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Growth’s recent outperformance was and wasn’t an anomaly 

Factor Investing , Factor Research Group , Factors

Growth strategies have outperformed value strategies in recent years. Is growth’s recent performance an anomaly when we look at it in a long-term context? The answer: It depends on what you mean by a growth strategy.

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Is climate-change risk all about fossil fuels? Think again. 

ESG Research , Global Investing

When it comes to reducing greenhouse gases, investors tend to focus on fossil fuels and power generation. But those are not the only companies that need to adapt to survive the transition to lower carbon emissions. We looked at five types of companies most people encounter every day, seeking to determine which companies are ahead of the curve in cutting both direct and indirect emissions — and which are behind.

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Underwater assets? Real estate exposure to flood risk 

ESG Research , Real Estate Investing

Extreme weather events and natural disasters have become more frequent and intense; the number of floods has quadrupled since 1980 and doubled since 2004. Properties that appear attractive today could be underwater or reduced to ash before their return on investment is fully realized. Yet investors struggle to quantify the severity of long-term climate risks; they seek both a better understanding of their exposure and improved ways to manage it.

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Are rates and equities losing their balance? 

Fixed Income , Models/Client Cases

For most of the past two decades, a benevolent relationship between bonds and equity has prevailed as a central pillar of asset allocation. Falling equity markets consistently coincided with falling interest rates, providing an effective hedge between bond and equity allocations. Now, talk of weaker central-bank policy or a risk of deflation has many asset allocators focused on the future of the rates-equity correlation. 

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Back-to-school (momentum) blues? 

Factor Investing , Models/Client Cases , Factors

We highlighted the U.S. price momentum factor as having elevated drawdown risk  at the end of June, due to significantly elevated crowding scores. And a curious thing happened at the beginning of September: For the month to date, U.S. price momentum experienced a drawdown of 4.7% — during relatively flat equity markets. Global price momentum also experienced a drawdown. The exhibit below illustrates the extent of the drawdown.

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Real estate may be yielding less than you thought 

Economic Exposure , Global Investing , Real Estate Investing

As the old adage goes, you have to spend money to make money. This is certainly true of real estate, where capital expenditure (capex) is required to maintain and operate a portfolio. But do investors fully appreciate how much capex their portfolios require? This may help them gain a better understanding of the income profile of their portfolios.

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MBS investors: quantitative easing déjà vu? 

Fixed Income , Risk Management

Despite the Fed’s silence, the mortgage-backed securities (MBS) to-be-announced (TBA) market may be indicating that a new round of MBS purchases is coming. This, in turn, has led to significant lengthening of durations for the TBA coupon stack. In such an environment, MBS investors and risk managers have an additional risk factor to consider.

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Using multi-country multi-currency futures in portfolio management 

Global Investing , Risk Management

Over the last few years, regulatory challenges impacting the over-the-counter (OTC) derivatives market have increased demands on exchange-traded derivatives (ETD) to deliver greater price transparency and offer access to deeper pools of secondary-market liquidity. As a result, the market for index-linked ETD products has grown substantially. Overall equity index-linked ETD volumes are up 23% in the first half of 2019 versus the first half of 2018.

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A smoother ride? Looking at factor-based asset allocation 

Factor Investing , Models/Client Cases , Risk Management

Strategic asset allocation has been an important driver of multi-asset-class portfolios’ returns.Traditionally, many investors have followed a holdings-based approach — where decisions are based on asset-class weights in the portfolio. On the surface, this appears to produce a stable allocation, but is what you see always what you get? In our example below, a factor-based approach resulted in less fluctuation in risk contributions and total portfolio risk than a holdings-based approach.

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Looking inside ESG indexes 

ESG Research

Some investors want their investments to reflect their values or beliefs, such as avoiding reputational risk or complying with client mandates by avoiding companies involved in major scandals or business activities such as tobacco or weapons. But we have observed institutional investors increasingly are motivated by financial concerns in integrating environmental, social and governance (ESG) information into their portfolios.