RESEARCH: MACRO & ECONOMICS
GLOBAL PENSION FUNDS: THE COMING STORM
- The outlook for US equity and bond returns is low based on historical data
- The return assumptions of US public pension funds are difficult to achieve
- Only an extreme allocation to alternatives would meet the expected rate of return
PMI & EQUITY FACTOR PERFORMANCE
- Value and Size have a positive relationship with the PMI, similar to the S&P 500
- Indicates that risk sentiment is a core driver of factor performance
- Investors can consider incorporating variables like the PMI in a risk management framework
EQUITY FACTORS & THE MIGHTY US DOLLAR
- The US dollar had a slightly negative relationship with the stock market since 1996
- Some equity factors are more sensitive to changes in the US dollar than others
- On average the sensitivity is zero, but as often averages are misleading
CORPORATE DEBT IN THE CHINESE STOCK MARKET
- China exhibits the world’s highest corporate debt as % of GDP
- However, Chinese stocks are not significantly more levered than U.S. stocks
- Asset and debt growth has stalled in 2018, likely indicating an economic slowdown
EQUITY FACTORS & INFLATION
- Factor performance is impacted by inflation and deflation
- An inflationary environment is more attractive for most factors
- The change in inflation has been most meaningful for the Size factor
EQUITY FACTORS & GDP GROWTH
- Economic cycles have a clear impact on factor performance
- Some factors show pro-cyclical while others highlight anti-cyclical characteristics
- Given that real GDP is not published in real-time, it is unlikely effective for factor selection
FACTORS & INTEREST RATES
- There are no consistent relationships between Value, Size, Momentum and interest rates
- Applies to high and low and increasing and decreasing rate environments
- Investors shouldn’t be too concerned about factor exposure and rising rates, more about very low rates