Pub Date : 2022-05-20DOI: 10.3905/joi.2022.31.4.017
Lawrence S. Speidell
“Emerging markets” has been a positive label for selected markets in developing countries since the mid-1980s. This is a good time to review the progress of those countries and others to see which have succeeded and which have not. Despite the well-known success of China, many countries have failed to measure up to their early promise. This article examines the relative gains and losses of each country versus the developed world’s average GDP per capita from 1991 to 2026 (based on IMF estimates). Brazil and Mexico, for example, have lost ground during that period. Because of those findings, this is a good time to consider changing the “emerging” label and possibly creating a new framework for grouping markets. The IMF list of advanced economies is considered as one possibility. It is important to stimulate discussion of the appropriate categories for investors in creating their opportunity sets for investing and making asset allocation decisions in the years to come.
{"title":"A Time of Reckoning in Emerging Markets","authors":"Lawrence S. Speidell","doi":"10.3905/joi.2022.31.4.017","DOIUrl":"https://doi.org/10.3905/joi.2022.31.4.017","url":null,"abstract":"“Emerging markets” has been a positive label for selected markets in developing countries since the mid-1980s. This is a good time to review the progress of those countries and others to see which have succeeded and which have not. Despite the well-known success of China, many countries have failed to measure up to their early promise. This article examines the relative gains and losses of each country versus the developed world’s average GDP per capita from 1991 to 2026 (based on IMF estimates). Brazil and Mexico, for example, have lost ground during that period. Because of those findings, this is a good time to consider changing the “emerging” label and possibly creating a new framework for grouping markets. The IMF list of advanced economies is considered as one possibility. It is important to stimulate discussion of the appropriate categories for investors in creating their opportunity sets for investing and making asset allocation decisions in the years to come.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46744372","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-05-20DOI: 10.3905/joi.2022.31.4.009
M. Waring
{"title":"COMMENTARY: Time Goes by So Fast: Reflections on 30 Years of The Journal of Investing","authors":"M. Waring","doi":"10.3905/joi.2022.31.4.009","DOIUrl":"https://doi.org/10.3905/joi.2022.31.4.009","url":null,"abstract":"","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44597449","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-05-20DOI: 10.3905/joi.2022.31.4.135
John R. Minahan
This article is a travelogue of sorts. The author shares with the reader two of his ethical journeys. The first part of the article describes a set of lessons derived from having interviewed 25 senior investment professionals about ethical dilemmas they faced in their careers and how they view the state of ethics in our field. The second part provides a detailed ethical analysis of a single issue: what should investment professionals do if they believe a client has an illusory understanding of his or her financial condition? The author discusses that specifically in the context of investment professionals who advise public and Taft–Hartley pension funds.
{"title":"Reflections on Professional Ethics in Investment Management and Pension Fund Investment Consulting","authors":"John R. Minahan","doi":"10.3905/joi.2022.31.4.135","DOIUrl":"https://doi.org/10.3905/joi.2022.31.4.135","url":null,"abstract":"This article is a travelogue of sorts. The author shares with the reader two of his ethical journeys. The first part of the article describes a set of lessons derived from having interviewed 25 senior investment professionals about ethical dilemmas they faced in their careers and how they view the state of ethics in our field. The second part provides a detailed ethical analysis of a single issue: what should investment professionals do if they believe a client has an illusory understanding of his or her financial condition? The author discusses that specifically in the context of investment professionals who advise public and Taft–Hartley pension funds.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46911569","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the wake of the global financial crisis, with low returns on traditional fixed income instruments, institutional investors seek alternative investment vehicles with similar characteristics. Illiquid assets, such as infrastructure and real estate, have become an increasingly important share of their investments. In this article, we study the performance impact in terms of diversification and return of introducing illiquid assets in an otherwise standard allocation.
{"title":"Asset Allocation Implications of Illiquid Assets","authors":"T. Berrada, O. Scaillet, Zhicheng Zhang","doi":"10.3905/joi.2022.1.229","DOIUrl":"https://doi.org/10.3905/joi.2022.1.229","url":null,"abstract":"In the wake of the global financial crisis, with low returns on traditional fixed income instruments, institutional investors seek alternative investment vehicles with similar characteristics. Illiquid assets, such as infrastructure and real estate, have become an increasingly important share of their investments. In this article, we study the performance impact in terms of diversification and return of introducing illiquid assets in an otherwise standard allocation.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42315363","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine changes in market liquidity around the triggering of US equity market-wide circuit breakers (MWCBs). The coronavirus pandemic has led to heightened market volatility and the tripping of four MWCBs in 2020. When the market reopens following an MWCB halt, trading demand (volume) surges. The rise in trading coincides with shifts in trading activity across exchanges and dark markets, and the cost of trading rises significantly. Although the market is less liquid immediately after a halt, conditions steadily improve over time and converge to similar levels on days in which the MWCB does not trip.
{"title":"The Effect of Tripping the US Equity Market-Wide Circuit Breaker on Liquidity: Evidence from the Coronavirus Selloff","authors":"Charles Favreau, Ryan Garvey","doi":"10.3905/joi.2022.1.230","DOIUrl":"https://doi.org/10.3905/joi.2022.1.230","url":null,"abstract":"We examine changes in market liquidity around the triggering of US equity market-wide circuit breakers (MWCBs). The coronavirus pandemic has led to heightened market volatility and the tripping of four MWCBs in 2020. When the market reopens following an MWCB halt, trading demand (volume) surges. The rise in trading coincides with shifts in trading activity across exchanges and dark markets, and the cost of trading rises significantly. Although the market is less liquid immediately after a halt, conditions steadily improve over time and converge to similar levels on days in which the MWCB does not trip.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42069980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Motivated by the SEC’s recent discussion on leveraged exchange-traded funds (LETFs) and LETFs’ rapid growth, this study provides an analytical and empirical comparison of the performance of LETFs versus traditional investing on margin. First, we prove that the return distribution of LETFs has higher skewness than that of a market portfolio on margin, which may reduce downside risks for investors. Second, we empirically test the daily-return model used in literature to construct LETF returns, and find that the published expense ratio may underestimate the actual cost of those funds for investors. Third, using historical data, we replicate the returns of LETFs and market portfolios on margin. The empirical results show that across different holding periods, the returns of the LETF strategies are higher (lower) than that of market portfolios on margin during strong (moderate) bull and strong (moderate) bear markets. LETFs also provide lower downside risks, and a simple strategy based on the 3× LETF can generate higher risk-adjusted return. Moreover, we find that the LETFs are less risky during every bear market since 1927.
{"title":"Leveraged Exchange-Traded Funds Versus Investing on Margin","authors":"Zugang Liu, Jia Wang","doi":"10.3905/joi.2022.1.228","DOIUrl":"https://doi.org/10.3905/joi.2022.1.228","url":null,"abstract":"Motivated by the SEC’s recent discussion on leveraged exchange-traded funds (LETFs) and LETFs’ rapid growth, this study provides an analytical and empirical comparison of the performance of LETFs versus traditional investing on margin. First, we prove that the return distribution of LETFs has higher skewness than that of a market portfolio on margin, which may reduce downside risks for investors. Second, we empirically test the daily-return model used in literature to construct LETF returns, and find that the published expense ratio may underestimate the actual cost of those funds for investors. Third, using historical data, we replicate the returns of LETFs and market portfolios on margin. The empirical results show that across different holding periods, the returns of the LETF strategies are higher (lower) than that of market portfolios on margin during strong (moderate) bull and strong (moderate) bear markets. LETFs also provide lower downside risks, and a simple strategy based on the 3× LETF can generate higher risk-adjusted return. Moreover, we find that the LETFs are less risky during every bear market since 1927.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46243095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I present a tactical asset allocation proof-of-concept portfolio. It is intended to harvest the non-IID statistical attributes of stocks, bonds, commodities, and currencies, both domestic and international. It has as its objective to benefit from markets’ propensity to trend from month to month and during both bull and bear market environments. The proof-of-concept portfolio relies on a simple quantitative rule that allows for rigorous evaluation over the past 102.1 years. The results presented herein suggest that Tactical Asset Allocation (TAA) is an approach worthy of consideration. Moreover, the article suggests that a necessary condition for TAA success lies in correctly specifying its rather differentiated investment objective—one that may be unrelated to comparisons with popular fixed-weight index benchmarks. Such fixed-weight benchmarks have correlations with TAA strategies that are so low as to make commonly used statistical comparisons irrelevant (i.e., not statistically significant). This article attempts to correct our industry’s mischaracterization and overpromising of all things TAA by focusing on the time required for success.
{"title":"Winners Repeat, Losers Repeat","authors":"Rob Brown","doi":"10.3905/joi.2022.1.226","DOIUrl":"https://doi.org/10.3905/joi.2022.1.226","url":null,"abstract":"I present a tactical asset allocation proof-of-concept portfolio. It is intended to harvest the non-IID statistical attributes of stocks, bonds, commodities, and currencies, both domestic and international. It has as its objective to benefit from markets’ propensity to trend from month to month and during both bull and bear market environments. The proof-of-concept portfolio relies on a simple quantitative rule that allows for rigorous evaluation over the past 102.1 years. The results presented herein suggest that Tactical Asset Allocation (TAA) is an approach worthy of consideration. Moreover, the article suggests that a necessary condition for TAA success lies in correctly specifying its rather differentiated investment objective—one that may be unrelated to comparisons with popular fixed-weight index benchmarks. Such fixed-weight benchmarks have correlations with TAA strategies that are so low as to make commonly used statistical comparisons irrelevant (i.e., not statistically significant). This article attempts to correct our industry’s mischaracterization and overpromising of all things TAA by focusing on the time required for success.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49608800","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-31DOI: 10.3905/joi.2022.31.3.001
Brian R. Bruce
{"title":"Editor’s Letter","authors":"Brian R. Bruce","doi":"10.3905/joi.2022.31.3.001","DOIUrl":"https://doi.org/10.3905/joi.2022.31.3.001","url":null,"abstract":"","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41662246","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Unprecedented monetary policy measures carried out by the US Federal Reserve in response to the COVID-19 pandemic have raised the question of whether US dollar hegemony will continue going forward. In this article, the authors examine the multi-faceted nature of dollar hegemony with a focus on its relationship with globalization. They find that the US dollar is the dominant currency in global economic activities ranging from trade to cross-border banking, and this USD strength is reflected in the ability of US Treasuries to diversify local economic shocks. While they find that US Treasuries provide historically better diversification for local equity risk than local sovereign debt, in an ultra-low interest rate world, investors will likely need to consider alternative hedging approaches. As an illustration of a potential alternative, the authors turn to the currency markets and show that a short euro versus long Japanese yen position has had stable to improving performance as a hedging tool. The key message is that alternative hedging strategies merit a robust discussion and consideration in a low-yield environment.
{"title":"Financial Globalization and Its Implications for Asset Allocation in a Dollar World","authors":"Ramu Thiagarajan, Hanbin Im, Jiho Han, Aaron Hurd, Gaurav Mallik","doi":"10.3905/joi.2022.1.225","DOIUrl":"https://doi.org/10.3905/joi.2022.1.225","url":null,"abstract":"Unprecedented monetary policy measures carried out by the US Federal Reserve in response to the COVID-19 pandemic have raised the question of whether US dollar hegemony will continue going forward. In this article, the authors examine the multi-faceted nature of dollar hegemony with a focus on its relationship with globalization. They find that the US dollar is the dominant currency in global economic activities ranging from trade to cross-border banking, and this USD strength is reflected in the ability of US Treasuries to diversify local economic shocks. While they find that US Treasuries provide historically better diversification for local equity risk than local sovereign debt, in an ultra-low interest rate world, investors will likely need to consider alternative hedging approaches. As an illustration of a potential alternative, the authors turn to the currency markets and show that a short euro versus long Japanese yen position has had stable to improving performance as a hedging tool. The key message is that alternative hedging strategies merit a robust discussion and consideration in a low-yield environment.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42647839","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"COMMENTARY: Last Page","authors":"G. Frankfurter","doi":"10.3905/joi.2022.1.224","DOIUrl":"https://doi.org/10.3905/joi.2022.1.224","url":null,"abstract":"","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2022-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41739452","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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