Research & Insights

Our investment decisions flow from incisive perspectives.

Q4 2020

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

In an incredible end to an unforgettable year, markets rocketed upward for one of the strongest quarterly returns in history.  This was despite moderating macro conditions and a significant surge in the coronavirus pandemic.  More than 90 million people had been infected with over 2 million deaths globally which resulted in new rounds of lockdowns and other restrictions.  However, the approval of a group of vaccines, highly accommodative monetary policy, and the expectation for divided government in the US (more stimulus, fewer tax changes) further supported investor optimism.  The passage of a second fiscal stimulus package in the US was the icing on the risk-on cake.

The Russell 3000 Index finished the quarter with a return of +14.7%, which was over half of the total return of +20.9% for the full year.  Leadership came from the most volatile and highly leveraged names with cash flow negative companies doing particularly well.  Large cap stocks continued their strong performance as the Russell 1000 Index returned +13.7%.  However, the real action was with small cap stocks which surged to their best quarterly gain ever as the Russell 2000 Index returned +31.4%!  International markets also rallied strongly with emerging markets leading the way.  The developed market MSCI World ex USA Index returned +15.9% while the developing market MSCI Emerging Markets Index returned +19.7%.  An incremental recovery in US 10Y yields dampened fixed income returns, but credit remained a bright spot.  The Bloomberg Barclays US Aggregate Index returned +0.7% while the Corporate High Yield Aggregate returned +6.5%.  Performance in non-US fixed income was more robust as continuing US dollar weakness helped the Global Aggregate ex-US Index return +5.1% and the JPM EM Bond Index return +5.8%.

At the Sector level in US equities, the rally was led by the cyclical sectors of Energy (+29.3%), Financials (+24.8%), Industrials (+18.2%), and Materials (+17.4%).  Every sector posted positive returns for the quarter as investor optimism seemed to know no bounds.  Even the sectors that lagged, Consumer Staples (+7.1%) and Utilities (+7.8%), posted perfectly respectable performance.  Outside of the US, Technology (+24.7%) continued its leadership with Financials (+24.4%) and Consumer Discretionary (+23.7%) also strongly positive.  As in the US, all sectors were positive with Health Care (+6.4%) and Consumer Staples (+8.4%) the only ones returning less than +10%.

In a testament to the world-wide scope of the quarter’s rally, all markets save Egypt (-2.4%) were positive for the quarter.  A diverse group of countries led performance with Colombia (+47.5%), Austria (+38.7%), and Hungary (+37.7%) among a set of ten countries with greater than 30% returns.  Outside of the aforementioned Egypt, Kuwait (+1.8%), Qatar (+2.2%), and Saudi Arabia (+6.5%) were relative laggards.  Among the major markets, the United Kingdom (+18.3%) outperformed while Japan (+14.1%) and China (+11.3%) underperformed.

Within core US fixed income markets, all of the main sectors outside of Treasuries (-0.8%) were positive, but performance was strongest in Corporate Investment Grade (+3.1%) and CMBS (+1.1%).  The other securitized sectors of ABS (+0.4%) and MBS (+0.2%) produced more modest returns.  Outside of the core sectors, US High Yield (+6.5%) and Leveraged Loans (+3.8%) continued their strong recoveries from the sharp declines of the first quarter with Municipals (+1.8%) and Inflation-Linked Treasuries (+1.5%) also positive.  Emerging market debt also benefited from robust sentiment and, in a strong reversal from the prior quarter, the Government sector (+9.6%) led the way with returns in Corporates (+4.4%) more modest.

Despite the high absolute magnitude of returns, overall market volatility settled at levels only somewhat higher than historical averages.  Trade volumes were higher than average, likely supported by the continuing surge of retail investors, and market breadth was broadly positive.  At the factor level, Smaller Size was dramatically positive, recovering all of the underperformance of the prior quarters.  Value and Yield were also positive.  Stability was dramatically negative as the quarter favored cyclical recovery plays, and short-term reversion led to negative results in Momentum and Quality. With the move of market leadership away from mega cap growth, equal-weighted portfolios meaningfully outperformed market cap-weighted portfolios.

Q3 2020

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

The market rally off the pandemic-induced lows of late March continued in full force early in the quarter as highly accommodative monetary policy and optimism around further fiscal stimulus gave investors the green light for buying.   While markets signaled a generally sanguine perspective, economic and virus-related metrics were more mixed – showing some improvement but also areas of concern.  The number of people infected globally with Covid-19 approached 36 million with over 1 million deaths.  As it began to dawn on some that we were by no means out of the woods yet, sentiment turned negative in September and calls for a “V-shaped” recovery became more infrequent.

The Russell 3000 Index finished the quarter with a return of +9.2%, a respectable result following the prior quarter’s outstanding returns.  Large cap stocks reclaimed leadership as the Russell 1000 Index returned +9.5% while the Russell 2000 Index returned +4.9%.  International markets, helped by continued USD weakness, were also positive with emerging markets showing particular strength.  The developed market MSCI World ex USA Index returned +4.9% while the developing market MSCI Emerging Markets Index returned +9.6%.  With interest rates largely range-bound, fixed income markets were fairly muted.  The Bloomberg Barclays US Aggregate Index returned +0.6%.  Performance in non-US fixed income was a bit stronger with the Global Aggregate ex-US Index returning +4.1% and the JPM EM Bond Index returning +2.3%.

At the Sector level in US equities, the rebound was led by the economically-sensitive areas of Consumer Discretionary (+19.0%), Materials (+11.9%), and Industrials (+11.9%) and the always in favor area of Technology (+11.9).  It was a broad-based rally with ten out of eleven sectors posting positive returns for the quarter as optimism was in great abundance.  Energy (-19.2%), Real Estate (+1.1%), and Financials (+3.2%) were relative laggards in the rally.  Outside of the US, Technology (+13.4%) and Consumer Discretionary (+12.5%) were the best performing sectors while Energy (-7.1%) and Financials (+0.2%) lagged.

Most country equity markets posted positive aggregate returns in the quarter.  A diverse grouping of Sweden (+17.0%), India (+15.8%), Pakistan (+15.6%), and Denmark (+15.3%) were the best performers, but eleven markets posted better than 10% returns.  On the negative side, results in Turkey (-14.7%) and Thailand (-12.4%) led decliners. Amongst the major markets, Japan (+7.3%), China (+12.4%), and the UK (+0.8%) were all positive.

Market volatility continued to decline but was still incrementally higher than historical averages.  Trade volumes also declined during the quarter as did market breadth.  At the factor level, Value and Smaller Size were significantly negative as was Yield.  Momentum was the main positive factor for the quarter while exposure to Quality would also have been additive.  Market leadership narrowed again to the mega cap growth stocks, leading equal-weighted portfolios to meaningfully underperform market cap-weighted portfolios.

The Source Podcast: How small managers can attract & retain assets during the pandemic

Kai Hong, Managing Partner and Chief Investment Strategist at Bivium Capital, recently participated in a podcast called The Source, produced by eVestment, providing his insights on how small managers can attract and retain assets in such volatile times.

See below for more information on the podcast and click HERE to listen to a recording.

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The Source recently released a webcast with eVestment Client Success Manager Susannah Haisley, “Navigating Market Volatility as a Small Manager,” where they discussed best practices for using eVestment tools to position yourself to clients and prospects during the uncertain times of the Coronavirus Pandemic and beyond.

With Kai Hong, The Source continued this conversation, focusing on how Kai and his team at Bivium evaluate small managers; what they’re hearing from clients on allocations to small managers; and the best ways for managers to communicate with them during the pandemic.

As chief investment strategist, Kai leads the investment process for his firm and is responsible for manager research and due diligence, portfolio construction and risk management. He ensures a consistent implementation and ongoing refinement of Bivium’s investment philosophy and process by guiding strategy implementation, portfolio allocation and investment optimization. He is also actively involved in client portfolio management, industry research and product development.

Q4 2019

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

With the US and China moving towards a slow-motion settlement (or more accurately, détente) of their trade conflict, investors were free to focus on the positives of ample liquidity, solid employment, muted inflation, and positive momentum to continue driving the markets upwards.  Even concerns about global manufacturing performance and weaker forward-looking macroeconomic growth were not enough to derail what would be an exceptional year in most asset classes.  The dovish posturing that came along with the pause in interest cuts by the US Fed provided further support to market valuations.

The Russell 3000 Index finished the quarter with a return of +9.1%, capping off an exceptional year in which it returned +31.0%.  Large cap stocks were modestly behind small caps in the quarter but remained comfortably ahead on a year-to-date basis.  The Russell 1000 Index returned +9.0% during the quarter and +31.4% for the full year while the Russell 2000 Index returned +9.9% during the quarter and +25.5% for the full year.  Positive news on the trade front helped International markets round out a strong year, but they still lagged the US market meaningfully.  The developed market MSCI World ex USA Index returned +7.9% while the developing market MSCI Emerging Markets Index returned +11.8%.  For the full year, the MSCI World ex USA Index returned +22.5%, and the MSCI Emerging Markets Index returned +18.4%.  Fixed income markets were fairly muted with the Bloomberg Barclays US Aggregate Index returning +0.2% for the quarter, contributing to a solid year-to-date return of +8.7%.

At the Sector level in the US for the quarter, positive investor sentiment drove the robust returns in the growth-oriented sectors of Health Care (+14.9%) and Information Technology (+14.1%).  All sectors were positive but defensive areas such as Utilities (+0.3%), Real Estate (+0.7%), and Consumer Staples (+3.6%) were relative laggards.  Similar dynamics played out outside of the US as Information Technology (+15.4%) and Health Care (+12.6%) led and Consumer Staples (+2.3%) and Utilities (+5.4%) lagged.

At the country level, Pakistan (+26.9%), Argentina (+21.1%), and Hungary (+21.0%) were the best performing markets.  All markets saw positive returns with the exception of Chile (-10.1%), Thailand (-1.1%), and UAE (-0.9%).

As has been the case for most of the year, market volatility remained very low in the absence of any significant news.  At the factor level, Quality and Smaller Size were incrementally positive while Stability/Defensive and Yield were significant drags.  Low Volatility and Momentum were also negative.  With the narrowness of market leadership, equal-weighted portfolios continued to underperform market-cap weighted portfolios.

Q3 2019

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

The month to month volatility seen in the second quarter continued in the third as competing narratives fought for investor mindshare.  On one hand, global growth showed more signs of a slow down with both the IMF and World Bank reducing forecasts.  US manufacturing appeared to be in recession, trade frictions between the US and China continued, and the outcome and timing of Brexit seemed cloudier than ever.  However, employment and consumer spending figures in the US remained solid and central bank accommodation improved with a second rate cut from the US Fed.  In the end, these dynamics resulted in differentiated performance across markets with the US leading again.

The Russell 3000 Index finished the quarter with a return of +1.2%.  Despite a modest reversal in September, large cap stocks continued to build on year-to-date outperformance over small cap.  The Russell 1000 Index returned +1.4% while the Russell 2000 Index returned -2.4%.  International markets continued to lag as growth and trade concerns weighed on sentiment.  The developed market MSCI World ex USA Index returned -0.9% while the developing market MSCI Emerging Markets Index returned -4.3%.  Fixed income markets continued to benefit from falling government yields with the Bloomberg Barclays US Aggregate Index returning +2.3%.

At the Sector level in the US, defensive and yield-oriented sectors such as Utilities (+8.6%), Real Estate (+7.2%), and Consumer Staples (+5.7%) led.  Energy (-7.8%) and Health Care (-3.4%) were once again laggards.  Outside of the US, Information Technology (+2.2%), Consumer Staples (+1.7%), and Health Care (+1.5%) were the leaders while Materials (-6.7%), Energy (-4.5%), and Financials (-3.5%) lagged.

At the country level, emerging countries Turkey (+11.7%), Egypt (+7.4%), and Taiwan (+5.2%) were the best performing markets for the quarter.  That said, results in the developed markets of Belgium (+3.4%), Japan (+3.1%), and the Netherlands (+3.1%) were not far behind.  On the other end, Argentina (-46.8%) gave back all of the strong returns from the prior quarter.  Poland (-12.1%), Hong Kong (-11.9%), and South Africa (-11.5%) were also meaningfully weak.

Despite a brief spike in August, market volatility remained largely subdued as trading remained largely driven by news around central bank liquidity and trade.  At the factor level, Stability/Defensive, Low Volatility, and Yield were strongly positive while Smaller Size were significantly negative.  Despite large month to month swings, Value, Momentum, and Quality ended the quarter fairly neutral.  Equal-weighted portfolios continued to underperform market-cap weighted portfolios as larger names continued to pace the rally.

Leading Practices for Small and Emerging Managers, Episode 4: The Fundamentals of ESG and Sustainable Investing

View the recording of the live webinar HERE and see supporting materials HERE.

This session unpacks the why, what, and how of sustainable investing as it relates to ESG for money managers and asset owners.

Building on the new report Fundamentals of Sustainable Investing: A guide for financial advisors from The Investment Integration Project (TIIP) and Money Management Institute (MMI), this session will:

(1) confront pervasive industry myths about sustainable investment and explain the realities;

(2) disentangle the complicated web of vocabulary used to describe sustainable investment; and

(3) provide investment professionals with practical recommendations for how to integrate sustainable investment into the advisory process.

Keynote Speakers:

William Burckart is the Co-founder and President of The Investment Integration Project (TIIP), an applied research and consulting services firm that helps investors navigate sustainable and system-level investing. Mr. Burckart has worked with investment management firms, private foundations, and major industry bodies, helping them to integrate impact and investment goals. He has also contributed to the field through groundbreaking research, including the development of practical guidance for institutional investors and financial advisors in collaboration with the Money Management Institute; co-editing the New Frontiers of Philanthropy: A Guide to the New Tools and Actors that Are Reshaping Global Philanthropy and Social Investing (Oxford University Press: 2014), and was involved in the writing of the “Status of the Social impact investing Market: A Primer” (UK Cabinet Office: 2013) that was distributed at the inaugural G8-level forum on impact investing. Mr. Burckart is a visiting scholar of the US Federal Reserve and a fellow of the High Meadows Institute.

Robert W. Dannhauser CFA, FRM, CAIA is Head of Global Private Wealth Management at CFA Institute, based in their New York office. He is responsible for strategy and content development for private wealth management practitioners. Previously, Bob headed CFA Institute’s Capital Markets policy group, including policy advocacy efforts in Washington and Brussels. Bob has over 25 years of experience as a practitioner in both the institutional investment and private wealth management arenas, serving in a variety of client portfolio management, sales, and marketing roles. He started his investment management career with the predecessor to Calvert Group, one of the first socially responsible investing firms in the US. Bob earned his MBA from the Johnson Graduate School of Management at Cornell University, as well as a MPH in Health Policy from Rutgers University and a BA in Political Science from the George Washington University.

Q2 2019

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

In a seesaw market, much of the action was driven by investor perspectives on and news from trade disputes and central bank signaling.  Concerns over trade and a slowing macroeconomic growth outlook weighed on sentiment at times throughout the quarter as the impact of policy uncertainty and the tariffs enacted began to be more visible.  Offsetting that was an increasingly accommodative posture from the US Fed.  Although the job market remained robust, inflation stayed below targets and more of the Fed appeared to be moving towards “insurance” cuts in the face of increasing downside risks, trade and global growth large among them.

The Russell 3000 Index finished the quarter with a return of +4.1%.  Large caps returned to prominence with the Russell 1000 Index up +4.3% versus the Russell 2000 Index’s +2.1%.  Markets outside of the US were slightly off the pace, with large variances between countries.  The developed market MSCI World ex USA Index returned +3.8% while the developing market MSCI Emerging Markets Index returned only +0.6%.  Fixed income markets were beneficiaries of the fall in yields with the Bloomberg Barclays US Aggregate Index returning +3.1%.

At the Sector level in the US, Financials (+7.7%) led the way with Information Technology (+5.7%) also posting strong results.  Energy (-3.8%) was the only negative sector for the quarter, but Health Care (+1.5%) and Real Estate (+1.8%) were also relative laggards. •

Outside of the US, Industrials (+5.5%) posted the best returns.  Financials (+4.8%) and Information Technology (+4.3%) also posted good results.  Real Estate (-1.2%) was the only negative sector here as Energy (+0.9%) held up better than its US counterpart.  At the country level, Argentina (+48.3%), Greece (+19.6%), and Russia (+17.6%) were the strongest performers.  Switzerland (+8.9%) and Germany (+7.8%) were the best of the developed markets.  Pakistan (-20.5%) was the worst performer for the quarter while Saudi Arabia (-6.0%) got off to an inauspicious start as an emerging market.  Of the major markets, China (-3.6%) was the biggest drag.

Market volatility remained largely the same as it has been, i.e. low, as liquidity and sentiment driven trading kept cross-sectional volatility relatively muted.  At the factor level, Smaller Size, Yield, Quality, and Value were all negative.  Stability, Low Volatility, and Momentum were incrementally in favor.  An equal-weighted portfolio underperformed the market-cap weighted portfolio significantly, reinforcing the dominance of larger names in the rally.

Q1 2019

Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

While significant, the drawdown and market pessimism seen at the end of 2018 was as short-lived as it was dramatic.  A somewhat abrupt about-face from the US Fed from prior hawkishness to moderate dovishness was enough to re-ignite animal spirits and a new round of investor enthusiasm.  While the labor market stayed robust, inflation was largely muted.  That combination gave Fed policy makers room to pause both interest rate increases and balance sheet “normalization” actions.  Further support to the markets was given by positive messaging (although little in concrete results) from US and Chinese trade negotiators.

The recovery in the markets in the first quarter was almost as swift as the previous quarter’s decline.  The Russell 3000 Index finished the quarter with a return of +14.0%.  The rally was fairly broad-based with the Russell 2000 Index returning +14.6% versus the Russell 1000 Index returning +14.0%.  Markets outside of the US lagged, having fallen by less in the recent drawdown.  The developed market MSCI World ex USA Index returned +10.5% while the developing market MSCI Emerging Markets Index returned +9.9%.  Fixed income markets continued to benefit from falling interest rates with the Bloomberg Barclays US Aggregate Index returning +2.9%.

At the Sector level in the US, Information Technology (+20.8%) was the standout for the quarter, more than recovering the prior quarter’s losses.  Real Estate (+17.3%), Industrials (+16.8%), and Energy (+16.6%) were also strongly positive in a period when nine out of eleven sectors posted double-digit returns.  Meanwhile, Health Care (+8.1%) and Financials (+8.8%) posted great but not exceptional results.

Outside of the US, the sector trends were largely the same although the values were slightly less robust.  Information Technology (+15.2%) and Real Estate (+13.8%) led while results in Communication Services (+7.1%) and Financials (+7.7%) were more “modest”.  Health Care (+11.2%) was notable difference, with the companies in aggregate performing better than their US counterparts.  At the country level, the emerging markets of Colombia (+25.4%), China (+17.6%), and Egypt (+16.5%) were the leaders while Turkey (-2.6%) and Qatar (-2.3%) were among the very few countries which posted negative returns.

Market volatility fell back from the short-term highs seen in the prior quarter as implied and actual price volatility measures returned to the lower than average levels of the recent past.  At the factor level, Smaller Size was incrementally positive while Value, Stability, and Yield were meaningfully negative.  An equal-weighted portfolio outperformed the market-cap weighted portfolio as smaller names finally saw some outperformance.