Blog

We recently shared the announcement of Hamilton Lane’s pending acquisition of 361 Capital. With this exciting news, we thought we’d use a few of our upcoming blogs for Q&As with Hamilton Lane to learn more about their company, its philosophy, and its products.

It’s been nearly a year since the beginning of the pandemic, when the stock market saw extreme volatility during the shortest bear market in history. In February and March of 2020, the S&P 500 Index returned -19.57%, but since April 1, 2020, the S&P 500 Index has returned 49.79%*. And with that incredible rebound we have a fading memory of what volatility can do to a portfolio, which has made it increasingly difficult to maintain a diversified portfolio.

Frequently, we receive questions from the readers of our popular market commentary, the Weekly Research Briefing, authored by Blaine Rollins, CFA. So, we thought we would use this week’s blog to share a few of these questions along with Blaine’s responses.

It’s been over a year now since we first heard news reports of a respiratory virus spreading through China. Months later, the COVID-19 pandemic continues in the U.S. and its impact on Main Street remains noticeable every time you look around your neighborhood.

Calling all due diligence wonks. Get your coffee, your spreadsheets, your performance databases and dig in. Your role has never been more important. Investment manager due diligence has always been a critical, if not underappreciated, value add in the advisor-client partnership.

On February 2, 2020, the Kansas City Chiefs came back to defeat the San Francisco 49ers 31-20 to win Super Bowl LIV in Miami. This is notable on many levels: It was the Chiefs’ first Super Bowl title in 50 years; young superstar quarterback Patrick Mahomes led his team to three touchdowns in the final 6 minutes and 13 seconds to erase a 10-point deficit; and the Analytic Investors team correctly predicted the outcome for the second consecutive year, bringing its historical record to an impressive 12-5 (71%) against the spread.

I am very pleased to announce Hamilton Lane’s intention to acquire 361 Capital. Hamilton Lane (NASDAQ: HLNE) is a leading private markets investment management firm with nearly three decades of experience in alternative investing.

The handoff has happened and ’46’ has been sworn in, so what does this mean for the market? We’ve pulled highlights from recent Weekly Research Briefings to help provide some answers to this question.

This week we hosted a 2020 Review/2021 Outlook with Blaine Rollins, CFA, author of our popular 361 Weekly Research Briefing. We had several interesting questions come in from attendees, so we thought we would use this week’s blog to share Blaine’s responses.

We wrote about the underperformance of multi-factor portfolios at the beginning of 2019, and here we are two years later. And, while much has changed in the world with pandemics, presidents, and top Netflix shows (does anyone even remember Bird Box?), one thing that has stayed consistent is multi-factor investing approaches have delivered disappointing performance.

I’m generally uncomfortable drawing attention to myself, but today, I am doing so to bring awareness to something that is now very important to me and hopefully inspire even one more person to consider the same. After a very odd and often frustrating 2020, doing something big for someone else has reminded me of the power we all have to make a difference and how rewarding doing something for another person truly is.

We started this blog concept as an interview with our President, Josh Vail, to glean what he has learned about life and leadership during this tumultuous year. After responding to a few of my questions, I felt the tables turn as some of the responses ended up being mine. We decided to publish the whole exchange. Hopefully, our conversation about this unique year, both professionally and personally, is a beneficial read.

As advisors seek to preserve the risk/return profile that the 60/40 portfolio has historically delivered amid the low interest rate environment, they will need to consider adding new investment strategies to the mix. Adding alternatives can help achieve this objective.

Think diversification and risk reduction only apply to investment portfolios? Think again. They actually apply to many aspects of our everyday life, especially during these coronavirus times. For example, if the Denver Broncos’ quarterbacks had better managed risk, i.e., not exposed themselves to the virus which then forced a quarantine for Sunday’s game, the outcome of the game might have been very different.

The holiday season is upon us, and with that, many of us are ready for a break. Since most of us will be spending the holidays at home this year, it’s a good time to catch up on some reading. So, we asked our 361 team for some book recommendations to add to your shopping cart.

The ‘K-shaped’ recovery will definitely impact retailers this gift-giving season. Those households with stable employment this year could see very good holiday spending as they draw down their cash accounts which have grown to record sizes because consumers haven’t been able to spend on travel, dining or entertainment in 2020.

Traditional expectations of the 60/40 portfolio may be due for a rethink.

Based on today’s yield levels, bonds simply can’t contribute to a portfolio the way they have historically. For advisors, this could mean shifting assets away from fixed income and into alternatives if they want to preserve the risk/return profile that the 60/40 portfolio has historically delivered.

They say that a fair deal is negotiated when each party walks away a bit disappointed. I think that it’s fair to say that most American voters are a little upset at the current election results because they didn’t get everything they wanted. But given the split decision, we could also say that we did get something that we voted for. While many of us in the investing world had looked at the polling data and prepared ourselves for a blue wave takeover in Washington, D.C., the end result could end up being a better outcome for investors.

With uncertainty in the air, the potential for subdued-to-negative economic growth looming, and a bleak outlook for fixed income, advisors are challenged to rethink foundational portfolio elements of investor portfolios—which means seeking out strategies that bolster the core going forward.

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had a lot of questions come in, so we thought we would use this week’s blog to share some of Blaine’s responses.

In last week’s blog, we examined the wide dispersion in the long/short equity category, including a couple of funds that have had incredible performance in 2020. We too were curious about this performance, so we thought we’d look a bit closer at these strategies, including how it has impacted their longer-term results. Additionally in this blog, we’ll discuss things to consider when doing due diligence in a category that can be difficult to evaluate.

2020 has been interesting for about a million reasons, all of which we won’t get into here. But one thing it’s highlighted in our little corner of the investment universe is the massive dispersion that exists in the long/short equity category.

The ease with which retail investors can trade equity securities has risen dramatically this year. The increasing popularity of fintech trading apps like Robinhood—which allow investors to trade quickly on their smartphones—and the availability of zero trading commissions at traditional brokerage houses have made it easier for the average investor to trade equity securities. Market makers such as Citadel Securities (a division of Citadel LLC) report that retail traders now account for about one-fifth of stock market trading and as much as one-fourth of trading on the most active days.

While 2020 has been a year of many firsts, there are some things that never change, like letting our behavioral biases guide our investing decisions.

This week is a special one in my family…it’s time for the 120^th U.S. Open Golf Championship. As a young boy growing up, I loved watching my golf heroes like Watson, Nicklaus, Norman, Couples, Stewart. Every year on Father’s Day, I would sit and watch with my dad (a personal hero of mine) and dream about how amazing it would be to stand there with that trophy in my hands after enduring what is commonly known as the toughest test a golfer can face.

Last month, Harin de Silva, CFA, Ph.D., Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was one of three guests featured on the podcast, On the Trading Desk® with Brian Jacobsen. In it, he discusses how the strategy navigated the ups and downs of 2020 and how they plan on approaching the continued uncertainty for the rest of the year.

In the next few years, a client’s evaluation of their advisor will boil down to the professional’s ability to do two things: add alpha and keep them invested. True, these have always been core components of an advisor’s role, but in the coming years they will take on added significance.

Why? It’s a function of a low-return environment, and the psychological roller coaster that is likely to unfold.

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had several interesting questions come in so we thought we would use this week’s blog to share some of Blaine’s responses.

While the term “alpha” is widely used, in our experience, it’s not particularly well understood. Alpha, properly defined, is return in excess of what could have been expected given the risks assumed to generate the returns. Notice that this is not strictly outperformance relative to a benchmark, but rather, its relative performance given the level of risk taken.

It goes without saying that this has been an unconventional year with everyone’s plans flipped upside down. If nothing else, this odd year has taught us all the importance of being able to pivot. We’ve had to pivot our work environments, pivot our vacation plans, and pivot many in-person events to virtual.

As you may have seen recently, a Japanese amusement park asked patrons to stop screaming on roller coasters in an attempt to contain the spread of COVID-19. For me, I know that would be an impossibility since I scare easily, and so I was impressed when I watched the video of well-dressed riders barely reacting at all. While not an actual roller coaster, the markets have been quite a ride themselves this year with the MSCI World Index seeing a peak to trough drop of -31.82% in Q1, and an aggressive recovery up 38.22% through June 30^th.

Last week we hosted a 2020 Mid-Year Market Review with Blaine Rollins, CFA, author of our popular 361 Weekly Research Briefing. We had several interesting questions come in from attendees so we thought we would use this week’s blog to share Blaine’s responses.

One of the things the team at 361 Capital has noticed during the pandemic is that we’ve had a lot more time to listen to podcasts while working from home. One of the programs we follow is The Meb Faber Show, so it was exciting to listen to a recent episode featuring Harin de Silva, CFA, Ph.D., Portfolio Manager for the Analytic Investors team at Wells Fargo Asset Management and sub-advisor to our long/short equity strategies.

In its 63-year history, the S&P 500 Index has become the center of the investment universe. In many cases, investors would be wise to resist its gravitational pull. Its ubiquity has also caused many investors and investment professionals to mistakenly apply the index as a mental benchmark for relative performance, even though the strategy it is compared with may invest in entirely different markets or securities.

Recently, Harin de Silva, CFA, Ph.D., Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was a guest on the podcast, On the Trading Desk® with Laurie King to talk about how traditional risk—as measured by price volatility—may be improved upon by measuring and managing environmental, social, and governance (ESG) profiles within a portfolio.

Summer is here and that means people will be hitting the out of office button for a mid-year break. While many more of us will be doing road trips or stay-cations this year, it’s still a good time to do some summer reading. So, we asked our 361 team for some recommendations to add to your shopping cart.

After a decade-long bull market run, the sudden market uncertainty brought on by the COVID-19 outbreak, and its potential long-term effects on the market, understandably have caused many to be concerned about the market losses experienced by their portfolios.

Recently, Harindra de Silva, Ph.D., CFA, Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was a guest on the podcast, On the Trading Desk® with Laurie King to talk about how a new factor, namely the stay-at-home order, has changed historical risk profiles and what it may mean for a portfolio’s risk profile.

The famous Springsteen song begins with “The Boss” bumping into a friend from high school and, of course, talking about the “Glory Days.” I don’t think it’s possible to listen to that song and not think about one’s own version of “Glory Days.”

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had several interesting questions come in so we thought we would use this week’s blog to share some of Blaine’s responses.

When evaluating the performance of a manager, it is easy to get caught in the trap of judging them on their average annual return over a 3-, 5-, or 10-year period. It seems intuitive that we would want to hire the manager with the highest average annual return, right? It turns out, that is not always the best way to evaluate potential investments. We also need to consider the volatility of that return set.

One of the most puzzling market-related stories to come from COVID-19 is the disconnect between the stock market and the economic numbers. The market would be much, much lower if it weren’t for the Federal Reserve’s actual and promised buying of credit assets (e.g., Treasuries, Investment Grade Bonds, BB junk bonds, auto loans, residential and commercial mortgages, credit card debt, etc). They have provided a floor to the markets that help companies raise money by selling bonds and to keep the foreclosure and repo man away from all the personal assets of people who just lost their jobs.

The beta of a stock or portfolio is a widely used measure of risk—capturing the sensitivity of the security to “market wide movements.” Regardless of the source of the movement of the market, this measure captures what the market and the security have in common. A security that has low beta is described as having low sensitivity to the market and vice versa.