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PortfolioConstruction Forum


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 Friday 25 September 2015

Independent continuing education for investment portfolio construction practitioners


Much has been written this week about the Fed's rate decision. So Fodder kicks off with two perspectives on the move (or lack of!) that look beyond the here and now.

In the first, Gavekal's Anatole Kaletsky argues that the Fed was considering four important issues that are frequently misunderstood - including the impact of its policy internationally.  In the second, Dr Bob Gay lists the many similarities between now and 1987, 1998 and 2005 - and argues what lies ahead (a buoyant 2016, and an equities sell off in 2017).

Irrespective of the "lifeline" the Fed has thrown the EM (as Anatole puts it), EM policy makers are at a policy crossroads but are unlikely to make the right changes, according to BCA Research's Marko Papic in his recent Conference presentation. As a result, emerging market equities are a value trap, he warns.

Regardless, deciding how much risk to take with a client's investment portfolio isn't the primary issue, according to faculty member, Michael Kitces. Rather, the risks associated with their greatest asset - their human capital - should drive the risks taken with their financial capital (i.e. portfolio). Michael's article is a great summary of the key points of Moshe Milevsky's top rated presentation "A client's life is a mix of stocks & bonds - allocate around it" at Conference - and, in fact, Michael references Moshe's book.

On the "investing" front, CPD accreditation is now available for the AMG research paper on the "boutique premium" i.e. boutiques significantly outperform non-boutiques and indices. Check out the accompanying presentation from Conference.

Finally, this week's video insight is from AB Global's Vadim Zlotnikov who sees the current market turmoil as an opportunity to reposition portfolios - the longer your horizon, the more you should be tied to a reflation scenario; the more you focus on risk, the more weight you should put on low growth strategies, he argues.

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

P.S. CPD accreditation for the recent PortfolioConstruction Forum Conference will be available in MyCE on Monday. If you didn't attend the onstage program, you can "attend" online and earn CPD.


The Fed throws EMs a lifeline
Yellen has confirmed what should have been obvious all along - the Fed is not indifferent to international financial stress and its risk management approach remains strongly biased in favour of "lower for longer". But four things about US monetary policy are frequently misunderstood.
Anatole Kaletsky, GaveKal

What do 1987, 1998, 2005 and 2015 have in common?
In all of 1987, 1998, 2005 and 2015, the US economy was close to full employment, inflation was tame, commodity prices low, EMs were under financial strain, volatility roiled financial markets, the US dollar was strong, and US monetary policy was excessively generous. And what followed?
Dr Robert Gay, Fenwick Advisers Opinion

Crossroads... Alpha & Smart Beta… fact, fallacy or fantasy?
After wasting the Goldilocks Era, EM are at a crossroads
EM policymakers have wasted their commodity-fueled Goldilocks Era and are sitting at a crossroads. Without a dramatic policy shift, EM are a value trap, if not an outright bubble.
Marko Papic, BCA Research
* Rated in the top 5 of 40 presentations by Conference 2015 delegates

Investing around human capital
Focusing on a client's investment portfolio alone ignores their greatest asset - their ability to continue earning income through the fruits of their labor, also known as their "human capital". Deciding how much risk to take with financial capital given a client's human capital risks is crucial.
Michael Kitces, Pinnacle Advisory Group Opinion

The boutique premium
While the debate over the value of active investment management has intensified in recent years, the outperformance of boutique managers over non-boutiques and indices has been overlooked.
Affiliated Managers Group
| 0.75 CE White Paper

Opportunity in turmoil
Turmoil often provides a fantastic opportunity to reassess one's portfolio - and we're currently going through exactly such turmoil. The question is: what are the critical issues that investors should focus on as they rethink portfolio positioning today?
Vadim Zlotnikov, AB Global Opinion

Member comments
Real Return funds…lacking reality?
Michael, I'd agree that CPI + 5% is certainly a tough target, and even more so in this current environment...
Andrew Ash, Wealth Market

Real Return funds…lacking reality? Or are they?
David and Andrew have put it almost exactly how I would put it. Michael, your article implies that the Objective Based investment funds are doing nothing more that holding on to assets...
Paul Hodson, Abbotts Wealth Management


The residential housing bubble to cause a recession?
The Australian residential property market is stretched. But about to crash, triggering a recession? It's nuts and you can clearly see it's nuts.
Tim Farrelly, farrelly's

Crossroads... The Australian economy – recession or “she’ll be right”?
An Australian recession - possible, but not probable
It's been almost 24 years since Australia's last recession. It could be said Australia is “due for one”. While it would be foolish to say that the chances of a recession in Australia are zero, it's also wrong to say that they are over 50%.
Saul Eslake, Independent Economist Resources
* Rated in the top 10 of 40 presentations by Conference 2015 delegates

The EU is falling apart
Europe in 2015 stands at the crossroads. The euro crisis and the refugee crisis are testing the foundations of the European project. Even if the EU survives this challenge, it will be a much changed and probably much weaker.
Oliver Hartwich, The New Zealand Initiative

The 3 key drivers of markets
The last few weeks have felt like riding on that old, antiquated rollercoaster – unexpected turns, harsh stops and, frankly, no clear sense of when the ride was going to end. Why have markets reacted so sharply, and what's ahead?
Charles Dallara, Partners Group Opinion

Undiscovered Fund: Au shares strategy with strong downside protection
An actively-managed Australian shares strategy that is complemented with strong downside protection capabilities, with the aim of reducing losses in market downturns by approximately 50%.
Zenith Investment Partners

Member comments
Real Return funds…lacking reality?
Michael, I agree, but with a few qualifications. I agree that the chances of a manager hitting their CPI + 5% objective are low in the latter stages of a bull market...
David Blunt, Perpetual Private Wealth

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