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March 2017


Chart of the Month

US Rates Transition Higher - Know Your Alternatives

We expect higher US rates to be underpinned by evolving monetary policy, accelerating global growth, shrinking excess capacity, and reflationary policy. Following over three decades of a bond bull market, implementing strategies to pursue additional sources of returns may be upon us. Historically, equities and alternatives have generated higher returns in rising rate environments, with the latter providing the highest risk/return improvement. Finally, alternatives implementation can reduce portfolio drawdowns in equity bear markets.

We consider alternative strategies to be a core portfolio allocation.

Although equities and alternatives have each experienced higher returns and lower volatility in rising rate environments compared to their long-term performance, we see more notable risk/return improvement for alternative strategies. In five rising rate periods since 1990, although fixed income risk did edge lower, returns fell sharply.

Source: HFR, Bloomberg, and GSAM.

Do Not Miss Economic Growth For Ubiquitous Uncertainty

EMEA Mar Pulse pg1

GSAM Investment Themes


The theme we see dominating markets at present is one of quantity: more growth, more uncertainty, more record highs, and more risk. US economic growth is advancing, while Europe and Japan are improving modestly. Washington is issuing a blitz of new policy initiatives whose contours are largely unknown. We expect the global expansion to gain strength with broadening contributions from manufacturing, consumers, and policy. Yet we do see one key exception to the trend of “more” – returns. Equity multiples are full and 2017’s global political calendar is packed. We think modest returns are likely from major asset classes on account of valuations and political realities. Read More

Know Your Alternatives

Following more than 30 years declining US interest rates, we believe that this trend is coming to an end and has already started to reverse. In addition, during the five major rising US rate periods since 1990, alternative strategies offered the most attractive risk-adjusted return improvement compare to traditional equity and fixed income investments. Read More

Japan Equities Look Attractive

Japan's macro and market indicators point to a meaningful advancement over the past 5 years. Abe’s reform agenda has reached several milestones, particularly around corporate governance. Importantly for equity holders, the number of firms in the Tokyo Stock Exchange with outside directors has more than doubled since 2012. In addition, while economic fundamentals have improved we believe the Yen could weaken further as a result of the BoJ policy and interest rate differentials, particularly versus the US Dollar. Historically, a weaker Yen has tented to boost equity performance. We believe Japanese equities offer attractive valuations and earnings growth prospects. Read More

Earnings Emerging

Negative trade-oriented sentiment towards emerging markets (EM) may have finally receded in favor of a focus on fundamentals. From the recent December low, EM equities and debt have rallied 14% and 5%, respectively, a repricing that was almost as swift as the post-US election slump. We expect earnings growth to continue rising off last year’s trough, and that the same trend could act as the dominant driver of forward EM returns. Read More

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Shareholder Services Team
+971 4376 34444