Active vs passive investment is a long-lasting debate: active funds will tell you they deliver alpha (extra returns), but for a fee. Passive investment simply tracks the index so it’s cheaper. The risk is you may underperform your peers.
Most U.S. banks passed their annual stress test driving shares higher. Where does this leave their valuation? Looking at price-to-book value in aggregate (1st chart) they are only just trading above a ratio of one, looking cheap compared to a 15-year average ratio of two. However a premium is opening up over European banks which are still trading below book value, and analyst forecasts for return on equity suggest banks are in a very different environment to the last 15-years (2nd chart)
The U.S. economy probably created 210,000 jobs last month, according to a Reuters survey. If the forecasts are accurate, the government’s jobs report on Friday would mark the first time since early 2011 that payrolls have grown by more than 200,000 for three months in a row. Refresh chart
Just a month and half into 2012, emerging local currency bonds have already returned 9 percent, one of best performing asset classes. But the rally has further to go, says J.P. Morgan which runs the most widely used emerging debt indices. The bank is now predicting its benchmark local currency debt index, the GBI-EM, to end the year with returns of 16 percent, upping its original expectation for 11.9 percent.
This year’s renewed euphoria over emerging markets has bypassed some places. One such corner is Belize, a country sandwiched between Mexico and Guatemala, which many fear is gearing up for a debt default. There is a chance this will happen as early as next week
Currency hedging — should we bother?
Maybe not as much as you think, if we are talking purely from a equity return point of view — according to the new research that analysed 112 years of the financial assets history released by Credit Suisse and London Business School this week.
Emerging market bonds denominated in local currencies enjoyed a record January last month with JP Morgan’s GBI-EM Global index returning around 8 percent in dollar terms. Year-to-date, returns are over 9.5 percent.