News

276 news articles are available

10/01/2020 Research / Market

Time for a flight to cyclical value in European equity

When we look fundamentally at the risks and rewards in equity markets for 2020, we find that value offers better opportunities than growth as implied expectations are lower and therefore more attractive for value at this point. The performance of value vs growth has been on a downward trend for a long time, almost 13 years. In our view, the rotation towards value that started in September 2019 is likely to continue in 2020.European equities will benefit from this rotation; Europe is a value market as it is more skewed towards the traditional value sectors of financials, telecoms, mining and utilities, while being underweight in the hyper-growth segment of information technology (IT). In the past, rotations from growth to value have been more pronounced in Europe than the overall global market.

23/12/2019 News

A Note on Portfolio Optimization with Quadratic Transaction Costs

In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason lies in the specification of the budget constraint, which is no longer linear. We provide numerical algorithms for solving this issue and illustrate how transaction costs may considerably impact the expected returns of optimized portfolios.

18/12/2019 Investment Talks

2020 outlook for the US 10-year Treasury bond

In 2019, the 10-year Treasury yield traded in a range of 1.46-2.78%, the fourth widest range since 2010. The 10-year yield rallied due to uncertainty over US-China trade negotiations and ongoing concerns about a weakening global economy. Fueling the rally further was a dramatic pivot in the Federal Reserve’s monetary stance from hawkish to dovish, which led to three rate cuts, and finally to neutral. This backdrop was a catalyst behind a strong 10% increase in the US 10-year yield in 2019. Historically, Treasury performance often suffers following a 10% return the preceding year, as the chart shows.

18/12/2019 Research / Market

Fixed income: Back to core – Charts and Views: Build a robust ‘core’ and diversify income sources

The ongoing slowdown in global trade will weaken global GDP growth further in 2020 – especially in advanced economies skewed towards the manufacturing sector – but a full-blown recession is unlikely, in our view. This situation will encourage policymakers to finally add fiscal stimulus to the policy mix, possibly extending the economic and credit cycles. Monetary policy is unlikely to become much more accommodative and market expectations will have to adjust, likely driving bond volatility higher with a possible bottoming out of core bond yields.

18/12/2019 Investment Talks

UK election could pave the way for an orderly Brexit and a rebound in equities

Based on the potential for a Conservative government, we believe that the probability that a Brexit deal is ratified is now about 80%. As alternative scenarios, there is also the lower potential that the UK remains in the EU (15%) or of a Hard Brexit (5%). Under the main scenario, the 10Y Gilt yield could move up from the current levels, remaining below 1% at the end of 2020. We still see room for the GBP to rebound in the short term, although the outlook for the medium term is less compelling. On the equity side, a stable government could drive a re-rating of the UK market, which is currently trading at discount to the EU and global markets. We remain positive on the more UK-focused domestic names: house builders, consumer discretionary stocks and financial companies.

10/12/2019 Investment Talks

Screen the Euro fixed income market in the era of three ‘lows’

As 2020 approaches, the uncertainty in the market has receded but there are still risks ahead involving macroeconomic, political and technical factors. Under such a scenario and with central banks being accommodative, we do not envisage a major increase in European core bond yields from their current levels given the limited growth potential and the scarcity of tools left in the ECB’s toolkit to stimulate the economy. Should the economic situation deteriorate, there could be room for yields to fall, but probably not to the lows reached in late August/early September.