Market Insights

Sure, we read your standard issue financial publications, but there’s more to the Dana team than economic statistics, market data, and company earnings. Pretend you are at the water cooler in our Milwaukee office and today, we’re talking books!

If you are packing a bag for your summer vacation and you need a good book, here’s a list of what we’re reading. From history buffs to foodies to soccer fans – we’ve got you covered!

Are you reading something great? Please share your book ideas in the comments.

Recommendations are always welcome!

Here are five notable statistics that environmental, social, and governance (ESG) investors need to consider.

1. ESG is huge, and demand continues to grow. ESG investing is estimated today at over $20 trillion in AUM, or approximately a quarter of the professionally-managed assets across the globe.

When people think of economic recoveries and the bull markets that tend to follow, it’s easy to understand why it takes a while for many investors to get off the sidelines. After all, the stock market (S&P 500 Index) was down nearly 40% in 2008, so it’s not surprising that retail investors - still reeling from such a shocking selloff - were hesitant to jump back into equities.

Of the thousands of mutual fund managers in operation today, there are countless opinions on quantitative versus fundamental analysis. Many managers use a combination of the two. Let’s dig into both disciplines and touch on the strengths and weaknesses of each.

Quantitative Analysis

Leveraging technology to analyze significant amounts of data, a quantitative or “quant” approach often uses mathematical and statistical modelling to analyze and/or rank various investments. This can be especially useful for smaller teams that do not otherwise possess the necessary resources to analyze an entire peer group of investments. Similarly, a quant approach can make sense if travelling for due diligence purposes is overly challenging. For example, a U.S.-based firm that invests in international/emerging market small cap stocks may rely on quant analysis in place of meetings with management.

It's hard to believe we are already halfway through 2019. 

Below we highlight our most popular blog posts to date for this year. As always, we welcome your questions or comments.  Also, if you would like for us to cover a specific topic, we would love to hear from you.  Just fill out the form on our contact us page and we will be in touch! 

Warmly,

Dana Investment Team 

One of the most-common questions we receive is: why do we manage our portfolio’s in a sector-neutral fashion (sector-neutral meaning the process of rebalancing our sector weightings to match those of the benchmark)? After all, why would an active manager want to look like the index? Why not overweight certain indices where we are finding the most-attractive opportunities?

When looking at the table below, the only real takeaway is that it’s been nearly impossible to predict relative sector performance. Notice where each year’s top-performing sector wound up the following year. Despite the randomness of sector performance, the majority of portfolio managers make active sector bets as if they have some kind of edge in doing so.

In S&P Dow Jones Indices’ most-recent annual report of active managers’ relative performance against their benchmarks, 2018 was a continuation of the same theme that has prevailed for much of the past decade: active managers struggled to beat their passive counterparts¹. This included the fourth quarter when the S&P 500 fell over 13%. Many investors assumed active managers would shine during the long-awaited risk-off environment and were surprised when this didn’t play out accordingly.

“What’s different about 2018 was the fourth quarter volatility,” Aye M. Soe, a managing director at S&P and one of the authors of the report, told CNBC. “Active managers claimed that they would outperform during volatility, and it didn’t happen.”²

For advisors, having the option to sit down and speak with a client about a topic that is important to them, but not strictly related to their investment performance, can be a very powerful tool. This is one of the benefits of having a strong Environmental, Social, and Governance (ESG) capability, especially since younger investors and women – two demographics quickly accumulating wealth – have shown such strong interest in the space. These robust conversations will also lead you to get to know your clients on a more personal level and potentially develop a level of trust that didn’t previously exist.

Although volatility hasn’t been as pronounced as in past years (we recently penned a blog on this, “Chart of the Month – How 2019 Volatility Stacks Up Against Prior Years”), trade tensions and concerns over a slowing U.S. economy have caused enough concern for more-tactical investors to take some money off the table. One investor group in particular that has trimmed its long equity exposure is hedge funds.

Hedge funds typically employ nimble, tactical investment strategies, relying on portfolio managers’ experience and expertise or specific indicators to determine when to increase exposure in their long or short books. While these funds’ short positions and relative lack of equity beta (compared to a strategic long-term, long-only equity investor) was beneficial during 2018’s fourth-quarter selloff, the majority of hedge funds then missed out on the first quarter’s rally.