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.

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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.

Back to the 1870’s

Friday, April 1st, 2022

150 years of beating the benchmark

We have recently achieved one of our most cherished ambitions – to test our process against a truly long-run data set and see if it works. The answer is a very definite yes. Our standard process beats US equities, US Treasuries - and any fixed combination of these two - on all of the three most important tests: highest absolute return, most risk-efficient return and smallest drawdown. The test covers 150 years, including two world wars and multiple bear markets. The outlook for the world is impossible to forecast at the moment, so we find it very comforting that a systematic data-driven approach can do so well

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Discontinuity Rules

Friday, March 18th, 2022

A lot has changed but not everything that should have

If the fall of the Berlin Wall was supposed to be the end of history, the invasion of Ukraine may well mark the rebirth of geography in investment markets. Equity returns in Europe are being impacted by country specific factors beyond the usual mix of sector effects. We see the potential for new definitions of core and periphery in Eurozone bond markets and there are many emerging equity markets in Latin America and SE Asia which are not affected by the war, even the asset class as a whole is (China, Russia, Eastern Europe). The thing which hasn’t changed is the momentum of US earnings growth.

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Should We Be Worried?

Friday, February 18th, 2022

Investors need to price the risk of recession in 2023

A recession in 2023 is not our central case, but investors ought to price the risk of it happening, in order to reduce the probability that it will. We would be surprised if the Federal Reserve were to raise rates seven times in 2022, mainly because that would automatically cause the consensus to reduce its forecasts for US growth in 2023. The Fed’s hawkishness in 2016 had a similar effect and we see early signs of this happening in two of our main models. Investment Grade has hit a five-year low in our US$ fixed income model. Investors are now concerned about credit quality for the first time in years. Industrials have just been downgraded to underweight in our US equity sector model, which nearly always indicates that investors are worried about the outlook for the real economy.

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So Much Choice

Friday, February 4th, 2022

The opposite to US growth is not US value

If investors decide to get out of the growth style in the US, there are several other strategies they can follow apart from US value: (1) low volatility in US equities; (2) growth in non-US equities; (3) low volatility in other US asset classes; (4) non-US value. The problem with the value style is that cheap stocks tend to stay cheap, unless there is a clear and obvious catalyst for them to outperform, like a massive earnings surprise (as in Energy) or a surge in corporate activity (which may happen in the UK). We think the most popular destination for flows out of US growth will be low volatility in US equities, into sectors such as Consumer Staples and, possibly, Utilities.

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No Limits

Friday, January 21st, 2022

Scope for equity position sizes to get much larger

The start to 2022 feels so hectic partly because the end of 2021 was so boring. The active weight in our sector models – our proxy for the risk appetite of equity investors – was at multi-year lows all through December. We think it is now close to bottom and there is no technical reason why it could not rise strongly in coming weeks. An increase of 40% in position size would only take us back to bottom of the top quartile in terms of risk-budget utilisation. We also think that the narrative of rotating from growth to value is a little simplistic. Many of these moves can be explained simply by looking at changes in estimate momentum.

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Groundhog Day for Value

Friday, January 7th, 2022

Everything depends on the slope of the yield curve

We see lots of commentary suggesting that the value style is going to outperform the growth style in Europe and the US. We also see this being used as a reason for rebalancing global equity portfolios away from the US and towards Europe. We disagree with both ideas and also with the big idea behind them, which is that government yield curves are going to shift higher and/or steepen at the same time. Indeed, the recent behaviour of US Financials suggests that investors are becoming concerned about the yield curve inverting over the medium term. We also think that the new emphasis on ESG guidelines makes the value/growth trade much more complex than it used to be.

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Approaching a Turn in USD

Friday, December 10th, 2021

The consensus for a strong dollar is more fragile than it appears

Our asset allocation models have been significantly dislocated by the strength of the US dollar. Our previous note – Currency First Is Second Best – showed that we had a model for working round the problem, even if it was difficult to know when to use it. This note introduces our G7 currency model, which we have been live-running for about two years. We don’t use it to make trade recommendations because we think the risk-adjusted returns are normally unattractive compared to those in other models, but it is occasionally useful in times of extreme market stress. The model itself is based on a mean-reversion approach and it is now close to its largest underweight position in USD over the last two years. This time last year, it was close to a two-year maximum overweight, when the consensus view was the dollar would be weak in 2021. If we were forced to commit capital, we would position for a weaker USD, but we think the right time to do this is January, not December.

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