As 2023 drew to a close, the financial markets began to manifest the early signs of a soft-landing scenario, marked by a robust rally in equity markets in the fourth quarter, showcasing double-digit gains. This period was characterized by broadening of market strength, with notable outperformance by small-cap stocks, heavily shorted names, lower-quality companies, unprofitable tech, and a mix of long-duration, meme, cyclical, and value stocks.
This article offers an incisive look into the factor vetting process, crucial for developing effective stock selection models in finance. It highlights the importance of distinguishing robust factors from mere statistical noise, minimizing multicollinearity, and preventing overfitting to enhance model performance.
In this quarter’s update, we begin by looking at interest rates at the very broadest levels, i.e. Treasury markets and Federal Open Market Committee (FOMC) actions. We then take stock of the fixed income landscape, looking at current market metrics against a historical backdrop.
In recent years, the investment landscape has been significantly influenced by unprecedented monetary and fiscal stimuli, leading investors to focus on changes in inflation. But the front lines for significant government and central banks’ war against inflation have significantly diverged.
The key question going into the final quarter of 2023 and glancing towards 2024, is whether U.S. consumers, that account for roughly two-thirds of its total activity, will continue to keep the economy afloat.
Already responsible for an estimated $5 billion in stimulative consumer spending – the equivalent of the entire annual earnings of Starbucks, American Airlines, or FedEx – the Taylor Swift ‘Eras’ Tour is doing more than its part to save the global economy. However, the economic phenomenon being dubbed ‘Swiftonomics’ will forsake China, as the pop legend’s tour plays four dates in Japan and a record six dates in Singapore, but not in the world’s second largest economy.
The ensemble approach, in a broad sense, refers to combining multiple units (which could be models, methods, or components) to work together to achieve more accurate and reliable outcomes than any individual unit could achieve alone. This is akin to making a decision based on the collective wisdom of a diverse group, rather than relying on a single opinion.
In this update we review the results of the most recent Russell 1000 Large Cap Value annual Style Index rebalance that occurred on June 23rd. We also compare the exposures of the Russell 1000 Value index versus the S&P 500 Value index at 06/30/23 and consider the potential impact of factor and sector differences between the indexes on investors targeting large cap value exposure.
In a paper entitled Generative AI – Hope, Hubris, or Harrowing, our CIO, Tina Byles Williams, explored the medium to long-term effects of Generative AI on the economy, financial markets, and broader society. The task for investment managers now lies in navigating this promising yet unpredictable future, particularly as the market has priced in substantial premiums for those perceived to be the primary beneficiaries of this emerging technology.
As we embark on the second half of 2023, we find a market in conflict. Despite the continued (relative) hawkishness by the Federal Reserve Open Market Committee (FOMC) and its members, most risk assets have continued to perform well.
The second quarter of 2023 saw US equities climb higher powered by large cap growth companies leveraged to the AI (Artificial Intelligence) theme. A pickup in soft-landing expectations seemed to be among the more powerful tailwinds for equity markets.
Generative Artificial Intelligence (AI) models such as ChatGPT represent a transformative leap in the ability of machines to exhibit human-like behavior and to learn autonomously. AI can now surpass humans in a wide variety of cognitive tasks. Accordingly, a recent paper out of the University of Pennsylvania concluded that large language models could displace at least 10% of work tasks, affecting 80% of the US workforce.
Unless you’ve been on an island without cell phone coverage for the past several days (in which case, good for you!) you are certain to have heard of the non-coup, coup attempt in Russia over the weekend.
Unveiling Insights from Changes in Active Risk Exposure, Sectors, and Companies During the Annual Style Rebalance | The significant surge in index turnover during 2022 prompted an investigation into the underlying catalysts. By examining alterations in active exposure, sector dynamics, and the most notable movements of companies, valuable insights can be gleaned regarding the evolving nature of the index.
In a report presented to Congress in 1790, Treasury Secretary Alexander Hamilton described the “punctual performance of contracts”—that is, meeting all financial commitments on time—as a matter of national honor. It was also critical, Hamilton argued, to build confidence in a financial system and a national currency that could underwrite his fledgling country’s industrial development and provide “security against foreign attack”.
In an ever-evolving investment landscape, the success of active managers extends beyond traditional fundamentals and analyst outlooks. Macro and geopolitical risks have taken center stage, transforming manager evaluation and portfolio construction.
The graveyard of once legendary business franchises has just added one more new member to its ignominious fraternity. The hastily arranged acquisition of Credit Suisse by its chief Swiss rival UBS in March 2023, ended the 166-year run of the global symbol of Swiss banking largesse. Credit Suisse was once the 15th largest bank in the world with offices in 50 countries and assets of over $1 trillion USD.
US equities were generally higher in the first quarter of 2023, but intra-quarter performance was mixed. The S&P 500 gained for a second straight quarter and got off to a strong start with over 6% returns in January, its best January since 2019.
For fixed income markets, volatility remains the recurring theme across fixed income markets. We have discussed this for more than a year, and we are once again left to contemplate volatility around the market direction narrative versus realized volatility in fixed income markets.
Extend Xponance’s long track record of sourcing, supporting and seeding Diverse & Emerging Managers to the private markets. We seek to partner with GPs that manage alternative asset strategies across multiple fund types
We delve into this opportunity by dissecting the fundamental differences between large and small-cap indices to see if this appears to be a buying opportunity or a fair repricing given the current environment.
The investment ocean is roiling. The steady ship of 60/40 had its worst year in a generation and many investors are left feeling either adrift in the storm or run aground on a deserted isle.
As we move forward into 2023, what happens in financial markets will be determined by the interplay of two primary factors – inflation and economic growth.
For each of the first three quarters of 2022, we spent the opening paragraph of this piece finding new and interesting ways to describe just how bad fixed income performance was, across all sectors and tenors. Yet despite capping one of the worst years for fixed income historically, 4Q22 managed to provide positive total and excess returns.
This post explores the reasons behind the growing popularity of Artificial Intelligence (AI) and Machine Learning (ML), the opportunities that are available in using these techniques for ESG investing and the challenges encountered in using them.
