-
Tail risk and the difficulty of finding diversification
The Japanese carry trade goes wrong and the global markets unwind. Volatility spikes, and as I write this, my portfolio is basically back to where it was before all this. I hold a portfolio that is almost entirely equities with a small commodities allocation. It’s diversified among multiple equity factors, but the swings in the
-
Factor correlations in a world of concentrated indexes
2 levels of the CFA in, I’m still not sure if I should be saying “indexes” or “indices”. Anyways. I worry about concentration in the market cap weighted index. As of this writing, the top 10 constituents in the iShares S&P 500 ETF, IVV, is about 33.5%, suggesting top heavy conentration. But it goes further
-
The case for investing in forestry and farmland
There world of alternatives is fascinating. As I’m writing this, crypto has had an incredible year after a terrible 2022. The private equity world is…chugging along? From what I can gather, private credit seems to be taking the spotlight as LBO transactions decrease in a higher rate environment than we’ve seen in a while. If
-
It’s the cash flows AND the discount rates: the lackluster performance of real return bonds
Real return bonds; a great inflation hedging tool, right? TIPS, real return bonds or their equivalents in other countries typically have coupons that are indexed to some benchmark rate of inflation such as the CPI. It’s not uncommon to see the term “hedge” thrown around when it comes to these kinds of securities (Blackrock, for
-
Is risk headed to private debt? Reflections in the aftermath of SVB and First Republic.
As I write this, I’m seeing news articles about how large banks like JPM are making bids on First Republic. Sillicon Valley Bank went under a few months ago. A common narrative in the media as of late has been that large banks are benefiting from the turmoil experienced by the smaller US banks– evidenced
-
Private equity, leverage and valuations
LBOs have been a great asset to hold since they became popular in the 1980s. It’s common to find statistics on just how much better LBO investors have fared relative to the public market, leading to an explosion in the amount of capital in the space. You get understated volatility from the lack of mark
-
The role of USD in the portfolio of a leveraged Canadian investor (2/2)
Why does the USD outperform in times of market stress? Bekaert et al. have a paper on this called “Flights to Safety” (FTS) from back in 2016. Bekaert et al. define FTS as situation in which you simultaneously have high economic uncertainty, lower equity prices through lower cash flows and/or higher risk premia along with
-
The role of USD in the portfolio of a leveraged Canadian investor (1/2)
As a Canadian, I’m well aware that my domestic markets are a relatively small share of global financial markets as a whole. This leads to a good deal of international diversification; the majority of my portfolio consists of investments in foreign countries. But what currency should I hold them in? This is not an easy
-
Alpha in private debt
Private debt is popular today. If you’ve been around institutional investors as of late, I dare say that it’s all the rage. Preqin is among the most frequently cited databases in the private asset space. Their data and many of their insights are behind a paywall so I don’t have access to the most recent
-
How do stock prices influence consumption?
As I write this in the last few days of 2022, the economy of Canada and many other developed nations appear to be teetering. After a long bull market in Canadian real estate, higher rates have resulted in a rather sharp downturn. Equity prices, particularly on the growthy American side of markets, have seen large
Bells and Tails 