#WellSaid

The Wellington Blog — A diverse marketplace of ideas, where our investment professionals share and challenge each other’s views. They decide independently how to draw on those ideas to sharpen their investment decisions, unconstrained by any single “house view.”

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Our view: No

  • We expect market direction going forward to be driven by the tension between accommodative central banks on one side, versus economic and trade policy uncertainties on the other.
  • There is a risk that global trade policy could adversely impact business confidence, capital investment, and ultimately, employment, potentially leading to a slowdown in economic growth.
  • We believe a resolution of trade policy uncertainty would create the potential for an economic rebound, given continued resilience in consumer confidence (Figure 1).

Figure 1

Global industrial and consumer confidence

Bottom line: While central bank influence on company fundamentals will be limited, we believe the credit cycle can be sustained in the absence of a recession.

MACRO

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Michael Taylor
Michael Taylor
Associate Director of IPS
Boston

Over the past several years, many investors have moved from active to passive fixed income strategies, believing these markets offer fewer idiosyncratic risks to exploit than equities and are too efficient for active managers to generate alpha. Yet passive approaches have frequently underperformed active strategies across many segments of the fixed income market and may expose investors to several forms of unintended risk.

Active fixed income management not only offers potential for enhanced returns, but can also add value by aligning an investor’s objectives with risks in several key areas where passive, index-tracking approaches may fall short:

1. Performance potential: Active core-plus and investment-grade corporate managers have demonstrated the ability to…

MARKETS

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Amar Reganti
Amar Reganti
Investment Director
Boston

When market participants lack, discount, or ignore relevant data, the resulting information gaps create asset mispricing that active managers may exploit to generate alpha for clients. We believe sustainable investing is a particularly inefficient market segment, and in a recent series, we address several key inefficiencies and explain how we believe investors can take advantage of them. First up:

Inefficiency #1: The market’s focus on short-term growth

Over the past 40 years, the average equity holding period has declined from three years to less than one (Figure 1). While many market participants focus on quarterly earnings guidance, profit margins, or growth rates, sustainable investors can explore longer-term, sustainable growth opportunities.

Figure 1

Short-termism has taken hold

SUSTAINABILITY

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Wendy Cromwell
Wendy Cromwell
CFA
Vice Chair, Director of Sustainable Investment, and Portfolio Manager
Boston

Amid mounting global economic concerns, some investors have noted that Japan could be particularly vulnerable. The thinking is that a worsening global economy could put pressure on the yen to appreciate, which in turn could risk a cyclical downturn in Japan. Maybe so, but our view is that a full-blown Japanese recession is unlikely.

Although Japan faces challenges, we believe the country’s structural position is stronger than it has been in a generation. We also believe many investors are undervaluing Japan’s structural recovery story and other positive developments, creating potential opportunities for discerning investors.

MARKETS
THEMES

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Katsuhiro Iwai
Katsuhiro Iwai
CFA, CMA
Equity Portfolio Manager
Tokyo
Paul Cavey
Paul Cavey
Macro Strategist
Hong Kong
Robert Wydenbach
Robert Wydenbach
Global Industry Analyst
London

The impact of the US-China trade conflict could be longer-lasting and farther-reaching than many investors realize.

The conflict carries implications for innovation and productivity, which ultimately drive economic growth. Innovation depends, in part, on inputs from abroad via the flow of trade (goods), investments (capital), and human interactions (people). Restrictions on these channels can hamper innovation and productivity.

China and the US are imposing curbs on these channels, to the likely detriment of both countries. By contrast, trade and foreign direct investment (FDI) look poised to pick up for some emerging market (EM) countries, to their potential benefit…

MACRO

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Tushar Poddar
Tushar Poddar
PhD
Macro Strategist
London
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