compelling opportunity within U.S. equities.

GMO 7-year asset class forecast: November 2022,

The U.S. Superbubble, as Jeremy Grantham has termed it, featured the most dangerous mix of factors in modern times at the end of last year: all three major asset classes – housing, stocks, and bonds – were critically historically overvalued.

As the super-growth cycle is ending in dramatic fashion, we are already seeing some of the most attractive valuation opportunities in years.

An alpha-oriented approach.

Value equities are still priced for significant outperformance, globally.

GMO has published a new 7-Year Asset Class Forecast.

Quality investing is an approach well suited to small cap equity.

In this piece, we update our valuation charts and commentary, with additional details on our methodology available upon request.

GMO 7-year asset class forecast: 3Q 2022.

In August 2020, as the global pandemic was straining emerging countries’ ability to make debt payments, we published a white paper – “Sovereign Contingent Bonds: How Emerging Countries Might Prepay for Debt Relief” – introducing the concept of “sovereign coco bonds,” a way for countries to structure bond agreements to allow for more flexible policy options in the face of a crisis.

The world seems an increasingly uncomfortable place for traditional stock and bond investments.

Rising rates hurt investors; claims on profits in the future are simply worth less if you discount them at a higher rate.

The U.S. dollar has been on a tear in recent months, bringing it to its highest valuation versus other major developed currencies in more than 35 years.

As one of us points out relentlessly, risk isn’t a number, rather it is a notion or a concept.

Only a few market events in an investor’s career really matter, and among the most important of all are superbubbles.

With the recent increases in interest rates, the carry trade has had a sudden resurgence in performance, which could make it a tempting strategy for investors.

Over our decades of involvement in emerging country debt markets, we’ve witnessed many ups and downs.

Rick Friedman from GMO’s Asset Allocation team offers the following comments about the updated forecasts.

As Robert Shiller has written, market participants are always in search of an explanatory narrative. J

The market has spent much of 2022 worrying about inflation and associated interest rate rises, and Growth stocks have certainly borne the brunt of this.

In a new piece, GMO’s Asset Allocation Team notes that even with the battering of growth stocks in 2022 there is still ample opportunity to benefit from betting on cheap value stocks versus expensive growth names.

The yield of the U.S. high yield (HY) market, currently at 8.4%, has risen by over 420 basis points since the start of the year.

Japan has been stuck in a low growth, low inflation (and at times, deflationary) environment.

We strongly believe that the traditional benchmark-led approach to investing in emerging market debt can be far from optimal.

What do Netflix, Peloton Interactive, Coinbase, and Palantir Technologies have in common?

Soaring commodity prices have helped drive inflation to 8.5%, by far the highest level in the last few decades.

Over the past decade it has seemed like Value investors have been very much left on the sidelines, bemoaning rampant speculation and valuations untethered from fundamental reality, while Growth investors have, quite frankly, been living it up in some style.

It’s not just interest rate changes that affect the markets, changes in the Fed balance sheet can also be a source of negative returns to equity and bond markets.

Putin's invasion reminds us that we live in a finite world in which resource prices tend to rise.

Navigating the career risk associated with bubbles (especially superbubbles) has always been tricky and is one of the biggest failings in the investment management industry.

As we turn over the page to a new year, there are plenty of decisions that investors will need to make.

All 2-sigma equity bubbles in developed countries have broken back to trend.

Most global equity managers today are underweight Japan.

This quarterly is a piece written by my Asset Allocation co-head John Thorndike. In it, he explains the rationale behind our strong preference for non-U.S. stocks despite the stellar performance the U.S. stock market has delivered over the last decade. The research behind the piece is an example of the bread and butter of our historical asset allocation analysis.

A new piece from the GMO Asset Allocation Team discusses value traps, growth traps and which are worse for investors.

GMO Asset Allocation team presents a chart of four major U.S. equity bubbles dating back to 1929, illustrating just how long it really takes for investors to climb back to historical levels of return.

GMO Asset Allocation Team examines the fact that although every bubble is unique, classic common threads also run through everyone.

We have a relatively sanguine view on the likelihood of inflation becoming ingrained in the system (much as it pains us to agree with the Fed). However, the dark arts of macroeconomics are notoriously tricky, and we have often talked of the need to build robust (as opposed to optimal) portfolios – effectively, portfolios that can withstand multiple outcomes.

After several strong quarters for value stocks, the last few months have seen a sharp reversal in favor of growth.

Inflation is often a poorly understood concept, with monotheistic explanations abounding.

The Value vs. Growth reversal, which started in earnest in the late Fall of 2020, generated exciting returns for many of our portfolios through May.