PortfolioConstruction Forum

 Friday 24 April 2015

Independent continuing professional development for investment portfolio construction practitioners

G'day

Donald Rumsfeld made the phrase famous - and in this week's Fodder, Prof Jack Gray explains the implications of "unknown unknowns" on our investing behaviour.  The upshot? It's best to confess our ignorance to clients because they know we can't know everything.

Something most people appear to "know" with near certainty is that low interest rates are here to stay. On this, we offer three opinions from three diverse commentators. First, Tim Farrelly outlines why he thinks we can expect much lower interest rates for much longer than most would have thought even as recently as the end of 2014. Then, Dr Robert Gay - prior senior economist at the Fed during Volker's reign (who agrees it's a pretty sure thing that short-term rates will stay low for a long time) - warns that what happens to bond yields is far less certain as it will depend inflation and inflation expectations. Lastly, we turn to the top 10-rated Markets Summit 2015 presentation from PIMCO's Rob Mead, on why lower neutral monetary policy rates will anchor secular valuations of all asset classes.  "Attend" Rob's presentation online, sit the related quiz, and earn 0.50 CE points.

Next, GaveKal's Charles Gave borrows another famous phrase, "this time, it really is different". He's not referring to "central bankers' scurrilous efforts at monetary debasement" as he puts it, but rather to "something genuinely new to the modern experience... collapsing equity volatility".

Finally, JP Morgan Asset Management's Tai Hui explains the implications of lower-for-longer and

eventual policy normalisation by the Fed on the outlook for emerging market equities. Read Tai's paper and sit the Quiz to earn 1.00 CE point.

All the best for some great learning! - Graham

Lest we forget

P.S. Join us for Symposium NZ 2015 (19/20 May). Early bird ends nextTuesday 28 July. Featuring 20+ leading investment professionals, it is THE investment markets and strategies conference of the year.

LATEST...

Risk, uncertainty and ignorance
Investors often face unknown and even unknowable states of the world. How should we make investment decisions under ignorance?
Jack Gray, UTS | Opinion

Much lower interest rates for much longer
Low GDP growth, very low real rates, higher PEs and valuation multiples - it's a new world. We all need to get used to it. In particular, we should review client spending plans.
Tim Farrelly, farrelly's | Opinion

Playing with matches
Fixed income markets seem to have gotten the correct message, albeit perhaps for the wrong reasons – short-term interest rates will stay low for a long time.
Dr Robert Gay, Fenwick Advisers |  Opinion

A post-volatility world
These are words that I utter with the utmost caution - this time, it really is different. Consider the curious case of collapsing equity volatility.
Charles Gave, GaveKal  | Opinion

EM: Cyclically challenged, structurally adjusting, secularly promising
EM equities and fixed income enjoyed a boom in the 2000s. Now after several years of relative underperformance, EMs appear to be on the cusp of stronger growth.
Tai Hui, JP Morgan Asset Management | 1.00 CE | White Paper

Australia’s New Neutral: Low interest rates for even longer
Lower 'neutral' monetary policy rates across the developed world will continue to serve as an important anchor for the secular valuation of all asset classes.
Robert Mead, PIMCO | 0.50 CE | Resources
* Rated in the top 10 presentations by Markets Summit 2015 delegates

Member comments
Academy key takeout - Unknown unknowns
With regard to unknown unknowns (UUs), the payoffs are hugely asymetric. Max downside 100%, unlimited upside. Thus, notwithstanding the unknowns, take a large number of small bets, and hope that some turn into very big bets.
John Cameron, Black Swan Event Financial Planning | Comment

Academy key takeout - uncertainty
Mistakenly we make decisions in the face of uncertainty based on limited experience rather than make decisions on information that we are uncomfortable with.
Brendan Irwin, Mercer Financial Advice | Comment

RECENTLY...

Gold may regain its shine
While it has offered a very bumpy and challenging ride in recent years, I suspect those prepared to buy and hold some gold exposure today will be well rewarded looking back a few years from now.
Dominic McCormick, Select Asset Management | Opinion

What the parity party says about Australia and New Zealand
What does dollar parity say about New Zealand and Australia? It is a tale of two different countries. And, it is a tale of a major role reversal.
Oliver Hartwich, The New Zealand Initiative | Opinion

How indexation killed growth
Indexing, as I have written before, is a form of socialism, since capital is allocated not as it should be. It is hard to think of a more stupid way to allocate this scarce resource.
Charles Gave, GaveKal |  Opinion

The case for active management
Even the most skillful active managers will sometimes underperform. And, in some market environments, most active managers can be expected to underperform.
Bill Priest et al, Epoch Investment Partners | 1.00 CPD | White Paper

Assessing manager risk & risk-adjusted performance
Even if it is never your intention to recommend individual stocks, understanding financial analysis - and ratios in particular - will enhance your ability to analyse equity funds.
Angela Ashton, PortfolioConstruction Forum | 0.75 CPD | Research

India's transformation: a compelling fixed income opportunity
As Indian capital markets develop, the macro picture improves, inflation is brought under control, and the economy continues to grow, India's credit and rates markets present a compelling opportunity for global fixed income investors.
Neeraj Seth, BlackRock | 0.5 CE | Resources
* Rated in the top 10 presentations by Markets Summit 2015 delegates

Member comments
Academy Autumn Seminar - Key takeout
Peoples attitude to planning and seeking advice can be significantly impacted by the way they see their past...
James Brown, Dixon Advisory & Superannuation Services | Comment

Academy Autumn Seminar - Key takeout
China - the CCP has the utmost determination to stay in power and they plan well into the future. Crack down on corruption solves 2 issues...
Charlie Creswick, Ottomin Investment Group | Comment

PLUS...

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