Monthly Archives: December 2016

Bullish Momentum Revives The Energy Sector’s Price Trend

It took a year, but the late-2015 recommendations by some analysts for overweighting energy stocks — at a time when the sector’s trend looked rather grim — is now bearing fruit. A year, in other words, can make a big difference in the cyclical fortunes of US equity sectors. Indeed, energy stocks now lead the field for trailing one-year return, based on a set of proxy ETFs.
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Research Review | 8 Dec 2016 | Volatility & Risk Management

How Should Investors Respond to Increases in Volatility?
Alan Moreira (Yale University) andn Tyler Muir (UCLA)
December 2, 2016
They should reduce their equity position. We study the portfolio problem of a long-horizon investor that allocates between a risk-less and a risky asset in an environment where both volatility and expected returns are time-varying. We find that investors, regardless of their horizon, should substantially decrease risk exposure after an increase in volatility. Ignoring variation in volatility leads to large utility losses (on the order of 35% of lifetime utility). The utility benefits of volatility timing are significantly larger than those coming from expected return timing (i.e., from return predictability) for all investment horizons we consider, particularly when parameter uncertainty is taken into account. We approximate the optimal volatility timing portfolio and find that a simple two fund strategy holds: all investors choose constant weights on a buy-and-hold portfolio and a volatility timing portfolio that scales the risky-asset exposure by the inverse of expected variance. We then show robustness to cases where the degree of mean-reversion in stock returns co-moves with volatility over time.
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Should Government Regulation End Indexing As We Know It?

An op-ed in The New York Times today lays out the case for imposing new restrictions on how index funds operate. The rationale, according to the authors, is to prevent the reduction in competition in industries that is a direct consequence of indexing. If the proposal is implemented as outlined, the indexing strategy for equity investing that’s widely practiced could be headed for extinction.
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Book Bits |3 December 2016

● The Populist Explosion: How the Great Recession Transformed American and European Politics
By John Judis
Review via The Economist
The Western intelligentsia, snug in its echo-chamber, has done a dismal job of understanding what is going on, either dismissing populists as cranks or demonising them as racists. John Judis, an American author and journalist, is an admirable exception. “The Populist Explosion” is an extended think-tank report rather than an airport bestseller. It’s also an excellent read: well-written and well-researched, powerfully argued and perfectly timed.
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US Private Employment Picks Up In November

US companies hired 156,000 workers last month, according to this morning’s update from the Labor Dept. Last month’s seasonally adjusted gain reflects a modest improvement over October’s sluggish 135,000 increase. But in contrast with firmer annual results in ADP’s estimate of last month’s employment trend in the private sector, the government’s data translates into another round of softer year-over-year growth.
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