By Erik Knutzen, Chief Investment Officer – Multi-Asset Class
Why I am packing Hans Rosling's Factfulness for this year's vacation reading.
What is average global life expectancy in the world today? How did the number of deaths per year from natural disasters change over the last 100 years? How many of the world's one-year-old children today have been vaccinated against some disease?
If you recognize these questions, you'll have guessed that it's summer reading time again in the northern hemisphere, and my vacation book this year is Factfulness, by the late Swedish physician and public policy expert, Hans Rosling.
Last year I packed Walter Isaacson's biography of Leonardo, which reminded me of the importance of the outsider's perspective and the value of being open to a variety of disciplines. In 2017 I lost myself in War and Peace, which provides a supreme lesson in humility before the unpredictable sweep of history. Rosling's work, which seeks to use data to surprise us out of our parochial bubbles, our fascination with bad news and our inability to relate the present to the past in a critical, "factful" way, also offers lessons for investors.
The subtitle of Rosling's book - Ten Reasons We're Wrong About the World and Why Things Are Better Than You Think - gives a good sense of what it tries to do. If you want a crash course, watch his dazzling and concise illustrated lecture, "200 Countries, 200 Years, 4 Minutes." You can find it on YouTube or at Gapminder, the sustainable development nonprofit organization he co-founded with his son and daughter-in-law in 2005.
In simple terms, his observation is that humanity has made extraordinary progress in promoting and achieving social good over the past 200 years, and especially over the past four decades.
That progress goes unrecognized by the vast majority of people, however. We know this because Rosling and Gapminder have asked tens of thousands of people a series of multiple-choice questions like those in my first paragraph. You can take the test yourself on the Gapminder website. Most respondents reveal themselves to be unduly gloomy.
Rosling suggests that humans are conditioned to respond most strongly to dramatic and traumatic stories, which end up governing our conclusions about the world. An earthquake, an Ebola outbreak, a terrorist atrocity or a draconian law makes headlines. A vaccination program or a technological advance create progress incrementally, over months and years. In short, good news isn't news.
These insights translate well into investing. Over recent months, we have found ourselves writing a lot about the importance of looking through the news cycle to the underlying business cycle, and how self-reinforcing noise from jumpy, less-liquid markets can generate false signals about the fundamental health of the economy.
It is good to break out from our often parochial, headline-driven perspectives to reflect on the important longer-term drivers of economic and market activity. Time away from the office, whether at the beach, at a lake or in a backyard hammock, can provide a good opportunity to do that.
As part of this process it can be important to relate the present to the past more critically and factfully. World GDP tends to go up, we carry supercomputers in our pockets, the emerging world is so much wealthier, healthier and more open than it was 30 years ago…and so on.
Which is not to say that the long view is always rosy. Rosling is also at pains to point out that humanity still has much to do. With growing wealth and health come sustainability challenges such as climate change. As we wrote when we considered the governing investment themes of the past 10 years and the next 10 years, the spread of markets and the liberalization of economies, while delivering growing equality globally, has exacerbated inequality at the local level, especially in the developed world, leading to rising populism and threats to the benefits of globalization.
But if we do not meet challenges such as these in a spirit of factful optimism, we could endanger the progress we have made. In fact, two very good reasons for embracing factfulness about the state of the world are to avoid complacency about the effort it took for us to get here, and to maintain the optimism required to build on that effort.
Similarly, humility demands of investors proper attention to portfolio diversification. But the ultimate goal of diversification is to achieve the stability we need to take risk, to be factful in our optimism. After all, there is nothing more essential, for those of us tasked with directing capital to humanity's most productive enterprises, as optimism.
Which brings me back to Rosling's questions.
Global life expectancy is 70 years. Most respondents select the lowest option, 50 years. The number of deaths from natural disasters has more than halved in the past 100 years; most think it is the same, and many think it has doubled. And 80% of one-year-olds in the world have received a vaccination-not one-half or one-in-five, as many assume.
As we look to the very real social, sustainability and investment challenges of the future, we can do so fortified by the great progress we have made. Is there a more inspiring thought to take away on one's vacation?
In Case You Missed It
- U.S. Existing Home Sales: -1.7% to SAAR of 5.27 million units in June
- U.S. Purchasing Managers' Index: -0.6 to 50.0 in July
- U.S. New Home Sales: +7.0% to SAAR of 646,000 units in June
- Euro Zone Purchasing Managers' Index: -1.2 to 46.4 in July
- U.S. Durable Goods Orders: +2.0% in June (excluding transportation, durable goods orders increase 1.2%)
- European Central Bank Policy Meeting: The Governing Council made no changes to its policy stance
- U.S. 2Q 2019 GDP (First Estimate): +2.1% annualized rate
What to Watch For
- Tuesday, 7/30:
- U.S. Personal Income and Outlays
- S&P Case-Shiller Home Prices Index
- U.S. Consumer Confidence
- Wednesday, 7/31:
- Euro Zone 2Q 2019 GDP (First Estimate)
- Euro Zone Consumer Price Index
- FOMC Meeting
- China Purchasing Managers' Index
- Japan Purchasing Managers' Index
- Thursday, 8/1:
- ISM Manufacturing Index
- Friday, 8/2:
- U.S. Employment Report
- Andrew White, Investment Strategy Group
Statistics on the Current State of the Market - as of July 26, 2019
|S&P 500 Index||1.7%||3.0%||22.1%|
|Russell 1000 Index||1.7%||3.1%||22.5%|
|Russell 1000 Growth Index||2.0%||4.0%||26.4%|
|Russell 1000 Value Index||1.4%||2.0%||18.6%|
|Russell 2000 Index||2.0%||0.8%||18.0%|
|MSCI World Index||1.0%||1.8%||19.5%|
|MSCI EAFE Index||-0.2%||-0.4%||14.1%|
|MSCI Emerging Markets Index||-0.8%||-0.1%||10.7%|
|STOXX Europe 600||0.1%||-0.7%||15.2%|
|FTSE 100 Index||0.6%||1.7%||15.1%|
|CSI 300 Index||1.4%||1.6%||30.6%|
|Fixed Income & Currency|
|Citigroup 2-Year Treasury Index||-0.1%||-0.1%||2.3%|
|Citigroup 10-Year Treasury Index||-0.2%||-0.6%||6.8%|
|Bloomberg Barclays Municipal Bond Index||0.2%||0.7%||5.8%|
|Bloomberg Barclays US Aggregate Bond Index||0.0%||0.0%||6.1%|
|Bloomberg Barclays Global Aggregate Index||-0.3%||-0.5%||5.0%|
|S&P/LSTA U.S. Leveraged Loan 100 Index||0.1%||0.8%||7.7%|
|ICE BofA Merrill Lynch U.S. High Yield Index||0.5%||0.5%||10.7%|
|ICE BofA Merrill Lynch Global High Yield Index||0.3%||0.2%||9.8%|
|JP Morgan EMBI Global Diversified Index||0.5%||1.2%||12.7%|
|JP Morgan GBI-EM Global Diversified Index||-0.8%||0.8%||9.6%|
|U.S. Dollar per British Pounds||-0.9%||-2.7%||-2.7%|
|U.S. Dollar per Euro||-0.9%||-2.3%||-2.7%|
|U.S. Dollar per Japanese Yen||-0.8%||-0.8%||1.0%|
|Real & Alternative Assets|
|Alerian MLP Index||-0.3%||1.3%||18.4%|
|FTSE EPRA/NAREIT North America Index||1.0%||1.2%||18.2%|
|FTSE EPRA/NAREIT Global Index||-0.4%||0.7%||16.2%|
|Bloomberg Commodity Index||-0.8%||-1.0%||4.0%|
|Gold (NYM $/ozt) Continuous Future||-0.5%||0.4%||10.8%|
|Crude Oil (NYM $/bbl) Continuous Future||0.8%||-3.9%||23.8%|
Source: FactSet, Neuberger Berman.
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