NEWSLETTER of November 17, 2023

The following content has been added at finexpert:

FTSE Russell
FACTOR PERFORMANCE UNDER DIFFERENT INFLATION REGIMES
We examine factor performance under alternating inflation regimes for different factor index series for the past twenty years (since January 2003). Our analysis indicates Size and Value factors perform better when inflation expectations are rising. In contrast, Momentum, Quality and Low Volatility factors perform better in an environment of falling inflation expectations. The patterns are generally similar for different geographies. We aim to look at the potential link between inflation expectation changes and factor performance, and the medium of transmission, in a future paper. >more

Bundesvereinigung Kreditankauf und Servicing (BKS)
NPL-BAROMETER HERBST 2023
German economic output is stagnating and interest rates have risen sharply. This is leaving its mark on banks' loan portfolios. "According to risk managers, non-performing loan portfolios will increase in all asset classes," says Professor Christoph Schalast, Chairman of the Advisory Board of the German Federal Association for Credit Purchase and Servicing (BKS). The market for non-performing loans (NPL) is now showing a reversal from a seller's to a buyer's market - in other words, a decline in prices. >more

BlackRock
GLOBAL CREDIT OUTLOOK 4Q 2023
3Q2023 provided further confirmation of the “higher for longer” interest rate environment that we had been expecting, alongside a key consequence for corporate borrowers: a higher cost of capital. Looking ahead, we expect this higher cost of capital to persist over (at least) the next few quarters and continue to view the bar for policy normalization from the Fed and ECB as high. But rather than a source of potential market-wide disruption in 4Q2023, we instead view this higher cost of capital as a catalyst for fundamental and performance dispersion. This is true across a range of asset classes (both public and private), sectors, and issuers. >more

KfW Research
GERMAN VENTURE CAPITAL BAROMETER Q3 2023
The business climate on the German venture capital market remains on course for recovery in late summer 2023. With an increase of 2.4 points to -19.6 balance points, the business climate indicator for the early-stage segment is trending slightly better than in the previous quarter. The assessment of the current business situation is catching up slightly with business expectations, which are still significantly more optimistic. The indicator for the current business situation rose by 7.3 points to -32.4 balance points, while the indicator for business expectations weakened slightly to -6.8 balance points (-2.5 points). >more

PEER VERSUS PURE BENCHMARKS IN THE COMPENSATION OF MUTUAL FUND MANAGERS
Richard B. Evans, Juan-Pedro Gomez, Linlin Ma, and Yuehua Tang
2023
We examine the role of peer (e.g., Lipper manager indices) vs. pure (e.g., S&P 500) benchmarks in fund manager compensation. We model their impact on manager incentives and then test those predictions using novel data. We find that 71% of managers are compensated based on peer benchmarks. Consistent with the model, peer-benchmarked fund managers exhibit higher effort generating higher gross performance and collect higher fee income. Analyzing advisors’ choice between benchmark types, we show that peer-benchmarking advisors cater to more sophisticated and performance-sensitive investors, and are more likely to sell through direct channels, consistent with investor heterogeneity and market segmentation. >more

THE USE OF ASSET GROWTH IN EMPIRICAL ASSET PRICING MODELS
Michael J. Cooper, Huseyin Gulen, and Mihai Ion
2023
We show that the performance of the new factor models of Hou, Xue, and Zhang (2015) and Fama and French (2015) depends crucially on how their investment factor is constructed. Both models use growth in total assets to measure investment. Their ability to price the cross-section of returns decreases significantly when the investment factor is constructed using traditional investment measures, or measures that also account for investment in intangibles. In contrast, we find that factors based on growth in inventory and accounts receivable contain the bulk of the pricing information in the asset growth factor. We show evidence that the superior performance of the asset growth factor seems to be attributable to its ability to capture aggregate shocks to equity financing costs. >more