Technological Change and its Impact on Financial Markets

Technological Change and its Impact on Financial Markets

December 2017
We believe technological change is one of the most impactful secular trends that will create new industries and eliminate others, impact productivity, and change our daily lives. Very rapid technological change has the potential to result in extreme investment outcomes (positive or negative) over long time horizons across many different sectors and asset classes. In the attached Insights, we outline the risk that technological change presents to investors and suggest ways to potentially mitigate this risk.
 

Download PDF

What is MiFID II?

November 2017
In 2007, the Markets in Financial Instruments Directive (“MiFID”) was adopted to harmonize financial regulations and create a single, cross-border securities market in Europe. A revised set of regulations, known as “MiFID II”, will go into effect on January 3, 2018. In this edition of Insights, we outline some key tenets of MiFID II and explore potential considerations for asset managers and clients including: 1) the cost impact of MiFID II to asset managers, 2) the potential for fee savings for clients, and 3) potential unforeseen changes to the market landscape after regulatory adoption.

 

Download PDF

What’s Your Exposure to China?

November 2017
We believe China has risen to become one of the most significant drivers of returns and risk for virtually all asset classes. While investors might assume their exposure to China is quite low, we argue that a significant portion of an investor’s portfolio is likely to be influenced by Chinese actions. The attached Insights details the direct exposure investors have to China, but more importantly, outlines the indirect exposure investors have to China and the implications for portfolios.

 

Download PDF

The State of the Hedge Fund Industry

September 2017

Post-financial crisis, hedge fund strategies have faced increased scrutiny and negative press due to high fees and poor performance relative to public markets.  While some high-profile firms have closed and some institutional investors have reduced or abandoned hedge funds, hedge fund strategies still play a role in some investor portfolios.  The attached Insights reviews the current state of the hedge fund industry and provides more detail on our preferred approach to using hedge fund strategies within investor portfolios.

 

Download PDF

Venezuela: An Unfolding Crisis

September 2017

U.S. investors that allocate to emerging market debt may have exposure to Venezuelan debt.  Emerging market debt managers’ active positioning in Venezuela has had and will continue to have a meaningful impact on managers’ relative performance and tracking error in the near-term.  The attached Insights provides additional context on the developments in Venezuela and the potential impact on emerging market debt strategies.

 

Download PDF

Factor Investing

August 2017

Factor investing has gained in popularity in recent years due to the availability of factor products. We believe there are several practical ways in which investors can make use of the expanding set of factor strategies. Specifically, we believe factors can be used in two ways: 1) top-down asset allocation portfolio construction and 2) bottom-up manager/strategy selection. The attached Insights seeks to define factor investing and provide a framework which investors can use to incorporate factor strategies into portfolios.

 

Download PDF

Tax Reform: A Guide for Pension Plan Sponsors

July 2017
Republican leadership has stated its intention to pursue corporate tax reform. If passed as proposed, the reform may create an incentive for plan sponsors to direct funds into underfunded defined benefit plans now rather than later. In addition, the proposed tax reform has the potential to impact the long corporate bond market. The attached Insights details factors that may influence pension contribution policy and provides a framework for plan sponsors to consider when constructing long duration portfolios.

 

Download PDF

2017 Capital Market Outlook Mid-Year Update

June 2017
At the end of 2016, we described several themes which we believed would be important topics for investors in 2017 in our Insight titled “2017 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 one new theme which we believe is relevant for the remainder of the year.

 

Download PDF

An Exploration of China A-Shares

June 2017
To date, institutional investors have been able to access only part of the Chinese equity market through “H-shares”, mainland companies that are traded in Hong Kong. China A-shares, local-currency shares traded on the domestic exchanges in China, are not included in the MSCI Emerging Markets Index and are largely restricted from foreign investment. Given our support of emerging market equities as a component of many investment programs, coupled with China’s increasing importance in the global investment landscape, Rocaton believes it makes sense to study the China A-share market in more detail.

This Insights explores the rationale for; the accessibility of; and the risks of investment in China A-share companies. While we do not offer an opinion on the absolute or relative attractiveness of China as a country, here as elsewhere we do encourage the most robust alpha opportunity set in equities for active investment managers. Rocaton’s view is that active emerging market equity managers should fully consider the China A-share opportunity set for client portfolios, as they would any other region.

 

Download PDF

Active Management Philosophy & Implementation

May 2017
Investors have long-debated the merits and challenges of active and passive investing. The discussions have increased recently due to several factors including fee scrutiny, evolution of passive vehicles, and the challenging performance of many active managers over the past several years. Rocaton believes these discussions are important and complex. In this Insights, we outline our general philosophy on active management and present our approach to building a portfolio of active managers and setting active management expectations.

 

Download PDF