• ETFs in Monetary Policy Case Study: Bank of Japan

    Heda Bayron    Alexander Petrov, State Street Global Advisors
    15 Mar 2018

    Using Exchange-Traded Funds (ETFs) for monetary policy
    purposes remains rare and controversial, despite many central
    banks adopting unconventional measures following the financial
    crisis. Some central banks buy equities for their foreign exchange
    reserves,** but they are usually considered too risky for use in
    domestic monetary policy. However, one major central bank — the
    Bank of Japan (BoJ) — has been purchasing shares using ETFs
    since 2010, as part of its broader asset-buying program to ease
    monetary conditions. In this paper, we examine why BoJ chose
    this mechanism and the footprint it has left on the structure
    of the Japanese equity market. We consider the future policy
    implications and next steps BoJ might take.
  • The Case for Asian Credit

    Heda Bayron    Kheng-Siang Ng, CFA; State Street Global Advisors, Esther Koon, CFA; State Street Global Advisors
    09 Feb 2018

    Asian credit markets have grown significantly and offer compelling opportunities to global investors,
    thanks to attractive yields, low default rates and good growth prospects. China is playing an ever bigger role in the market, as demand for new issuance grows. Investors need to heed a potential oversupply of issuance and valuation differentials.

    Heda Bayron    Lori Heinel, State Street Global Advisors
    09 Feb 2018

    This week’s equity market sell-off was not unexpected, as most investors had anticipated some sort of equity market correction in 2018, during an historic transition away from central banks’ extraordinary policy accommodation and amid elevated equity valuations. Still the speed and magnitude of the pullback surprised many: the S&P 500 managed to erase all of last year’s price-to-earnings multiple expansion in just a few short trading days. Nevertheless, we continue to focus on the strong macroeconomic fundamentals of synchronized global growth and moderate inflation as the basis of our view that this is a correction, not a rout. In our tactical portfolios, we continue to maintain an overweight to global equities and we have been increasing our exposure to duration in our fixed income portfolios.
  • How Do Sovereign Wealth Funds Invest?

    Heda Bayron    Elliot Hentov, State Street Global Advisors, Alexander Petrov, State Street Global Advisors
    09 Feb 2018

    Because Sovereign Wealth Funds (SWFs) play such an important role in global capital markets, we continue to track their asset allocation preferences. The following report is an update to our 2015 study of SWF asset allocation. Our main findings three years on are:

    • Overall, asset accumulation has slowed considerably, but is still positive. However, growth has become very uneven as several commodity-based funds have contracted in size.
    • The structural shift into alternatives1 continues unabated, primarily at the expense of fixed income portfolios.
    • This trend toward alternatives is nearly universal, while SWFs display very heterogeneous investment behaviour otherwise.
      Looking ahead, we believe this trend is bound to plateau as we see institutional and market obstacles constraining further increases.

    From the turn of the millennium onwards, the SWF sector experienced rapid growth in assets under management (AuM), but that has now come to an end. The slowing of organic asset accumulation and the proliferation of new SWFs carries great implications for asset allocation. We are publishing this update to our 2015 article2 to discuss the changes in the sector over the past two years and to offer several new angles from which the sector can be viewed.

    1 “Alternatives” is the term used to encompass all asset classes that are not publicly traded, notably referring to private equity, real estate, hedge funds, infrastructure and private debt.
    2 Elliot Hentov, “How Do Sovereign Wealth Funds Invest? A Glance at SWF Asset Allocation,” State Street Global Advisors, 2015.

  • 2018 Global Market Outlook: Step Forward, Look Both Ways

    Heda Bayron    State Street Global Advisors
    16 Jan 2018

    As we move into 2018, we believe macroeconomic conditions will support risk assets. Global growth is becoming more evenly distributed and is expected to return to its historical trend rate of 3.7%, while inflation remains muted.

    There is, however, a tension between our positive outlook for 2018 and a number of near-term and longer-term uncertainties. As the US equity bull market enters its ninth year—the second longest on record—some investors are understandably concerned about the next pullback.

    With this backdrop in mind, we think investors should look both ways—that is, that they should take a more cautious and risk-aware stance—as they step forward to make the most of the opportunities that synchronized global growth will likely offer in the year to come.

  • EM Bond Investors Demand Pound of Flesh

    Heda Bayron    Abhishek Kumar, State Street Global Advisors
    17 Nov 2017

    Do emerging market (EM) bonds still offer value for the risks investors take? Investors looking at the recent 100-year Argentina bond could be forgiven for thinking EM hard currency spreads had compressed to worryingly low levels. In our view, however, this type of issue is an outlier. In fact, there are plenty of securities across the EM universe offering attractive yields, especially when compared to those in developed markets (DM).
  • Green Bonds: A Decade of Progress

    Heda Bayron    Ross Bolton, State Street Global Advisors
    17 Nov 2017

    In 2007, the European Investment Bank issued one of the world’s first “green” bonds. A key innovation was that the proceeds were entirely dedicated to taking action on climate change. To celebrate 10 years of green bonds, we take a look at the past and future of climate-friendly investing. In this brief primer, we’ll review key market concepts, identify drivers of growth for green bonds and highlight important considerations for investors.

    Prior to 2013, green bonds were somewhat of a niche market. Since 2013 the green bond market has experienced a significant increase in issuance each year, as well as increased interest from institutional investors. According to the industry group Climate Bonds Initiative, green bond issuance has grown from $3 billion in 2012 to a record $81 billion in 2016. In 2017, Climate Bonds Initiative expects $150 billion of new issuance.
  • How Far Will China Go? Charting the Future of RMB Internationalisation  

    Heda Bayron    Elliot Hentov, State Street Global Advisors
    16 Nov 2017

    China’s capital account opening and RMB internationalisation has paused. Sceptics argue that the process has peaked due to risk of capital outflows as well as the Chinese government’s reluctance to cede more control to market forces. However, this underestimates hidden costs and structural forces at play that make the status quo unsustainable. We believe that further opening is therefore likely to proceed sooner, rather than later.
  • Investment Roundtable: Change the Lens, Change the Goal, Change the Game

    Heda Bayron    State Street Global Advisors
    21 Sep 2017

    New technology, big data and factor-based approaches are disrupting conventional approaches to portfolio management. However, we believe even more far-reaching changes are occurring as institutional investors redefine their objectives beyond traditional portfolio metrics and look at the broader impact of their investment choices. In this latest investment roundtable, we speak to industry stakeholders about what this shift in perspectives on performance and value will mean for asset owners and asset managers alike as well as for the future of the profession.
  • Demographic Disruption: Why We Need to Save More and Invest Differently

    Heda Bayron    Amlan Roy, State Street Global Advisors
    21 Sep 2017

    Unprecedented demographic changes are under way across the world, and their speed and magnitude are greater than ever before. Like the technology disruptions overturning conventional wisdom about industries and business models, demographic disruptions will force countries to
    rethink foundational policies around retirement, labor force participation, healthcare and much more. Investors will need to rethink savings and spending objectives over much longer time horizons. We believe the impacts of these demographic shifts have not been adequately assessed
    and accounted for.

  • Japanese Inflation Fails To Take Flight

    Heda Bayron    Peter Morgan, State Street Global Advisors
    24 Aug 2017

    Despite extraordinary efforts by the Bank of Japan (BOJ), its official inflation target remains elusive, leading to the central bank’s decision to abandon a specific time frame for reaching its target.
  • China Bond Connect: A Game Changer for Investors

    Heda Bayron    David P. Furey, Bruce Zhang
    09 Aug 2017

    The newly-launched Bond Connect link between Hong Kong and mainland China is a game-changer, in our view, for global investors seeking access to high quality sovereign debt with attractive yields, such as that which China’s Interbank Bond Market (CIBM) can provide. The development may also accelerate the inclusion of China in major bond indices, which would have important implications for bond investors globally.
  • The Inflation Conundrum

    Heda Bayron    Lori Heinel, CFA, Simona Mocuta
    04 Aug 2017

    Why have tighter labor markets in the US and elsewhere not led to higher inflation? Some say it’s weak demand - Senior Economist Simona Mocuta has another idea.