April- May 2020
Stress testing companies for
an impending recession
The new coronavirus crisis is different than any other seen in our lifetimes. But equity investors who develop a clear set of characteristics that will define resilient companies in the evolving environment can position portfolios to get through the pandemic and benefit from an eventual recovery.

Portfolio diversification in the COVID-19 era
Over my 30 plus years in the capital markets, it appears there is never a bad time to discuss diversification. However, the current market environment suggests a more inviting moment to discuss the topic as noted in Figure 1 of the frequency of Google “stock market” term global searches as equity markets declined. Several of my past articles discussed various concepts of diversification, the current market interest affords another opportunity to review this topic.

The missing ingredient for a holistic real estate allocation
In recent years, institutional investors have turned to a range of private investments – equity, debt and real estate - in search of higher returns. However, while private equities and debt have outperformed their listed counterparts for the past 20 years, the same cannot be said in real estate. REITs, as represented by the FTSE NAREIT All Equity Index (the NAREIT Index) have outpaced the CREIF ODCE (Open-End Diversified Core Equity) Index by 2.4% per year (on a gross basis) for the 20 years ended 31 December 2019. Our research indicates greater cash flow growth from specialty property sectors, which are, by definition, absent from private funds, primarily explains the historical outperformance of REITs. 

BBB downgrade risk: Less than meets the eye?
  • Sharp growth in the BBB credits has raised fears about mass downgrades, losses in value and a swamping of the high-yield segment. We believe this narrative may be overly alarmist, given the sources of the BBB increase.
  • For instance, in recent years, the level of new BBB issuance from that of “fallen angels— companies downgraded from investment-grade moving in the opposite direction.
  • Agency ratings offer limited information on a company’s credit outlook. We use these ratings as just the starting point in our rigorous research process, which yields an independent view of potential risks and rewards.

TEXPERS | 713-622-8018 | texpers@texpers.org | www.texpers.org
About Us 
The Texas Association of Public Employee Retirement Systems (TEXPERS) is a statewide voluntary nonprofit association that provides education and legislative advisory services to the trustees, administrators, professional service providers and employee groups that manage the retirement money of police, firefighters, municipal and district employees in cities across Texas.