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Global Economic & Capital Market Outlook
Roaring 2020s was a catchy US investing theme a year ago, but 2020 proved to be a challenging year for investors. Volatility proved costly to those that let fear and emotion overwhelm portfolio decision making. Wild swings in equities and interest rates also provided tactical opportunities, while reinforcing the importance of strategy discipline and rebalancing in the face of uncertainty. Last year was not the kind of year we anticipated. After the global pandemic took hold, everything changed, but the steep recession was short lived. Unlike disorderly natural causes of typical recessions and financial crises, the recessionary forces caused by pandemic lockdowns were transitional. A rapid “V-shaped” equity market rebound anticipated economic recovery that took many by surprise. Economic growth accelerated in 2H/2020, but 2020 growth was still just modestly negative (-2.4%). We are not embarking on a new business or market cycle, rather observe an interrupted and still extended cycle given a transitional artificial recession due to economic wreckage of lockdowns. Talk of shifting toward an investment playbook consistent with early cycle recovery is misguided. Instead, later cycle behavior of higher inflation, lower growth, and declining profit margins might be aggravated by adverse fiscal, regulatory, energy, and trade policies. Excessive fiscal and monetary stimulus can drive inflation expectations that are more difficult to contain.
May 2019: Capitalizing on Global Future Themes
A Future Theme herein is a thesis or proposition that could have such substantial impact that when recognized will shift consumption, disrupt competition, or impact our lifestyle for a significant portion of the population. We seek to identify key drivers of differentiation and relative global competitiveness. Businesses are leveraging cost benefits to realize higher profit margins, disintermediating labor and reducing unnecessary tasks. Yet, simply identifying a trend or theme may not be sufficient to realize excess return---Earnings potential, profit margin, and current valuation also affect future returns. We find value in the exercise and experience of identifying Future Themes and discussing how they can affect our investment thesis. given extraordinary return potential of secular themes, not surprising thematic investing has become popular. We seek to understand key forces to uncover just a few opportunities that have potential to generate compelling excess returns over a long investment horizon.
Strategic Insights: Alternative Reality (updated)
This Strategic Insights discusses a few myths and dirty little secrets of alternative investing revealed from a decade of research, experiences, and much thought on the topic. Alternative investments by definition are distinct and dissimilar, in contrast to stocks and bonds---decisions to allocate to alternatives must be prepared to respond to the practical question, allocation to what? The attraction of alternatives promising higher returns with increased diversification is persuasive. So, we sought to differentiate the compelling opportunity in private markets versus the generally disappointing practice of alternative fund management. (Originally published Q4 of 2016.
Long Horizon Investing in a Short-term World.
We live in an era of exceptional and accelerating innovation driving profit margins, and thus earnings growth. So why have private market returns been disapppointing? Asset owners can do better, but they must be willing to think differently about investing behaviors. We examine the various challenges that investors face trying to achieve their investment objectives and explore theories for the increasing short-termism of investors. Manipulated bond markets must normalize, which must have long-term consequences for all asset classes.
Global Market Strategy
How should we think about the key variables and relationships that influence our Strategic and Tactical Asset Allocation decisions? In this presentation we lay out a framework for making asset allocation decisions based on fundamental econometric variables. See Economic & Capital Market Outlook for current macroeconomic state and our forecasts.
Disclaimer: Information published herein is the opinion of Strategic Frontier Management, LLC and is for investment education and illustrative or informational purposes only. It is not intended to be a recommendation regarding purchase or sale of any security. Strategic Frontier Management, LLC is not a Financial Planner or Tax Accountant. All investment decisions entail risk and there is no guarantee that investment strategies will achieve the desired results under any given market conditions. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those described. No part of this material may be reproduced, in whole or in part, without prior written permission of Strategic Frontier Management. © 2021 Strategic Frontier Management.