Contributor: David G. Eichhorn, CFA
-
Sharing an Interesting Analysis
Sometimes you come across a piece of analysis that is interesting enough to feel compelled to pass it on. I had this reaction while reading AQR’s recently published paper titled “The Illusion of Active Fixed Income Diversification,” which examined the excess returns of active bond managers and concluded that a majority of managers may be simply overweighting…
-
The Beginning of the End for LIBOR
The end is nigh for the London Interbank Offered Rate. The CEO of the British markets regulator, the Financial Conduct Authority, announced yesterday that LIBOR will be phased out by the end of 2021. Though headlines proclaiming the “death of LIBOR” may catch some by surprise, this announcement is merely another step forward in a…
-
Does the Size of a Company’s Pension Affect its Stock Price?
Summary We examined the statistics behind the claim that large pensions drag down a company’s valuation and accordingly how annuity buyouts allow a sponsor to remove this discount from their stock price. As you might have guessed, this conclusion rests on some erroneous assumptions and interpretations, and what makes for an exciting graph doesn’t quite…
-
Trumponomics – Two Scenarios for Fiscal Stimulus
Changes in yields can provide insights into the market’s views on the potential results of anticipated policies of the Trump Administration. One of the more interesting dynamic relationships is that between TIPS and nominal Treasury yields, which offers guidance regarding real growth and inflation expectations. The graph below depicts changes in selected real and breakeven…
-
Equity Spread Duration is Bubbling Up
Summary In recent months we’ve observed that equity’s effective spread duration (ESD) seems especially pronounced—for example, the S&P 500’s ESD is currently about 25 years vs. its ten-year average of about 15 years. We thought it would be worthwhile to dig a little deeper to understand this dynamic. In a nutshell, below average spread volatilities…
-
The Topography of Pension Risk
Last week, we participated in the annual P&I Pension Settlements Strategies conference. We will share the full materials in an upcoming post, but I thought one exhibit was worthy of special attention. One key point in our presentation was that pensions are not inherently risky. Rather, asset allocation drives the risk profile of the pension…
-
Grading Rates on a Curve
Can rates in the U.S. only go up from here? With Treasury yields reaching historical lows recently, it may be tempting to think of U.S. rates as having hit a floor. Yet before making tactical adjustments, it may be prudent to examine rates not just in absolute but in relative terms. Doing so suggests rates…
-
Have Cash – Will Carry: Another Simple Strategy to Help Enhance Cash Yields
As the (seemingly) never-ending search for yield continues in year eight of the “low for long era,” an oldie but a goodie comes to mind. The cash and carry trade, which undoubtedly raises fond memories from your “Intro to Derivatives” course, has caught our eye recently. As a brief reminder, a cash and carry trade…
-
Bonds Without Borders
It may pay to be a little more cosmopolitan when it comes to your bond portfolio. Yield differences between comparable maturity instruments in different countries can offer opportunities to enhance returns, particularly for longer-term investors. By buying foreign bonds and using currency forwards to lock in future exchange rates, investors may be able to realize…
-
Prix Fixe vs. A la Carte (or, Asset Classes vs. Risk Premia)?
When you go to a restaurant for a nice meal, do you prefer to order from the prix fixe menu or go the à la carte route? With prix fixe, the chef has selected the entire meal for you, so you can be reasonably confident you’ll get something satisfying. But if you know exactly what…