Brief : One of the big themes of the last year has been that almost everyone has been too pessimistic about the economy and corporate fundamentals. The easiest way to see this is by looking at an economic “surprise index” which attempts to gauge the degree to which the data is beating or missing economists’ forecasts. It’s not a gauge of absolute strength but of relative strength. For about a year now, the Citi Economic Surprise Index for the U.S. has been in positive territory. That means this whole time, despite all the stories about the rebound, and the strength of the recovery and the powerful impact of the fiscal response, economists have been too pessimistic. Only very recently in the middle of May did the white line drop ever so slightly below zero, indicating reality more or less meeting expectations. But now it’s already on the rise again as you can see at the end of the chart. Just today we got better-than-expected ADP labor data, initial jobless claims, Markit PMI, and ISM services. They all beat. Not by huge amounts, but it was across the board.
Brief: LeapFrog Investments, a with Purpose investment firm, reached 221 million people in 35 countries with essential services during the pandemic, according to its Annual Impact Results. Together, LeapFrog’s investee companies were able to reach 16 million more people compared to 2019, at a time when support was profoundly needed. They provided underserved communities with access to a range of healthcare and financial services, including insurance, remittances, diagnostics and telemedicine. At the same time, LeapFrog achieved a 22 per cent uptick in the value of its portfolios over 2020. Across the past decade, LeapFrog companies have grown revenue on average at 26 per cent a year, consistently delivering on the firm’s strategy of Profit with Purpose. Eight in ten, or 174 million, of those reached by LeapFrog companies across Asia and Africa are emerging consumers, defined by The World Bank as living on less than USD10 per day. Over half, or 119 million, are women and girls. Financial services proved a lifeline during the pandemic for families and businesses. LeapFrog’s insurance companies, for example, paid claims totalling USD629 million, an increase of 37 per cent.
Brief: The wave of U.S. municipal-bond distress set off by the pandemic is still spreading even as the economy recovers from the devastation of the outbreak. Eight muni borrowers became distressed last week, lifting this year’s tally to 76, according to Municipal Market Analytics. That puts 2021 on track to exceed almost every year since 2012 in terms of impairments. Only 2020, when the coronavirus caused some of the worst market turmoil on record, was worse. The isolated cases of deterioration in certain smaller, typically lower-rated or unrated issuers stand at odds with the optimism in statehouses nationwide, which have been buoyed by strong tax revenue and federal stimulus. It’s been a banner year for munis, with tax-exempt yields near record lows relative to those on Treasuries. Any defaults have mostly been confined to a corner of the market where businesses borrow through government agencies. “While credit conditions are clearly better than at this time last year, they are by no means fully corrected,” Matt Fabian, a partner at Municipal Market Analytics, wrote in a Wednesday note.
Brief: A year after the Covid-19 market crash, endowments, foundations, and aggressive risk takers have experienced the strongest recoveries, according to outsourced chief investment officers whose clients include major investors across fund types. Out of all outsourced investments tracked by the Alpha Nasdaq OCIO Broad Market Index, endowment and foundation portfolios “came roaring back” with a trailing one-year average net-of-fee returns at 35.8 percent, said Brad Alford, founder of Alpha Capital Management. The “aggressive asset allocation index,” an index that factors in OCIO strategies with a 0 to 20 percent allocation to risk-mitigating asset classes, touted the strongest performance with a 46.3 percent trailing one-year return. The Alpha-Nasdaq indices started in 2019 and aggregate responses from anonymous OCIOs that “represent the broad OCIO market” and “appropriately reflect the nuances across sub-categories, such as plan type and risk profile,” according to this quarter’s report. Index numbers are calculated using reported data from OCIO respondents. In order to be included in the indices, respondents must work with a fund that manages $50 million or more in assets under management. OCIO contributors include J.P. Morgan Asset Management, Verger Capital Management, and NEPC, among others.
Brief: Hedge funds saw USD19.1 billion in new assets flow into the industry in March. Coupled with a USD28.5 billion monthly trading profit, total hedge fund industry assets rose to more than USD4.07 trillion as March ended, a new record high, according to data released by BarclayHedge. Most hedge fund sectors experienced net inflows in March. Fixed Income funds set the pace adding USD6.9 billion to assets, while Sector Specific funds brought in USD5.8 billion, Emerging Markets – Asia funds saw USD5.6 billion in inflows, Event Driven funds took in USD3.0 billion and Multi-Strategy funds added USD2.9 billion. Notable among sectors shedding assets during the month were Emerging Markets Global funds with USD3.8 billion in redemptions, Equity Long Bias funds with USD3.3 billion in outflows and Macro Funds with USD1.7 billion in redemptions. “Easing of lockdown restrictions, optimistic economic forecasts, rising equity and commodity prices and President Biden’s USD1.9 trillion pandemic recovery plan buoyed investors’ optimism,” said Sol Waksman, president of BarclayHedge. “The last time that hedge funds had a losing month was October 2020 when the Barclay Hedge Fund Index declined -0.11 per cent.”
Brief: Most hedge funds plan to let their employees work remotely at least one day a week starting in September -- a more flexible approach than Wall Street banks that are already summoning staff back to the office. What many senior managers aren’t saying openly is that such accommodations may not last. A May survey from the Managed Funds Association, whose members include mostly hedge funds with at least $1 billion of assets, found that 80% of firms would offer some sort of hybrid model starting in September. The most popular schedule is three days a week in the office, with remote work on Mondays and Fridays, the trade group said, without providing the percentage of firms signaling a preference for that arrangement. The schedule reflects that “firms understand their workforce wants and needs more flexibility as they migrate back to the office,” said Brooke Harlow, the association’s chief commercial officer. Yet a more nuanced picture emerges from conversations with hedge fund managers, many of whom declined to discuss their plans publicly.