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Insights and Publications

Colonial Consulting provides insights and analysis on current conditions and challenges, market environment, and industry trends.

Global Market Summaries

  • The third quarter was marked by evocative political headlines and a series of highly destructive and tragic hurricanes hitting the Gulf Coast, Florida, and Puerto Rico. However, these all did little to dampen investors鈥 enthusiasm for risk taking. Global equity markets ended the period on a high note with the S&P 500, the MSCI EAFE, and the MSCI Emerging indices gaining 4.5%, 5.4%, and 7.9%, respectively. Markets reacted positively to earnings momentum, and economic indicators which showed the global economy shifting into a 鈥淕oldilocks鈥 state with economic growth that was neither 鈥渢oo hot鈥 nor 鈥渢oo cold.鈥 The IMF recently upgraded its outlook for global growth to 3.6% for this year and next, and in its report noted that the upturn in growth was much broader based than it鈥檚 been at any point during the last decade. Accelerating global growth raises the inevitable question: At what point do central banks begin raising interest rates and scaling back their extraordinary quantitative easing programs? While the US Federal Reserve started to raise interest rates at the end of 2015, it鈥檚 progressed at a glacial pace. So far, low inflation rates have given policymakers at the European Central Bank and the Bank of Japan a reason to hold back on winding down their easing programs. However, at least in Europe, there鈥檚 been more discussion around the path they鈥檒l follow and urgency to telegraph a starting point. While the picture is murky, we鈥檇 expect the Fed鈥檚 program to serve as a template for its peer institutions as they seek to normalize their market activities.

  • Markets around the world ended the quarter on a high note, with the S&P 500, MSCI EAFE, and MSCI Emerging Markets Index appreciating 3.1%, 6.1%, and 6.3%, respectively. Investors鈥 appetite for risk assets continued and volatility reached record lows as they shrugged off concerns about politics, equity valuations, and lingering debt issues. In the US growth remained steady. There were incremental improvements in employment and earnings. Additionally, small business sentiment readings and manufacturing activity held above where they were twelve months ago. Even so, the economy seemed unable to develop enough momentum to jump into a higher level of growth. The Trump Administration鈥檚 pro-growth policies, including tax reform and deregulation, have the potential to be impactful, but have yet to be fully implemented. Conversely, economic growth outside the US, particularly in Europe and the emerging markets, seems to have picked up dramatically. According to Eurostat, Eurozone growth came in at anannualized rate of 1.8%, outpacing the annualized US growth rate by 0.7%. Meanwhile, the World Bank in their most recent reports estimated emerging markets as a whole will grow by 4.1%; led by a 7.1% growth rate in Bangladesh, a 6.8% rate in India, and a 6.7% rate in China. Given the aforementioned growth trends, we believe the global economy is in a period of synchronized global expansion. While we wouldn鈥檛 make any predictions about the durability of this synchronization, as central banks back away from quantitative easing, or, conversely, predict how much additional positive momentum synchronization can create, long-term investors now face a much starker divide between risk and volatility. While return opportunities may have been dampened by a lower volatility environment, risks (such as economic conditions and/or the impact of leverage and liquidity) may not necessarily have been lowered to the same degree. Thus, long-term-oriented investors have to resist the urge to take on imprudent risks for only incremental gains in return.

  • In the first quarter, almost all major markets posted gains; the S&P 500, MSCI EAFE (USD), MSCI EM (USD), and Merrill Lynch High Yield Bond Index appreciated by 6.1%, 7.2%, 11.4%, and 2.7%, respectively. Global markets appeared to be buoyed by an unflappable sense of optimism with regard to future growth; persistent concerns such as the Brexit, political uncertainty, diverging monetary policy, and stagnant growth gave way as investors chose to focus on positive economic fundamentals. In Europe, positive inflation numbers across the region and news that job creation rose to its highest number in ten years indicated to some market participants that the region had turned a corner. China and Japan both saw positive economic data, indicating growth in their manufacturing sectors, while emerging markets benefited from growing exports. Domestically, economic data continued to be positive. However, the dramatic rise in positive sentiment seemed to be outsized relative to these steady improvements and tied to expectations for President Trump鈥檚 administration鈥檚 ability to create a pro-growth environment through a combination of tax and regulatory reforms. The National Federation of Independent Business鈥檚 Index of Small Business Optimism jumped to a record high following the election and has remained at near-record levels. According to recent survey results, actual earnings, capital expenditure plans, and job-creation plans all posted gains in March. However, in recent meetings the FOMC noted there is a discount between 鈥榟ard and soft鈥 data, as businesses鈥 positive forward-looking views have yet to effect a significant change in expenditures. Both policy makers and investors face a period of hard work ahead; policy makers have the difficult task of not squandering the favor the markets have afforded them, while investors face the difficult prospect of finding pockets of value in a market where many assets are priced to perfection.

  • After experiencing one of their worst Januarys in recent memory, US equity markets staged an impressive recovery that accelerated during the last few weeks of the year. Questions concerning a deceleration of growth, particularly in the emerging markets, gave way as the year progressed; economic data improved and 鈥渁nimal spirits鈥 appeared to rekindle as investors took a positive view of President-elect Trump鈥檚 campaign promises. The year proved to be a lesson in professional forecasters鈥 fallibility, with the Brexit vote and the US presidential election results catching many by surprise. The economic impact of these events yet unknown, the World Bank projects global GDP to accelerate in 2017 as emerging-market exporters benefit from improving prices for commodities and advanced economies benefit from fiscal stimulus. However, the bank鈥檚 report also mentions new risks that could hinder growth, including rising trade protectionism and uncertainty about policy direction in developed economies...