Investors have good reasons for their recent net increase in stock fund purchases—and good reasons to remain anxious, in our view. While market volatility has returned to normal, memories of the wild market swings of the past five years loom large. Here’s what we think about the risk of increasing stock exposure now.
After five years of fleeing stocks for the perceived safety of bonds, US mutual fund investors became net buyers of stock funds in January. While some see the return of the retail investor as a negative indicator for stocks, we say, “Better late than never.”
Seth J. Masters and Jon Ruff
Several prominent pension funds have slashed their commodity futures investments for delivering poor returns with higher volatility than usual, while failing to diversify equity exposures as expected, The Wall Street Journal recently reported. If inflation rises, they may regret it.
Risk remains important for many institutional investors, but dealing with it effectively takes time and energy. How investors approach it should therefore depend on their governance capacity. (more…)
By Kent Hargis (Pictured) and Chris Marx
After years of chasing safety at all costs, investors are now reaching for opportunities in long-spurned riskier stocks. But they will still want to safeguard their portfolios against painful market swings in the future. (more…)
Our research suggests that a well-diversified allocation to hedge funds might improve portfolio returns, but their greatest benefit is the risk reduction that comes from their low correlation to stocks. Here’s why.
In 2012, investors worried about the future of the euro, the US fiscal cliff and the emerging-market slowdown…yet stocks still climbed higher. What lessons should we learn from 2012? We’d suggest four key takeaways. (more…)
For years, we’ve advised clients to hold diversified portfolios with balanced allocations to stocks, bonds and other assets. Lately, it’s been a hard sell, especially after years of underperformance by active equity managers. But the tide may be turning. (more…)
Many US endowments and foundations (E&Fs) still plan to spend 5% of their assets each year, despite unusually low expected returns. We think few understand how likely it is that this will limit their ability to fulfill their missions in perpetuity. (more…)
Over the past three decades, bonds have provided balanced investors with the best of both worlds. As 10-year Treasury yields fell from a high of 13.7% in 1980 to less than 2% today, bonds provided both strong returns and a great cushion in times when equities were weak. Bonds are still important, but investors shouldn’t expect more of the same.