This quarter's research views from Jeremy Grantham of GMO. Always worth a read.
One of the hallmarks of GMO's research is its long term, disciplined, quantitative approach to asset management. Based on their proprietary asset allocation models, the firm comes up with expected real returns for the next 7 years for various asset classes.
At the top of the list currently is high quality U.S. stocks, followed closely by emerging market equities. Least favored are short maturity Treasurys, where yields are already so low as to make decent returns almost mathematically impossible.
He also has a few paragraphs on the question as to why large cap stocks have continued to lag the overall market despite being consistently "cheap" relative to smaller cap stocks over the last few years.
While he freely admits that he doesn't have a definite answer, he offers two suggestions: one, large cap stocks have tended to be held by older investors who now need to liquidate their holdings for retirement; or, two, that the hedge fund community doesn't find the large cap arena sexy enough, so the group lacks any real investor sponsorship.
Finally he has a section on global warming. On the surface this topic seems off the investment topic yet it is doubtlessly going to more important to all inhabitants of earth over the next few years.
Global warming, in my opinion, is the ultimate economic "free rider" problem: all agree that it would be great to reduce the emissions into the atmosphere so long as it doesn't affect them (the news today that China has now passed the United States as the largest energy user by country on the planet is hardly good news, since the Chinese track record on environmental affairs is uninspiring at best).
Jeremy Grantham: Recommendations for the upcoming period of deflation - Investment News
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