ANY VIEWS EXPRESSED HERE ARE THOSE OF THE AUTHOR AS OF THE DATE OF PUBLICATION, ARE BASED ON AVAILABLE INFORMATION, AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. INDIVIDUAL PORTFOLIO MANAGEMENT TEAMS MAY HOLD DIFFERENT VIEWS AND MAY MAKE DIFFERENT INVESTMENT DECISIONS FOR DIFFERENT CLIENTS.
This quarter’s "top of mind" topics
- International equity diversification: Will it ever pay off again?
- Value: Remain patient or pull the plug?
- China: How does it fit into an EM allocation?
THIS QUARTER, I FOCUS ON questions being raised about the benefits of investing outside the US and in value stocks. I’ll acknowledge up front that I’m a believer in both of these strategies, but I’ve tried to compensate for any biases by focusing on what the data tells us. I also offer thoughts on adding China A-shares as a stand-alone portfolio allocation. First, though, a few brief observations on trends in the institutional investor space.
What we’re hearing from investors
Key themes from my recent client conversations include:
- Subdued reaction to market volatility but continued interest in defensive strategies and privates — Since volatility spiked upward in the fourth quarter of 2018, I have not heard a lot of concern or calls for significant portfolio changes from investment staffs or boards. That said, there has been continued interest in defensive strategies, and particularly defensive equity strategies, as well as private investments — both of which could be linked to market volatility. Given where we are in the cycle, we believe investors should consider playing defense, as our team’s recent work on the business cycle demonstrates. As for privates, institutions may look to them to mask mark-to-market losses in a downturn, but one’s eyes should be wide open to the leverage risk that underlies many of these strategies.
- Less focus on active/passive but more on specific manager decisions — Many institutions seem to be moving beyond the active vs. passive debate, having figured out what role they want each to play in their portfolios. But there has been more focus on managers themselves. We’ve seen a great deal of interest in manager research, with clients seeking input on manager assessments and adjustments in manager lineups.
- Greater interest in ESG — Interest in environmental, social, and governance (ESG) issues is rising across channels (e.g., public pensions, endowments, foundations) and regions (especially outside the US)…
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