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 Friday 20 March 2015

The independent professional development service for investment portfolio construction practitioners


We start this week with two views on consensus. Tim Farrelly argues against himself (a win-win situation) about the odds of an overwhelming consensus view proving unprofitable, concluding expert consensus is quite good at predicting events, but less so markets. GaveKal's Anatole Kaletsky then warns about the strong consensus on euro/dollar parity. Three potential drivers are pushing things in that way, he notes, but four strong economic factors are pressuring it the other way.

From consensus to divergence - Mohamed El-Erian believes global economic, monetary policy, and market divergence is not going to abate, usefully grouping economies into four categories.

Tim Griffen debunks more myths about Japan (e.g. the consensus that its ageing population is a negative for its equities). And he explains why the shift of its people from a deflationary to inflationary mindset is also a major plus for its equity market.

Right on cue, Vimal Gor reviews a paper from the Financial Analyst's Journal on the effects of different age cohorts on asset class returns. (Read the paper and sit the quiz to earn 1.75 CPD points).

Finally, anyone with bond funds in portfolios (all of us!) must absorb Scott Weiner's unique and clear insight into why bond funds may have to limit withdrawals (it's one of the top 3 rated Markets Summit presentations, and one of my favourites, too).

All the best for some great weekend learning! - Graham

P.S. Take a moment to check out the BlackRock/PortfolioConstruction Forum CIMA Scholarship. CIMA is the mark of an investment research professional. Applications close 31 March 2015.


9 times out of 10 the consensus will be wrong?
When faced with a huge majority of experts expecting international equities to outperform Australian equities, I blurted this out. I was wrong, and on a few counts.
Tim Farrelly, farrelly's

Beware the euro consensus
The US dollar is hitting new 12-year highs almost daily and the euro seems to be plunging to below parity. But there are at least four factors pressuring it the other way.
Anatole Kaletsky, GaveKal

The messy politics of economic divergence
The world is increasingly characterised by divergence – in economic performance, monetary policy, and financial markets.
Mohamed El-Erian, Allianz

Demographic changes, financial markets, and the economy
This paper by Rob Arnott and Denis Chaves looks the effects of different age cohorts on GDP and asset class returns.
Vimal Gor, BT Investment Management
1.75 CPD Research

Bond markets lock up and lock out returns
Bond markets were once the world’s most liquid. Today, trading even $5 million in bonds can be difficult. Funds may limit withdrawals and hold larger cash balances.
Scott Weiner, Payden & Rygel
* Rated in the top 3 presentations by Markets Summit 2015

Member comments
The stock-bond disconnect

This article raises the question, but doesn't tackle the question of what will happen when interest rates are eventually forced to rise to forestall inflation...
Chris Farley

Wages after work
The wages v profits argument here falls flat on the basis of changing demographics. The proportion of former workers, ie retirees that no longer earn a wage and are supported by returns on (their) financial capital, has been growing and will continue to grow...
Aaron Minney

A disconnect here
With respect to the above comments, I do not think the question posed by the learned professor was either of these issues. The issue posed in the first sentence is framed in why do we have booming equity markets and extremely low interest rates? I agree that it is more than deficient demand and financial repression...
Craig Offenhauser


ASX fund choices
The recent listing of the Magellan Global Fund has essentially introduced a new structure into the ASX-listed and quoted fund universe. With more choice comes more complexity.
Dominic McCormick, Select Asset Management
1 comment Opinion

The stock-bond disconnect
How should one understand the disconnect between the new highs reached by global equity indices and the new depths plumbed by real interest rates worldwide?
Kenneth Rogoff, Harvard University
3 comments Opinion

How should retirees manage risk in a DC world?
This paper offers a surprising amount of information and interesting ways of framing investment issues in retirement, along with analysis of longevity vs investment risk.
Angela Ashton, PortfolioConstruction Forum
| 0.75 CE | 
2 comments | Research

The US stands out in a low growth world
Challenges of de-leveraging, widening inequality and structural reforms limit growth in developed markets. The US is the most advanced in addressing these.
Ronald Temple, Lazard Asset Management
* Rated in the top 3 presentations by Markets Summit 2015

Macro will not be the market
Macroeconomic outlooks may differ from where you can receive market returns. The outlook can be summarised in three words - improvement, divergence, decoupling.
Kevin Anderson, State Street Global Advisors

Member comments
Not a bear

I saw a comment to the effect that bears were more numerous at this year's Markets Summit... I am in Europe now talking to institutional investors and the mood definitely leans toward a 'melt-up' in asset prices and, in my judgment, higher volatility as well.
Robert Gay, Fenwick Advisers


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