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 Friday 12 June 2015

The independent professional development service for investment portfolio construction practitioners


This week, Fodder is a mixed bag.  We kick off on a very positive note, featuring Jonathan Pain's top rated presentation from our recent two-day Symposium 2015 program. JP argues that with reformist governments in the world's most populous nations and developed economies finally recovering from the WFC - the western financial crisis - secular stagnation is yesterday's story, reflation is underway.

On a more somber note, Dom McCormick picks apart the recent storm of comments playing down the possibility of a property bubble, following both RBA Governor Glenn Stephens and new Treasury secretary John Fraser calling a bubble, at least in Sydney and Melbourne.

While agreeing with JP that markets are at a crossroads, Charles Gave isn't convinced as to whether a positive or negative outcome is likely. As he notes, it seldom pays to be a hero, so he suggests an asset allocation that should do fine either way.

Michael Edessess's piece (featured in last week's Fodder) on why smart beta is actually dumb has kicked off a storm of controversy in the US. This week, we feature an entertaining rebuttal in defense of smart beta from portfolio manager, Keith Goddard. On the charge of over-hyping its virtues, he says, his client (smart beta) pleads guilty. On all other counts, the plea is innocent.

BCA Research's Lenka Martinek ends Fodder back on a positive note, discussing the research firm's "outperformance candidates" for this year and the next decade - the later taking advantage of the aging baby boomer demographic.

All the best for another great weekend's learning! - Graham

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


The global economy is firing on all cylinders
The outlook for the global economy is unambiguously positive. At long last, all regional economic cylinders are firing in unison and secular stagnation is yesterday's story.
Jonathan Pain, The Pain Report 
| Resources

"No property bubble" case lacks substance
If the "no property bubble" camp is to gain credibility, they need to develop much stronger arguments than many trotted out recently.
Dominic McCormick, Select Asset Management

Protect and survive
Both economies and markets are reaching a point of transition where one of two discrete outcomes is likely. Portfolios must offer the potential for reasonable performance in either eventuality.
Charles Gave, GaveKal

In defense of smart beta
Michael Edesess has encouraged investors to be skeptical of the strategies being marketed under the moniker of "smart beta". I'm compelled to cross-examine his accusations.
Keith Goddard, Capital Advisors

Outperformance candidates
In 2015, currencies will drive the outperformance candidates, as economies try to steal growth from each other. Plus, there is a decade-long mania candidate.
Lenka Martinek, BCA Research

Member comments
Betting against central banks

I was very surprised that one third of the folks at Symposium strongly agreed with my thesis that central banks were distorting asset prices, especially in bond land, with their asset purchases. After all, a good rule of thumb in investing is "Don't bet against central banks", which in effect is what my thesis implied...
Dr Robert Gay, Fenwick Advisors Comment


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

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

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
| 0.75 CE

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

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
| 0.50 CE  | White Paper

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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