Category: External Insights

Empirical Research’s take on trade

Empirical Research has provided some insight on potential tariff effects.  Key points:

1) Manufacturing matters more to the markets than to GDP.  40% of S&P 500 earnings versus 12% of GDP.

2) Most exports to China are agricultural products and commodities, which are not as costly to source elsewhere.

3) High-tech imports from China are roughly half of all imports.  A third of imports from China are consumer goods.

Portfolio Strategy – U.S. – China Trade War, Margins and Tax Havens, Restructurings – Jun 20 2018

Review of the size effect in investing (AQR)

Below is a link to an article on investing in small cap stocks.  The paper dispels the long held belief that small stocks outperform large cap stocks.  The paper revisits and corrects prior studies that led investors to champion small cap stocks.  These prior studies were distorted by pricing errors in the CRSP pricing database when a stock was delisted.

AQR – Size effect

The study concludes that the small cap effect is weak at best and mostly explained away by higher beta and the value effect.  I know several firms that drink the small-cap Kool-Aid.  Should a client show concern at Crestwood’s modest allocation to small caps, this paper will support the construction of our models.

Thanks,

John

 

 

FT article on effect of tariffs and global savings glut

As a guest writer for the FT, Michael Pettis argues that tariffs will reduce global growth rather than fix trade deficits.  He focuses on capital account flows rather than trade flows as the key issue in the imbalances facing the global economy.

Tariffs increase savings in a world already drowsy with too much savings _ FT Alphaville Continue reading “FT article on effect of tariffs and global savings glut”

S&P US Fund Scorecard and Persistence reports

S&P does a great job of reporting performance on the mutual fund industry as they scrub their data to account for mutual funds that were closed or merged.  Fund companies tend to close or merge underperforming funds.

Outperformance is rare especially over several years.  Over 5 years 84% of large cap managers, 85% of mid cap manager and 91% of small cap manager underperformed their S&P benchmarks!

file:///C:/Users/JRI/Downloads/spiva-us-year-end-2017.pdf

Equally dreadful, few funds show persistence of strong performance.  Fund’s record of staying in the top quartile is generally lower than change would suggest.  Over the past five year period no large cap, mid cap, or small  cap funds managed to remain in the top quartile through out measurement period:

file:///C:/Users/JRI/Downloads/persistence-scorecard-december-2017.pdf