PortfolioConstruction Forum

 Friday 10 July 2015

G'day

Fodder this week is a mixed bag, covering all three of our pillars - markets, strategies and investing. We start with features from three of our PortfolioConstruction Forum core faculty members. In the first, Prof Jack Gray looks at whether investors should pay much attention to "PETS" (not the four legged variety) when investing. Tim Farrelly lampoons the notion that bank hybrids offer equity-like risk for bond-like returns and explains why he likes them for portfolios. Fellow core faculty member, Dr Oliver Hartwich, then lampoons the modern Greek tragedy. Paraphrasing Winston Churchill, Oliver writes: "You can always count on Europeans to come up with the worst solution – after they have explored all other bad options."

Joshua McCallum explains that having burned their bridges by voting no in last Sunday's referendum, Greece's only route is complete victory or utter failure, with Grexit likely just a matter of time - and that may have been Mr Tspiras's strategy from the outset. (A reverse Trojan horse, of sorts!)

Moving on to another market tragedy, Gavekal's Louis-Vincent Gave explains the real drivers of the Chinese equity market melt-up and melt-down, and why the recent crash will prove to be a buying opportunity within a structural bull market, akin to the October 1987 US stock market crash.

And, our CPD feature is a new white paper on retirement spending strategies. Recent research focuses on strategies that adjust withdrawals depending on investment returns - the problem is, of course, that withdrawals then vary a lot from year to year. So this paper looks at which of the new approaches best smooths income for clients.

You may recall Dr Joanne Earl's "A matter of time" feature that we published recently. In it, Jo explains the influence that our Time Perspective has on our retirement planning behaviour. Would you like to learn more about your own Time Perspective and how it influences your planning? Or have your clients do so? Jo and her students are currently looking for participants over 45 years of age who are thinking about retirement or who are already retired to participate in a research study.

Participants will undertake online training modules and complete short surveys over a three week period. The study has UNSW ethics approval (No. 2430). To learn more, email retirementtrainingadmin@unsw.edu.au

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

LATEST...

Should investors look after PETS?
Understanding PETS - Political, Environmental, Technological/Scientific, Social - factors is relevant, if not crucial, to us as citizens. But to what extent are they relevant or important to investing?
Prof Jack Gray, UTS | Opinion

Bank hybrids - equity risk with bond returns?
We hear this one a lot. Overall, it's incredibly misleading. Bank hybrids offer better than bond returns with higher than bond risk, and lower than equity returns with much lower than equity risk.
Tim Farrelly, farrellys | Opinion

Greece, from bad to worse
Whatever the EU now decides at its summit on Sunday (the umpteenth, by my count), it will be costly. It is unlikely to work. And it was totally avoidable.
Oliver Hartwich, The New Zealand Initiative | Opinion

Burning bridges
Greece's creditors are likely to find it very difficult to compromise. Capitulate today and Greece will be back for more concessions in future. Many politicians will want to draw the line here and now, making Grexit highly likely.
Josephy McCallum & Gianluca Moretti, UBS Global Asset Management | Opinion

Markets from China, media commentary from Uranus
Despite all the negative ink that's been spilt over the recent collapse in Chinese equities, we continue to believe that a year from now there will be more marginal buyers of Chinese equities than today.
Louis-Vincent Gave, GaveKal | Opinion

The best approach to adjustable retirement withdrawals
The classic 4% rule holds withdrawals at 4% of the initial value of the portfolio at retirement. A great deal of recent research has focused on strategies that adjust withdrawals depending on investment experience.
Joe Tomlinson, Tomlinson Financial Planning | 0.75 CPD | Opinion

RECENTLY...

Whistleblowers, witch-hunts and wisdom
Recent reports covering IOOF have, in my view, widely missed the mark. The media, politicians and industry participants who have helped propel what to me looks like a witch-hunt need to stop and think.
Dominic McCormick, Select Asset Management | Opinion

Crossroads: Is it lower rates for longer? Or back to higher rates?
Will low interest rates be with us for decades? Or are higher rates ahead? Our Academy panel argues the case for "lower for longer" versus "back to higher" - and the implications for portfolios.
Hamish Douglas, Rob Mead, Chris Joye, Tim Farrelly | 1.50 CPD | Opinion

Greferendum and the markets
Contrary to most of headlines, the astonishing weekend events in Greece will almost certainly prove bullish for risk assets around the world and especially in Europe.
Anatole Kaletsky, GaveKal | Opinion

Shelter from the storm in Europe
The current focus on the downpour in Greece is understandable. But we should not be so distracted that we fail to prepare for two other possible storms – and the possibility that they converge into a perfect storm.
Mohamed El-Erian, Allianz | Opinion

Four geopolitical issues to watch
Four "big picture" geopolitical conditions will affect policy and markets going forward - in order of importance, the South China Sea, Russia returns, the end of Sykes-Picot in the Middle East, and the unwinding of the EU.
Bill O’Grady, Confluence Investment Management | Opinion

Member comments
Rising bond yields
It is very hard to discern between Jonathan's reflation thesis and bond market sell down/collapse due to extreme overvaluation as a result of QE...
James Rees | Comment

PLUS...

Register now: PortfolioConstruction Forum Conference (19-20 Aug)
Portfolio construction is approaching a crossroads – and critical questions must be answered. For starters, is the developed world’s 35-year (some say, 100-year) investment supercycle exhausted, heralding in an investment regime the likes of which most of us have never experienced in our careers? Or, is reinflation underway, signalling a return to higher rates and strong asset price growth and returns instead? Will active or passive strategies therefore be more appropriate? Complicating things further, what were only emerging megatrends early last decade have now become entrenched, causing massive structural change and further portfolio construction dilemmas. Critical decisions must now be made.

Since 2002, Conference has gained a reputation as THE investment conference of the year. This year's jam-packed, marathon two-day, 15-hour program features 30+ intensive, objective, interactive sessions and a carefully selected faculty of more than 35 international and local portfolio construction experts.

Conference 2015 will facilitate debate on the markets, strategies and investing with particular focus on portfolio “crossroads” - contemporary investment dilemmas and the resulting portfolio construction decisions. We'd welcome you joining us!
Register now

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