Insights
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Measuring Volatility And Market Risk
February has proven to be an extremely volatile period for equity markets. From February 1st through last Friday, February 17th, there were a total of 13 NYSE trading days. During this period, the S&P 500 (SPX) saw a staggering amount of intra-day volatility, with 18 different occasions where the index experienced a reversal of at least 1%.
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Inflation’s Stubborn Pace
This week’s release of January inflation data represented a slight decline from December, but a higher reading than analysts’ expectations. Energy, housing, and food contributed to an overall print of 6.4%, compared to the projected figure of 6.2%.
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US Bankruptcies Surge
The past week has been inundated with discussion of “disinflation” and a potential economic soft landing in the wake of Fed Chairman Powell’s comments at the February FOMC meeting.
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The Fed’s Next Move
Historically, when the Fed is done hiking rates at a time when the yield curve is inverted (as it is today), stocks have tended to perform poorly post hikes (see below).
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Dynamic Growth – A Core Compliment
In our November 2022 Kensington Brief, Achieving True Portfolio Diversification, we discussed the concept of true portfolio diversification, Modern Portfolio Theory and how incorporating investments with low correlation to the market (and each other) may benefit investment portfolio performance.
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Achieving True Portfolio Diversification
Ever since Harry Markowitz introduced the concept of Modern Portfolio Theory in his 1952 paper “Portfolio Selection”, for which he won a Nobel Prize, the idea of utilizing diversification as means for constructing an effective portfolio has been the centerpiece of modern portfolio management.
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A Quantitative Investing Approach
There is an old Chinese proverb that states, “There are many paths up the mountain,” which simply means there is more than one way to achieve your goals.
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The Impact of Limited Market Liquidity
Market liquidity is rarely a topic at the top of investors’ minds when discussing portfolio risk, but it’s a rising risk in today’s environment that requires attention.
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The Importance of Limiting Drawdowns
Warren Buffett famously said, “The first rule of investing is to not lose money, and the second rule is to not forget the first rule.” Although most investors instinctively focus on their portfolio’s upside performance, it is their ability to mitigate downside risk that defines their long-term investment success.
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Solving the Balanced Fund Problem
For decades, many traditional balanced portfolios that allocate a static portion of their portfolios to equity and fixed income securities have benefited from the negative correlation between stocks and bonds, particularly when the market experienced large adverse shocks and declining sentiment.
