What may LIBOR’s phase-out mean for investors?

With the clock ticking on LIBOR, the market begins the adjustment to SOFR

Time to read: 5 min

In the past few years, the London interbank offered rate (LIBOR) has faced well-publicized challenges. LIBOR was intended to reflect the cost at which large banks could borrow from each other and for decades was a benchmark for numerous private-sector rates. However, the credibility of LIBOR was eroded after evidence of manipulation, leading the UK Financial Conduct Authority to call for its eventual phasing out. US financial authorities, recognizing the need for a replacement benchmark with greater transparency, recently launched the secured overnight financing rate (SOFR). We believe SOFR is an improvement over LIBOR because it is based on interest rates charged in actual lending transactions. In contrast, LIBOR is based on submissions of interbank lending rates by major banks that don’t have to be tied to actual transactions, making it more susceptible to manipulation.

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What’s under the hood of US REITs?

The case for active management in US REITs today

Time to read: 4 min

The accommodative monetary policies implemented by the US Federal Reserve after the global financial crisis have contributed to a broad-based, sustained economic recovery. However, during the past four years there has been a notable divergence in corporate performance among the US real estate investment trusts (REITs) we cover, with some deteriorating significantly. Given this trend, as well as the late stage of the US economic expansion, Invesco Real Estate believes active management is essential to find opportunities among higher quality REITs and potentially avoid those companies which may be most exposed to further deterioration.

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Global election preview

Weekly Market Compass: Voters in Japan, Brazil and the US will soon go to the polls

Time to read: 6 min

The next few months will be critical for several countries as they hold elections that could either significantly change their leadership or endorse the status quo. In this blog, I preview the choices ahead for Japan, Brazil and the US.

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Trade remains the top concern for global markets

Weekly Market Compass: As the US talks trade with Canada and China, emerging markets feel the pressure

Time to read: 5 min

Every week I hope that there are no new trade developments, so that for at least one week I can spare you all from a trade discussion in this blog. Unfortunately, this is not that week — there were many trade developments over the past few days, and I feel compelled to discuss them because I firmly believe the trade situation poses a significant risk to the economy and markets.

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Currency outlook: US dollar may be caught between two opposing trends

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar: Neutral. We believe the US dollar is caught between two trends. Interest rate hikes and balance sheet reduction by the US Federal Reserve (Fed) have increased US dollar funding costs and tightened financial conditions, spurring the dollar rally. Uncertainty over trade policy has exacerbated the move. On the other hand, global growth has been strong and it appears that US economic activity, while buoyant, has peaked — a convergence that typically causes the US dollar to weaken.

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Interest rate outlook: US GDP of 2.8% expected in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound, caught between growing trade worries and above-trend US growth. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.4%. After this, we see softer rental and service costs driving it below 2%. Assuming no large trade-driven shocks, US growth is likely to remain above trend for the rest of the year. It should be supported by increased energy sector capital expenditures, strong job growth and strong consumption. We expect 2018 gross domestic product growth of around 2.8%, 1% above the long-term sustainable trend. The risk of tighter global financial conditions due to trade-related tensions and the possibility of further tariffs in the next few months may cause asset price volatility. Treasury prices may benefit if volatility picks up.

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How equal weighting eliminates concentration risk

Facebook illustrates how a big company’s big loss can dominate traditional benchmarks

Nick KalivasTime to read: 2 min

There are 26 constituents in the S&P 500 Communication Services Select Sector Index, but only one was on the minds of investors in late July — Facebook. A disappointing earnings release on July 25 led to a 21.35% drop in the stock’s price over the next five days.1 Because of Facebook’s outsized presence in the index, that drop had a huge effect on overall returns. The index fell 7.02% over the same time frame — and 66.11% of that loss was due to Facebook. 1 Past performance isn’t a guarantee of future results, but whenever one stock has such an outsized influence on an index, that’s known as concentration risk. It’s a common risk that’s embedded into many indexes, but there are strategies built specifically to eliminate it.

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Seven issues for investors to watch in September

Weekly Market Compass: Trade deals, the Italian budget, emerging markets pressure and more

Time to read: 4 min

Trade tops the list of issues facing markets this month, as the US is threatening to kill the North American Free Trade Agreement (NAFTA) and leave the World Trade Organization (WTO). And that’s just the tip of the iceberg. Here are seven things for investors to watch in September:

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Alternative investments for the real world

How alternative investments may complement different portfolio objectives in various market environments

Time to read: 3 min

My last four blogs have defined alternative investments, explained why I believe investors should consider them, discussed performance expectations and outlined how to deploy alternatives in a portfolio. In this final installment of my series, I will apply these lessons to the current volatile market environment and discuss which alternatives may be able to help in various scenarios.

Below, I’ve listed several common investor portfolio objectives. While there are no guarantees that performance will meet expectations, each objective is paired with an alternative strategy that may help investors meet specific goals. 

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Worried about emerging markets? Consider the low volatility factor.

History shows that when EM stocks sell off, US low vol stocks generally outperform

Nick KalivasTime to read: 2 min

Emerging markets (EM) have been turbulent throughout 2018 due to US-China trade tensions, the deleveraging of the Chinese economy, Brazilian political uncertainty, Middle Eastern conflict and Russian sanctions. The recent plunge in the Turkish lira has only added to investors’ jitters. As EM stocks fall, many investors may be looking to US stocks as a hedge against risk. Based on past periods of EM turbulence, I believe US low volatility stocks in particular warrant a closer look.

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