In the aftermath of the Global Financial Crisis, both institutional and individual investors have become much more vigilant about systematic risks that can wreak havoc on financial assets. Inflation/deflation, country re-ranking and company re-rating represent such systematic risks worthy of our clients’ consideration for the next 18 months. In this paper, we express our views on, and the implications of inflation, country re-ranking (also referred to as ‘sovereign risk’) and company re-rating as well as portfolio recommendations for our clients.

Regulatory and legislative activity abounds in areas that will impact 401(k) plan sponsors and participants. This update summarizes recent activity in the DOL, U.S. Congress, and the courts with regard to fee disclosure, target date fund disclosure, lifetime income options under defined contribution plans, and a controversial proposed rule on the provision of investment advice.

In an effort to help investors navigate an economic environment characterized by the competing forces of both inflation and deflation - and ultimately increased volatility surrounding inflation - we at Rogerscasey offer up the idea of an “inflation/deflation continuum” as a means of assessing an investment program’s vulnerability to these dual threats.  Essentially, the inflation/deflation continuum represents a spectrum ranging from a deflationary environment to an inflationary environment, whereby an investment program may plot their existing asset classes and begin discussions about where they have "holes" in the overall portfolio. Within this simple framework, investors can start thinking about how to protect portfolios in both inflationary and deflationary environments and potentially consider a diversified portfolio of real assets as good diversifiers in both scenarios.

In 2009, we observed a sharp rebound for many of the long-only active managers across both equity and fixed income strategies; in fact, risk seekers as opposed to risk avoiders had the upper hand during 2009. And consistent with the beginnings of the normalization of the financial markets, we observe normalization of persistence of returns – mainly, persistence in the core fixed income universe, but lack of persistence in equity peer groups. To supplement the results of the 2009 study, we also share with the reader, not just the snapshots of 2009 results but also the results for the past 10 years, if available. In our opinion, the lack of persistence of returns in the equity universes becomes even more pronounced when long-term results are evaluated.