Market Outlook

U.S. Election Implications

November 2016
Donald Trump’s victory in the U.S. presidential election was a surprise to many market participants, resulting in increased market volatility immediately following the election. There is a level of uncertainty with this result as Trump has put forward fewer policy specifics than most Presidential candidates. In addition, because he has no experience in government, we cannot look to prior votes or proposals to better understand his views. Despite the level of uncertainty, we believe it is important to take a longer-term view. The balance of this paper will review what we believe to be the critical issues which will drive markets over the coming months and years.

 

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Do U.S. Presidential Elections Impact Capital Markets?

October 2016
Every four years, in the months leading up to the U.S. presidential election, we often get asked how capital markets will react if the Democratic or Republican candidate wins the election. It is easy to assume that the U.S. election will have a big impact on capital markets, particularly given the length of the electoral cycle and the coverage by the media. However, historical data seems to suggest that elections do not drive market returns, particularly for those investors with a long time horizon. While we cannot make predictions about the election’s short-term impact on capital market performance, we would suggest clients look beyond the election and stay with their long term investment plan.

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15 Jul

Opportunities in a Post-Brexit World

July 2016
The United Kingdom’s (“UK”) decision to leave the European Union (“EU”) in late June was a surprise to most market participants, resulting in heightened market volatility. In our and many others’ opinion, the vote to leave the EU has increased uncertainty and has not provided any resolutions. While market volatility has subsided in recent weeks, uncertainty remains. Given the high level of uncertainty and unattractive fixed income and equity market valuations, we believe it will be difficult for investors to generate attractive returns in the near term. Interest rates across the globe are at historically low levels and U.S. equity market valuations are elevated. While equity market valuations across non-U.S. developed and emerging markets are more attractive than those in the U.S., the potential for continued political instability and an uncertain economic outlook present challenges. The balance of this paper provides additional color on our capital market return forecasts and reviews potential investment opportunities which investors may wish to consider.

 

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2016 Capital Market Outlook Mid-Year Update

June 2016
At the end of 2015, we described several themes which we believed would be important topics for investors in 2016 in our Insight title “2016 Capital Market Outlook.” As we near the halfway point of the year, we thought it would be useful to provide an update on those themes. In this paper we will also touch on two new themes which we believe are relevant for the remainder of the year.

 

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Energy Market Opportunities

March 2016
The decline in energy markets over the past 18 months has been dramatic with crude oil prices falling 70% and natural gas prices falling 60%. When a market experiences a severe correction, we believe it is appropriate to look for attractive investing opportunities in that market. Some of the areas which we believe present attractive opportunities today include private energy investments and midstream energy debt. To be clear, these opportunities do not rely on a significant rise in energy spot prices to generate attractive returns. The balance of this paper details our views on the following energy investment opportunities, Long-Biased Energy Futures, Energy Public Debt, Energy Public Equities, Master Limited Partnership Equity, Master Limited Partnership Debt, and Private Energy Partnerships.

 

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Are Negative Interest Rates Headed to the U.S.?

February 2016
Just two months after the first U.S. interest rate hike in nearly a decade, there has been a meaningful increase in commentary surrounding the potential for negative interest rates in the U.S. Outside of the U.S., negative interest rates have been around for several years and many developed country bond markets have parts of their yield curve in negative territory. Although the potential for negative interest rates in the U.S. seemed implausible just a few months ago, we believe the possibility should not be dismissed. To be clear, the focus of this paper is on the possibility of negative rates at parts of the Treasury yield curve as opposed to negative policy rates as set by the Federal Reserve. The balance of this paper will detail several reasons why we believe U.S. interest rates could head lower, outline what investors should expect in a prolonged low interest rate environment, and examine how investors can position their portfolios going forward.

 

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2016 Capital Market Outlook

December 2015
As 2015 draws to a close, investors are starting to turn their attention to 2016. We thought it would be useful to describe some themes which may be important topics for investors in the coming year. The themes we explored in further detail throughout the paper are Global Growth, Europe, Fed Rate Hike(s), Search for Return, Energy Market Uncertainty, and Bond Market Liquidity. The impact of these issues will vary by portfolio, but investors of all types should have some takeaways.

 

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Emerging Markets: Compelling Long-Term Value or Value Trap?

November 2015
During a strong bull market in which nearly all asset classes have risen in price, there has been one noticeable outlier: emerging markets. Following the global financial crisis, emerging markets appeared to be an attractive investment as these countries were, by many measures, in better fiscal health relative to the developed world. However, the experience for investors allocating to emerging markets, particularly equities and local currency debt, has been anything but satisfying. Emerging market asset classes, primarily equities and local currency debt, have declined significantly in 2015 and have struggled to keep pace with developed market assets for much of the last five years. There are significant risks and opportunities in emerging markets resulting in the potential for a wide range of outcomes.

 

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Equity Market Valuations: A Review of CAPE Ratios

August 2015
There is no perfect measure for assessing the value of public equity markets, but the price-to-earnings ratio is both logical and certainly one of the most popular metrics. Rocaton prefers to use cyclically adjusted price-to-earnings (“CAPE”) ratios, sometimes referred to as normalized P/E ratios or the Shiller P/E ratio. While we don’t expect CAPE ratios to have perfect predictive power, the measure has proven to be reliable over longer time periods. In this Rocaton Insights, we review the predictability of CAPE ratios, address some of the criticisms of CAPE ratios, and examine where current equity market valuations are today.

 

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Currency Hedging: Is It Worth It?

April 2015
Given the high utilization of target date options in defined contribution plans, target date options are receiving ever greater scrutiny. As such, custom target date options are becoming a more popular discussion topic. While there are many factors that could lead a plan sponsor to seriously consider custom target date options, we believe there are a few key considerations that should receive the most weight when considering custom target date solutions. We suggest that there should be a higher hurdle for custom implementation and we outline a number of considerations for custom target date options in this Rocaton Insights.

 

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