Today’s post is from Peter Essele, a manager on Commonwealth’s Investment Management and Research team.

Brad here. Today’s post is from Peter Essele, one of Commonwealth’s senior portfolio managers on the Preferred Portfolio Services^® Select platform. Peter has written here before about a number of investment issues. I think you will find his take on where markets are right now—with special attention to the VIX, which has been in the news a lot of late—is both timely and potentially important. Over to you, Pete.

My colleague and friend Peter Essele, portfolio manager here at Commonwealth, has again put together an interesting piece highlighting the gap that often exists between what investors expect and what the market gives them. Although it’s a bit technical, the point is very important given recent moves in interest rates and the ongoing search for yield by many investors.

Brad here. Back in August, Peter Essele, a lead portfolio manager at Commonwealth, wrote a very timely piece on the risks involved with low-volatility strategies. When we were talking the other day, he suggested writing a follow-up on that—and given what has happened since his original post, I agreed it was a great idea.

Today’s post is by guest contributor Peter Essele, a portfolio manager on Commonwealth’s Preferred Portfolio Services^® Select platform.

"Does the high level of fund flows into the most popular indices make them perform better simply due to supply/demand 101?"

Today’s post comes from guest contributor Peter Essele, a portfolio manager on Commonwealth’s Preferred Portfolio Services^® Select platform.

Like many of us, the equity markets have started 2016 with a New Year’s resolution: get in shape.

As many of you know, one of the most popular trades for investors in 2015 was a hedging of the U.S. dollar for international exposures—the overriding assumption being that the dollar would continue to increase following a hike in interest rates. 

The reasoning behind this is that higher interest rates, coupled with an expanding economy, should attract foreign capital to the U.S., resulting in a demand for dollars relative to other currencies. Further, an imbalance of supply and demand should result in an increase in the value of the dollar, which would detract from the returns offered by international investments for a domestic investor. The simple solution, therefore, is to hedge all international exposures in an effort to avoid the translation losses from foreign currencies back to the dollar in an environment where the dollar is appreciating.

My colleague Peter Essele, portfolio manager in Commonwealth’s Investment Management group, is the author of today’s post, which was originally published in June 2015. With so much focus on the Federal Reserve and rising rates, it is a good reminder.

Though the media want us to believe that we’re on the verge of a cascading bond market—where rising rates will lead to price declines on bond strategies, which will lead to outflows, followed by more price declines due to forced selling—these fears are somewhat exaggerated.

Today’s post comes from guest contributor Peter Essele, a portfolio manager on Commonwealth’s Preferred Portfolio Services^® Select platform.

Coming out of the financial crisis, one of the darling trades for many investors was the bank loan (i.e., floating-rate) space because of its low duration and supposed ability to withstand a rise in interest rates. The selling point was that the “floating-rate” component of the investment’s yield would offer an increasing payout when rates began to rise. So why are prices declining instead?

Today’s post is from my colleague Peter Essele, portfolio manager in Commonwealth’s Investment Management group. See you next week! — Brad

I’d say that nine out of ten questions I’ve fielded recently are some variation on the title of this post. Many people seem to think that the impending rise in rates will have a kind of snowball effect on bond markets—that rising rates will lead to price declines on bond strategies, which will lead to outflows, followed by more price declines due to forced selling, and then more outflows.