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In my last blog post, I provided a little perspective on the crowd-sourced frenzy that gripped the markets back in February 2021. Late March saw another bout of short-lived market mania. Here are my thoughts on that.
A US-based family office managing concentrated, levered gross exposures (similar to hedge funds) in total-return swaps1 estimated to be valued at around US$40 billion, with 10x leverage, pushed up prices for a small set of stocks. When prices subsequently went down, margin calls from prime brokers (PBs) came flooding in from multiple market players. With the fund unable to cover those calls, PBs were forced to liquidate some US$30 billion of exposures.
Three observations on this episode from my vantage point:
- I don’t expect it to become a systemic issue, given the…
Investors can breathe a collective sigh of relief — for now anyway. The Federal Open Market Committee’s (FOMC’s) March statement and press conference suggested that the FOMC is likely to look through any inflation pickups this year and wait until the labor market has recovered to assess whether inflation can sustainably stay around 2%.
The FOMC projects significant improvement in the unemployment rate and a modest overshoot of its 2% average inflation target in 2021. But even against expectations for higher growth and inflation this year, the median FOMC member’s forecast still anticipated the…
The relative performance of the managed care industry has struggled somewhat over the past several months, begging the question: What’s the prognosis from here? Following in-line fourth-quarter 2020 earnings releases and conservative 2021 outlooks from most managed care organizations (MCOs), the short answer is: Probably better than many investors think.
Most MCOs have been sounding the same theme around forward guidance lately, citing an array of opposing forces amid the ongoing COVID-19 pandemic. Of course, no two MCOs are exactly alike. The magnitude of the headwinds and tailwinds in each case depends on company-specific factors, including the MCO’s mix of exposures (i.e., commercial, Medicare, Medicaid).
However, I believe many of the headwinds facing the group are likely to be…
The transition to the “sunsetting” of long-standing LIBOR benchmarks — initially slated for 31 December 2021 — has been fraught with delays and uncertainty, thanks in no small part to the ongoing COVID-19 crisis. There has been progress, however. A number of recent developments reinforce the commitment by regulators and central banks to wean market participants off their reliance on IBORs (interbank offered rates) and to embrace alternative reference rates.
The UK FCA announcement
- On March 5, the UK’s Financial Conduct Authority (FCA) officially announced the eagerly anticipated cessation and non-representation dates on 35 LIBOR benchmarks across various tenors and…
Every quarter, we survey around 100 of our Wellington colleagues in different investment disciplines and locations to get their views on what we see as the key macro questions of the day.
We believe that the framing of the questions is crucial. For example, many surveys ask respondents to list what they see as the current key risks. In our survey, we ask for the top three risks our participants believe the market is most complacent about. That requires them first to think about the risks — which are often fairly evident — and then to grade them on how far they are priced into markets. For us as investors, that is clearly the more important information, as it can help us to identify areas where the markets are mispricing risk and thus creating…