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The Case for Macro

Our Dynamic Allocation Strategies team explains why global macro investing offers many potential benefits when included in an investment portfolio. Read More (PDF)

Emerging Markets Outlook for 2017

The past 12 months have been fairly turbulent in emerging markets, but a number of factors support emerging market performance.  Read More (PDF)

The 2016 Market Reversal

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An analysis of this year's performance versus 2015 shows an interesting contrast across asset classes, regions, sectors, and styles. In many cases, those areas that performed poorly in 2015 have performed well in 2016, and vice versa.

Asset Classes

Fixed income has rallied in 2016, with particularly strong returns in global high yield and global treasury. Reversing the underperformance of last year were emerging markets, which performed particularly well, and U.S. equities.

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Regions

The reversal in regional performance was significant: Strong returns in Latin America, EMEA, and Canada contrasted with weak results in 2015, while the opposite occurred in Japan.

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Sectors

Energy, materials, and utilities have led thus far in 2016, while they were the weakest-performing sectors in 2015.

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Style Factors

Similarly, from a style perspective, a sharp rotation took place in 2016, with valuation leading until April after lagging in 2015, then reversing course in May and June, as momentum and earnings trend factors assumed leadership.

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Implications

It's interesting to see just how quickly the market is returning to a number of factors that were out of favor a very short time ago. The momentum reversal has been intense. And we're trying to price existential risk almost weekly, with some of the political challenges we're facing.

In our view, these significant changes in performance drivers can be explained by the broad themes that have prevailed this year, which we will discuss another time.

 

Quantitative Model Definitions

The William Blair Quality Model attempts to put into quantitative terms one of the cornerstones of the firm’s investment philosophy: identifying high quality companies. The score combines measurements of sustainable value creation, earnings quality, and financial strength. The William Blair Valuation Model combines varying metrics used to characterize the relationship between the stock’s trading price and its intrinsic value. By going beyond using only one or two measures, the model attempts to build a more holistic version of a stock’s worth vis-a-vis the market. The score combines measurements of earnings/cash-flow-based, asset-based, and model-based factors. The William Blair Earnings Trend Model captures information about short- and medium-term changes in analyst estimates in an attempt to anticipate future estimate changes and stock performance. The score combines measurements of earnings revisions, momentum, and earnings surprise. The William Blair Momentum Model combines information about short- and medium-term performance trends for each stock in order to identify stocks that may be able to persist in outperformance over the near term. The William Blair Growth Model builds a long-term growth estimate based on a combination of realized and forecast growth rates. The inputs and results of this model are not limited to earnings, but instead cast a broader net to include measures of a firm’s overall growth. In addition to providing a Growth Model score, the growth rate generated by the model is used as an input into other models. The William Blair Volatility Model captures the variability in short- and long-term fundamental returns which include return on equity, margins, and earnings per share. The William Blair Composite Model produces an aggregate score from the Quality, Valuation, Earnings Trend, and Momentum Models using a proprietary weighting mix.

The MSCI All Country World IMI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The Index is unmanaged, does not incur fees or expenses, and cannot be invested in directly.