The price of liberty is eternal vigilance.
— Thomas Jefferson
In June, U.S. real estate investment trusts (REITs) saw a notable rebound, emerging as the best-performing asset class. The MSCI REIT Index recorded a gain of 2.1%, marking its strongest monthly performance in four months. However, when looking at the first half of the year, the MSCI REIT’s overall advance of 2.7% pales in comparison to other asset classes.
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● Before Babylon, Beyond Bitcoin: From Money that We Understand to Money that Understands Us
Review via The Economist
People utilize money daily, yet many find it challenging to comprehend its true nature. The concept of monetarism—restricting the money supply to manage inflation—was ultimately deemed impractical, as a precise measurement of money supply proved elusive. The notion of negative interest rates, introduced by some contemporary central banks, can confuse those who believe savers should earn returns on their savings.
In “Before Babylon, Beyond Bitcoin,” author David Birch offers a comprehensive historical perspective on the evolution of money, arguing that it has transformed over time to meet societal and economic needs.
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US Sector Rotation with Five-Factor Fama-French Alphas
G. Sarwar (University of Greenwich), et al.
June 16, 2017
This study examines the risk-adjusted performance of U.S. sector portfolios and the effectiveness of sector rotation strategies using alphas derived from the Fama-French five-factor model. We found that the five-factor model better explains the returns of U.S. sector portfolios compared to the three-factor model. Notably, significant alphas are identified across various sectors over time. In the full sample period, 50% of sectors exhibit noteworthy five-factor alpha. Using simple long-only and long-short sector rotation strategies, our long-only approach—purchasing sectors with positive five-factor alpha—achieved a Sharpe ratio four times greater than the S&P 500’s buy-and-hold strategy. When adjusted to transition to a risk-free asset during recessions, the Sharpe ratio reached ten times that of the buy-and-hold. However, the long-short strategy performed less favorably.
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This month’s rise in financial shares has positioned this sector as the top performer in the U.S. equity market for the trailing year, as indicated by a range of proxy ETFs through June 28. In contrast, the technology sector, which was previously the second-best performer, has faced challenges in recent weeks, allowing financials to surge ahead.
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Comments from European Central Bank (ECB) President Mario Draghi, signaling a more hawkish stance, contributed to an increase in rates globally, including U.S. Treasury yields. However, it may be too soon to declare that the recent flattening of the U.S. yield curve—a potential indicator of economic downturn—has concluded.
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Recent estimates for second-quarter U.S. GDP growth suggest a possible uptick in economic activity following the slow growth observed in the first quarter. However, disappointing figures from yesterday’s data releases indicate that analysts might revise their projections for a rebound in Q2.
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Last week, emerging market equities experienced a resurgence, recording the highest gains among the major asset classes, as seen through a range of exchange-traded products.
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With summer upon us, life might seem easier—though the costs remain high—and the urge to take a break is enticing. Yet, responsibilities linger as the usual routine resumes on June 26. Cheers!
Forecasting economic trends can be a challenging endeavor—unless one employs demographics as a foundational element for modeling. This approach surprisingly offers a reliable way to anticipate future economic activity, which is promising for analysts aiming to create solid GDP growth estimates over the medium to long term. However, it also poses difficulties for those hoping for sustainable economic acceleration in the near future.
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