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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 Short and Long of Geopolitical Developments

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I wrote previously about how geopolitical developments can affect market prices, but the question remains—for how long?

Those of you who follow my commentary know that I often speak of fundamental value as the “tide” that inexorably pulls prices toward it over longer-term time horizons, and “waves” as shorter-term developments that affect market and currency prices.

In our post-Cold War world, geopolitical developments have become more relevant to investing and more frequent in their occurrence. In the past few years, we have seen political uncertainty in the eurozone, increasing Russian aggressions, and tensions in the Middle East. Last year we saw the United Kingdom vote to exit the European Union and a populist outsider win the U.S. presidential election.

In light of these events, one might logically ask if it's wise to be a short-term investor and maintain a conservative stance while waiting for these geopolitical developments to play out. Or, does an investor who takes that approach risk waiting forever, since such developments are likely to continue?

When I entered the multi-asset management business in 1990, I believed it was both necessary and sufficient to create superior performance through fundamental valuation. You could sharpen your pencil sharper than the next guy, whether you were looking at individual equity sectors or entire equity markets. So, I would have argued then, conducting better fundamental analysis would give you a leg up against other investment managers.

Today, I believe that fundamental valuation is necessary, but no longer sufficient. We have to navigate the path that prices take on their way to fundamental value.

That doesn't mean I believe we should all become short-term investors. I simply mean it's important to try to take advantage of either the short-term panics that are occurring more frequently in the marketplace (if you're buying), or the short-term periods of euphoria (if you're selling).

In my opinion, a good short-term approach in the current environment is maintaining a bit more cash than usual, and using that cash to respond to what you perceive as being significant opportunities to buy when prices revert below fundamental values.

And that involves becoming as diversified as possible across asset classes and geographies. It can be difficult because when big events happen, markets all tend to move together. But that's why we include a healthy dose of currency exposures in our portfolios; it helps us diversify our portfolio and navigate geopolitical developments.