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Second Quarter 2015: Investment Perspective

Financial assets had mixed performance in the second quarter. The quarter was marked by two headline events — the sell-off in the Chinese “A-share” market and the tortured negotiations surrounding the bailout of Greece. While both events caused turbulence in financial markets, we believe that neither poses the risk of systemic contagion or a threat to real economic activity. Greece represents less than 2% of euro zone output, and its liabilities are predominantly held by government entities. An eventual default and exit by Greece seems unlikely to impair confidence in the euro zone and may even work to make the euro safer in the long term. We discuss the impact of the sell-off in China more fully later, but our conclusion is that the loss of wealth is confined to a small set of domestic Chinese holders.

The two episodes highlight how vulnerable global financial markets are to temporary bouts of volatility. We are extremely mindful of exogenous shocks but also careful to discern true dislocations from temporary volatility. Frequently, the volatility affords us the opportunity to reposition portfolios to more attractive long-term risk/reward positions. We continue to find value in International Developed and Emerging Market equities and Commodities.

On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market.  We have included the first page of that piece below.  If you would like to receive the full perspective, please contact us.

Download the first page

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Investment Strategy Research: Statistics

Tom Cowhey, Hirtle Callaghan's Chief Strategist, often publishes reasearch relevant to current market trends and issues.  His most recent research discusses how in the near term, macro factors are once again dominating the investment markets and psyche.  In environments like these, it is easy to draw all sorts of conclusions from graphical and analytical interpretation of data.  It is also just as easy to be misled, intentionally/unintentionally, by poorly specified or spurious relationships in the data.  

At Hirtle Callaghan, we feel that valuation is a better tool for assessing the future return potential of an investment because current prices incorporate all that is "known" about the relationship between an investment and other variables.

Read Tom Cowhey's complete research article here.

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First Quarter 2015: Investment Perspective

Financial assets performed well in the first quarter. Global equities and bonds both rose modestly. The European Central Bank started its asset purchase program in the quarter, and European sovereigns have traded to never-before-seen lows in yield. That desperation for yield is seeping over into markets for U.S. rates and foreign exchange. Recent data points suggest that global growth is becoming more balanced, with the United States decelerating slightly and the euro zone showing signs of vigor.

Markets have reflected the change, as non-U.S. markets outperformed the United States. That said, markets continue to be punctuated by significant geo-political and macro/monetary events. The crisis in Ukraine, Greece’s fiscal impasse, and proxy conflicts in Syria/Yemen/Iraq remain unresolved. Each of these risk upsetting the existing order with unpredictable consequences for global policy and economies. As a result, short-term financial asset prices are reacting forcefully to instantaneous developments. Algorithmic trading appears to be exacerbating these swings, heightening volatility. But, as history has demonstrated, these types of events have little impact on the longer term value of financial assets. That is driven primarily by valuation, which is where we focus our efforts in allocating client assets.

On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market.  We have included the first page of that piece below.  If you would like to receive the full perspective, please contact us.

Download the first page

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Fourth Quarter 2014: Chart of the Quarter

Today's most appealing valuation opportunities appear largely in companies domiciled outside of the United States.  International Developed, Emerging Market, and Commodity-related equities all sport high relative risk premiums and represented the largest overweights in client portfolios at the start of 2015.  A diversified basket of these equities offers more than 250 basis points of excess expected return above the broad U.S. market over a seven-year horizon.  Inside the United States, small cap stocks, and in particular, small cap value stocks, remain an overvalued part of the market from our perspective. 

On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market.  We have included the first page of that piece below.  If you would like to receive the full perspective, please contact us.

Download the first page

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Never Again: Start Now to Protect Gains in Your Pension Plan’s Funding

Pension plan funded status has come a long way since the ravages of the financial crisis and today stands near a seven year peak. For plans that have not started down the de-risking path, now may be the time to begin locking in gains. Heading into 2008, most pension plans were healthy and overfunded. By the end of that climactic year, the average plan had been devastated by a “perfect storm” of increasing pension liabilities (from falling interest rates) and falling asset values. Having been burned in 2008, wise pension sponsors are taking a “never again” approach to protecting their plan’s funding.

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