White Papers

The Search for Alpha: Emerging Markets Small Cap

The Search for Alpha: Emerging Markets Small Cap

As one of the most mispriced asset classes, emerging markets small cap provides an abundant source of alpha for investment managers with the skill and resources to unlock the opportunity. In addition to the beta return that comes from exposure to emerging markets small cap, active managers have an opportunity to capture alpha above market returns by taking advantage of greater idiosyncratic risk in the small cap segment to overweight select securities that demonstrate particular promise. An active, systematic stock selection approach based on fundamental measures can rigorously and consistently evaluate the entire universe. This capability results in additional return opportunities that could be missed by managers relying solely on research insights for a small subset of companies.

(12/2014, 292 KB)

Q&A: Why Mid Cap Value?

Q&A: Why Mid Cap Value?

QMA’s value equity team discusses the opportunity for adding value in this often overlooked segment of the U.S. equity market using a systematic approach to investing. Related: Highlights video of Portfolio Manager Stephen Courtney on Asset TV.

(5/2014, 632 KB)

A Case For Active Asset Allocation

A Case for Active Asset Allocation

Portfolio Manager Ed Keon presents a case for active asset allocation, exploring the evolving approaches and explaining why and how we think active asset allocation can add value for investors. We think that active asset allocation can offer some investors a more attractive overall portfolio option than a static or formulaic approach. We suggest that a strategy which focuses on trying to avoid big losses while harvesting the high average real returns of risky assets might provide a better combination of return and risk than a static 60% stocks, 40% bonds portfolio, and we present some evidence to support this contention.

(4/2014, 864 KB)

Drivers of Returns in EM Equities

Drivers of Returns in Emerging Markets Equities: The Growing Importance of Stock Selection

We discuss three trends revealing that the primary source of emerging markets equities’ total return has been shifting from country and sector selection towards stock selection. Bottom-up stock selection is at least as important in exploiting inefficiencies within emerging markets equities and in driving consistent performance over the long term.

(1/2014, 722 KB)

Still Bullish but Wondering - What Might Cause the Next Bear Market

Still Bullish but Wondering: What Might Cause the Next Bear Market?

We are sticking with our bullish macro view in 2014, but being bullish does not mean we are complacent. All bull markets end. In our latest "Turbulent Teens" white paper, we attempt to look beyond the present to assess what might lie a few years down the road, investigating the question: What might cause the next bear market? We think the two most likely causes of the next bear market are a burst in inflation and/or a sudden tightening of monetary policy, and we consider whether or not these might trigger a bear market starting in 2014 or 2015.

(1/2014, 1003 KB)

What About The Fed

What About The Fed?

We answer this frequent response to our recent white paper, A Different Sort Of Turbulence: Brace Yourself For Rapid GDP Acceleration, and explain how the Fed's tapering of quantitative easing (QE) may be less disruptive to the U.S. equity market than some think. As we contemplate the eventual change in this unprecedented level of monetary easing, we think that the key influence of the Fed on financial markets will come from the effect of Fed policies on the economy - specifically inflation and economic growth - rather than just on investor sentiment.

(6/2013, 344 KB)

A Different Sort Of Turbulence - Brace Yourself For Rapid GDP Acceleration

A Different Sort Of Turbulence: Brace Yourself For Rapid GDP Acceleration

The U.S. equity market has recently reached historic highs, recovering all the losses from the financial crisis and Great Recession. Are these gains justified, or is this a kind of “sugar high” induced by easy monetary policy in the U.S. and elsewhere? Portfolio Manager Ed Keon posits that the recovery in prices could be real, and that this bull market could have a way to go. Ed examines major impactors of U.S. GDP, including government, consumption, net exports, and inflation, and his findings indicate that the U.S. could see much more robust economic growth than most expect over the next few years.

(6/2013, 955 KB)

Risk and Expected Return Revisited - A New Hope

Risk and Expected Return Revisited - A New Hope

Generally unheralded by the media, we are in the midst of what we might call a “quiet bull market” in US equities. Yes, we said a “bull market” in equities, for despite substantial market uncertainty over the past few years, stocks (the “riskier asset class”) have achieved positive returns in each year since 2010, most notably in 2012 when the S&P appreciated by more than 15%. Far from fading, this trend may very well continue in 2013, despite persistent, manifest difficulties in major developed and emerging markets (US, deficits and “fiscal cliff”; EU, recession and sovereign bond collapse; China, real estate deflation and declining external growth). Risk will remain, but so might the competitive returns we need. This paper, which updates our annual “Turbulent Teen” market review, takes on the topic of risk and return, particularly how now may be the time to re-evaluate this classic relationship if one is to profit from harsh market realities that might continue for several years.

(1/2013, 715 KB)

The Case for Emerging Markets Equities

The Case for Emerging Markets Equities

Are emerging market equities still attractive? We think so -- both now and over the next several years. Although they can be volatile, emerging market countries are growing faster than developed markets and they have demonstrated greatly improved resilience by outperforming developed economies since the end of the global financial crisis. With increasing affluence and an expanding middle class, these countries will have growing spending power. The economies are quite dynamic, and we expect sources of growth to shift from region to region and from sector to sector in coming years. We believe an investment process that adapts dynamically to these changing sources of growth and focuses on active bottom-up stock selection, while taking advantage of breadth to constrain risk exposures and improve the consistency of alpha, is the best way to capture the significant opportunities available in the emerging markets.

(11/2012, 285 KB)

2012 Turbulent Teens - Can the World Pull Back from the Brink Again

Can the World Pull Back from the Brink Again?

In this year-end edition of “Turbulent Teens,” we update two issues we addressed in earlier versions: equity and bond valuation, and the ongoing crisis in Europe. We also examine two issues many investors are increasingly concerned about: the outlook for the U.S. and the rest of the developed world, and the potential for a real estate-induced bubble in the largest emerging market, China. On all of these fronts, we are cautiously optimistic, though significant hurdles remain to be overcome. We believe if we can absorb the painful lessons of these turbulent times and learn from them, a new period of stronger, more sustainable growth might start before this decade concludes.

(12/2011, 505 KB)

2011 Turbulent Teens - The Debt Dichotomy or Gentlemen Prefer Bonds

The Debt Dichotomy, or "Gentlemen Prefer Bonds"

In light of the recent historic drop in bond yields and the tremendous economic, financial and political uncertainty facing us, this white paper asks, Are bonds still the place to be, or are equities attractive despite the risks? Our short-term quant models have become more defensive on equities, but our multifactor, longer-term asset allocation models favor stocks. We certainly understand the trepidation out there. But when real returns from “safe” assets are likely to be near zero for a while, and when dividend yields are higher than bond yields in many cases, we think that assets such as stocks may offer attractive returns over bonds for the long term.

(9/2011, 461 KB)