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 Friday 15 November 2013

G'day

This week we bring you a really important piece from Michael Kitces (a member of our core faculty and possibly the smartest person you'll ever meet) - if you only have time for one article this week, make sure it's his piece on why the most commonly used measure of manager outperformance is a virtually useless and in fact pretty much guarantees you won't find an active manager that outperforms. It's not heavy on quants - one of Michael's great skills is making complex issues really easy to understand.
Charles Gave of GaveKal fame then follows suit and shoots down a common myth, proving that a positive yield curve is no protection from recession and it's possible the US will slip into recession

next year. Mohammed El-Erian warns not to expect the impossible from central banks. If you've been considering using target date funds, make sure you read AQR's critique that argues most target date funds have two shortcomings (that can be improved on). Finally, we explain why this year's Nobel Prize in Economic Sciences was such a big deal!
All the best for some great weekend learning - Graham

Not everything which can be measured counts, and not everything which counts can be measured.
- Albert Einstein

Perspectives - latest

A lousy way to evaluate active managers
Failing to find outperformance amongst active managers may be more a problem with the approach used to measure it, than a failure of active management itself.
Michael Kitces, Pinnacle Advisory Group
Opinion

Forget the yield curve - watch the Wicksellian Spread
If I only had a dollar for every time I read the US is safe from a recession next year "since the yield curve is positively sloped."
Charles Gave, GaveKal | 
Opinion

Understanding asset prices
Predictability of asset returns is one of the most important issues in finance. This year's Nobel Prize in Economic Sciences was shared by three pioneers in the field.
Angela Ashton, PortfolioConstruction Forum | 
Research

The uncertain future of Central Bank supremacy
Advanced-country central banks are putting on the line their independence and credibility. It's in no one's interest to see these institutions come crashing down.
Mohamed El-Erian, PIMCO | Opinion

Improving target-date funds
Target-date funds are one of the fastest-growing segments of the funds industry. However, most have two shortcomings that can be improved.
AQR Capital Management | 
White Paper

Richard Haworth - Portfolio Construction
Great write Philip... It is, to me, half art half science. The science part... we took the wrong turn around 70 years ago with MPT. We "eat" the result of geometric returns not arithmetic returns. Comment

Perspectives - recently

Bubbles, bubbles everywhere
We've seen this movie before. Financial bubbles happen regularly - what is extraordinary is how much bubbles all look alike. Why are we seeing so many bubbles now?
John Mauldin, Mauldin Economics | 
Opinion

How many monkeys does it take to find a successful strategy?
This recent article argues that some arguments used to validate alternative forms of indexing have no mathematical basis and can be proven false quite easily.
Angela Ashton, PortfolioConstruction Forum | 
Research

Comparing apples with oranges
The Australian equity market has lagged far behind the US this year. But the S&P/ASX200 is actually ahead over the last 10 years and since the GFC market lows.
Don Hamson, Plato Investment Management | 
Opinion

Retirement monies - what to consider? What to do.
Baby boomer retirees need an investment approach that delivers both the income they need and maintains the flexibility to meet their other objectives too.
Aaron Minney, Challenger | 
Resources

Is economics a science?
As one of the winners of this year's Nobel Memorial Prize in Economic Sciences, I'm acutely aware of criticism of the prize by those claiming economics is not a science.
Robert J. Shiller, Yale University
Opinion

Philip Carman - "Science" of portfolio construction?
I've been watching for some years this debate going back and forth but try as some might (and they appear to be willing to go to the most extraordinary lengths to this end) you can't make portfolio construction into a science... Comment

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