At last week’s Jackson Hole Symposium Janet Yellen was not the dove we thought we knew. Balanced remarks on labor market and cumulative progress toward recovery put her views close to center of FOMC. We see this as further confirmation that Fed leadership is increasingly comfortable with moving toward an exit from zero interest rates—likely
Insights on current market events and investment opportunities.
There have been instances where the passive approach to bond investing produced significant underperformance relative to a benchmark. Index funds are at a significant disadvantage to active portfolios in which managers incorporate valuation into their decision making process. The many nuances and inefficiencies of the fixed income market create both difficulties for indexing and opportunities
Surprisingly solid returns for bonds in the first half could lead to disappointment in the second half of the year. We continue to believe high-yield bonds are worth holding, especially higher quality ones. Improved country fundamentals and strong technical support favor EM bonds but caution that returns could be less stable in the near term.
Fed officials have highlighted underemployment but offered little guidance about how this issue affects the policy outlook. Traditional tools like the Taylor Rule need to be recalibrated if the central bank focuses on a different measure of slack, so they offer little guidance to investors at the moment. We hope to learn more at this
Ability is not the same as willingness to pay. Political pressures continue to influence the bankruptcy process, potentially to the detriment of bondholders and leaving politically-connected stakeholders more equal than others. Legal protections included in bond indentures may prove inadequate. The Unlimited-Tax G.O. (UTGO) bonds and the Limited-Tax G.O. (LTGO) bonds failed to deliver their
Major asset classes had nice gains through mid-June but have declined as of late. Although we still favor equities, we think it is time to bolster portfolio resilience. We are keeping our eye on Europe as the summer comes to an end. A reputation, it is said, takes a long time to build, but a
Non-cyclical sectors slightly out performed cyclical sectors during the quarter. In technology, the U.S. is improving, Europe is still not strong and developing markets lag. The healthcare sector improved, but it is still a question mark for the second half of the year. As the economic recovery matures, we have seen a fairly consistent pattern