Perspectives on Global Economic Conditions
A unique perspective on current global economic conditions and investment challenges from Dr. Sushil Wadhwani, CEO of QMAW.
Join QMA Wadhwani CIO, Dr. Sushil Wadhwani, for a unique perspective on the importance of agility during times of economic uncertainty. During the webinar, Wadhwani examines current global macro conditions, and how central bank and government responses will affect economies going forward. He also explores what may be next for equity markets and highlights leading market indicators to help navigate the future.
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[DESCRIPTION: The intro slide is titled The Importance Of Agility In The Current Economic Environment
The date is Thursday, May 21, 2020 and time is 7am PST, 10am EST, 3pm BST
The speaker is Sushil Wadhwani, Chief Investment Officer QMA Wadhwani LLP
The agenda is made up of
Introductions by Brad Zenz, Head of North American Sales, QMA
Current global macro conditions and how central banks and government responses will affect economies going forward
Whatís next for equalities and are investors looking to re-risk?
Latest research insights and leading indicators to help navigate the future;
Q&A and closing comments.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Hello, and thank you to everyone for taking the time to participate in our webinar, "The Importance of Agility in the Current Market Environment" with Dr. Sushil Wadhwani.
I'm Brad Zenz, QMA's Head of North American Sales. Today's call is focused on providing market insights on current global economic conditions and investment challenges that our clients may be facing. Dr. Sushil Wadhwani, CBE, is the Chief Investment Officer for QMAW, originally founded as Wadhwani Asset Management in October 2002.
Prior to joining QMA, Sushil served as the Founder and Chief Executive Officer of Wadhwani Asset Management. Previously, Sushil was a member of the Monetary Policy Committee at the Bank of England. He also served as the Director of Quantitative Systems at Tudor Investment Corporation, Director of Equity Strategy at Goldman Sachs, and as an Academic Economist at the London School of Economics.
Sushil is an emeritus governor at the London School of Economics, and a Commander of the Order of the British Empire awarded in the Queen's Birthday Honours List. Sushil earned a BSC, MSC, and PhD from the London School of Economics and Political Science. He's the Managing Global Macro Investment Strategy since 2002.
Before we turn it over to Sushil, I want to let our webinar participants know that they can ask questions using the Q&A feature in the webinar software. We will try to get through as many of these as we can, and thanks to those of you who provided questions in advance. We appreciate the feedback and we have incorporated as many topics as possible into this presentation. With that, let me turn things over to Sushil Wadhwani.
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: Thank you, Brad. Good morning, and good afternoon, depending on where you are to all of you. Thank you for making time to join us. Now, we speak at a time where, in many countries, we are witnessing the deepest recession in the post-World War II period.
Everything has happened remarkably quickly. But what has been fascinating to me is that despite the sadness and depths of the recession, the consensus expects a quick and robust economic recovery.
Perhaps, this is because we have seen a huge policy response both on the fiscal and monetary fronts, and the authorities have been commendably quick in terms of delivering this response, at least in the advanced countries.
[DESCRIPTION: The heading on the slide is The General Expectation Is For Strong Growth in 2021, As Activity Recovers
There is a line below which says The May set of consensus forecasts are more gloomy than the IMFís ñ reckoning on GDP contracting by more than 4 % this year.
Above a table it says Consensus forecasts
The table shows that GDP is 2.5 on average in 2019 and for Real GDP in 2020, it is forecast to fall between 5 and 10 percent in all of the countries mentioned, which include the United States, Japan, Germany and the United Kingdom.
However, the forecasts for 2021 shows a Real GDP increase of between 4 and 7 percent, 5.1 percent average.
The disclaimer at the bottom of the slide says Please see Notes to Disclosure page for Important Information including risk factors and other disclosures. *Taken from the latest edition of Consensus Forecasts Inc 15th May 2020. Arrows reveal changes from the April edition.
Source: Consensus Economics and QMAW For illustrative purposes only. There is no guarantee projections will be achieved.]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: But if we now actually look at what the consensus thinks will happen, if you focus on this slide, you'll see that the consensus expects global GDP to fall by 4.1% this year in 2020. That is a huge drop by historical standards. But hand in hand with that gloomy forecast for this year, the consensus expects a very nice bounce back in 2021. In fact, a rise in GDP of 5.1%.
So this is what, in essence, one can call the V-shaped economic recovery. And I want to begin by asking whether this economic forecast is credible, because this will help me answer some of the questions that had come in over the last few days. And thank you to everybody for sending us these questions because they helped me prepare my remarks accordingly.
Now, in terms of whether or not this V-shaped economic forecast can materialize, the first thing that we need to ask ourselves is whether there would be a second wave. If we get the second wave in terms of infection, and thereby we risk a second lockdown, then it seems to me this forecast is out of reach, because a second lockdown would not only arithmetically depress output very considerably, but I think would have an enormous psychological impact on consumers.
So, the avoidance of a second wave is actually quite important. Now, one has to be conscious that a second and indeed repeated waves of infections were part of the simulations made in that infamous study from Imperial College that influence governments around the world. They, in fact, showed repeated waves all the way into 2022.
And I should emphasize that they were by no means alone. There's an eminent group that studies epidemics at Harvard. They had very similar results to Imperial. And that is, you know, the view that we might see repeated waves of infection is very much a kind of consensus view amongst those who study epidemics.
So the key thing in terms of assessing this forecast is how is it that we might avoid a second wave? But in some respects, the best and easiest way of avoiding a second wave would be to have enough contact tracing, enough testing, and enough facilities in terms of imposing quarantines. And now, here, we've seen some countries have had remarkable success.
You would definitely put Taiwan and Korea in that category. You might, to some extent, be able to add Singapore, New Zealand, and perhaps Australia to that group as well. And therefore, one can see that it's definitively feasible to keep infections down if you have -- if you do enough of tracing, testing and quarantining.
So the challenge for governments in other countries is whether they can now use this window of opportunity that's been created by the first lockdown to invest enough in testing. Only time will tell, but it seems to me to be most hopeful way forward in terms of avoiding a second lockdown.
A second possibility is, of course, in terms of medical advances. And here, we might, and in the first instance, if you want to insure V, you probably need a semi-cure or a cure in terms of a drug cocktail.
Obviously, it's encouraging that there are a lot of drug trials going on. And by the end of this summer, we should have a lot more information about whether or not we are going to get a semi-cure or a cure. So far, we really don't have anything very much. The best that we've seen in terms of drug trials was Remdesivir.
Now what that did was it made recovery quicker, and therefore in theory, would reduce pressure in terms of hospital beds if a second wave of infections were to occur. But it didn't do anything statistically significant in terms of the death rate.
So we would certainly, in terms of a semi-cure or cure, have to do rather better than that. And it may be that a way forward would be to give Remdesivir earlier, and to couple it with another drug. We have to wait and see what the trials yield. A lot of the trials should have reported by September. The second possibility on the medical front is obviously vaccines.
Now, in terms of the likely timeline of vaccines, even if we get a viable vaccine, we wouldn't have produced enough until 2021, and therefore, it's possible that instead of getting a V, we would get a little bit of a U.
But that probably wouldn't matter too much to market because if they knew there was a reliable vaccine around the corner, I think the delay would probably of secondary importance to markets. So there's certainly reasoning for some hope on the medical front. And again, we'll have to wait and see. A lot of the vaccine trials, the phase three trials, should be done by the end of September, so we don't have long to wait. The third issue relating to economic forecasts is what economists in the jargon called scarring, which is if you get a recession, do you then have an enduring impact on our ability to grow? We certainly saw significant scarring after the GFC. So the question everyone is asking is whether we might see more scarring this time around.
Now, the usual channels through which you get carried are, A, unemployment. Now, the unemployment rate has gone up meaningfully, obviously, in the US. It's gone up everywhere. But it so far has gone up by less in countries that went for job retention schemes. So that went into Germany, the UK, and Australia.
And therefore, other things being equal, you get less scarring in those countries. The place I'm most worried about now in terms of scarring would be the US, where, of course, unemployment has surged enormously.
And if it turns out that we don't get a V-shaped recovery, because we don't get enough testing or we don't get the medical advances, and the rising unemployment we've seen is longer lasting, then one must indeed fear some of these scarring effects, which would traditionally come through the fact that this high and prolonged unemployment tends to be associated with mental illness, with drug addiction, and a general descaling process in the labor force.
A second and potentially even more important issue this time around is the possibility of a significant number of bankruptcy, which then necessarily destroys what economists in the jargon called organizational capital. And once that goes, that becomes difficult to grow the economy at the same rate, at least for a few years.
Now, here so far, the intervention by authorities has been commendable in terms of various schemes to provide capital to companies, and also reliquifying the credit market, which was achieved by the Fed, has been helpful in that regard.
However, again, in this case, if our problems are prolonged because we don't get enough testing or medical advances, then the probability that the default rate would rise is quite considerable, and that we may see many more bankruptcy, and thereby, more scarring. So, you know, this time round, it's clearly an intimate relationship between the medical front and economic forecasting, which is why it's also very difficult and also very uncertain. Now, I think this might be a good point at which I might begin to be with the many questions that came in.
Now, the first group of questions that we received are all around the stock market. They were all around things like, what did we think was the fair value for the S&P, why had the stock market recovered so strongly even though the global economy had been so weak, and so on. And therefore, I shall now attempt to answer some of those questions.
Now, the key thing to remember about the stock market is that, as we've all been taught, is that stock prices are supposed to look far ahead in the distant future at the entire expected floor dividend.
And therefore, if you genuinely did believe in a V-shaped recovery and you believed that the setbacks that we've had all day deep is temporary, then you can see why the impact on the stock market should be relatively modest, especially in a world where the discount rate has come down, because of course bond yields have come down.
And therefore, you won't be surprised to see another -- Now, I'll bring up my next slide, where what we've done is we've used a dividend discount model that I've actually been using, you know, somewhere in there off anyway for many, many years, certainly since the mid '80s as a handy tool to help me assess where the stock market is in relation to fair value.
[DESCRIPTION: The heading on the slide is Estimates on the Impact of Different Scenario on the Fair Value of the S&P 500.
There are two points below.
The below table shows various scenarios and the estimated fair value of the S&P 500
The main change is that more optimistic consensus earnings, combined with lower yields, have raised the fair value assessment (in the first scenario).
The table shows three scenarios, the first of which shows a New Consensus Earnings Forecast with a US real yield of -0.2% gives an S&P 500 Fair Value of 3359.
The second scenario shows that QMAW Pessimistic Earnings Forecast with a Corporate real yield of 2% is 2218.
The third scenario shows that QMAW Pessimistic Earnings Forecast with a Corporate yield back to peak of 3.5 percent is 1783.]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: And you'll notice that if one believes in the consensus economic forecasts and the associated earnings forecast for the S&P, then actually fair value for the S&P is about 3,360, which is at around the same level as the all-time high we made in February, which is 3,393.
So this will essentially say that if we do get a V-shaped recovery, we've just seen a temporary hit, we are going back to the highs. And that the only reason we haven't gone back is, you know, for good reason, people are uncertain about whether we'll see a V-shaped recovery.
And as the news materializes on the medical front and all the testing front, folks have become more confident, and we will gradually grind higher towards our old high. So that's what, in many ways, the rather happy outcome.
But, of course, as we've discussed, there are a huge unknowns at this point, especially on the medical front, and therefore, one has to be cognizant of the downside risks. And there is some -- And there are many people who are much more clever than me who are in the talking about the possibility of a depression of sorts.
And usually, those scenarios assume that we are not going to see a cure or semi-cure, we're not going to get a vaccine. After all, we don't have viable vaccines for many diseases. And that, you know, the longer this goes on, we're going to see more scarring, and also government will, to some extent, run out of fiscal space in terms of supporting the economy, or at least become less willing to support the economy if they think that the virus is in depth. People espousing this scenario include two Nobel Prize winning economists.
So you've got Professor Joseph Stiglitz, you've got Professor Paul Romer. And then in the financial markets, you've got eminent people like Paul Tudor Jones, who've suggested that this is a perfectly viable scenario, kind of depression scenario. So in order to capture that, what we did in our own humble way at QMAW is we came up with an alternative pessimistic earning projection. And you can see that on this slide.
[DESCRIPTION: The title on the slide is Despite Being a Little More Gloomy About 2020, the Up-Revisions to 2021 Dominate.
There is a single bullet, which says Compared with April, analysts are now more optimistic regarding earnings.
The title on a line chart is Consensus Earnings of Expectation in the United States.
The blue line represents pre-Covid. It shows a steady increase in EPS over the next 10 years from 100 in 2109 to almost 200 in a decade.
The trajectory of the other three lines are similar, with the only difference being a dip at the start for May and April and even slower start for QMAW Pessimistic before a steady gain.
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: So, the blue line is the forecast in January, before the world's changed. And you've then got the consensus forecast in April in May.
I've shown both to show that people have actually become more optimistic in May relative to April. And then down below, we show what we call our pessimistic scenario, our depression scenario in terms of our earnings forecast. And you will see that we are showing a much sharper dip in terms of earnings, and then much slower growth thereafter over the next few years, because in that scenario, you get very meaningful scarring.
[DESCRIPTION: The speaker returns to a previous slide. The heading on the slide is Estimates on the Impact of Different Scenario on the Fair Value of the S&P 500.
There are two points below.
The below table shows various scenarios and the estimated fair value of the S&P 500
The main change is that more optimistic consensus earnings, combined with lower yields, have raised the fair value assessment (in the first scenario).
The table shows three scenarios, the first of which shows a New Consensus Earnings Forecast with a US real yield of -0.2% gives an S&P 500 Fair Value of 3359.
The second scenario shows that QMAW Pessimistic Earnings Forecast with a Corporate real yield of 2% is 2218.
The third scenario shows that QMAW Pessimistic Earnings Forecast with a Corporate yield back to peak of 3.5 percent is 1783.]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: This is purely an illustrative scenario. But you can see that it would have a profound impact on fair value. And indeed, you know, depending on some associated assumptions about damage to the credit market, you can generate values for the S&P at 1,780 or 2,200, which, of course gives you this huge wide range in terms of fair value for the S&P depending on what you believe will happen in terms of the virus, and therefore, the economy.
What this tells me is that this is not a period to have bold, medium term or long term views. Instead, it's a period where it's very important to be agile to respond to the incoming news, and to be willing to trade in either direction.
And a big advantage of quantitative framework is that you feel no shame about changing your mind, the model versus the new information, and essentially changes its mind. And I should say, since I'm talking about the advantage of models, is that I've argued so far that the central way to understand where equities are today is a kind of reliance on the V-shaped recovery. And if you look at the historical evidence in terms of forecasting recessions and such like, the IMF carried out a rather interesting study where they looked at all recessions over a certain period over many countries.
So they collected data on 150 recessions, and then they looked at all recessions which went on into the second year. But these are not V-shaped recoveries. And they asked whether during the first year, during the first half of the first year of the recession, how often do forecasters predict that this recession is going to endure into the second year. And they found that in 90% of cases during the first year of the recession forecasters don't foresee the second year.
So either for psychological reasons or for reasons -- due to reasons to do with how our economic models work, people tend to underestimate the length of recession. And I think it's highly important to have that at the back of your mind as you think about the risks confronting us over the coming period. I will now turn to another set of questions that came in.
And there were a lot of questions. And they were all around the extent of fiscal stimulus, and whether that -- those are longer term problems for us. And they were also about monetary stimulus and potential difficulties in terms of inflation taking off.
So I might just say a few words about those two topics, and then stop and take more questions. So on the fiscal side, obviously, in a number of advanced countries, governments have spent freely. Actually, after the textbook, it's a pandemic, you're forcing people to sit at home, you must protect them in terms of income, because otherwise, you'd get a lot of scarring and you jeopardize your longer term fiscal position.
So, so far, so good. They've done a good job in terms of spending freely. Now, a contrary 34 of that is of course that the debt to GDP ratio will rise very meaningfully in the US. In terms of programs that are already agreed, it looks like your debt to GDP ratio could rise 15% to 20% of GDP this year. And if these programs run into next year, obviously we're talking about rather larger numbers. In the UK, we are already up to 15% of GDP.
Reasonable projection suggests rate will be up to about 20% by 2020 -- by year end 2020. And surely, to the extent, we see a little bit of a U-shaped recovery rather than a V-shaped, these numbers could get much larger. Now, in principle, I'm not frightened by these numbers because the pandemic is just like a war. And if you look at the numbers that I just about to put up on the screen, these are the public sector net debt to GDP ratio for the UK over the last hundred years or so.
[DESCRIPTION: The heading on the slide is Public Sector Net Debt Since 1990
There line chart is titled UK Net Debt
The chart shows that Public Sector Net Debt and Public Sector Net Debt Including Banks has been identical for 100 years until 2009/10. Since then the Public Sector Net Debt Including Banks has been 100 percent higher in 2010 but is now 10 per cent higher.
The largest debts in the Public Sector in the UK were from the start of WWI until post-WW2]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: And the picture shows you what happened to the debt to GDP ratio during the two world wars. In World War I, it went up about 100% of GDP, and then we I repeated the trick in World War II.
So we ended up with a debt to GDP ratio of 250%, and then we spent the next 45 years bringing it down, and the trough was about 35% of GDP. So, over a long period, we were successful in bringing it down. Now, how did we achieve that trick? We achieved it in two ways.
[DESCRIPTION: The title on the slide is Contributions to Changes in the Debt-to-GDP Ratio by Decade
A bar chart has a title of UK Debt to GDP
The chart shows that Primary Borrowing, which is in yellow, was at its height of 80 percent from the 1910s to 1940s before being eliminated in the 1990s only to begin to grow by 2019 to 20 percent.]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: So if you look at the bar chart now, we essentially brought the debt to GDP ratio down '50s, '60s, '70s, and '80s. And you'll see that there's a lot of yellow in the '50s, '60s, and '80s. And the yellow refers to primary surpluses. So we had to live within our means, you know, either raise taxes or cut government spending, and that played an important role.
But an important role was also played by the fact that the interest rate on government debt was less than the growth rate of the economy. The R was less than G, and that's denoted by the green areas you see. You can see the green areas made a meaningful contribution. Now, how was R -- how did they try to get R less than G? Well, after World War II, we grew strongly.
The G was high for a while. And then we had a period of financial repression where a lot of people, through regulatory requirements, were forced to hold gilts, and also inflation played a role especially in the '70s.
So if you put all that together, we managed to bring debt to GDP down. So the question is, what is likely this time around? Now, it seems to me that we have a promising starting point, because globally, R is indeed quite a bit less than G, and therefore we have some hopes there. But we can't always rely on that being true. I've shown historically, there lots of periods R had been above G, and therefore we could really revert that. And for that reason, once we -- once our economies recover again, governments would clearly have to go for primary surpluses. It's going to be difficult to reduce public spending, and therefore, it's highly likely that we will need higher taxation. I will just spend one minute, I'm out of time, but I'll just have one minute summarizing my view on inflation. So a lot of people are concerned about high monetary growth and believe that that will necessarily lead to high inflation. I'm not sure.
First in the short run, we've got enormous deflationary pressure. Workers are volunteering for massive wage cuts. We've got commodity prices having fallen meaningfully. So at least in the short run, the problem is much more likely to be inflation being too low rather than being too high. And once you get the period of inflation being too low, inflation expectations usually come down a bit further, and therefore, it takes some time to ramp up inflation expectations to then get higher inflation. But I'm not sure it's a meaningful problem for a little while.
But if you do get the robust V-shaped recovery, then, you know, certainly there will be work to do by the independent central banks. And it will be very important that the independent central banks are proactive, and they begin to remove stimulus in a timely fashion. Otherwise, I do feel we will end up with inflation.
At this point, as a central projection, I have no reason to believe that the central banks won't do their job, that they won't remain independent, and they will discharge their mandates in terms of inflation targets. However, there's obviously a tail risk that politicians might, in some way, subvert the independence of central banks, in which case, inflation then becomes a viable risk. Brad, I'm sorry, I overrun by two minutes. I'll stop now. Thank you.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Thank you, Sushil. So we have time for a few questions. Let me go to some that we've received during the webinar. Question number one, Sushil, do you expect the US to enter a negative interest rate territory? And what other levers might the Fed have to pull?
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: OK. Thank you, Brad. Now, Chairman Powell, when he spoke to the Peterson Institute last week, it was crystal clear that negative rates were not a weapon that they were considering at this time. And therefore, if we are talking about the short term, then it does seem pretty unlikely to be. But I would say two things.
One is, in the UK, our new Governor of the Bank of England, only about 10 days ago, we got negative interest rates, and then yesterday changed his line. The people are allowed to change their line. And the more seriously, I think, if we don't get a V-shaped recovery, and you know, if we go more to words that sort of Strawman [phonetic] depression scenario that he's talking about, so where one where maybe the virus is endemic, then in that case, all bets are off, and surely the Fed will be looking proactively at a number of tools. I don't think a negative interest rate will be top offenders, because their view is that the reversal rate.
You know, if it's very low, they think the reversal rate is quite close to zero. And therefore, I don't think it'll be high up their list. I think higher up on their list will be a lot more buying. And they want to partner with the government to be buying more and more risky assets. But it may turn out, just as it has in the UK, that they persuade themselves that while they're doing all these other things, it's not unhelpful to have rates negative. And so, it's quite possible that they do a U-turn at some indeterminate point in the future.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Thank you. Let me go to another question here. How have your portfolios then positioned through this crisis? More generally, what is your approach to managing risk?
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: Thank you, Brad. Excellent question. So, we always see ourselves as caring deeply about the downside, and about protecting prime capital, which is why in terms of everything we do, we try to maximize the Sortino ratio, so the average return to downside excursions and volatility.
And that has an important impact on the types of signals we choose and the types of risk management we have. And we were fortunate enough to be able to participate in the upside in equity markets in 2019. And we came into 2020 with a model being quite constructive about the global economic outlook. And so, we were, you know, quite long equities in January. And then the world began to change.
[DESCRIPTION: The closing slide is titled The Importance Of Agility In The Current Economic Environment
The speaker is Sushil Wadhwani, Chief Investment Officer QMA Wadhwani LLP
Q&A and Closing Remarks Moderator Brad Zenz, Head of North American Sales, QMA.]
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: So first in January, when news emerged in China, we did sort of look back at the sort of modeling work we'd previously done with SARS, and we used that to guide us to amend our GDP forecast for that region. At that point, we weren't clever enough to think that it was going to spread around the world.
So we somewhat modified our forecast for the region, and that was then associated with some downshift in our long equity position. And it wasn't actually until the middle of February that we appreciated the significant possibility that this was going to spread globally. And at that point, two or three things happened. The first is our GDP forecast came down a lot more, and that helping our equity position down further.
The second thing that occurred is that we utilized a risk management framework developed for us by our Chief Academic Consultant, Professor Santana, which was very helpful in this conjuncture in terms of warning that volatility was likely to be much higher than what recent historical data was suggesting. And that then led us to delever our portfolio.
And then, other things which played a role that we quickly modified our models to include new data and new indicators, and stop losses. The combination of all these things essentially allowed us to bring our equity bit down to close to zero by the end of February. And -- But if you look at most of those channels, they're all about trying to protect our clients from downside excursions in terms of their NAV.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Right. I think we have time for one or two more questions. Next one, can you please share some of your views across asset classes and regions, and what you see are some of the more compelling risk return opportunities at the current time?
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: Yes. Thank you, Brad. So, as I was saying earlier, I've never felt so uncertain in my entire professional career. And therefore, our level of confidence in terms of our direction exposures is rather lower than it usually is.
And that is reflected in somewhat lower directional risk than we usually carry. So, we are carrying more relative risk than we normally have. But I don't want to exaggerate that either because, of course, some of the relative positions will also move in line with directional outcomes.
So, you know, for example, you know, our models associated with equity sectors have done well this year, because we've been lucky enough to be in the sectors that benefited from the pandemic. And that serves as well so far. However, we're very conscious that if you get a vaccine and a cure, then a lot of those sector bets might backfire. So we're very cognizant of that, right?
But having said that, we are seeing more opportunity on the relative side than we are in the directional side, because even though some of those sector trades might reverse, I think what the pandemic will do is some of the things that we've learned through this process will endure. And some of the sectors that have benefited will I think continue to benefit in the long run. And therefore, that would be one area where we would have more conviction. And there are other areas too.
So certainly, you know, even if things miraculously improve, there are certainly some currency positions which might do well in a variety of scenarios.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Thank you. This is a little more focused on research, but what opportunities are you researching at the moment that may be implemented in your portfolios in the near future?
[DESCRIPTION: Sushil Wadhwani is talking.
[AUDIO: Thank you. So, this has been a very busy period for us in terms of research. And we have been very busy ensuring, you know, kicking the tires, vis-a-vis all our models, and making sure that they're fit for purpose for this new environment.
And that is included working with, you know, new pieces of data, if you like, which have become rather relevant because of the pandemic. And that's certainly been an interesting time, intellectually interesting time and a busy time in terms of improving our models.
The other area where we've been doing work on is that with markets having sold off, you know, quite so much at one point, even though they've recovered somewhat, there was obviously a lot of client interest in terms of rebalancing their portfolios, you know, in a pro-risk direction.
And something that we've done a reasonable amount to work on is taking our absolute return strategies, which normally target absolute return, and in a portable alpha kind of way making them fit for purpose, or a client who's actually interested in having a benchmark related to equity returns for the equity market rather than an absolute return thing. So we've been doing work around that arena in order to be potentially helpful to some of our clients.
[DESCRIPTION: Brad Zenz is talking.
[AUDIO: Great. Well, that is all the time we have. Thank you to Sushil for so eloquently sharing your thoughts on the importance of agility in the current market landscape. And thank you to the audience for your time and thoughtful questions.
In the event that we haven't gotten to your question, we will follow-up with answers to all the questions that were submitted during this live webinar next week. This concludes our webinar. Thank you, and please enjoy the rest of your day.]
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