If the EU were a soccer team, it would not lose games for lack of a plan or inadequate capacity. The problem is that the team is not playing cohesively, and the top players are struggling individually.
A recent research paper looks at the impact of "The Donald" on markets, while a second examines the impact of robo-advice on investor behaviour.
This paper studies the long-term returns of US equities to determine whether earnings yield is a reasonably reliable estimate of forward real returns. Understanding the interplay of growth, value and yield provides a framework for assessing investments.
An inflation target of a few percentage points may seem to promote stability - but we need to consider that it may have the opposite effect on the stability of our judgments.
This view has dominated finance theory for the last 50 years or so. But prices change because people trade, and those trades leave behind a trace of all the behavioural biases people bring.
Chess masters can play simultaneously against several players. The more time passes, the more US President Trump's international economic strategy looks like such a match. There are three games.
Two recent papers looking at hedge funds provide further evidence that the more proactive managers are the best performers.
When China finally has its inevitable growth recession, the world is likely to discover that China's economy matters even more than most people thought.
Where portfolios are invested to achieve goals, the first step in the process should be to align the investor's goals - not the portfolio - to their risk tolerance. Implementation is then straightforward.
It wouldn't be surprising if the 10-year T-bill rises to 5% or more in the next few years, taking real yields back to over 2%, and causing the P/E ratio for US equities to return to its historical benchmark.
We give a 20% chance to a US corporate debt bubble burst before end 2020. It is both incredible and unconscionable that massive leverage could once again bring down Main Street a mere decade after 2008.
It was inevitable. Another upturn in the US inflation cycle is at hand. The Fed is entirely correct to send the message that there is considerably more to come in its current tightening cycle.
It is a common misconception that profit and impact are mutually exclusive. In fact, managing for mainstream risk-adjusted returns and creating a positive impact can be achieved in parallel.
Potential returns on traditional assets are falling and the search is on for different sources of attractive returns. The Australian Asset Backed Loans asset class deserves a place in many portfolios.
Since the global financial crisis, people have searched in vain for a more productive integration of finance, behavioral economics, and macroeconomics. The publication of a new book gives hope yet.
Two recent research papers on investment management look firstly at the implications of overconfident managers and, secondly, at career risk associated with poor investment performance.
There is no silver bullet to portfolio implementation. Both managed funds and managed accounts can provide a more streamlined and sophisticated portfolio implementation solution – and both have pros and cons.
There are many lessons to be learned as we reflect on the 2008 crisis, but the most important is that the challenge was – and remains – political, not economic. Secular stagnation was just an excuse for flawed economic policies.
In the 1950s, Markowitz showed that low or negative correlation is the secret sauce that makes diversification work. While his maths stacks up, the way it is often abused, does not.
As we mark the decennial of the collapse of Lehman Brothers, there are still ongoing debates about the causes and consequences of the GFC. By 2020, conditions will be ripe for a new financial crisis.
Portfolio Construction Forum's 23-page submission to FASEA in response to its proposed guidance on future CPD explains why the proposal is fundamentally flawed, and falls well short of any reasonable community expectation of FASEA and what drove its formation.
Markowitz informed us of the risk-reduction advantages of diversification. But just how diversified does an investor have to be to realise almost all of the benefits of diversification?
The fallacy that an inverted yield curve "predicts" the onset of recessions is alive and well. Many investors believe the curve will invert in 2019, precipitating a recession. But a flattening of the yield curve need not imply a recession.
FASEA's proposed CPD standards will fail to lift the educational standards required of an emerging profession, as they only address the 'Continuing' aspect of CPD, and ignore the crucial 'Professional' and 'Development' elements.
There will always be movements in markets that we need to be attentive to, and you should construct a portfolio that takes advantage of fear. But don't let that fear drive the dominating principles in your portfolio construction.
The future is, by definition, uncertain, as are financial markets. To prosper in such an environment, we need to be emotionally agile in order to align our values and actions and, in turn, help investors achieve their financial goals.
Investors have long relied on two crystal balls when predicting future returns: equity risk premium and the yield curve. Crystal balls have their place, so long as they are combined with an uncommon degree of common sense.
A disciplined, scenarios-based approach to determining your views on the outlook for markets and then the asset allocation implications can help future-proof portfolios.
'Future-proof portfolios’ are entirely achievable. Given the complexity of developing retirement investment strategies, a ‘whole-of-portfolio’ approach and framework is warranted to achieve better long-term outcomes for clients.
If US bond rates go higher from here, it is likely to be in response to something we don't yet know, rather than what is already out there. Markets are not nearly as dumb as many suggest.
Re-evaluate the conventional assumption that owning government bonds is inherently defensive and risk diversifying. At best, it's an expensive choice and at worst, it won't work.
November 2018 will mark the tenth anniversary of quantitative easing - undoubtedly the boldest policy experiment in central banking modern history. There are five key lessons learned from QE.
A recent study gives us a better understanding into the decisions made by older Australians between consumption and saving.
The sustainability of global growth depends largely on the US and China. One hopes that someone close to Trump can turn him around before his policies derail the world's long-awaited recovery.
For the first time in a decade, the biggest risks are now stagflationary (slower growth and higher inflation). It would seem that the current risk-off era is here to stay.
An Investment Committee is key to a well-constructed portfolio. Your IC's toolbox must contain the appropriate tools, making governance a key pillar of your portfolio construction process.
For 10 years, the world chased yield - flows into emerging markets were massive. As rates rise, money will move to safer environments. It’s time to protect portfolios against major outflows from emerging markets.
There is quite a bit happening on the geopolitical front right now to concern markets. With all this uncertainty, the best thing to do is nothing. Sit tight and enjoy the show.
Trump and team continue to flaunt virtually every principle of conventional economics. A trade war may well be an early skirmish in a much tougher battle, during which economics ultimately trumps Trump.
A fundamentally driven and benchmark unaware exposure to smaller companies within the emerging markets sector, this fund represents a unique way for investors to access emerging markets.
Game changer or new danger? The rise of passive funds throughout this decade is recalibrating the traditional core-satellite portfolio model.
Since the GFC, the value of non-financial companies' outstanding bonds has nearly tripled. While a correction seems likely, the broad shift toward bond financing is actually a welcome development.
There is often confusion about income in retirement. In most cases, some income measures won't give retirees enough to spend, resulting in a lower standard of living than they could be enjoying.
Over the years, I've seen countless portfolios. Virtually all have had a pre-defined asset allocation aligned to a risk profile. But occasionally, that's where the alignment ended.
Two recent academic papers focus on how advice provided to investors might be distorted. The first relates to the disposition effect; the second looks at the impact compensation on advice given.
The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
Quantitative Tightening is jangling the nerves of investors around the world. It's unprecedented and so no-one knows for sure exactly how it will play out. But all the evidence points to QT being a non-event.
There are now nearly 2,000 cryptocurrencies, and millions of people worldwide are excited by them. As with past monetary innovations, a compelling story may not be enough.
New means test rules for pooled lifetime income products, together with development of CIPRs, have the potential to radically alter Australians' views on retirement income products.
Masterclass NZ is a post-graduate extension program focused on contemporary issues that are fundamental to building better quality portfolios. Each year, the one-day program features five research-based, active learning sessions.
Eugene Fama described momentum investing as the one remaining market anomaly. A recent paper gives an explanation for it. Another shows it still offers high profits after implementation costs.
Many baby boomers are retiring with decent super balances and need advice on spending their retirement savings appropriately. Consuming capital for a higher standard of living is, after all, what super is for!
It is generally accepted that stock markets provide long-term outperformance over cash. However, a recent academic research paper reveals this is not the case for the majority of stocks since 1926.
In a presidency that has shown little regard for conventional institutional norms, how can one explain Donald Trump's completely reasonable appointments to the Federal Reserve Board?
President Trump's protectionist threats have raised the risks of a serious trade war, the first in over 80 years. It is assumed that this would materially impact US growth - but is that the case?
Investors are increasingly questioning the continued relevance of bonds in their portfolios. But bonds offer enhanced diversification qualities during times of low growth, low inflation and market uncertainty.
Asset allocation is often regarded as the most important portfolio decision, with asset classes then populated by investments. But this two-step approach can an asset allocation and investment selection mismatch.
Around the world, populist economic policy seems to be in retreat. Even in Britain, a majority support a “meaningful vote” on whether the final deal with Europe is genuinely better than staying in the EU.
That's the view that Guy Debelle, Deputy Governor of the RBA, outlined in a recent speech. It's a timely warning - but what do we do with it? I think it depends on your investment time horizon, as do so many investment decisions.
Nearly all recent initiatives of the Trump administration will prove to be macroeconomic blunders. The time has come to upgrade the credit quality of investment portfolios and to focus on the currencies of creditor countries.
As we consider the life expectancy of many clients, we should not be using any number in the 80s. A figure closer to 95 is both more realistic and provides a little buffer in case the individual lives longer than the average.
A retiree's spending will change over time. However, changes in spending profile over time are often ignored when it comes to retirement income planning.
The US/China trade confrontation is heating up and market analysts are scrambling to figure out what will come next. It's tempting to rely on historical experience but history is likely to be a poor guide.
Recent research examines the performance of active bond managers, and the impact of performance fees on returns of active equity funds and private equity funds.
The time has come for national governments around the world to start issuing their debt in a new form, linked to their countries' resources.
About 30 years ago, Canadian researcher Don Ezra identified the ‘10/30/60’ rule - in retirement, 10% of income comes from contributions, 30% from earnings on investments before retirement, and 60% from investment earnings accrued after retirement. Does this rule still apply in Australia, given our current economic conditions?
The concept of diversification may seem to be second nature. However, some of its fundamentals are often misused and sometimes misrepresented.
Neither policymakers nor markets should bet on the past decade's slow growth carrying over to the next. The best bet is that AI and other technologies will have a much larger impact on growth than up to now.
It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur. Most of the coins are little different from railway stocks in the 1840s, which went bust when that bubble – like most bubbles – burst.
The peddlers of the Bond-cano narrative give very different recommendations. Even if we buy the story, it's just not clear what to do - all of which suggests that it is just a wonderful narrative.
In my opinion, the asset-price volatility we have been seeing has little or nothing to do with changes in fundamentals. And the widespread use of machine-driven trading is likely making all of this worse.
It should come as no surprise that enthusiasm for economic and financial globalisation has faltered. Building consensus around a revised unifying paradigm will not be easy.
In nine pages, this paper says all that needs to be said on the ability of any of us to estimate the true value of financial assets. The next two papers produce conflicting findings on the impact of index investing on markets.
Was the recent market volatility predictable? Was the volatility exogenous or endogenous in nature? What lies ahead as regards inflation and interest rates?
Let's be absolutely clear - the recent plunge in equity markets has almost nothing to do with inflation or a changing of the guard at the Fed.
We are moving ever closer to the date when payment for today's recovery will fall due. Recent capital market gyrations suggest that awareness of the inevitable reckoning is already beginning to dawn.
There are themes and stocks that last for decades. Whether the investment horizon is three to five years, 10 years or even 30 years, it is likely investors will benefit from thinking about the universe of themes and stocks for generations to come.
Despite the view that computers will come to dominate certain areas within financial planning, the reality is that there are still ways that computer-human duos can be more effective than computers or humans alone.
While economics studies how humans allocate scarce resources, and psychology studies the human mind and behavior, there is a gap at the intersection between the two – an emerging new body of knowledge dubbed, "Finology".
The general uptrend in the broader equity market seems set to continue given economic data globally remains robust and central banks very accommodating. Given divergent risks, investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
Every generation or so, things (in the economics world) break. We're probably at or close to one of those once-in-a-generation moments. Watching monetary indicators is key.
There are five areas where the early effects of technological change on the world economy are believed to be investible today.
Headlines seeming to portend political instability and chaos have not prevented stock markets from soaring. What gives?
The holy grail is to find active managers who can add value. The combined insights of these two papers suggest avoiding large managed funds, especially those under the control of managers who run a concurrent SMA.
It is the time of the year when those in the forecasting business like to lay out our expectations for the coming year. Here are mine...
Income layering is a goals-based approach to building an investment portfolio that is likely to be beneficial to a wide range of retirees - especially those worried about how to sustain spending in the later stages of retirement.