PortfolioConstruction Forum

 Friday 29 May 2015

The independent professional development service for investment portfolio construction practitioners

G'day

First up in this week's Fodder, a very positive Jonathan Pain argues the world has commenced - at long last - on the path of reflation.  At our annual Symposium program last week, JP lamented that people seem to have trouble believing him when he's positive ("it's so much easier to sound smart when you're negative"). The online Symposium Resources Kit will be complete next week so you can "attend" his presentation and earn CPD.

On the other hand, Dr Robert Gay argues that European bond yields are in fantasy land, and there's little chance the ECB's QE will work. Bob worked at the Fed under hugely successful chairman, Paul Volcker, so Bob knows more than most about good monetary policy. Bob also presented at Symposium, so you can hear more from him in the Resources Kit, too.

Schroders' Simon Doyle warns that valuations are well stretched, and complacent investors are in for a rude awakening when volatility picks up. His advice is that while cash may not be king, it's a at least a handsome prince i.e. now's the time to maintain a decent exposure to cash in portfolios both as a buffer against losses and to capitalise on good valuations once assets reprice.

Back on a more positive note, Gavekal's Charles Gave shows that small countries' stock markets outperform compared to large countries (there's a simple smart beta play in there!), so it makes sense to overweight companies listed in small countries.

And lastly, we feature a piece by PortfolioConstruction Forum faculty member, Michael Kitces, that we should all be showing to anyone in their 20s and 30s. Contrary to conventional wisdom and portfolio modeling, earnings growth is disproportionately concentrated in our early working years so it's important to guard against lifestyle creep in our 20s and 30s, as it leaves little room to save as earnings growth slows in our 50s.

All the best for some great weekend learning! - Graham

P.S. Mark your diary!  PortfolioConstruction Conference - 19/20 August 2015. Registration opens next week.

LATEST...

Secular reflation
I think we've seen the low in European bond yields and that we have commenced on the path - at long last - of secular reflation.
Jonathan Pain, The Pain Report | Opinion

Big raises and lifestyle creep
The surprising result of a recent study is that the "conventional" view that earnings rise steadily (above inflation) throughout our careers is not accurate. Good spending habits established early on can make an astounding difference to wealth over a lifetime.
Michael Kitces, Pinnacle Advisory Group| 0.50 CE | Research

Small is beautiful
We now have enough history to determine who the winners were from 25 years of globalisation. The answer? Small countries. The investment conclusion is obvious - overweight good companies listed in small countries.
Charles Gave, GaveKal | Opinion

Fantasyland for Europe's bonds
This week, Portugal's sovereign bonds traded on negative yield - flying in the face of any sensible assessment of credit risk. There seems to be little chance that the ECB's belated and oversized QE program will end gracefully. Policy blunders never do.
Dr Robert Gay, Fenwick Advisers | Opinion

Cash may not be king - but it could be a handsome prince
In this environment, what’s very important is capital preservation. The problem investors have is that there are very few places to hide. So, while cash may not be king, I think it could end up being a very handsome prince.
Simon Doyle, Schroders | Opinion

Member comments
Academy Autumn Seminar - Key takeout
7 Chinese guys are making decisions which will impact on our domestic economy. Do they have more power over our future living standards than our own elected government?
Kay Aarons, Strategic Financial Solutions | Comment

Academy Autumn Seminar -  Key takeout
Rapid economic growth can present some serious issues in the short term, but improved efficiencies can result in net benefits over the longer term.
Jonathon Costello , Australian Unity Personal Financial Services | Comment

RECENTLY...

The US dollar joins the currency wars
Since the beginning of the year, more than 20 central banks have eased monetary policy. Upward pressure on the US dollar has been sharp. America's entry into the fray was only a matter of time.
Nouriel Roubini, Roubini Global Economics | Opinion

Divergences, debt and economics
In a world dependent on robust economic growth to solve or postpone debt problems the over-reliance on an apparently slowing US economy is of major concern.
Dominic McCormick, Select Asset Management | Opinion

A matter of time
Have you ever wondered about why some people plan for retirement and other people don’t? Whether people focus on the past, the present or the future - their Time Perspective - influences their retirement planning behaviour.
Dr Joanne Earl, UNSW | 1.00 CE | Research

Secondary market for corporate bond markets liquidity in 2014
The US secondary corporate bond market is in a time of significant upheaval. Changes to regulations has caused a new, insidious liquidity risk.
Scott Weiner, Payden & Rygel | 2.00 CE | White Paper

Time to think "yes" Japan, not "ex" Japan
Few opportunities are available today where discounts to intrinsic value outweigh downside risks. Japanese corporations are increasingly embracing ROE and shareholder value.
John Hock, Altrinsic Global Advisors | 0.50 CE | Resources

Member comments
Academy Autumn Seminar - Key takeout
Robert Shiller says the human brain is programmed for storytelling. Storytelling causes asset bubbles!
Ian Donaldson, IR Donaldson | Comment

Academy Autumn Seminar -  Key takeout
China is often portrayed in an almost adversarial manner, when objectively their behaviour doesn't really bear this out. The rise of China will continue, but it won't be without continued challenges and challengers, and its progress certainly won't be a straight line. We should all hope that Xi's 'long game' doesn't become a 'long rope' as Australia is very dependent on his plans for long term success.
Nathan Baker, KR Securities | Comment

PLUS...

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