Are you aware of this correlations shocker?

Since 2008 there has been a succession of ‘risk-on, risk-off’ (RoRo) periods: when risk is ‘on’, bond investors have seen fit to buy emerging markets and high-yield corporates; when risk is ‘off’, they have run for the proverbial hills with their pockets full of government bonds.

In ‘normal’ markets, government bonds and risk assets are negatively correlated, making them happy bedfellows in a portfolio.

During periods that central bank action (or investor expectations of action) was the dominant factor, correlations are much lower, so owning government bonds or risk assets wouldn’t always have compensated investors for losses in the other.

The latest period is the most extreme: since the UK’s EU referendum, prices of bonds and equities have been moving in the same direction – a positive correlation.

It seems that RoRo has been replaced by QEoQEo (or ‘quantitative easing on, quantitative easing off’) as the new way for markets to behave, with investors fixated upon the monetary easing activities of central bankers.

For a longer article on this topic, head to Newton’s blog.

Jon Day – Newton, a BNY Mellon company

Since 2008 there has been a succession of ‘risk-on, risk-off’ (RoRo) periods: when risk is ‘on’, bond investors have seen fit to buy emerging markets and high-yield corporates; when risk is ‘off’, they have run for the proverbial hills with their pockets full of government bonds. In ‘normal’ markets, government bonds and risk assets are negatively correlated, making them happy … read more

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Dispelling EMD preconceptions

We believe EM corporate debt is supported by falling yields in the developed world as they turn negative out to ever increasing maturities. Investors, concerned by global risks, are accepting losses on their capital but are, in our view, overlooking the risks embedded in developed markets at current levels, underscoring the pervasiveness of the current negative yield environment.

Furthermore, we believe growth in EM is on course to reach an economic inflection point this year as fundamentals continue to improve. In our view, investing in EM corporates is about capturing the structural premium offered over their developed market counterparts as EM countries gain an increasing share of global GDP.

Put differently, the active management of EM corporate debt can give investors the optionality to scale into different risk and return drivers according to their objectives. These credits tend to be under-researched, under-owned and unloved by mainstream investors, which can create mispricing and opportunity in spite of its status as a rapidly maturing asset class.

By Robert Simpson – Insight Investment, a BNY Mellon company

We believe EM corporate debt is supported by falling yields in the developed world as they turn negative out to ever increasing maturities. Investors, concerned by global risks, are accepting losses on their capital but are, in our view, overlooking the risks embedded in developed markets at current levels, underscoring the pervasiveness of the current negative yield environment. Furthermore, we … read more

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Is US shale oil back in black?

US shale oil is attracting billions of investment dollars despite recently emerging from the largest boom-bust in the commodity’s history. For traditional oil projects, the economics remain challenging, and risks loom large. However, US shale producers can quickly add resources with a fraction of the risk, but one US unconventional basin stands above the rest.

Why is Permian (an oil and natural gas geologic basin in southwestern US ) shale outperforming oil and outproducing other shale basins? Permian shale producers benefit from the region’s unique geology and well-established infrastructure. The Permian Basin has several stacked layers of oil due to multiple periods of thriving carbon-based life forms and rising and falling sea levels, geological prerequisites for oil creation. Additionally, these pay zones have risen to the surface and become outcroppings, dramatically increasing our knowledge of their production potential.

For many years, the Permian Basin functioned as a conventional oil field. Now, shale provides additional, meaningful life for this basin. Since shale uses similar services as conventional drilling, the necessary infrastructure is already in place for drilling and extracting, allowing companies to quickly and efficiently increase production.

The combination of geography and infrastructure makes the Permian Basin a unique shale play and strategically important to the portfolios of energy producers. Permian oil rigs are on the rise, while rig counts in Eagle Ford and Bakken Basins are plateauing. We expect other plays to recover soon, but investment dollars will pile up higher in West Texas. Despite a modest premium to peers, we believe the Permian Basin represents enormous value with multiple pay zones driving many years of growth and infrastructure in place to develop it.

Robin Wehbé – The Boston Company, a BNY Mellon Company

US shale oil is attracting billions of investment dollars despite recently emerging from the largest boom-bust in the commodity’s history. For traditional oil projects, the economics remain challenging, and risks loom large. However, US shale producers can quickly add resources with a fraction of the risk, but one US unconventional basin stands above the rest. Why is Permian (an oil … read more

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REIT all about it: Where old age can reap rewards

With 10-year US government bonds yielding less than 2%, most similar-duration European sovereign debt yielding less than 1% and Japanese government bond yields in negative territory, investors are increasingly dipping into equity markets to quench their thirst for yield. While many turn to traditional dividend-paying, slow-growth industries, healthcare Real Estate Investment Trusts (REITs) may offer a rare combination of higher yield with a strong growth tailwind.

By design, REITs are required to pass through income to maintain their tax-advantaged status. As of June 30, 2016, healthcare REITs offered a yield of 5.0% versus a 10-year Treasury yield of 1.5%.

Healthcare REITs also benefit from global demographics.  A significant portion of developed market populations will be over the age of 75 by 2030. In the US, the senior population is expected to grow seven times faster than any other adult demographic. By 2050, a full 40% of the Japanese population should be over 65 years old. Because of this massive shift, we expect government and household healthcare expenditures and demand for healthcare services to increase and we believe healthcare REITs may be one of the more attractive ways of benefiting from this long-term global trend.

Jim Lydotes – The Boston Company, a BNY Mellon company

With 10-year US government bonds yielding less than 2%, most similar-duration European sovereign debt yielding less than 1% and Japanese government bond yields in negative territory, investors are increasingly dipping into equity markets to quench their thirst for yield. While many turn to traditional dividend-paying, slow-growth industries, healthcare Real Estate Investment Trusts (REITs) may offer a rare combination of higher … read more

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