Research - Lumen Global Investments

The 60/40 is Dead … Long Live Modern Portfolio Theory

Lumen takes a fresh look at the 60/40 asset allocation debate and revisits the meaning of the Modern Portfolio Theory.

As technology continues to evolve, customization in portfolio construction, i.e., selecting the set of investment alternatives first and then optimizing, is rapidly becoming the new norm in the wealth management industry.

Ranking of World Sectors Using the Residual Income Model, based on Lumen’s calculated Cost of Equity – June 2022

Global Sectors Outlook as of June 2022 using the Residual Income Model and Lumen calculated Cost of Equity

Regional Markets and US Sectors Outlook Q1 2022 – Value vs. Risk

Please check out the Intrinsic Value column for the ranking of value and the Intrinsic Risk column for the ranking of risk – based on the Residual Income Model.

Navigating the Inflation Scare

While the current level of inflation is well above the long-term averages, there are good reasons to expect that inflation will remain benign, in Lumen’s view.

The less accommodative monetary policy points to higher real rates and possibly a healthy market correction typical in a late-cycle policy tightening.

Regional, Emerging, and Major Markets Investment Outlook – Value vs. Risk

Using the Lumen Global Value Compass calculated market-implied expected returns and stress-testing with the Residual Income Model, we discovered lots of value dispersion regionally and within the emerging world. Intrinsic risk is more skewed towards EM than DM.

China (A) Market and Sector Outlook in a Few Charts

Based on our intrinsic value vs. intrinsic risk calculation using the Lumen market-implied expected returns, we highlight a few sectors – healthcare, financials, and consumer staples for the China A-share market.

The Mighty Dollar

“The US Dollar is our currency, but it’s your problem” – John Connally, Secretary of the Treasury of President R. Nixon, G10 Meeting, Rome, Italy 1971

To answer the question whether the U.S. Dollar is at risk of a crash, we need to distinguish between the Role of the Dollar and the Value of the Dollar – two very different analyses.

Rallies, Bubbles, and Value

Despite a pandemic, economic misery, and a dangerously contested election the likes of which the United States has never experienced, the equity market continues its upward march and breaking new records in the process. Indeed, many pundits point out to the enormous rally of the mega caps as evidence of a bubble. We disagree, and if anything, we believe the market has behaved very rationally.

Lumen Global Investments – Investment Outlook Fall 2020

Global markets are at an unusually sharp inflection point reflecting an equally unusual convergence of uncertain geopolitical and public health outcomes markedly affecting economic activity and policy stances across advanced and emerging economies alike.

Read on to see why we believe an aggressive stance is justified.

What Does a Global Market Portfolio Look Like?

If you were able to own the market portfolio, weighted by market capitalization, here is what it could look like (excluding commodities, currencies)… Source: Lumen Global Investments, September 30, 2020; Go to the Table Tab/Sheet to View Numbers

Category: Research