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  • Amid Uncertainty, Fed Embraces Data Dependence

     

    In a week with a U.S. presidential election and market volatility, the Federal Reserve cut its policy rate 25basis points (bps) as expected. Amid this noise and the generally positive messages from recent macro data, Fed Chair Jerome Powell emphasized that downside economic risks had decreased, but the policy rate remains above neutral, suggesting that gradual cuts are still likely to come over time. Although he declined to provide guidance about the rate decision at the December meeting, he did

  • Four Economic Themes Shaping the Next 12-Months

     

    Global economies are normalizing and central banks are cutting rates, we identified four themes investors should focus on as we head into 2025.

  • ECB: Growth Concerns

     

    The growth outlook has turned weak enough for the European Central Bank (ECB) to deviate from the quarterly cutting trajectory and make its first move outside a staff projection meeting. As the ECB had been guiding towards December at its previous monetary policy meeting, and the amount of data received since the September rate cut has been sparse, risk management considerations seem to have played an important role.From a risk management perspective, the ECB likely believes that upside shocks t

  • The Alpha Equation: Myths and Realities

     

    Executive SummaryAlpha gauges returns against a risk-adjusted benchmark, but it’s often misunderstood.Accurately measuring alpha requires understanding relevant risk factors, including leverage, liquidity, volatility, the proper time horizon, and valid benchmarks.Distorted measurements of alpha are more common with private assets and niche strategies due to the use of unsuitable benchmarks and the omission of relevant factors.Active management has historically been more successful in generating

  • Are 60/40 Portfolio Returns Predictable?

     

    Executive SummaryLong-horizon asset class returns are reasonably predictable using simple models of expected return.However, equity returns over the last decade far exceeded model-based predictions.We posit a framework for the drivers of potential mean-reversion in equity returns.We believe increases in real bond yields and a decline in corporate profit growth are the most likely candidates to prompt an equity market correction.Download PDF

  • The Value of smoothing

     

    Although most research on private assets asks whether returns are commensurate with risk, we focus on the value of the smoothed volatility profile of private assets that are not marked to market. We find that the smoothing of returns in private equity has a substantial impact on headline volatility: The true economic volatility of private equity is close to 30%, rather than a headline number of 10%. We then quantify the value of the illusion of low volatility with a few thought experiments. Usin

  • Want to Mitigate Inflation? Take a Portfolio Approach

     

    SummarySurging U.S. consumer prices have energized the debate about inflation but our JulyResearchpaper, “Assessing Inflation: Theories, Policies and Portfolios,” argues that the debate over inflation generally suffers from a lack of definition – and, therefore, comprehension.Currently, we believe there are fatter inflation tails than the market has expected. But longer term, there is a high probability that inflation will be contained.Nonetheless, for investors who wish to hedge against infl

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