The start of 2018 marks the 10th consecutive year in which we have been publishing our quarterly investment themes, which are top-down catalysts our models suggest are increasingly likely to drive investment returns that our proprietary sentiment indicators suggest investors are not yet broadly positioned for. We’ve had an excellent run prospectively identifying the various investable pivots in growth, inflation and policy and look to summon those same repeatable processes to continue the streak in 1Q18.
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1Q18 Macro Themes:
- Reflation’s Rollover II: Sequels are rarely as good as the original but with harder comps, a broad deceleration across major componentry in the CPI/PCE price baskets and the Sept-Dec reflationary impulse now largely rearview, we’re likely to see our second round of Reflation’s Rollover in less than a year. And with growth poised to accelerate for a 6th consecutive quarter in 1Q18, a lower deflator should help drive a GIP rotation back into #Quad1. We’ll detail the growth and inflation outlook domestically and revisit why the shift between inflation accelerating and decelerating is key for picking alpha-generating sector and asset class exposures.
- #GlobalDivergences: In contrast relying on financial media soundbites, idea dinners or surveys, our views on the global economy are instructed by sophisticated predicting tracking algorithms – which we run for every investable economy in the world. While investor consensus remains committed to the “globally synchronized recovery” narrative heading into 2018, our models are signaling the quite the opposite and that outcome should perpetuate a number of meaningful pivots in asset allocation terms throughout the investment management landscape. We’ll detail which of those you cannot afford to miss out on to start the year.
- #UnderweightEM: 2017 was an epic year in terms of risk-adjusted returns and portfolio flows across the EM investment landscape for a variety of fundamental reasons – not the least of which was six consecutive quarters in #Quad1 at the aggregate GIP level. The first half of 2018 will likely see a pickup in volatility and credit spreads as said fundamental tailwinds are eroded, at the margins. We will detail why we believe global investors would do well to rotate out of EM and into DM, as we expect the former to underperform over the intermediate term. We will also make the case for why EM-dedicated investors would do well to high-grade their portfolios by rotating into minimum volatility securities, consumer staples and IG credit in lieu of reflation-oriented cyclicals and HY credit.
Confirmation Number: 13673218
As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the presentation shortly after it concludes.
Happy New Year’s!
-The Hedgeye Macro Team