Our flagship product, called Synopsis, is published every two weeks. It uses the data generated by our process to address whatever we think are the most important issues in global investing at the time.
All our notes are tagged thematically, so feel free to click on any of the topics and explore what we have written.
Under UK regulations, our research is only available to professional clients and eligible counterparties; they are not available to retail (investment) clients. Harlyn Research is not registered as an investment advisor with the SEC and therefore any information about our investment products or services is not directed at nor intended for US investors.
New EM Equity Model
Friday, March 15th, 2024More visibility and better risk-adjusted returns
Our new EM equity model replaces the global country model and is designed to give us greater visibility on this asset class. We show that our normal process outperforms the benchmark in absolute and risk-adjusted terms. The average annual outperformance since inception is 2.9% and this is achieved despite the model’s volatility being lower than the index. It has outperformed the index in 20 out of 28 years and has good persistence of recommendation. The average stay in the top and bottom five (out of 25 countries) is about 18 weeks. India is the top-ranking country at the moment and close to maximum overweight, while China is at the bottom and close to maximum underweight.
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Have We Missed Japan
Friday, March 1st, 2024Not if we account for yen deprecation
In our view, Japanese equities cannot outperform on a sustained basis, until Japanese investors start to rebuild exposure to their domestic equity market – something they haven’t for over 25 years. We agree that there have been significant moves to make local companies more investor-friendly, but our models suggest that US equities are still outperforming on a common-currency, risk-adjusted basis. When we run our standard process, but in yen terms, we find that Japanese equities are #2 behind the US. There are some sectors where Japan is preferred, but they are small in comparison to the ones where it isn’t. We like Japan on a tactical basis, but there is nothing to suggest that Japanese investors are about to fundamentally restructure their portfolios.
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Keep an Open Mind on Europe
Friday, February 16th, 2024Leading indicators suggest more upside than for the US
We have several indicators which suggest that Eurozone Equities could be about to generate a positive surprise. Our euro-denominated asset allocation model has upgraded global equities to overweight, chiefly because of some emerging weakness in German bunds. It is now more bullish on global equities than its dollar-denominated counterpart. Our global equity models still have the US as an overweight and the Eurozone as a neutral. There is only limited upside for the US but a lot more for the Eurozone, which has a much stronger uptrend and a better leading indicator. The positive mood is not yet supported by survey or hard economic data, but markets always move before this is published. We urge investors to keep an open mind about Europe, particularly Germany and the Eurozone.
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Country Trumps Sector
Thursday, January 18th, 2024Switching between equity regions will be a theme in 2024
Our models do not currently identify much opportunity for generating outperformance by switching between asset classes and most of our equity sector models are reducing their recommended active weight. We still think that above average exposure to cash and short-dated bonds is a good idea. However, they may be some opportunities for switching between equity regions, which will be affected by changing perceptions of political risk as we move through the year. The important thing is to stay nimble and remember that other people have opinions too. One example of this is in EM Equities, where India vs China is now priced for perfection, which doesn’t reflect the fact that India has a general election in April or May.
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The January Effect
Wednesday, December 20th, 2023Hangover or Party On
US investors have enjoyed a year’s worth of returns in seven weeks. This has been a rally of everything – except oil. Even real estate has had its moment in the sun. US Equities are approaching overbought territory and will probably get there by the end of December. US Treasuries – long and short – will get there in January, at the current rate of progress. But US and European credit is already there. There has to be some sort of reaction to recent strength. We expect credit markets to weaken first, which will be used to justify the recession narrative, which will then impact equities. Government bonds may continue their rally for a while, but we think the big theme for the year will be the US budget deficit. Round 1 is in January, the next one is in Q4. Bond vigilantes are not dead, just sleeping.
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Should We Worry about Health
Friday, December 1st, 2023The sector is in need of therapy
Healthcare has been underperforming all year. We are underweight in the US and Japan and may soon be forced to downgrade in Europe as well. There are a number of possible explanations, ranging from the industry specific to macro-economic, and from portfolio construction to US politics. None of them, on their own, is particularly convincing, but in combination they form a powerful cocktail. Our models are telling us there is a problem, but we are not sure what it is.
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Focus on Fixed Income
Friday, November 17th, 2023High Yield has the best yield to volatility ratio
Our top-down models are now overweight fixed income, so maybe it is time to work out exactly which categories we want to own and why. We have always liked the yield to volatility ratio, chiefly because it is a good lead indicator of the Sharpe ratio, which an asset will deliver. It contains more information than a study of spreads relative to benchmark, and avoids the underlying assumption that these are somehow mean-reverting. High Yield scores very well on this metric and has done for most of the last two years, which is why we have it as the only category in our fixed income model, where we are overweight relative to benchmark.
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Recession Watch
Friday, November 3rd, 2023An underweight in Industrials is rare and often spells trouble
We have downgraded the Industrials sector in four regions this week – to neutral in the UK and Pan Europe and to underweight in the Eurozone and Japan. In the last four weeks, it has lost ground in every region. Since the inception of our models, the Industrials sector has had the lowest number of underweight recommendations out of all eleven sectors (including Small Caps) and this is normally an indicator that investors are concerned about the onset of a recession. Small Caps have also seen a big reduction in their recommended weight over the same period, which reinforces these fears. Taken together, Pan Europe and the Eurozone are the worst-affected regions. The US, China and Japan all affected but not as badly. The UK is somewhere between the US and Europe. The narrative that the US will escape, while the rest of the world suffers, is not borne out by recent investor behaviour.
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Stall Speed
Monday, October 23rd, 2023US equities may be on the verge of a short-term correction
One of our key indicators for US equities is flashing amber. The recommended weighting when compared with a portfolio of 10-year Treasuries and cash has fallen to a level where it historically continues down to zero more often than not. This could be accomplished by a correction in equities or a rally in bonds – very probably a mixture of both. However, we are more optimistic about the medium-term future. We don’t think this correction would indicate an upcoming US recession. It’s very difficult to have one, when the Federal budget deficit is over 6%. In our view, the correction in equities is a necessary pre-condition for putting a short-term floor under the Treasury market.
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