MAIN MENU

#WellSaid

Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.

As we begin 2022, the weakness in the consumer technology sector continues. Two-thirds of internet stocks currently trade 30% lower than their 52-week highs, with many down more than 50%.1 Amid this sell-off, our conviction in the long-term outlook for tech in general and consumer tech in particular remains strong. The key question is whether this market presents an opportunity to buy the dip or if investors should remain patient as the pullback could persist.

In our 2022 Outlook, we noted that valuations, tough year-over-year comparisons, and decelerating growth are among the issues that make it difficult to have much conviction on this question. Adding the Omicron variant to the mix further complicates the outlook for the consumer technology sector.

However, we think technology’s long-term secular tailwinds signal that the recent sell-off could be a significant opportunity to…

MARKETS
THEMES
Brian Barbetta
Brian Barbetta
Global Industry Analyst
Boston

2021 was, by all accounts, a good year for convertible bonds (“convertibles”). Despite bouts of volatility along the way, both US and global convertibles posted positive total returns last year, comfortably outpacing many other fixed income market sectors — including sovereign government bonds, as well as high-yield and investment-grade corporates.

Looking forward, we believe convertibles may continue to prove resilient, potentially benefiting from their distinctive structure amid the anticipated inflationary and rising-rate environment of 2022. Here are those three predictions for the year ahead.

Prediction 1: Convertibles to outperform both investment-grade and high-yield bonds

Since 1998, convertibles have outperformed both the Bloomberg US Aggregate Bond Index and the Bloomberg US Corporate Index in every period when interest rates rose by…

MARKETS
Dunkelberger, Raina
Raina Dunkelberger
CFA
Investment Specialist
Boston
Barry, Michael
Michael Barry
Fixed Income Portfolio Manager
Boston

Barring unforeseen macro or market developments, we believe the bank loan asset class looks poised to deliver positive total returns in 2022. Here’s why:

Inflationary pressures have raised the risk of tighter monetary policy

As we move into 2022, inflation risks remain paramount from an investment standpoint. We expect many investors to grapple with the potentially adverse effects on their portfolios, particularly as ongoing repercussions from the COVID-19 pandemic continue to exacerbate labor shortages and supply chain disruptions worldwide. Broadly speaking, we think mounting inflationary pressures have ratcheted up the risk of tighter monetary policy on the part of the US Federal Reserve (Fed) and…

MARKETS
Jeffrey Heuer
Jeff Heuer
CFA
Fixed Income Portfolio Manager
Boston
Dave Marshak headshot
David Marshak
Fixed Income Portfolio Manager
Boston
Nick Leichtman
Nick Leichtman
CFA
Investment Specialist
Boston

The past several months have seen a flurry of activity in the official sector1 regarding US Treasuries, as policymakers and stakeholders attempt to explain the startling dislocations that hit the Treasury market — generally considered to be the world’s deepest, most liquid securities market — in March 2020.

Indeed, it was only through swift, aggressive intervention by the US Federal Reserve (Fed) that said market dislocations did not become even more pronounced. It marked the second time in just a few years that the central bank had to intervene in the Treasury market to restore and encourage orderly operations — the other time being the Fed’s purchase of T-bills in the fall of 2019, which was designed to stabilize the short-term interest-rate market.

Understanding what happened in March 2020

So what led to the Treasury market dislocations and illiquidity back in March 2020? At a high level, the prevailing narrative is that…

MACRO
MARKETS
Amar Reganti
Amar Reganti
Investment Director
Boston

Climate change will continue to be an increasingly dominant theme as global climate-related regulation accelerates, disclosures such as the CDP (formerly the Carbon Disclosure Project) and the Task Force on Climate-related Financial Disclosures become more standardized (and in some regions, mandatory), and investor focus on the climate intensifies. In this short piece, we highlight how this impacts private companies and share our top questions for companies to be prepared to address as this issue grows.

Rising climate risks and investor expectations

In our view, companies across all sectors and stages should incorporate thoughtful approaches to climate change into their business models. This includes building resilience for the accelerating transition to a low-carbon economy and the worsening physical events exacerbated by climate change. Many companies overlook and/or underreport climate-related risks and opportunities that can be…

MARKETS
SUSTAINABILITY
THEMES
Hillary Flynn
Hillary Flynn
Director of ESG, Private Investments
Julie Delongchamp
Julie Delongchamp
CFA
Climate Transition Risk Analyst
London

Investor enthusiasm for Japanese equities has long been dampened by the downward trend in the market during the 1990s and 2000s, as well as by structural challenges ranging from deflation to weak corporate governance. But we think this is an opportune time to consider a Japanese equity allocation, as we see seven potential positives that seem underappreciated by the market:

  1. Macroeconomics — recovering from COVID: While we’ll have to keep an eye on the Omicron variant, higher-frequency data suggests the economy has been regaining momentum since the Delta-variant-induced “state of emergency” status was lifted at the end of September. While an economic-surprise indicator for the country is currently very low, we think it has likely troughed.
  2. Monetary policy — benefiting from global inflation: While many developed market countries are struggling with excessively high core inflation (particularly the US), Japan has some way to go before core inflation will require…
MARKETS
Daniel Cook
Daniel Cook
CFA
Investment Strategy Analyst
Steven Ye
Steven Ye
CFA
Investment Strategy Analyst
Singapore

In our early December quarterly strategy group meeting, we debated the outlook for the high-yield market in 2022 and what it means for portfolios. At present, we favor maintaining a slightly defensive risk positioning given tighter valuations. While the macroeconomic backdrop and corporate fundamentals generally remain positive, we see some points of concern emerging at the margin. We expect high-yield credit spreads to move sideways in a year that could see plenty of volatility given multiple tail risks. However, we believe the ability to dynamically adjust positioning in the event of a significant repricing of credit risk will be key in 2022.

Macro: positive, but less positive

We continue to observe “yellow flags” on inflation and are watching for signs that inflationary pressures could shift from transient to permanent, leading to faster-than-expected tightening. On the flipside, previous Federal Reserve (Fed) policy cycles suggest that the high-yield market tends to perform well during the early stages of hiking when rate increases are…

MARKETS
Barry, Michael
Michael Barry
Fixed Income Portfolio Manager
Boston
Michael Hong headshot
Michael Hong
CFA
Fixed Income Portfolio Manager
Boston
Konstantin Leidman headshot
Konstantin Leidman
CFA
Fixed Income Portfolio Manager
London

As discussed in my recently published 2022 Fixed Income Outlook, co-authored by my colleague Jitu Naidu, we believe inflation and interest-rate risks look poised to supplant the global COVID-19 pandemic as the new “bogeymen” facing investors in 2022. The dual specter of persistently higher inflation and steadily rising rates has many allocators particularly worried about potential implications for their fixed income exposures. Accordingly, many are now seeking defensive portfolio strategies — so-called “hedges” — for the new year.

Possible inflation scenarios

Market pricing for longer-term US inflation was recently in the mid-2% range, based on the latest “breakeven” inflation rates. There are still ongoing debates as to likely inflation outcomes going forward, but most of the informed forecasts appear to…

MACRO
MARKETS
THEMES
Amar Reganti
Amar Reganti
Investment Director
Boston
Jonathan Tan
Jonathan Tan
CFA
Investment Specialist
Singapore

The short answer, as discussed below, is probably not, but it’s a fast-moving narrative that warrants some level of concern (though not panic). Here’s what we know and don’t know at this point and my thoughts on some of the potential implications.

What we know

Omicron is a new variant of COVID-19 that was first identified in South Africa, where it’s now the dominant strain of the virus. As of this writing, it has already spread to (and within) a number of other countries and regions, including Botswana, Hong Kong, Europe, and Israel. According to initial reports, most of the cases seen so far are concentrated among younger patients, who tend to be either unvaccinated or not fully vaccinated. (For context, South Africa’s vaccination rate is approximately 25%.)

Our health care analysts tell me that the mRNA vaccine is best positioned to be modified to provide protection from new COVID variants. An Omicron-specific version of the mRNA vaccine could be available in as little as…

MACRO
MARKETS
Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

Over the past decade or so, there have been countless studies and articles on the inability of active portfolio management to reliably add value versus market benchmarks, even before accounting for fees. However, most of the research tends to focus on US markets, particularly US large-cap equities, and glosses over (or ignores altogether) the reality that there are other market categories where active managers have, in fact, had a great deal of success historically (and may continue to do so). The inefficient Japanese equity market is a prime example.

A good fishing pond

The proof is in the pudding, as shown in Figure 1: During 70% of rolling three-year time periods over the past 20 years (ended 31 December 2020), at least 60% of active Japan equity managers — in some years, substantially more than that — have outperformed their respective benchmarks. By contrast, and as expected, most US large-cap equity managers have struggled to consistently top their benchmarks, with 60% or more…

MARKETS
THEMES
Ueki Hideo
Hideo Ueki
CFA, CMA
Director of Investment Products and Strategies
Megan Kelly
Megan Kelly
CFA
Research Manager
Boston
Load More

Archive

Congress has effectively “kicked the can down the road” by raising the statutory debt limit sufficiently to meet Treasury obligations until December 3. This is by no means a solution to the problem, but rather just delays the inevitable uncertainty related to the debt “ceiling” drama that is likely to build as December approaches.

US Treasury bills (T-bills) are continuing to react to the ongoing uncertainty. Notably, we have observed a noticeable “cheapening” of T-bills scheduled to mature in December, creating a “hump” in the T-bill yield curve that moderates in late December and into January (Figure 1). In our view, this turn of events does not present an opportunity for bond investors to reach for incremental yield, as we believe they should instead be focused on preserving liquidity through their T-bill allocation.

Treasury market jitters

In anticipation of the possibility of a technical debt default by the US government, T-bills with maturities falling shortly after the new December 3 deadline to raise the debt limit are commanding a…

MARKETS

ARCHIVED

Balaji Venkataraman
Balaji Venkataraman
Investment Specialist
Smith Timothy
Tim Smith
Fixed Income Portfolio Manager

Last week, a blog post titled Fixed income investors warily eye Congress and the Fed discussed three likely government policy drivers of fixed income markets in the period ahead — US monetary policy, US fiscal policy, and the US debt ceiling. Here, we’ll take the next step of briefly highlighting some fixed income market sectors where investors might turn for attractive total return opportunities in today’s challenging environment. Indeed, it’s perhaps the most pressing question many fixed income clients have been asking lately.

A supportive US policy backdrop

The prevailing US monetary and fiscal policy backdrop continues to be broadly supportive of credit fundamentals, but many credit sectors are not currently…

MARKETS

ARCHIVED

Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston
Amar Reganti
Amar Reganti
Investment Director
Boston

The short answer: yes, in some ways. In a global phenomenon that seems to have gone largely unnoticed until recently, several of my colleagues and I share the view that many developed market (DM) countries are beginning to resemble their emerging market (EM) counterparts in certain respects. We call it the gradual “EM-ification” of DMs.

Does this mean long-standing DM and EM classifications may eventually no longer be relevant? Will investors have to start analyzing DMs through an EM lens? Time will tell, but in the interim, we believe this macro trend bears watching. Let’s take a closer look.

More fragile DM fundamentals

Broadly speaking, it’s fair to say that economic and other fundamentals in DMs have become increasingly fragile over the past decade-plus. During that period, severe stress episodes…

MARKETS
THEMES

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

As China’s role on the world stage continues to loom larger, many investors are contemplating whether to separate the country from the rest of their emerging markets (EM) equity allocation. Most arguments for such separation are based on China’s fast-growing weight in broad EM equity benchmarks, but it’s not necessarily that simple. Let’s take a closer look.

The answer? It depends

We believe the key decision point here should not be China’s dominance of the EM indices, but rather, the extent to which a stand-alone China equity allocation can be viewed as similar (or dissimilar) to an EM ex-China equity allocation. If they are, in effect, more or less the “same thing,” then the relative size of one to the other will likely make…

MARKETS
THEMES

ARCHIVED

Samouilhan_Nick
Nick Samouilhan
PhD, CFA, FRM
Multi-Asset Strategist
Singapore
Cara Lafond
Cara Lafond
CFA
Multi-Asset Strategist
Boston
Adam Berger
Adam Berger
CFA
Multi-Asset Strategist
Boston

Sustainable investing is no longer the exclusive domain of equity investors. Indeed, there is a growing consensus that sustainability can be just as critical to investment outcomes in fixed income markets. Although environmental, social, and governance (ESG) integration and adoption have historically been slower in fixed income as compared to equities, investor demand for “green bonds” and other sustainable fixed income solutions has risen rapidly in recent years, particularly since the onset of COVID-19. Accordingly, the pace of new product innovation and proliferation has picked up as well.

Case in point: The booming global market for green/sustainability bonds has now expanded to convertibles — hybrid bonds that can be converted from debt into equity. While European debt issuers have thus far comprised most of the volume in these green, sustainability-linked, and/or social bonds, US and Asian issuers have become increasingly active in the space. The recent uptick of issuers selling green/sustainability convertible bonds includes companies focused on…

MARKETS
SUSTAINABILITY

ARCHIVED

Dunkelberger, Raina
Raina Dunkelberger
CFA
Investment Specialist
Boston
Barry, Michael
Michael Barry
Fixed Income Portfolio Manager
Boston

Question: Could rising “short-termism” actually provide an alpha opportunity for longer-term-oriented equity investors? Ironically, yes in my view. Let’s look at today’s financial technology (fintech) sector as an illustrative example.

Froth in fintech IPOs

I’m concerned about growing froth in the fintech initial public offering (IPO) market because much of the recent activity there signals that investors are continuing to take on more and more risk in pursuit of hoped-for near-term rewards. Here are some behaviors that, to me, highlight the potential for…

MARKETS
THEMES

ARCHIVED

Matt Ross
CFA
Global Industry Analyst
Boston

With US stocks notching record highs this year, significantly outperforming their Japanese counterparts, the spread between the two equity markets’ valuations has widened meaningfully in recent months (Figure 1).

Why the performance dispersion? Japan’s relatively slower COVID vaccine rollout and the disappointing lack of economic support provided by the (previously) much-anticipated Summer Olympics have clearly weighed on market sentiment of late, but equity investors’ apathy toward Japan actually dates back several years. One might even say that it has become entrenched.

The good news? The valuation gaps between Japan equity and its global peers have arguably reached…

MARKETS
THEMES

ARCHIVED

Jun Oh
Equity Portfolio Manager
Hong Kong

In their June 2021 paper, Why fragility is the new reality for the stock market, our colleagues Brian Hughes and Gordy Lawrence conclude that: ”An imbalance has developed between the supply of and demand for liquidity, and as a result we’ve seen a significant increase in the potential for the public equity market to jump from a state of calm to one of chaos.”

Within our global trading department, we couldn’t agree more. Here are our latest thoughts from a trading perspective on ways to potentially navigate those states of “chaos” that may arise, often unexpectedly, amid market shocks or bouts of heightened…

MARKETS

ARCHIVED

Plagued by a combination of disappointing returns, heightened volatility, global trade wars, and (most recently) the COVID-19 crisis and regulatory uncertainty, emerging markets (EM) equities have been decidedly unpopular with many investors for years now. But during that time, the EM investment opportunity set has grown and expanded significantly, making EM equities fertile ground for investors seeking enhanced portfolio diversification and strong performance potential.

We believe differentiated actively managed investment strategies rooted in fundamental research are best positioned to access and capitalize on this attractive, but often-inefficient, asset class. In fact, we think investors who adhere to passive, benchmark-driven EM equity allocations may be missing out on full exploitation of the available opportunity set.

Here are seven reasons why, in our view, EM equity investors should favor active management, in spite of…

MARKETS

ARCHIVED

Andrew Sharp-Paul
Investment Director
Singapore

There is a sense that the world is slowly “getting back to normal,” after more than a year of COVID-induced economic lockdowns and other restrictions. Unfortunately, many countries — and even some parts of the US — are still grappling with more contagious and virulent strains of the virus (e.g., the so-called “Delta variant”) and troublingly low COVID vaccination rates. We are not out of the woods yet. But broadly speaking, the global economy has been recovering with the aid of accommodative fiscal and monetary policy, supporting the strong performance of risk assets and the ongoing rotation from growth- to value-oriented exposures.

The threat of rising inflation is a bogeyman now. Amid supply/demand imbalances in labor and other factors, we believe inflationary pressures are likely to persist in the period ahead. Against this backdrop, our investment outlook remains largely pro-risk, but is tempered to some degree by what we see as…

MACRO
MARKETS

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston
Daniel Cook
Daniel Cook
CFA
Investment Strategy Analyst
Load More
Share on linkedin
Share on email

Categories

Trending posts

DISCLOSURES

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA) and serves as a CTA to certain clients including registered commodity pools and their operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Beijing; Frankfurt; Hong Kong; London; Luxembourg; Singapore; Sydney; Tokyo; Toronto; and Zurich. ■ This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients.

In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer. ■ In Europe (ex. Austria, Germany and Switzerland), this material is provided by Wellington Management International Limited (WMIL), a firm authorized and regulated by the Financial Conduct Authority (FCA) in the UK. This material is directed only at persons (Relevant Persons) who are classified as eligible counterparties or professional clients under the rules of the FCA. This material must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment service to which this material relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. ■ In Austria and Germany, this material is provided by Wellington Management Europe GmbH, which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). This material is directed only at persons (Relevant Persons) who are classified as eligible counterparties or professional clients under the German Securities Trading Act. This material does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz). ■ In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. ■ In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore) (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any person. ■ In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws and regulatory requirements of the United States, which are different from the laws applying in Australia. ■ In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the Type II Financial Instruments Firms Association (T2FIFA). ■ WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.

Wellington Management logo

Contact Us

*Mandatory Field

Contact Us

*Mandatory Field