Quantitative managers are creating investment strategies that harness AI. How should investors assess them?
Nearly three and a half years after the Brexit referendum and all of the parliamentary drama in 2019, the UK finally legally exited the EU on Friday, January 31. The UK has now entered an 11-month transition period that ends December 31, 2020.
There is no shortage of alarming and depressing news when reading about the Wuhan coronavirus. The World Health Organization has declared a global health emergency. There are still many unknowns, but there are some indications that the outbreak may not be as severe as our worst fears. Here’s what I’ll be watching as the outbreak unfolds.
2020 is starting off with a strong risk appetite, generally fair-to-rich asset valuations, and accommodative monetary policy from the major central banks. If the current expansion can stay on track, we anticipate another year of positive risk-asset performance.
The US municipal market registered strong performance in 2019, driven by record demand from individuals and constrained supply of tax-exempt issuance. Both factors grew out of changes legislated in the 2017 Tax Act. As we enter 2020, valuations appear tight versus Treasurys and fair versus corporates and risk assets generally.
Looking ahead, we believe the global economic environment will remain supportive for securitized sectors despite potentially slowing economic growth. In the US, we believe strong fundamentals, including robust wage growth and healthy household balance sheets, will provide solid support for real estate and consumer-related credit.
Economic and corporate earnings growth will likely have to beat consensus expectations for investors to earn above-average returns in the year ahead.
We are bullish on emerging market (EM) equities for 2020 given valuations, continued low interest rates and cyclical and structural growth in many of these countries.
We expect emerging market (EM) fixed income asset classes to continue to perform well in 2020. Though the sector appears to be starting from less attractive valuations than a year ago, in a low-yielding world, we see opportunity for relative performance in credit and local rates and a tactical tailwind for EM currencies.
We expect European investment grade bonds to post slightly positive excess returns in 2020. We believe the sector stands to benefit from healthy supply and demand balances, likely offsetting tight valuations and weakening fundamentals.
The US investment grade (IG) corporate bond market is coming off an exceptionally strong year. Declining interest rates coupled with sharply narrower credit spreads contributed to strong absolute and relative returns.
Markets appear to expect the Federal Reserve to hold interest rates steady during 2020. In this environment, we think the outflows seen in leveraged loan mutual funds are likely to abate, and possibly change directions.
A combination of spread compression and reduced US Treasury base rates contributed to double-digit gains in the high yield corporate credit sector in 2019. However, unlike many years with similar returns, lower-quality, CCC-rated credits meaningfully lagged their higher-quality counterparts. At this point in the extended credit cycle, investors appear wary about the performance of lower-quality credits.
Brace yourselves. In an unexpected move on January 3, the United States carried out a drone strike that killed a key military figure in Iran, General Qassem Soleimani. Soleimani was the head of the Iranian Revolutionary Guard Corps' Quds Force, the architect of Iranian military influence across the Middle East and the second most powerful figure in Iran after the Grand Ayatollah Khamenei.
Everyone has their methods for mining valuable insights from the vast amount of data and news available in this age of information. At Loomis Sayles, leveraging our sector teams is one way we do this.
It became abruptly apparent in September, when overnight repo rates surged to near 10%, that liquidity in the banking system had suddenly become insufficient. While a confluence of factors (corporate tax payments, settlement of Treasury auctions, etc.) ultimately tipped the secured funding market into imbalance, it was policy choices—monetary and regulatory—that unwittingly pushed this market to the brink of illiquidity.
As we close out 2019, we took a look back at the year’s most popular blog posts. In a year full of attention-grabbing headlines, breaking news and viral tweets, all of these posts share a major theme—they look beyond the headline and examine the underlying facts.
Our investors share what they're watching as they prepare for 2020.
What happened? UK Prime Minister Boris Johnson and the Conservative Party won yesterday’s election in a landslide, taking 365 seats. With a majority of 80 seats, the Conservatives have their largest majority since 1987. Ultimately, the country wanted to “Get Brexit Done” too.
Value investing is a part of who we are and how we manage the Investment Grade Bond Strategy. Learn more about our research-driven, contrarian approach.
We’re seeing early signs of stabilization in global manufacturing. Central banks appear committed to supporting the global economy through easier monetary policy. Market sentiment has become more optimistic. We’re optimistic too. However, even if a solid manufacturing recovery materializes, we are not expecting global growth to accelerate substantially in 2020.
For us, risk management isn't only about limiting risk. It's about collaboration and taking customized, appropriate risk for each client.
In China, pork prices are up 70% (!) year over year. A swine fever outbreak has crippled the pork industry and caused a surge in pork prices. Pork prices are a main driver of China’s Consumer Price Index (CPI) increase. CPI inflation could reach 4% by year-end, one percentage point above the People’s Bank of China’s 3% target.
Never a dull moment in UK politics. The EU finally granted the UK a Brexit extension to January 31, with the option to exit December 1 or January 1 if the Withdrawal Agreement Bill is ratified earlier. January 31 is the most likely date for Brexit.
With the latest crisis in Turkey, Turkish equities have come under pressure and Turkish bank stocks are looking cheap. Do they really offer value?
What happened? UK Parliament held two key Brexit votes yesterday. UK Prime Minister Boris Johnson won the first vote, support for the Withdrawal Agreement Bill in principle, by a 30-vote margin (329 vs. 299). But he lost the second vote, the “programme motion” to fast-track Brexit law, by a 14-vote margin (308 vs. 322).
The US and China surprised me with their announcement of a small, “phase one” trade deal last week. I had thought any kind of deal would be a long shot, so I view this development as good news. Here’s a summary of the deal and what could happen next.
We think an outright recession in the next 12 months is unlikely, but we need to see a cyclical pickup soon. In the meantime, we believe patient investors could still see some modest returns.
Despite the potential for choppy trade, we could see mid-single-digit returns over the next 12 months.
A multi-asset credit strategy seeks attractive global credit risk premia in different credit sectors as well as different credit asset classes.
Losing interest in bank loans now that rates have begun to fall? It’s a common gut reaction for those who have a narrow view of loans as a tactical play on interest rates. However, loans have other virtues worth considering in the current environment. Here are two factors that might have you rethinking your instinct to swipe left.
The fact that US trade with China has declined shouldn’t be a surprise. But how bad is the damage? According to the US international trade report for July, released September 4, US exports to China have declined at double-digit rates for the past 12 months. This is the longest sustained contraction in the last 20 years.
While the longest economic expansion in US history continues, investor skepticism regarding its staying power seems to be rising. In our view, indicators suggest the economy is in the downturn phase of a mini-cycle—a period of slower economic growth but not outright GDP decline.
Global economic activity indicators are signaling that the manufacturing-driven slowdown has not yet run its course. However, we remain optimistic that activity will pick up in the latter half of 2019 without a recession in the US or China. Read on for a visual snapshot of growth themes across the globe.
Why we think Asia high yield credit can offer a distinctive opportunity.
On August 5, 2019, the US dollar-Chinese yuan (USDCNY) exchange rate broke above 7.0 yuan to the dollar, an important threshold for many market watchers. Not surprisingly, China and the US had very different takes on the CNY weakness.
We expect modest total returns through year-end, as long as corporate earnings and the global economy continue to expand.
For years, President Trump has accused China of purposely devaluing the renminbi to boost exports. With trade and political tensions boiling over, the question of whether China will devalue the renminbi often comes up.
Loomis Sayles Strategic Alpha is a benchmark-agnostic core bond alternative, offering the potential for greater diversification in a risk-aware framework.
Loan-only capital structures have gotten some negative attention lately. Critics caution that loan-only structures leave senior-loan investors vulnerable because there is no subordinated debt below them if the company goes bankrupt.
"Core" PCE inflation year over year eased from a recent high of 2.04% last July to 1.55% in March. This easing has made some market participants speculate that the US Federal Reserve will ease up on monetary policy. However, there’s more than one way to measure inflation.
The global economy appears to be heading out of a soft patch within its continued expansion. In the coming months, we expect a pickup in economic activity, stable global growth, moderate-to-low inflation pressure and accommodative monetary policy across most regions. Read on for a visual snapshot of growth themes across the globe.
The road ahead for risk assets looks pretty smooth right now. But valuations have already baked in a fairly rosy macroeconomic outlook. Markets are anticipating a rebound in growth and continued economic expansion. Is that what we will get?
Markets anticipating rebound in growth and continued economic expansion.
The subprime consumer sector has come a long way since the dark days of the financial crisis. Borrowers, lenders and issuers have made improvements, but still subprime can’t seem to exorcize its reputational demons. I’ve seen a lot of news coverage recently that reinforces investors’ worst fears.
It’s no secret that people are living longer. Falling fertility rates indicate that, on average, global populations are getting older. This “demographic tsunami” has already hit Japan, and continental Europe is not far behind.
This year could be interesting. Watch what the Loomis Sayles Full Discretion team has to say about recession risk.
We remain cautiously optimistic on emerging markets (EM) in 2019 despite a challenging 2018.
The ISM’s Institute for Supply Management US manufacturing surveys are widely recognized gauges of economic health. They’ve taken us on a ride in recent months.
We expect the formation of collateralized loan obligations to remain a positive technical driver for loan demand through 2019.