Late-cycle premiums, game of loans, and fixed income impact investments

Genuine Impact
Jun 28 · 3 min read
Alister Sneddon, CTO

Here are the top 3 insights for June 28th, prepared by Alister, our CTO.

Today’s Brief

  • Dimensional: The Performance of Late-Cycle Premiums
  • MFS Investment Management: Game of Loans: From the Desk of the CIO — Fixed Income
  • PAX World Funds: The Expanding Universe of Fixed Income Impact Investments
  • Research suggests that where we are in the business cycle should not factor into an investor’s decision to pursue size, value, or profitability premiums.
  • A common refrain from the industry is that the performance of certain groups of stocks is tied to the business cycle.
  • For example, it has been argued that some factors or investment strategies are “defensive” because they perform well late in the cycle when economic growth begins to slow, while other premiums should be avoided because historically they have underperformed during this phase.
  • Investors who are pessimistic about the direction of the economy may be tempted to wonder if it’s time to reevaluate how their portfolios are positioned.

Genuine Scores for the top 3 Dimensional funds

  • DFA One-Year Fixed Income Portfolio, 99
  • DFA Two-Year Global Fixed Income Portfolio, 99
  • DFA Short-Term Extended Quality Portfolio, 96
  • The level of debt financing and the complexities of China’s economy and policy environment, along with heightened trade tensions, pose risks for investors in Chinese securities.
  • The current expansion of the global economy is now entering its 11th year, but it’s an expansion seemingly built on a foundation of increasing debt balances.
  • In the past, we have raised concerns about the potential excesses in the debt market threatening the expansion, and this remains a concern in our outlook today.
  • Debt financing is usually plentiful when the economy is strong.
  • Some would argue that is the likeliest time in the cycle for mistakes, and when they are the most consequential.
  • Inevitably, debt balances find their level when economic conditions worsen.
  • Instability and drawdowns often ensue.

Genuine Scores for top 3 MFS funds

  • MFS Limited Maturity Fund, 88
  • MFS Massachusetts Investors Growth Stock Fund, 88
  • MFS Municipal High Income Fund, 87
  • Last year marked the seventh consecutive year of record issuance in the sustainable bond markets, and 2019 is off to a fast start.
  • Continued growth and innovation present new opportunities to benefit from what impact investing has to offer.
  • In our view, impact investments can drive positive societal and environmental outcomes, improve portfolio diversification and risk management, and generate competitive returns.

Genuine Scores for the top 3 Pax funds

  • Pax Balanced Fund, 75
  • Impax Environmental Markets, 67
  • Pax Global Environmental Markets Fund, 51

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All the best,
Alister and the Genuine Impact Team

p.s. all Genuine Scores are accurate as of the 12th of June

Genuine Impact

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