Commentary
Commentary
Commentary

 

Inside August’s Market Summary:

  • Risk assets hammered in August, equities experiencing sharp drawdown
  • Fed continues to hint at rate hike
  • China facing an economic slowdown, drives global growth expectations lower
  • …and more

Please click the following link for more information: Hillview Market Summary – August 2015.

We look forward to your questions and comments. Please feel free to reach out to us anytime.

Resources
Resources
Resources

CEF Market Update: Wide Discounts Make for Attractive Opportunities

Portfolio Specialist Allen Webb sits down with Portfolio Manager Steve O’Neill to take a closer look at the CEF market for the current month.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Opinions referenced are as of 7.29.2015 and are subject to change due to changes in the market, economic conditions, or changes in the legal and/or regulatory environment and may not necessarily come to pass.

Past performance is not a guarantee of future results.

The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy based on the changing aggregate market value of these 500 stocks. The index cannot be invested in directly and does not reflect fees and expenses.

The price at which a closed-end fund trades often varies from its NAV. Some funds have market prices below their net asset values – referred to as a discount. Conversely, some funds have market prices above their net asset values – referred to as a premium.

The VIX is ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.”

RiverNorth® and the RN Logo are registered trademarks of RiverNorth Capital Management, LLC.

 

Commentary
Commentary
Commentary

 

We wanted to briefly update you on recent events in China, their impact on global markets, and how we are currently exposed to that risk. As of mid June, the Shanghai Composite Index, which is comprised of both private and state owned Chinese companies, was at a lofty 5,178. It had risen well over 100% since September 2014 on renewed investor participation from retail, institutional, and government entities alike – combined with an aggressive reform program aimed at bringing international institutional investors into the marketplace. The market turned sour in June and fell over 28% to as low as 3,725 by July, falling 8.5% in a single day.

There are a number of factors which contributed to its decline. For starters, there was a huge level of speculative interest in the market with daily account openings by retail investors reaching all time highs. The Chinese market has always tended to trade off of liquidity conditions and the perception of government support. When rumors of margin calls and tighter liquidity conditions surfaced in June, the market responded as it should have following such an aggressive run up. What became clear, thereafter, was that market conditions were ripe for correction. Margin balances were overextended, and there were growing signs of a speculative bubble building with companies’ managements pledging equity shares as collateral for loans (which were naturally used to buy more shares in other companies…or their own as the case may have it).

This all led to the Chinese government, and several companies themselves, to undertake draconian measures to backstop the market. The government suspended trading in many stocks, as did companies who were facing margin calls on their shares. These types of actions can cut both ways – on the one hand you can discourage selling, or prohibit it for the time being; on the other hand, it forces investors (we use the term lightly) to liquidate other shares to meet their margin calls putting further pressure on the market. The government took additional steps and began investigating short sellers for illegal practices, which in our view is evidence of a major step backward in the liberalization of the Chinese equity markets. Then again, we were never particularly encouraged in the first place, considering that the rise in the market was largely attributable to policy conditions in the face of slowing economic growth.

Technicals in the market appear to have stabilized for the time being, although there are still intermittent bouts of volatility. We are not particularly encouraged at this point in time as our view is that it will be challenging to identify additional sources of capital to step in and push the market higher with international investors now decidedly in the wings and retail investors licking their wounds. The government will ultimately have to make some considerable effort to spur these markets higher, and the recent devaluation of the RMB would not appear to be a step in the right direction so far as international investors are concerned. Then again, it may be in the rearview mirror, but investing is a game of batted strikes.

Our direct exposure to this market is about 1.5% for the typical moderate risk portfolio. More concerning is the impact of a slowing Chinese economy on other emerging economies, particularly those commodity exporters whose currencies continue to experience pressure on lower and lower commodity prices. We see the technical backdrop as particularly weak there, especially as we face down the prospect of rising U.S. interest rates. We have written in the past about how important active management is in Emerging Markets, and this episode is further evidence of that. Nevertheless, these markets offer some of the more compelling values in the world today.

Commentary
Commentary
Commentary

 

Inside July’s Market Summary:

  • Passive Fund Inflows, Active Fund Outflows
  • Fed hints at rate hike in September
  • China, Oil, and FX spark a rout in Emerging Markets
  • …and more

Please click the following link for more information: Hillview Market Summary – July 2015

We look forward to your questions and comments. Please feel free to reach out to us anytime.

Commentary
Commentary
Commentary

 

Inside April’s Market Summary:

  • U.S. vs. European earnings expectations
  • Spot WTI Crude rallies, forward curve flattens
  • Money for (less than) nothing, and Risk for Free
  • …and more

Please click the following link for more information: Hillview Market Summary – April 2015

We look forward to your questions and comments. Please feel free to reach out to us anytime.

Commentary
Commentary
Commentary

By Brendan Connor, CFA

 

We would like to offer a brief note of caution to those individuals investing in corporate credit today.

It is no secret that corporate balance sheets are very strong. Outside of the energy sector, the economic outlook also appears to be steadily improving. Inflation is low, and most credit instruments still provide a very healthy “spread” relative to historical levels. You know this and so does everyone else. That is why it has all been priced in.

Here is what hasn’t been priced in: Dodd-Frank changed everything.

Once upon a time banks provided liquidity to markets, in particular during periods of stress when the secondary market was either unable or unwilling to provide liquidity to support bond prices. Under today’s regulatory regime, banks are no longer able to play that role. In fact, bank dealers’ risk limits are constrained by the level of demand in the market. This means as secondary market liquidity dries up and prices fall, what drips of dealer liquidity are present in the market today will also evaporate. The simple fact is that banks’ ability to act as a buffer against market risk is gone. Markets are not discounting this new reality.Read More…