Ideas

July 2, 2020

While June was difficult for short volatility strategies, a shift in the market away from option selling toward option buying may have created an opportunity for option premium collectors. Derivatives Portfolio Manager Sean Heron, CFA, reviews past performance and discusses current positions for the Glenmede Secured Options Strategy. He also points out that the VIX index remains elevated despite a recovering S&P 500.


 

June 29, 2020

A recent article in The Atlantic highlighting potential default risks for large banks may conflate two structured loan products with very different risk profiles: CLOs and CDOs. Collateralized loan obligations (CLOs) invest in sub-investment-grade bank loans widely used to fund leveraged buyouts. They tend to have less risk than collateralized debt obligations (CDOs) because they consist of senior, secured loans, have less exposure to derivatives and leverage, and are broadly diversified. Moreover, CLOs generally represent less than 20% of banks’ regulatory capital and are mostly invested in AAA-rated tranches with no recent defaults. Although we do not see them as  a primary risk factor for banks, CLOs could become an issue for investors seeking higher income yields in lower-rated tranches with potential for rising default rates in the pandemic-related recession. 

 

June 22, 2020

To better understand what the market is pricing in for future moves, during this episode of Charts & Chatter Stacey Gilbert and Sean Heron, CFA, put into context what the markets experienced during the first-half of 2020, and discuss market expectations of the recent V-shaped recovery potentially becoming W-shaped by year end.

June 22, 2020

Earnings projections for the S&P 500 Index have stabilized in the past month and are expected to resume positive growth by Q1 2021. This projected rapid, V-shaped recovery supports the stock market’s dramatic rebound from its March lows. After falling precipitously due to pandemic-related shutdowns, current earnings projections closely track estimates from a month ago. This suggests that analysts believe they have a better handle on COVID-19’s expected impact on financial results. The situation bears watching, however, as any deterioration in estimates would likely be negative for stocks. Moreover, stocks aren’t cheap — currently trading at a P/E of 24.1x projected earnings, compared with 19.1x in January — due to the price rebound and massive hit to earnings.   

June 17, 2020

PM Stacey Gilbert featured on CNBC.com

June 16, 2020

Investors wonder how the stock market has managed to rise 36% from its March lows with the economy in a COVID-19 recession. Easy answer: the Fed. A key indicator of economic liquidity, the Fed’s M2 money supply, has increased by about 17% in the past three months — the largest expansion in history in such a short period. M2 is surging as a result of the Fed’s injection of liquidity through quantitative easing (QE) to support the economy. This could be a good sign for stocks because historically there is a relationship between M2 and rising market capitalization. With the Fed’s decision last week to double down on QE, M2 is more likely to continue rising — potentially providing support for the stock market.

June 8, 2020

While the S&P 500 Index is on track to erase all the losses over the past three months, the cost to protect a portfolio is twice as expensive as it was pre-crisis. Given the elevated volatility levels, we continue to find the risk/reward of owning outright puts unattractive and believe spreads could be an alternative for investors wanting to hedge.

June 1, 2020

Value may be reaping the benefit of optimism about the potential for economic recovery in the second half of 2020. After bottoming in March, value stocks in the Russell 1000 Index staged a partial recovery in April and May. The slight rebound may partly reflect a steepening of the Treasury yield curve, based on the correlation between value performance and interest rates during periods of rapid rate changes. Value stocks’ above-average market beta suggests the potential for outperformance in a recovery, but timing the shift is risky given the recent surge in factor volatility reflecting widespread uncertainty.

June 1, 2020

The Glenmede Secured Options Strategy remains more defensively positioned than its CBOE PutWrite benchmark heading into June. Derivatives Portfolio Manager Sean Heron, CFA,  reviews performance of the strategy during the recent drawdown and recovery, and how recent volatility is keeping option premiums elevated through year-end.

May 29, 2020

During the current environment, Financials and Industrials have been two of the worst performing sectors.  To discuss the performance and potential areas of opportunity in these sectors, Peter Zuleba,CFA,  President of GIM, is joined in this episode of Charts & Chatter by Strategic Equity Portfolio Managers John Kichula, CFA, and Mark Livingston, CFA.

May 26, 2020

Even before coronavirus concerns drove the rapid first quarter correction, the late stage bull market appeared unhealthy by a number of indicators. Market concentration in a small number of the largest technology and internet-related names continues today after the sharp downturn, but we believe investors will return to a more rational mindset that rewards attractive fundamentals. Val de Vassal, CFA GIM's lead portfolio manager and director of quantitative research, reviews the data.

May 22, 2020

Corporate earnings reports are bleak, indicating recessionary conditions and potential for a longer economic downturn than previously expected. With more than 450 S&P 500 companies reporting, 65% beat revised 1Q earnings estimates, but only 40% would have beaten estimates from three months ago. This weakness against earlier estimates indicates a broad-based earnings contraction to levels not seen since the Great Financial Crisis. Earnings for the balance of 2020 are expected to hit bottom in 2Q before gradually improving in the second half.

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