Markets Summit 2014- Resources Kit

Unconventional monetary policy - QE, forward guidance, asset buying - has only been tried a handful of times over the last century, mostly in the past five years. How and when will it end? And what does that mean for the markets?

Presented in Sydney, Markets Summit 2014 featured a stellar line-up of international and local geopolitical specialists, economists, market/asset class experts, and investment strategists. Each offered a high conviction idea regarding the impact of Unconventional Monetary Policy on the medium-term outlook for the global economy, a key market or asset class - and, of course, the implications for portfolios.

This Markets Summit 2014 Resources Kit will help you understand key market and asset class opportunities (and risks) - and give you a baker's dozen of expert, high conviction insights to consider applying when building portfolios.


This online Resources Kit is a key feature of the Market Summit program (in fact, all our programs feature an online Resources Kit). It enables all Members (whether or not they were part of the live "studio audience" on the day) to "attend" Markets Summit. It's an invaluable set of continuing education material.

This Resources Kit includes all the videos, podcasts and papers from the live program, along with links to the delegate Workbook, the Backgrounder "Unconventional Monetary Policy" and key takeouts Perspectives.

Critical Issues Forum
Asset Class Forum

Print it and use the checkboxes on the Timetable (pg 5) to tick off sessions as you "attend";
Read this before "attending" any sessions - it's invaluable assumed prior knowledge;
The 14-session plenary program featuring 16 leading investment thinkers;
The 5-session elective program featuring 5 leading investment experts;

Critical Issues Forum

About the Critical Issues Forum

The Critical Issues Forum featured leading investment thinkers from around the world, presenting, in succinct 20-minute presentations, their high conviction idea regarding the impact of Unconventional Monetary Policy on the medium-term outlook for the global economy, a key market or asset class - and, of course, the implications for portfolios.

Critical Issues Forum 1

The Great Escape
PortfolioConstruction Forum Publisher and Conference 2013 Moderator,
Graham Rich, opened Markets Summit in his usual thought-provoking (and entertaining) way.


Critical Issues Forum 2

The unintended consequences of ultra easy monetary policy
There are at least a dozen ways in which today's long period of very easy money and very low yields has distorted the workings of the global financial system. This will cause unintended consequences in the near future as QE is ended, and as the funds rate is driven back up from near zero. Many of these will be adverse consequences.

- Dr Horace "Woody" Brock, President, Strategic Economic Decisions (New York)


Critical Issues Forum 3

QE and navigating the Great Escape
When central banks from around the world united to do whatever it took to save the world, they launched the mother of all monetary experiments for which we have no roadmap. The majority of the world will see an improvement in economic growth this year - and, equities remain by far and away the most attractive asset class. But, they will see much greater volatility this year and require a more nimble approach to asset allocation.

- Jonathan Pain, Editor, The Pain Report (Sydney)


Critical Issues Forum 4

Are the Fed and PBoC ahead of or behind the curve?
The prospects for a recovery in the world economy rested squarely on the shoulders of its two biggest economies - the US and China. The performance of financial markets over the next few years will depend critically on how well the Fed and PBOC manage an exodus from their respective, and unsustainable, policy frameworks. If they prove to be prescient and 'ahead of the curve', financial markets will flourish; if they dawdle, we will witness yet another boom and bust cycle that ends in tears. As long as their policies remain asynchronous modes - the PBOC tightening and the Fed at zero rates - the one inevitable byproduct will be a stronger renminbi.

- Dr Robert Gay, Managing Partner, Fenwick Advisers (New York)
- brought to you by Stratton Street


Critical Issues Forum 5

The sweet spot of the global economy
The global economy may be trying 'The Great Escape' from the many financial crises of the past years but there is no doubt that some countries are better placed for this than others. In particular, Australia and New Zealand have the chance to be among the rock star economies of the 21st century. With their relatively young populations, strong primary sectors and geographical location, they have a chance to avoid the fate of other OECD nations. But are Australians and Kiwis aware of their good fortunes? Or are they bound to repeat the mistakes of the Old World?

- Dr Oliver Hartwich, Executive Director, The New Zealand Initiative (Wellington)


Critical Issues Forum 6

The end of Unconventional Monetary Policy
Following a half decade of weakness, robust output growth in the US and UK is setting the stage for unconventional monetary policies to be unwound and calling into question forward guidance policies. In the US, the most important factor in determining the pace of policy normalisation is the evolution of the labor force participation rate. By contrast, with a looming hike in the value-added tax and a Bank of Japan Governor committed to eradicating deflation, Japan is set to ramp up its unconventional monetary policies in the coming years. The final verdict on unconventional policies remains years away.

- David Hale, Founding Chairman, David Hale Global Economics (Chicago)
- brought to you by RARE Infrastructure


Critical Issues Forum 7

Does the end of QE mean the end of the yield play?
Over the past several years, low beta equities have disproportionately benefitted from an environment in which real-interest rates were artificially low, and in many cases negative. As Central Banks attempt to normalise monetary policy, real-interest rates are rising and are likely to continue to do so. This represents a headwind for many segments of the equity market, most notably the bond market proxies. However, it does not mean the end of the global hunt for yield, as short-term rates are likely to remain low for a prolonged period of time. Investors will still need to source yield, they will simply have to be more creative on how they do it.

- Russ Koesterich, CFA, Chief Investment Strategist, BlackRock (San Francisco)


Critical Issues Forum 8

Bonds are a cheap insurance policy
The key differentiator for bonds compared to any other asset class is that capital price volatility, as witnessed through 2013, does not equal permanent loss for the investor. Moreover, losses on bonds offer greater forward-looking yields for new investments. Consequently, we should think about bonds as an insurance policy for portfolios. With higher yields available in diversified bond funds today than in 2013, very cheap insurance is now even better able to pay for any hurdles facing portfolios in 2014.

- Robert Mead, MD & Head of Portfolio Management Australia, PIMCO (Sydney)


Critical Issues Forum 9

From liquidity surfing to bull running
As the Fed starts its multi-year monetary policy normalisation, fixed income’s extended run of high return and low volatility is coming to an end and will require more active management. Portfolio rebalancing towards equities, including emerging markets, is necessary to maintain investment returns, albeit with greater exposure to volatility. Diversification and a firm long term investment objective are critical.

- Tai Hui, Chief Market Strategist Asia, JP Morgan Asset Management (HK)


Critical Issues Forum 10

The US recovery will surprise on the upside
The US is undeniably the critical market for global investment markets. But many commentators suggest that while the US is recovering, growth will remain subdued and the country's best days are in the past. However, there are real sign-posts that clearly suggest that the US is off its knees, has dusted itself off and is ready to surprise the world on the upside! This thesis has significant implications for investment markets, the unwinding of QE and portfolio construction.

- Hamish Douglass, CEO & Portfolio Manager, Magellan Financial Group (Sydney)


Critical Issues Forum 11

Quantitative Squeezing – Differentiation in EM Investing
Emerging Markets were a focal point for major shifts in the global investment environment in 2013, repricing as the tailwinds of US stimulus, strong commodity prices and China's boom subsided. Going forward, we believe the performance of EM assets will depend to a greater extent on their individual merits. More than ever, it will pay to differentiate between asset classes and countries within Emerging Markets.

- Kathryn Koch, Head of the Global Portfolio Solutions EMEA & Asia ex Japan, Goldman Sachs Asset Management (London)


Critical Issues Forum 12

The Wrong Route to the Right Destination?
The current environment is so globally interconnected, leveraged and complex that investors cannot simply rely on historical reference alone to guide their journey through this unprecedented situation. Investors must challenge common assumptions about the US and emerging markets to ensure they are focusing on the best available routes to the right destination.

- Ronald Temple, CFA, MD & PM, Lazard Asset Management (New York)


Critical Issues Forum 13

The Great Debate - Investment Advisory Board Meeting
In this simulated investment board meeting, our day's presenters debated and voted on two medium-term critical issues arising from Unconventional Monetary Policy and the implications for portfolios:
whether on a two- to three-year view, to favour Developed Market equities
   over Emerging Market equities in portfolios; and,
- whether on a two- to three-year view, to favour short-dated bonds over
   long-dated bonds in portfolios

Delegates took the role of CIO and also voted on each motion.

- Markets Summit 2014 Investment Board


Critical Issues Forum 14

The Aquarium Theory of Investing
Normal is pending; it is not our experience. Today's world is different from anything in the history of human capitalism, extending beyond just the escape from unconventional monetary policies. The Aquarium Theory of Investing is one way to gain perspective on not just QE's end, but also demographic shifts and geopolitical uncertainty. Many things once professed good for capital markets may come to be perceived bad. In such an environment, one must rely on deductive theory where the past is not prologue.

- Brian Singer, CFA, Partner & Head of Dynamic Asset Allocation, William Blair & Co (Chicago)


Asset Class Forum

Asset Class Forum 1

Global Bonds
Deploying TAA across credit will be critical as QE unwinds
The Fed has accomplished the first part of its objective - driving yields down and creating a wealth effect though higher asset prices. But with asset returns forecast lower and less evenly distributed, one's ability to pick inflection points in credit markets as well as deploying tactical asset allocation will be the key ingredient for 2014.

- Robert Waldner, Chief Strategist & Head of Multi-Sector, Invesco (Atlanta)


Asset Class Forum 2

Australian Equities
Is index investing simply a case of indifference?
The foundation of investing is to build wealth over time - through growth in the good years, and preserving capital in the bad. Intuitively, index investing to build wealth will be harder in a low-growth world, and now even more so given the backdrop of unwinding QE through tapering. In a 'Great Escape' world, ignoring the index and actively seeking growth investments regardless of their size or weightings is more important than ever. With this in mind, is index investing simply a case of indifference?

- Alex Milton, Principal & Co-Portfolio Manager, NovaPort Capital (Sydney)
- brought to you by Fidante Partners


Asset Class Forum 3


Inflation risk - will QE ruin retirement?
Central banks, led by the Federal Reserve, are shaping the economic and investment landscapes. Ultra-low interest rates and Quantitative Easing are offsetting the deflationary forces of debt deleveraging. The challenge policy makers face is when to withdraw the stimulus to avert inflation without choking off the nascent recovery. Looking back at the risks inflation has presented in the past helps us look forward at the potential consequences of central bank policies.

- Dr Susan Gosling, Head of Investments, MLC (Sydney)


Asset Class Forum 4

Asset Allocation
Can Central Bankers negotiate the B.U.M.P. without crashing?
Breaking Unconventional Monetary Policy (B.U.M.P.) and it's impact on global financial stability is the key network risk for the foreseeable future. Its success or failure is critical to the financial system. Like a spider at the centre of its web, B.U.M.P. touches on sovereign debt risk, interest rate shock risk, currency instability, and the global economic state of growth or contraction. Understanding what may happen next with B.U.M.P. is an essential pathway to a deeper understanding of portfolio risk management and making the right risk choices.

- Nicholas Bullman, Founder, CheckRisk (London)


Asset Class Forum 5


Asset Allocation
There will be no Great Escape without a Great Unwind
To achieve the Great Escape, central banks must first complete the Great Unwind – the removal of ultra-easy monetary policies. The roadmap for the Great Unwind includes examining why inflation has not picked up despite the massive increase in money supply (and it's not because the banks won't lend the money), what impacts tapering will have on interest rates and equities, and why the critical period for markets will come when the Fed lifts short-term interest rates – probably, but not necessarily, after tapering finishes.

- Tim Farrelly, Principal, farrelly's Investment Strategy (Sydney)