The 12 months to September 30 were the best for value relative to growth performance since the fall of 2001. It was a huge relief for those value investors who managed to survive the long period of growth ascendance since
We believe a moment has arrived when long-term and short-term opportunities in quality small cap equity are finally aligned, when one can invest in high-quality small …
Our Currency, Our Problem. One of the most famous sentences ever uttered by a U.S. Treasury Secretary was John Connally’s November 1971 G-10 meeting quote that “The dollar is our currency, but your problem.” It’s a wonderful line, and the
Only a few market events in an investor’s career really matter, and among the most important of all are superbubbles.1 These superbubbles are events unlike any others: while there are only a few in history for investors to study, they
Most of the time (85% or thereabouts) markets behave quite normally. In these periods, investors (managers, clients, and individuals) are happy enough, but alas these periods do not truly matter. It is only the other 15% of the time that
Soaring commodity prices have helped drive inflation to 8.5%, by far the highest level in the last few decades. With commodity prices up and inflation creating waves, is it too late for investors to capitalize on high commodity prices? Have
What do Netflix, Peloton Interactive, Coinbase, and Palantir Technologies have in common? I admit it isn’t a particularly challenging question. As anyone who has been following the U.S. stock market in the last 10 months knows all too well, they
Introduction In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping. For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime. I participated in
In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping. For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime. I participated in a
The EMBIG-D benchmark spread widened by 17 bps in Q3, ending the quarter at 357 bps. As seen in Exhibit 1, the fair market multiple is the benchmark’s credit spread to the spread that would be required to compensate for
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
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
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
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
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
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 …
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 …
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
"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."
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
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
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
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
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 …
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 …
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
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,
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
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
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
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.
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
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
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
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
7-Year Asset Class Real Return Forecasts7-Year Asset Class Real Return Forecasts
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
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
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
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
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
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
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
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
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
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
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
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
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
