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Posts From GMO

Merger Arbitrage Opportunity

Merger Arbitrage Opportunity

🕔12:14, 31.Aug 2021

Sellers Squeeze through a Narrow Door: Lord Rothschild famously said, “the time to buy is when there's blood in the streets.” A confluence of technical reasons and limited fundamental disappointment has led to remarkable carnage in the merger arbitrage space

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Part 1: inflation – tall tales and true causes

Part 1: inflation – tall tales and true causes

🕔12:53, 18.Aug 2021

Much Ado about Nothing Fears of inflation often make themselves felt at the strangest times. During the 2008-09 recession many were warning of inflation and even hyperinflation due to the government and central bank policies being enacted in response to

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External Debt Valuation

External Debt Valuation

🕔14:33, 16.Aug 2021

Valuation Metrics in Emerging Debt: The EMBIG-D benchmark spread tightened by 14 bps in Q2, ending the quarter at 340 bps. As seen in Exhibit 1, the multiple is the benchmark’s credit spread to the spread that would be required

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The Value vs. Growth Reversal Is Delivering Returns, with a Long Runway Left

The Value vs. Growth Reversal Is Delivering Returns, with a Long Runway Left

🕔08:00, 5.Aug 2021

MID-YEAR LETTER FOR 2021 Asset Allocation Team: Equity Allocation Strategies  Key Points The Value vs. Growth reversal is delivering returns, with a long runway left. The historic valuation gap between global Value and Growth stocks finally began its reversal. Our

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China and EM Ex-China

China and EM Ex-China

🕔12:47, 21.Apr 2021

The Yin and the Yang China famously has the world’s second largest economy and a GDP growth rate that’s still north of 6%. What’s particularly enticing to an equity investor, however, is a stock market capitalization of $4 trillion, liquidity

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The Duration of Value and Growth

The Duration of Value and Growth

🕔16:13, 6.Apr 2021

Over the last few weeks, we have seen a rise in bond yields alongside an outperformance in global value stocks relative to growth stocks. While we at GMO have certainly been happy to see some recovery in value stocks (and we are confident that this recovery has much further to run), the moves have only reinforced a narrative that has been gaining ground in …

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Chinese SOE Debt

Chinese SOE Debt

🕔08:38, 1.Mar 2021

In our white paper, The Mystery of SOE Debt, published in September 2020, we demonstrated that State-owned Enterprise (SOE) defaults are rare. In this update, we clarify that our SOE investment process excludes SOEs of the variety currently defaulting in China, so we stand …

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Don’t Wait For Another Wave – Why Covid-Sector Credit Opportunities Remain Attractive Today

Don’t Wait For Another Wave – Why Covid-Sector Credit Opportunities Remain Attractive Today

🕔08:04, 22.Dec 2020

Fantastic vaccine news and a post-election relief rally has left many credit investors asking, “Is there any opportunity left from here?” We believe the answer is yes. The ink spilled in the marketplace about record low yields due to record

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Covid-19, climate change, and the need for a new marshall plan

Covid-19, climate change, and the need for a new marshall plan

🕔11:20, 24.Nov 2020

"Now we face the shorter-term economic threat from Covid-19 and the long-term economic threat from climate change. We have a clear incentive, I would argue an imperative, to produce a very large and sustained public works program."

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The mystery of SOE debt

The mystery of SOE debt

🕔14:32, 14.Sep 2020

The great majority of SOE funding is domestically sourced by local banks.1 However, within the past decade, SOEs have chosen to diversify their funding sources by venturing into the international capital markets. As a result, SOE debt has become a

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Government Bonds Have Given Us So Much

Government Bonds Have Given Us So Much

🕔13:07, 4.Sep 2020

A Roadmap For Navigating Today’s Low Interest Rates The recent fall in cash and bond yields for those developed countries that still had positive yields has left government bonds in a position where they cannot provide two of the basic

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Sovereign Contingent Bonds: How Emerging Countries Might Prepay for Debt Relief

Sovereign Contingent Bonds: How Emerging Countries Might Prepay for Debt Relief

🕔09:57, 25.Aug 2020

Emerging countries have been in the midst of a crisis that is not of their own making. A great majority of these countries are navigating the crisis fairly well. Others are struggling, and a few have defaulted on their external

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Emerging markets – Tamed Child O’ Mine

Emerging markets – Tamed Child O’ Mine

🕔14:48, 21.Jul 2020

This paper highlights five reasons why Emerging Markets (EM) in aggregate are more resilient today than in prior periods. A “healthier” index composition in addition to four other reasons support our analysis that EM drawdowns will be significantly more muted

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Why we are not worried about elevated profit margins

Why we are not worried about elevated profit margins

🕔08:09, 17.Jul 2020

Concerns about margins and profitability are not new but are especially acute as we enter a recession. In the decade following the Great Recession, the net income  …

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Uncertainty Has Seldom Been Higher

Uncertainty Has Seldom Been Higher

🕔11:37, 8.Jun 2020

Quarterly Letter At the March lows, most risk assets appeared to be fair value or cheap, even assuming a moderate hit to fair value from a severe recession. In our multi-asset portfolios, we added to our …

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An Investment Only a Mother Could Love: The Case for Natural Resource Equities

An Investment Only a Mother Could Love: The Case for Natural Resource Equities

🕔14:09, 29.May 2020

Executive summary After a rough decade for commodities and commodity producers, we see resource companies trading at record low valuation levels relative to the broad equity market on some measures. Even if commodity prices were to stay flat, public resource

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Introducing “Stressed Performing Credit”

Introducing “Stressed Performing Credit”

🕔08:56, 19.May 2020

White Paper Rising Stars in a New (Fed) World Recent unprecedented action by central banks, notably the Federal Reserve on April 9th, has helped markets recover meaningfully. This has caused many investors to wonder, “What do we do next?” or,

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The passive aggressive AGG, revisited

The passive aggressive AGG, revisited

🕔16:41, 8.May 2020

Passive investing in bonds today turns prudence on its head   It is well understood among investors that there have been massive flows out of active equity funds into passive vehicles, such as index funds and ETFs. What has not been

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Top-Down Investing In Emerging Market Equities

Top-Down Investing In Emerging Market Equities

🕔14:00, 23.Apr 2020

EXECUTIVE SUMMARY We believe that getting the country call right is the most important decision when investing in Emerging Market equities. Over the last 10 years, top-down (i.e., country and sector) Value has outperformed in these markets, even as bottom-up

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Fear and the psychology of bear markets

Fear and the psychology of bear markets

🕔07:54, 22.Apr 2020

When I first contemplated writing this series, little did I know I would feel the urge to write a second memo so shortly after the first, so forgive me for adding to the burden of your reading. However, you will

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When Cheap Gets Cheaper

When Cheap Gets Cheaper

🕔08:07, 14.Apr 2020

It is always darkest before the down It has been an extraordinary four weeks in markets worldwide. In the past 20 trading sessions, the S&P 500 has seen more 3%+ daily swings than it had in the previous 5 years.

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Memo to the Investment Committee: Dare to be Different

Memo to the Investment Committee: Dare to be Different

🕔06:39, 23.Mar 2020

White paper 60/40 Won’t Cut the Mustard The biggest single challenge facing investors today, in my humble or otherwise opinion, is that the returns to a conventional 60/40 portfolio look set to be somewhere between very low and zero. For

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7-year asset class real return forecasts

7-year asset class real return forecasts

🕔09:13, 17.Mar 2020 Read Full Article
7-Year Asset Class Real Return Forecasts

7-Year Asset Class Real Return Forecasts

🕔07:14, 13.Jan 2020

Source: GMO *The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward-looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future

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Getting Comfortable with the Uncomfortable

Getting Comfortable with the Uncomfortable

🕔18:28, 16.Dec 2019

Asset Allocation Insights Emerging Market Stocks: Getting Comfortable with the Uncomfortable Owning emerging market stocks has been a frustrating experience recently. Since the start of 2018, the MSCI Emerging Markets index has fallen 9.5% in USD terms (3.1% local)1 while

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Getting Comfortable with the Uncomfortable

Getting Comfortable with the Uncomfortable

🕔17:09, 6.Nov 2019

Owning emerging market stocks has been a frustrating experience recently. Since the start of 2018, the MSCI Emerging Markets index has fallen 9.5% in USD terms (3.1% local)1 while other markets, the S&P 500 in particular, have rallied. Emerging’s disappointing returns represent the

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7-Year Asset Class Real Return Forecasts

7-Year Asset Class Real Return Forecasts

🕔13:05, 30.Sep 2019

7-Year Asset Class Real Return Forecasts7-Year Asset Class Real Return Forecasts

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Risk and Premium –  A Tale of Value

Risk and Premium – A Tale of Value

🕔18:26, 9.Sep 2019

White Paper Introduction Whatever price multiple of which you are a fan, whichever sectors you exclude, however you neutralize your exposures, whether you equal-weight or cap-weight, one thing remains true: cheap stocks have had an unhappy decade.1 In some cases

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EM Illiquid Is Not The Same As EM Small Cap

EM Illiquid Is Not The Same As EM Small Cap

🕔18:18, 9.Sep 2019

Small cap stocks within emerging markets have outperformed large cap stocks (i.e., MSCI EM) by around 0.5% annualized since January 2000. However, Illiquid stocks (regardless of capitalization) have outperformed large cap stocks by around 3%. This illiquidity premium is related

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EM Divergence on the Increase

EM Divergence on the Increase

🕔18:07, 9.Sep 2019

Portfolio Manager Perspectives BlueBay Emerging Market Debt Update Fall-out from Argentina, combined with global growth concerns, results in increased divergence between EM sub-sectors. Global equity markets were once again volatile with a sell-off to start the week before staging a

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Valuation Metrics In Emerging Debt

Valuation Metrics In Emerging Debt

🕔14:59, 26.Jul 2019

It has been a very strong year for emerging external sovereign and local currency bond markets. Sovereign credit spreads have fallen, emerging currencies have risen against the U.S. dollar, and local bond markets have also rallied. The EMBIG index is

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Value Investing

Value Investing

🕔19:02, 18.May 2019

Bruised by 1000 Cuts The duration and magnitude of value’s recent underperformance has caused many to ask once again if value investing is no longer effective. While it is possible that secular shifts have helped to compress value’s premium relative

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Stop worrying about your portfolio

Stop worrying about your portfolio

🕔17:02, 14.May 2019

Investors have a tendency to focus on the characteristics of their portfolios almost to the exclusion of other factors that will lead to success or failure for the larger objective that the portfolio is intended to serve. By taking into

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How and Why to Invest in a Climate Change Strategy

How and Why to Invest in a Climate Change Strategy

🕔15:02, 4.May 2019

Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know it.1

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How and Why to Invest in a Climate Change Strategy

How and Why to Invest in a Climate Change Strategy

🕔15:02, 22.Apr 2019

Introduction Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know

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How and Why to Invest in a Climate Change Strategy

How and Why to Invest in a Climate Change Strategy

🕔15:02, 22.Apr 2019

Introduction Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know

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Total factor productivity growth = totally fictitious pretentious garbage

Total factor productivity growth = totally fictitious pretentious garbage

🕔14:00, 12.Mar 2019

Economists often seem to obsess about productivity. The stagnation of growth and incomes is often blamed on poor productivity growth. In particular, the “declining growth of total factor productivity…a measure of innovation” is the subject of much angst and hand

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And the Winner Was…T-Bills?

And the Winner Was…T-Bills?

🕔14:09, 29.Jan 2019

GMO Quarterly Letter 2018 was a lousy year for almost all assets, with no major asset class around the world able to keep pace with U.S. Treasury Bills. The poor returns were not driven by any economic calamity, but by

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Is the U.S. Stock Market Bubble Bursting?

Is the U.S. Stock Market Bubble Bursting?

🕔14:09, 23.Jan 2019

GMO White Paper A new model suggests that from early 2017 through much of 2018, the U.S. stock market was a bubble. Driven by negative changes in sentiment, the bubble started to deflate in the fourth quarter of 2018, in

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Is the U.S. Stock Market Bubble Bursting?

Is the U.S. Stock Market Bubble Bursting?

🕔11:02, 21.Jan 2019

A New Model Suggests “Yes”  A new model suggests that from early 2017 through much of 2018, the U.S. stock market was a bubble. Driven by negative changes in sentiment, the bubble started to deflate in the fourth quarter of

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Crisis and Opportunity in Emerging Market Debt

Crisis and Opportunity in Emerging Market Debt

🕔14:09, 11.Jan 2019

Executive Summary Emerging market sovereign debt in U.S. dollars can offer strong returns for investors who can ride out periodic bouts of volatility caused by concurrent crises in one or more countries. Crises, though real and frequent, are not typically

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The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns

The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns

🕔13:04, 31.Dec 2018

White Paper Overoptimism and overconfidence are two well-known psychological traits of our species. They are particularly dangerous in the late stages of an economic cycle where these terrible twins result in investors overestimating return and underestimating risk – a potentially

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Mounting debt and the many paths to recovery

Mounting debt and the many paths to recovery

🕔15:03, 11.Oct 2018

Global Investment Insights The extraordinary events of 2008 remain fresh in the minds of all those who were involved in the markets at that time, while the causes and ramifications should remain fresh in the minds of everyone—but they don’t.

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Emerging Corporate Debt Fundamentals – How High Is The Risk?

Emerging Corporate Debt Fundamentals – How High Is The Risk?

🕔14:03, 3.Oct 2018

Emerging Debt Insights The financial press has given much attention to the rise in corporate debt in emerging countries. The conventional narrative states that abundant liquidity in the aftermath of the Global Financial Crisis (GFC) accompanied an investment boom that

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The Race of Our Lives Revisited

The Race of Our Lives Revisited

🕔14:09, 14.Aug 2018

It was always going to be difficult for us – Homo sapiens – to deal with the long-term, slow-burning problems that threaten us today: climate change, population growth, increasing environmental toxicity, and the impact of all these three on the

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Emerging Markets—No Reward Without Risk

Emerging Markets—No Reward Without Risk

🕔14:04, 14.Aug 2018

Emerging equities are more volatile than developed market equities. This owes little to the volatility of emerging stock markets in local terms and much more to the strong positive correlation between their local stock markets and movements in their currencies.

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Emerging Debt in a Rising Interest Rate Environment

Emerging Debt in a Rising Interest Rate Environment

🕔14:09, 20.Jun 2018

Emerging Debt Insights A rising global interest rate environment is once again leading to volatility in the emerging debt markets. Year-to-date through May 31, as the US Treasury 10-year yield has risen to the 3% neighborhood, the EMBIG benchmark of

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Don’t Act Like Stalin!

Don’t Act Like Stalin!

🕔14:04, 28.Feb 2018

Concentrated, high tracking error, “high conviction” managers inspire both nervousness and fascination from potential investors. It is my belief that both responses are warranted. High tracking error managers have the potential to improve a portfolio because a diversified pool of

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Don’t Blame the Over-valuation of the S&P Solely on Information Technology

Don’t Blame the Over-valuation of the S&P Solely on Information Technology

🕔15:02, 16.Nov 2017

Asset Allocation Insights A small group of technology stocks have recently delivered stellar returns. Facebook, Apple, Amazon, Netflix, and Alphabet (Google), the so-called “FAANG” stocks, are up 36% on average year to date through September. This superlative performance, in such

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China’s Rising Presence in Emerging Debt Markets

China’s Rising Presence in Emerging Debt Markets

🕔15:16, 15.Sep 2017

Emerging Debt Insights Countless articles have been written in the past 10 years predicting (or warning) of China’s imminent financial demise, with the number of articles accelerating in recent years amid China’s debt build-up in the post Global Financial Crisis

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