Perspectives Blog

U.S. rates – Headwinds

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

…function) and also affects the size of the output gap (the normal transmission mechanism). However, there are many other things that affect the output gap besides monetary policy. These can include non-financial factors like fiscal policy and oil prices, as well as financial headwinds/tailwinds such as credit standards, household balance sheet stress and capital market regulation (financial headwinds could be thought of as affecting the output g…

Does a perfect policy portfolio exist?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | May 5, 2014

Risk Parity represents a significant advance in asset allocation, but we don’t believe that there is a single perfect policy portfolio. While Risk Parity works well in neutral markets, we don’t think it is the best policy under bearish, bullish or highly bullish market conditions. We believe that a policy function that rotates among four distinct policy portfolios is closer to perfect than any single policy portfolio. The idea of a policy port…

Is Europe heading for Japanese-style deflation?

Martin Harvey, Fund Manager, Threadneedle International Ltd | August 4, 2014

nflation undershoots expectations from here. However, the ECB faces many institutional impediments that could hinder the process and has some way to go if it plans to rival the aggressive policies of other nations since 2008. Fiscal policy: Although monetary policy was arguably too tight in Japan, fiscal policy was being utilized to boost demand throughout the 1990s. Over many years of nominal GDP stagnation, this drove the government debt stock…

India’s new government fires investor enthusiasm

Natasha Ebtehadj, Fund Manager, Threadneedle International Limited | September 8, 2014

vestment and unlock India’s economic potential. India’s economy has been weighed down in recent years by both political and economic problems, which have dragged growth substantially below its potential. Deterioration in the fiscal and external accounts and an alarming rise in inflation with ensuing interest rate hikes by the Reserve Bank of India (RBI) have created stagflation type conditions and made the economy vulnerable to external shocks….

U.S. rates — Data dependence

Zach Pandl, Portfolio Manager and Strategist | June 23, 2014

Evidence of data dependency at the June FOMC meeting suggests policy will respond to unemployment and inflation surprises. We are more confident the Fed’s reaction function is (nearly) done moving. We therefore remain cautious about exposure to U.S. interest rate risk, especially at the middle of the yield curve. The June FOMC meeting contained a little bit for everyone and interest rates reacted only marginally after the announcements. But lo…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

Both fiscal and monetary policy will begin to normalize in 2014 The economy’s performance will be an important metric for markets as growth needs to catch up The key to getting growth beyond 2% is for business to borrow to improve/expand productive capital It’s happening again—a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounc…

Inflation — The usual suspects

Zach Pandl, Portfolio Manager and Strategist | August 11, 2014

Four factors figure empirically into how and why inflation moves: (1) commodity prices, (2) spare capacity, (3) changes in exchange rates, and (4) monetary policy. These same factors argue for a gradual recovery in U.S. inflation in the year ahead, which could be a headwind for high-quality fixed-income returns. In contrast to U.S. markets, in markets with prospects for a trend lower in inflation expectations (e.g. certain pockets of EM), falli…