In the fixed income world investors often talk about “the spread” as one possible driver of returns. But what is “the spread” and why does it exist? Generally speaking, the spread in interest rates which is also called “credit spread” refers to the difference between two interest rates, often between a benchmark rate (normally the interest rate of government bonds) and a specific interest rate on another type of bond (such as corporate bonds). For example, if a 10-year government bond has a 3% interest rate and a corporate bond of similar duration has a 5% interest rate, the spread

Whenever there are opportunities to generate enhanced returns, the global asset management industry will seek to exploit these opportunities. This is especially true when there are market anomalies which have a well-researched potential to generate additional returns, the so-called alpha, over the long run in the portfolios of investors. Some of these well-researched sources of alpha are the so-called factors. Factor investing is an investment approach that targets specific quantifiable characteristics of a security, which can explain differences in the returns of securities. There are three kind of factors which can be seen as drivers for the returns of all

Every market participant in the European ETF industry knows that Europe or even the EU are far away from a single market when it comes to ETF trading. Respectively, many ETF promoters list their ETFs on different exchanges to reach as many investors as possible. What sounds like a very appropriate approach to maximize the opportunities for ETF distribution also has some negative effects. Since the ETF promoters have to pay fees and expenses for any exchange listing, this means that the ETF promoters needs at least some trading volume in a given ETF on the respective exchange to cover

The relationship between macroeconomic risks and asset risks is neither loose nor casual. The two are intimately connected in driving market and investment dynamics. Inspired by this, over the course of 2020 Fathom Consulting has developed new ways to quantify that relationship between important macro drivers and financial market assets. This post will provide an overview of that work, with a more detailed account sent to Fathom’s clients earlier this week. We have drawn on the vast factor-investing literature to reproduce exposures to macro factors through liquid assets. The three macro factors we chose to reproduce using liquid assets are

While our risk-off stance and higher volatility calls won us some bragging rights through 2018, during our forecast meetings with clients in Q4 we laid out three conditions that, were they all to be met, would cause us to become outright positive on risk assets. Collectively, we referred to these as the ‘trampoline’. First, the Fathom Leading Indicator (FLI) should remain positive and show signs of accelerating growth. The negative impact of US-Sino trade tensions and China’s economic slowdown should progressively taper off, and investors should come around to our view that concerns about a trade war are not sufficient

Fathom Consulting’s proprietary liquidity indicator, the FLIQ, points to a drop in market liquidity amid Federal Reserve rate hikes and quantitative tightening. The FLIQ is calculated by looking at the price of closed-end funds (CEFs). It is designed to provide a timely and intuitive assessment of aggregate financial market liquidity risk. By their nature, CEFs will tend to trade at a discount to the value of the underlying assets (their net asset value, or NAV). By measuring the size of this discount, relative to its historic average, we can obtain an estimate of the abundance, or the scarcity of market

The All Cap Blend style ranks second out of the twelve fund styles as detailed in our 1Q18 Style Ratings for ETFs and Mutual Funds report. Last quarter, the All Cap Blend style ranked second as well. It gets our Attractive rating, which is based on an aggregation of ratings of 99 ETFs and 793 mutual funds in the All Cap Blend style as of January 16, 2018 See a recap of our 4Q17 Style Ratings here. Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all All Cap Blend

There have been considerable improvements in the euro area’s governance framework since 2011, but the bloc remains vulnerable to future sovereign and banking crises. The ‘doom loop’ between sovereign and banking risk has been weakened, but remains intact. In his first New Year’s address, Emmanuel Macron vowed to “reinvigorate European ambitions” while appealing to the French public not to be swayed by “nationalists” or “sceptics”. Since his election, President Macron has placed considerable focus on greater European integration.  A key part of Mr Macron’s vision focuses on the capacity of the European Stability Mechanism (ESM), or a new alternative body

The Consumer Staples sector ranks first out of the 11 sectors as detailed in our 4Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Staples sector ranked first as well. It gets our Very Attractive rating, which is based on an aggregation of ratings of nine ETFs and 11 mutual funds in the Consumer Staples sector as of October 5, 2017. See a recap of our 3Q17 Sector Ratings here. Figure 1 ranks from best to worst all nine Consumer Staples ETFs and Figure 2 ranks from best to worst the nine Consumer Staples mutual funds

The European exchange-traded fund (ETF) industry has truly written a growth story over the last 16 years. The steadily increasing assets under management have led to a number of discussions about the impact of the ETF industry on the markets. Some market observers have raised concerns about the markets covered by ETFs, especially in the bond segment, since a number of bonds—even though they are in a benchmark— do not have sufficient liquidity to be traded in huge quantities. Even though the liquidity issue is valid, ETF promoters in Europe have found ways to overcome this limitation with so-called optimized

With inflation more than double the 5% target, Turkey’s central bank left its headline policy rate on hold at 8% last week. Instead, policymakers opted to increase the late liquidity lending rate by 50 basis points to 12.25%. The Bank has decided against hikes in the one week repo lending rate in recent months, instead utilising its interest rate corridor to increase banks’ average funding costs. So while the one-week repo rate has been on hold all of 2017, the weighted average cost of central bank funding has increased from 8.3% to 11.8%. Refresh the chart in your browser |

The Consumer Discretionary sector ranks fifth out of the ten sectors as detailed in our 2Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Discretionary sector ranked fifth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 13 ETFs and 19 mutual funds in the Consumer Discretionary sector as of April 5, 2017. See a recap of our 1Q17 Sector Ratings here. Figures 1 ranks all nine ETFs that meet our liquidity standards and Figure 2 shows the five best and worst rated Consumer Discretionary mutual funds. Not all