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G'day
This week, Fodder kicks off
with Nouriel Roubini discussing the cause of the recent bond market
shocks and
the ticking time bomb of bond market illiquidity, with high frequency traders the detonator. Yes, Nouriel is a
perma bear - but he's not alone on this. It's an issue that
Scott Weiner raised at our Markets Summit program back in February - "attend"
Scott's presentation and
read his
excellent paper on the topic.
Liquid, stable bond markets
may have gone the way of the dinosaurs.
All of which has driven the
rise in popularity of smart beta solutions over recent years - and the rest
of Fodder features contrasting views about smart beta, none of it quant geek speak,
so don't be put off!
Firstly, we feature Michael
Furey's presentation from our recent Symposium in which he argued
we should be constructing portfolios using a risk bucket approach, one of the buckets being smart beta.
Next, controversial
mathematician and financial adviser, Michael Edesess, outlines what he
sees as the flaws in the smart beta concept.
Far from smart, he's believes it's all the result of dumb data mining.
Neuberger Berman offers a
paper on a relatively new breed of smart beta funds -
liquid alternatives funds (in their view, a better form of hedge fund)
that aim to overcome the downsides (cost, transparency, liquidity) of traditional
hedge funds.
CFM's Philippe Jordan then
ties it all neatly in a bow, harking back to Nouriel's point that we can
no longer rely on large, deep fixed income markets, and Michael's three
risk buckets. We may have lost fixed income as a pillar of
diversification but
alternative (i.e. 'smart') beta is the solution, he argues. |
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Remember, this is a "Forum".
So once you've read the arguments on smart beta, have your say. Either
vote on whether you agree/disagree and/or be brave and post a comment!
All the best for some great
(long) weekend's learning! - Graham
P.S. Mark your diary!
PortfolioConstruction Conference - 19/20
August 2015. Registration opens next week. |
LATEST... |
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The liquidity time bomb
Macro liquidity is
feeding asset booms and bubbles in equity, bond, and
other asset markets. As more investors pile into
overvalued, increasingly illiquid assets – such as bonds
– the risk of a long-term crash increases.
Nouriel Roubini, Roubini Global Economics
| Opinion
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Portfolio construction of the future will focus on 3
risk buckets
Portfolio construction should focus on three risk
buckets – beta, smart beta, and alpha. If not, you run
the risk of creating a poorly diversified (that is, over
diversified) portfolio – and, worse, a portfolio that
costs far more than it should.
Michael Furey, Delta Research & Advisory
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Resources |
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Why 'smart beta' is really dumb
Does smart beta deserve the attention it is getting? I
can't see how it's possible to have more diversification
benefit using a factor approach to constructing
portfolios than any other approach.
Michael Edesess, Fair Advisors
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0.75 CE
| Opinion
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Alternative beta - the third leg of the stool
In an age where we have lost one of the pillars of
traditional diversification - fixed income - what do you
do? You need to stretch portfolios into other areas,
including alternative beta.
Philippe Jordan, Capital Fund Management
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Opinion |
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Liquid alternatives - a tool for objectives-based
portfolios
Diversified
liquid alternative funds offer investors cost-effective,
transparent and liquid access to a best-of-breed hedge
fund managers, with low beta to traditional asset
classes.
Neuberger Berman
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0.50 CE
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White Paper
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Member
comments
Lower for longer
I
agree... I would add that, in addition to a slower
growth in workers, we have higher growth in retirees.
These people are reliant on generating cash flows from
their capital...
Aaron Minney, Challenger
| Comment
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RECENTLY... |
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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
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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
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Research |
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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
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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
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Opinion |
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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
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Opinion
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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
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PLUS...
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