- Glenmede, a firm that manages $41 billion in client assets, says the US economy has recovered only a fraction of the business and consumer activity that was lost because of the pandemic and social distancing.
- Michael Reynolds, the firm's investment strategy officer, says Glenmede is underweight stocks and bonds in its portfolios and is turning to alternative strategies.
- He also says the firm believes in international stocks right now, especially in Japan and emerging markets in Asia.
- Visit Business Insider's homepage for more stories.
Do things feel 19% of the way back to their pre-pandemic normal?
There might not be any firm way to measure that, but Glenmede — the $41 billion wealth- and investment-management firm — says that's the case. It's evaluated consumer and business data, and concluded that the US economy has recovered about that much of its post-pandemic and social distancing losses.
Abandoning well-known measures like monthly retail sales reports, Michael Reynolds — the firm's investment strategy officer — and Jason Pride — its chief investment officer for wealth management — made a "Reopening Index" by analyzing daily and weekly reports from retailers, consumer services firms, business activity, and employment.
"The model estimates that ~19% of economic activity that was lost due to social distancing has so far been regained," they wrote. "While spending appears to be recovering first, both spending and work seem to have a long way to go before returning to any semblance of "normal.""
Here's how the new indicator tracks the sudden economic halt and the inch-by-inch recovery.
Reynolds told Business Insider there are signs consumer spending is starting to recover, especially in retail and "low-touch" businesses. Business and employment data are lagging. While travel and spending on entertainment like concerts are going to recover more slowly, he notes that they're a small portion of the economy.
The recovery in the stock market, meanwhile, is far more dramatic. For that reason, Reynolds says Glenmede reduced its allocation to stocks in mid-May.
"We're more neutral weight at this point in time, recognizing those fuller valuations and recognizing that the thesis of this recovery has actually started to play out," he said in an exclusive interview. He adds that he has a slight underweight for bonds as well since yields are at record lows.
"We are modestly underweight there in favor of some more opportunistic strategies within the hedge fund space," he said. "You can have hedge fund strategies that are a little more or uncorrelated and provide that true diversification."
He said Glenmede's portfolio managers have found good returns lately in merger arbitrage and volatility arbitrage. The key is that those strategies won't simply rise and fall with stock or bond prices, which makes them very valuable in a historically uncertain period.
Reynolds said he thinks the best opportunities in stock investing today are in Asia, noting the huge US rally and "a significant amount of political dysfunction" in Europe.
"We really like the valuation opportunities we're seeing in Japan right now," he said. And with hundreds of millions of people in China, India, and Southeast Asia expected to join the middle class in the next few years, his firm is also placing its bets on spending by consumers in that region.
"We've sort of had a longer-term play here on the emerging consumer in Asia," he said. "The middle class in China by the middle of this decade is on pace to eclipse the entire population of the US, so that's a lot of demand in the pipeline for consumer products."
Investors keen to follow Glenmede's recommendation may perhaps be interested in the iShares MSCI Japan ETF, or the more broadly Asia-spanning iShares MSCI All Country Asia ex-Japan ETF.
Join the conversation about this story »
NOW WATCH: A cleaning expert reveals her 3-step method for cleaning your entire home quickly