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EWM Team

Aug 06
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Why Endowment Funds Like Yale’s Are Doing Just Fine – Prateek Mehrotra

By News

The Ivory Tower geniuses atop the country’s most respected endowments have recently received a firestorm of criticism for failing to produce outsized returns during the current bull market. But investors must accept that all investment strategies experience periods of underperformance and it’s hardly a reason for endowments to hang their heads.

Investors tend to have short memories and forget that these same endowments outperformed the stock market over the past decade with much less volatility.

Looking at the Yale Endowment investment policy’s achievements, Prateek Mehrotra, MBA, CFA®, CAIA® points out that their main goal is to “diversify across seven asset classes that all act independent of each other in different economic environments.” This leads to more stability and the ability for endowments to generate outsized returns that operate with an extremely long time horizon. Taking advantage of special situations, an ability available due to the diversified portfolio, allows them to distinguish an absolute return strategy and has been a factor in their growth by more than six fold over two decades.

To read the full article:

http://www.thinkadvisor.com/2014/07/31/why-endowment-funds-like-yales-are-doing-just-fine

Aug 04
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EWM Number of the Day: 8/4/2014

By Uncategorized

1.33%

Average value lost last month by U.S. funds investing in junk bonds, or debt rated below investment grade, their second-worst monthly performance since November 2011—prompting fears that many once-hot securities could prove hard to sell in an increasingly difficult trading environment.

GIVEN THAT HIGH YIELD SPREADS ARE AT THEIR TIGHTEST, IT MAKES SENSE TO TAKE A MORE ACTIVE APPROACH TO HIGH YIELD INVESTING, AS THE QE PROGRAM COMES TO AN END AND INTEREST RATES ARE POISED TO HEAD HIGHER…

(Source: WSJ)

Aug 03
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EWM Monthly Commentary: July-2014

By Uncategorized

Domestic equity markets posted modest losses in July, after having delivered five straight monthly gains. Global turmoil finally caught up with stock prices, as Argentina failed to meet a deadline for a $539 million interest payment, and geopolitical unrest simmered in many parts of the world. On the positive side, economic data continued to trend well, highlighted this week by the first estimate of second quarter gross domestic product (GDP), which came in at +4.0% – a significant improvement over the -2.9% contraction of the first quarter. Employment gains remained robust in July, with 209,000 jobs added. Even though the gain was slightly below forecast, it represented the first time since 1997 that the economy has had six consecutive months of gains of more than 200,000. The unemployment rate ticked up to 6.2%. Geopolitical tensions continue to grab headlines and cause concern among investors.

Within this landscape, stocks were soft for the month. The S&P 500 declined -1.4% for the month, and is now up +5.7% on a year-to-date basis. The Dow Jones Industrials also dropped -1.4%. The tech-heavy Nasdaq Composite Index slid -0.8% as technology stocks continued to post solid relative results. The Russell 2000 Index of small cap stocks significantly under performed the Russell 1000 Index of large cap stocks, with returns of -6.1% and -1.6%, respectively. Growth stocks  fared slightly better than value stocks during the month. In terms of sector performance, telecom services was the strongest performer on a relative basis, gaining +3.7%, while utilities were the poorest performers, posting a decline of -6.8%.

International equity markets were also mostly lower in July, although performance was varied regionally. The MSCI World ex-U.S. Index dropped -1.0% for the month. Emerging markets continued their relative rebound, and outperformed developed markets for the month. The MSCI Emerging Markets Index gained +2.0% for the month. The MSCI EAFE Index, which measures developed markets performance, declined -2.0% for the month. Regionally, China and Pacific ex-Japan were the best performers on a relative basis, with the MSCI China Index and the MSCI Pacific ex-Japan Index gaining +7.3% and +3.7%, respectively. Eastern Europe and Europe were among the poorest performers, with results of -7.8% and -3.8%, respectively.

Fixed-income markets were mostly lower in July, but have still fared relatively well on a year-to-date basis. As has been its custom in every one of its meetings so far this year, the Fed continued its pace of tapering of its asset purchase program during the month, reducing purchases by an additional $10 billion. With this as a backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.56%, up four basis points from the 2.52% level of June 30th. Broad-based fixed-income indices were modestly lower in July, with the Barclays U.S. Aggregate Bond Index shedding -0.3% for the month. Global fixed-income markets did not perform as well, with the Barclays Global Aggregate ex-U.S. Index returning -1.4% for the month. Intermediate-term corporate bonds were also lower, as the Barclays U.S. Corporate 5-10 Year Index dropping -0.2%. The Barclays U.S. Corporate High Yield Index posted a loss of -1.3% for the month. Municipals bucked the trend, and posted a gain of +0.2%.

Jul 31
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Why Endowment Funds Like Yale’s Are Doing Just Fine

By News

The Ivory Tower geniuses atop the country’s most respected endowments have recently received a firestorm of criticism for failing to produce outsized returns during the current bull market. But investors must accept that all investment strategies experience periods of underperformance and it’s hardly a reason for endowments to hang their heads.

Investors tend to have short memories and forget that these same endowments outperformed the stock market over the past decade with much less volatility.

Looking at the Yale Endowment investment policy’s achievements, Prateek Mehrotra, MBA, CFA®, CAIA®   points out that their main goal is to “diversify across seven asset classes that all act independent of each other in different economic environments.” This leads to more stability and the ability for endowments to generate outsized returns that operate with an extremely long time horizon. Taking advantage of special situations, an ability available due to the diversified portfolio, allows them to distinguish an absolute return strategy and has been a factor in their growth by more than six fold over two decades.

To read the full article:

http://www.thinkadvisor.com/2014/07/31/why-endowment-funds-like-yales-are-doing-just-fine

 

Jul 30
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EWM Number of the Day: 7/31/2014
Jul 29
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EWM Number of the Day: 7/29/2014
Jul 28
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EWM Number of the Day: 7/28/2014
Jul 25
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Which measure of Wage Inflation is optimal?

By Inflation Watch

The Labor Department measures wages and salaries in many different forms:

Each measure has pros and cons when it comes to capturing true wage trends and inflation pressures in the economy. Unit labor costs, for instance, take into account productivity, but growth can be very volatile. The average hourly wage is timely and broad-based, but it can be affected by shifts in employees between high- and low-paying positions.

To find out which best correlates with quarterly core inflation, the J.P. Morgan economists regressed yearly inflation (using the Fed’s preferred measure, the personal consumption expenditure index excluding food and energy) on year-over-year percent changes of the various wage gauges.

The best fit came with the employment cost index. “It would seem the ECI’s strengths outweigh its weaknesses,” they conclude.

(Source: WSJ)

 

Jul 25
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Japan’s consumer inflation slows to 3.3% in June

By Inflation Watch

Japan’s consumer prices rose 3.3 percent in June from a year earlier for the 13th consecutive month of increase, but the pace of increase has been slowing in recent months, government data showed Friday.

The core consumer price index, excluding volatile fresh food prices, stood at 103.4 against the 2010 base of 100, the Ministry of Internal Affairs and Communications said. The figure was in line with private-sector forecasts.

The data have been affected by the consumption tax hike since April. After excluding the direct effect of the tax rise, the inflation rate in June comes to 1.3 percent, according to the Bank of Japan, which aims to achieve a 2 percent rise in or around fiscal 2015 in order to revive the country’s economy.

The nationwide core CPI continued rising, but the pace of rise was slower than 1.4 percent in May and 1.5 percent in April, both without the effects of the tax rise.

Regarding the outlook, the BOJ expects the consumer inflation rate to move around 1.25 percent for some time amid waning upward pressure from import prices, particularly those for energy. But the central bank also says inflationary pressure will continue, partly citing improving domestic demand.

The April 1 tax hike, which raised the rate to 8 percent from 5 percent, is weighing on consumer spending in the country. The BOJ has been cooperating with the government in boosting the economy out of nearly two decades of deflation, introducing in April 2013 aggressive monetary easing measures to achieve the 2 percent inflation goal within around two years.

The apparent slowdown in consumer inflation as confirmed by the latest price data may add to prospects the BOJ will remain committed to keeping its monetary policy sufficiently accommodative. But as the CPI is still moving roughly in line with the bank’s forecasts, it is less likely that the BOJ will immediately take action to additionally ease the policy.