The MarketVector™-GammaRoad U.S. Equity Strategy Index (MVGMMA) employs a rules-based, adaptive process to allocate between U.S. equity exposure and Treasury Bills exposure based upon its fundamental, behavioral, and trend-based measures for U.S. equity market risk.
The market consolidated somewhat in June as the S&P 500 Total Return Index declined -0.95%, which brought its year-to-date return to +10.21%. For the second consecutive month the MarketVector™-GammaRoad U.S. Equity Strategy Index (Bloomberg: MVGMMA Index) maintained its positioning at roughly 2/3rd equity exposure and 1/3rd T-Bills exposure based on its three underlying market risk measures. As a result the strategy declined by a more modest -0.61% in June, which brought its year-to-date return to +3.62%.
Throughout this year we have heard the chorus of “Is this a bubble?” steadily increase in financial media and investor discussions. We have seen many market participants point to classic, late cycle markers such as high cyclically-adjusted valuation measures, sector and individual name concentration, and increasing net issuance highlighted by high profile IPOs.
This month we will examine another measure gaining attention, specifically margin debt, which represents how much investors are borrowing to purchase securities on margin. This data can provide a high-level view of how leverage and investors’ risk appetite are trending over time. We should note that the recent proliferation of leveraged exchange-traded products that track indices, sectors, and individual names is not included in the margin data, which suggests that the margin measures we will explore in this month’s update likely understate the degree of current risk appetite relative to previous market cycles.
Historically and intuitively, margin debt has at times reached extremes relative to its own history, which has coincided with major market tops. However, like many measures of market conditions, there may be more than one way to look at the data and reach entirely different conclusions.
To examine margin debt through several lenses and consider the implications for current market risk, please see our latest monthly update here.
About the Author(s):
Jordan is the architect of the MarketVector™-GammaRoad U.S. Equity Strategy Index and co-founder of GammaRoad Capital Partners, LLC. Prior to launching GammaRoad, Jordan was the Chief Investment Officer for Legacy Heritage Partners LLC, where he managed the institutional private foundation and family office portfolios. Before joining Legacy Heritage Partners LLC, Jordan was the Senior Investment Strategist for IBM Retirement Funds, where he was responsible for asset allocation and investment risk management for the U.S. pension fund. While working at IBM, Jordan was featured in CIO Magazine’s 2015 Global 40 Under 40 issue. Prior to joining IBM, Jordan was a Principal in Mercer Investments’ New York office with a focus on asset allocation, strategy implementation, and manager selection for endowments and foundations, corporate pension funds, defined contribution plans, and insurance captives. Jordan is a CFA Charterholder and holds a Bachelor of Arts in Economics from Emory University.
For informational and advertising purposes only. The views and opinions expressed are those of the authors but not necessarily those of MarketVector Indexes GmbH. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements that do not reflect actual results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. MarketVector Indexes GmbH does not sponsor, endorse, sell, promote, or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. The inclusion of a security within an index is not a recommendation by MarketVector Indexes GmbH to buy, sell, or hold such security, nor is it considered to be investment advice.
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