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Economic and Market Commentary

With 2021 behind us, we’ll take a brief look at some key themes that shaped the year and how they may impact 2022.

COVID Though pandemic-fatigue may be setting in for many people, it’s difficult not to address the elephant in the room that has shaped life as we know it for the past two years. With a new, effective vaccine and hopes of a decline in cases, many expected Covid to be a thing of the past...
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Taking a closer look at the components of the December Payrolls Report, as well as other economic and market signals in order to form a more complete view of the current environment.

Last week, labor data from Automatic Data Processing, Inc. (ADP) and the Bureau of Labor Statistics (BLS) were updated for the month of December. ADP Nonfarm Private Payrolls reported a +807,000 jump in the month of December, the largest increase since May 2021. This marks the twelfth consecutive month of positive prints for ADP Payrolls....
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Boyd Watterson has engaged iES MACH to track energy consumption data and energy saving initiatives across our real estate portfolios.

Boyd Watterson’s approach to ESG starts with placing the clients’ interests first. For our Real Estate portfolios, putting our clients’ interests first through ESG means careful scrutiny of our ESG initiatives to ensure that these decisions are aligned with our return targets and provide a similar or better risk and return profile than investing capital...
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Driven by federal budget increases, workloads related to government programs continue to increase.

Over the last two years, the record amount of federal spending related to covid relief and stimulating the economy has been a primary news topic. Historical context in the amount of that spending, both implemented and proposed, can provide additional context of the workload ahead for federal, state, and local governments. Data from the Congressional...
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Led by energy prices, the Consumer Price Index accelerated in October.

The monthly rate of headline inflation increased +0.9% in October, led by rising energy prices. It was the fastest month-over-month acceleration in the Consumer Price Index (CPI) since June 2008. The percent change from a year ago moved up +6.2%. The last time CPI accelerated this quickly on a year-over-year basis was October 1990 at...
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Corporate bond new issuance is often one of the most efficient and cheapest ways for a company to raise capital.

When companies refinance debt, they tend to extend the maturities as well. Through October 4th, there has been more than $1.2 trillion of corporate bonds issued year-to-date, which appears to be ahead of the pace seen in 2019, prior to the pandemic. Source: Wells Fargo. In addition to refinancing existing debt, companies come to the...
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Fueled by global supply chain shortages, contractors traded product certainty over pricing, fueling higher non-residential construction prices in the fourth quarter and well into 2022.

Despite early recognition as an essential industry or perhaps because of it, contractors have not been immune to the supply chain shortages that have affected large segments of the global economy. Commodities such as steel, copper, plywood, and other raw materials have been in short supply for months due to labor shortages in the manufacturing...
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Regulations, designed to protect small investors, have shown to limit small investor security choices.

Much has been written about the evolution of financial markets over time.  The flexibility of the system, diverse geographic access to markets, and the variety of investment options all contribute positively to investor choice.  This provides small investors with many tools to effectively manage their portfolios to reach investment objectives.  With all the progress made...
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Despite large differences in the risk and return profiles of publicly traded REITs and private real estate funds, the risk-adjusted returns of these two real estate investment types tend to follow each other more closely, most notably during recessions.

Although both publicly traded REITs and private real estate funds follow the same investment thesis (invest in real estate by pooling investor capital), both fund types have historically provided different risk and return profiles to investors. To examine these differences, we will use the FTSE Nareit All REITs index (FNAR) as a proxy for publicly...
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In order to navigate this lower yield and longer duration landscape, especially in a rising interest rate environment when principal preservation is paramount, having as many tools in the toolbox as possible is beneficial. One of the tools to potentially improve the risk/reward profile of a portfolio is having the ability to utilize an expanded opportunity set of securities that reside outside of traditional fixed income benchmarks.

The current risk/reward profile in the bond market is skewed more toward risk than reward.  Since yields are historically low at a time when durations are historically high, benchmark tethered fixed income investors and passive fixed income indexers are being compensated less for taking on more interest rate risk.  This diverging trend of yield versus...
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