The quarterly Dynamic Asset Allocation is published electronically, and emailed to subscribers in early March, June, September, and December. It features farrelly's Editorial; long-term outlook for markets; Forecast in Focus; and three different approaches to Implementation...
Classical economists often incorporated human behaviour into their thinking. But in the 1960s and 1970s, homo economicus - the great rational agent of economic theory - was born. It was not until the 1990s that the link between human behaviour and economics began to be re-established.
This lecture instructs IMAC candidates on the fundamentals of investment portfolio performance measurement and attribution.
Beliefs interact with investors' biases and preferences to ultimately influence their behaviour. Two recent papers highlight the impact of individual investors' beliefs about the future and the impact on portfolio behaviour and composition, as well as market returns.
Private Equity is becoming a more widely available asset class. However, like any asset class, it has its nuances and risks. A key area of complexity is fees. Some seemingly minor differences in fee structure can make a material difference to total fees paid.
Relatively little is known about what greed is and does. These two papers highlight the importance of greed in economic behaviour, and to a greater chance of engaging in ethically questionable behaviour.
This lecture instructs IMAC candidates on the principles of various portfolio risk management strategies.
Culture explains much about how we think, feel, and behave. These two papers explore the influence of culture and cultural distance in a financial context.
The world today is an acceleration and escalation of the world that existed before Covid-19, rather than a whole new world. Broad, multidisciplinary thinking is essential.
For investors needing more from their fixed income allocation, global convertible bonds offer a whole new world of opportunity.
Decarbonisation and data growth will dominate every aspect of our lives for decades to come. If your infrastructure manager isn’t leveraging off these themes then you need to find a new one.
We are at the threshold of an epic bull market buoyed by the emerging Buenos Aires Consensus and desensitisation to Covid-19. But beware, inflation will eventually re-emerge.
Incumbent investment frameworks such as Value, Shorting, Passive and Index Aware strategies are failing. Going forward, successful investors will need to be extremely selective when allocating capital.
Since the early 1980s, developed market government bond yields have broadly been falling, with investors voicing concerns that the asset class offered little or no value. Continually, they have been proven wrong.
Investors should not attempt to time, but rather allocate to well-diversified and balanced multi-factor portfolios and provide consistent exposure to targeted factors.
This lecture instructs IMAC candidates on the characteristics and analysis of options, futures and other derivative investments.
There have been few US elections with such a discernible difference in the likely quality of the two candidates' economic policies. In this case, Biden's are better. Post-war Democratic presidents have been significantly better for the US economy than Republicans have. There is every reason to believe that trend will continue if Biden wins on 3 November.
These two papers provide a more sophisticated, behavioural understanding of time discounting, to enable more nuanced conversations with clients about current and future consumption, and help mitigate the potentially negative impacts of present bias.
This lecture instructs IMAC candidates on the fundamentals of client discovery and formulating an Investment Policy Statement in the investment consulting context.
It turns out that 'retiring’ and withdrawing from productive life actually conflicts with our own natural drivers of well-being. The concept of ‘retirement’ is an obsolescent by-product of the industrial era that needs to be retired.
This lecture instructs IMAC candidates on the history of global capital markets and the key principals of capital market valuation.
These two research papers present insights into how advisers can better assess and guide how clients think about and structure goals - including savings goals.
In April, I argued equity markets might continue to rally despite the collapse of the world economy. And so they have. But in my 40 years of observing and participating in financial markets, I've learned that August is always a month to watch.
This lecture instructs IMAC candidates on the statistics used to describe and analyse the risk and return characteristics of securities and portfolios.
We make automatic assumptions on a daily basis. A critical assumption is that our pre-crisis investment management toolkit will remain relevant in the future.
No matter how big an economy, it is likely to be influenced by US economic growth, international financial stability, and monetary policy spillovers. The challenge for other countries now is to reduce America's "execution risk".
Despite difficult times in recent years, momentum has been the factor that has generated the highest returns over the past 50 years. Three new papers on the topic take us into largely new territory and improve our understanding on how markets operate.
The risk today of a debilitating 1930s-style overshoot in deglobalisation is massive, particularly if the US-China relationship continues to fray. And it is folly to think a retreat from globalisation will not introduce more, vastly more serious, problems.
The US jobs report this past week was euphoric and propelled the stock market to even higher levels. But after the easy gains over the next two or three years from reopening the service sector, the US economy faces a slow nine-year recovery. US equities remain overvalued.
One of the touted benefits of hedge funds is that they provide returns that are largely uncorrelated with other risky assets. In practice, hedge funds returns are highly correlated to equity markets during downturns - when it matters.
Memory is far from being a repository of neutral, reliable information and accounts of past events. This Research Review focuses on a seminal paper published in 1999 on "the seven sins of memory", and a recent 2019 paper on how memory errors impact investment decisions.
According to a new World Bank report, China’s total income has now surpassed the US’s on a PPP-basis. But on a GDP basis, the US economy is still far ahead of China’s. Both measures have distinct implications for geopolitics, so must be considered separately.
As ESG investing has leapt into the investment mainstream, it has become the focus of much academic research. Recent findings show that despite the many positive ramifications of ESG investing, it reduces the efficiency of markets and can introduce risk exposures in portfolios.
The global economy will be shaped in the years ahead by three trends. While COVID-19 reinforces and entrenches them, it is not the primary force driving them. All three predate the pandemic. The fate of the world economy hinges not on what the virus does, but on how we choose to respond.
For those who viewed negative interest rates as a bridge too far for central banks, it might be time to think again. Emergency implementation of deeply negative interest rates would not solve all of today's problems. But it would be a start.
If on 1 Jan 2020, I’d thought we’d see US unemployment head to 20%, China’s first quarter real GDP growth at -10% and the global economy shut down, I wouldn't have picked the S&P PE Ratio would now be above its long-term average since the GFC.
As the COVID-19 virus spreads globally, many emerging and developing economies will stop paying their debts. The world needs to get in front of the problem.
The move to compulsory superannuation placed huge responsibility on individuals to manage their portfolios. A regular response is to educate people to a higher level of financial literacy.
On Monday, the US central bank acted with stunning shock and awe. Then, government after government announced the biggest fiscal support packages ever seen in history. All of which begs the billion dollar question - sorry, multi, multi trillion dollar question. Are we out of the woods?
While pandemics are comparatively rare, and severe ones rarer still, I am not aware of a historical episode that can provide any insight as to the likely economic consequences of the unfolding global coronavirus crisis. This time truly is different.
This is a time to be buying not selling. Question marks remain as to how far this market will fall before it bottoms out. But what we do know is that valuations are attractive. The chances of long-term investors earning returns well in excess of Term Deposits over the next five to 10 years are very, very high.
Two weeks ago as the coronavirus crisis began to unfold, I warned that the market could soon drop to 17,500 on the Dow. One very important form of investor ignorance today concerns the market's view that it is prospects for corporate earnings that will matter most. This is wrong.
The market has now woken up to the size of the traumatic shock to the global economy, which just hit a massive air pocket. In the next few weeks, financial markets and the broad capital markets will come under severe stress. How does this end?
New research shows that media sources generate emotions that transmit to individuals and so influence their investment decisions, resulting in a departure from so-called efficient markets.
Over shorter periods of time, there are market inefficiencies due to well researched behavioural biases. Knowledge of these can help improve our own investment decision making and that of our clients.
Finology is an interesting and unique mix of behavioural finance (“fin”) and investor psychology (“ology”) as it relates to giving investment advice to individual investors. Finology is where investing meets investors™. The finology discipline focuses on identifying investing biases, beliefs and behaviours and the investment outcomes. To achieve this, finology connects behavioural finance and investor psychology - encompassing "know the markets", "know yourself" and "know your clients". Finology knowledge and skills help us better identify and understand how our own and other people's different investing biases, beliefs and behaviours impact investment markets and portfolio construction practices - and therefore, investment outcomes - to enable better quality investor portfolios.
Markets Summit 2020 facilitated debate on the key drivers of and outlook for the markets (on a three- to five-year view) - with particular emphasis on being alert to the high VUCA risks and opportunities ahead - to aid your search for return, and to help you build better quality investor portfolios.
The current VUCA environment creates opportunities for investors to increase diversification and income in their diversified portfolios, using carefully selected, higher yielding parts of the credit market.
As the old certainties break down, the response from policy makers has been to stimulate economies. The liquidity provided is particularly evident in longer dated growth assets. In the context of the Australian market, Australian mid caps is the sweet spot.
The world has checked into Hotel California – interest rates are failing to stimulate demand and monetary policy is less effective. Successful adaptation will require a re-think of traditional strategic asset allocation approaches.
Trade Wars, the US Election, Brexit 3.0, natural disasters and pandemic risks are causing fear and uncertainty in Australian equity investors. The key to capturing opportunities is to focus on what matters to long-term returns.
High household debt places Australia in a fragile position for further disinflation, implying that bond yields will remain lower for longer. Investors should look to accumulate bonds and ensure portfolios have an appropriate defensive allocation in anticipation of the next downturn.
The US-China trade deal was supposed to settle global trade uncertainty in 2020. Nothing could be further from the truth. Diversified supply chains are vital to minimising VUCA risks into the 2020s.
Financial decisions are among the most important life-shaping decisions we make. Two recent research papers provide further evidence as to how practitioners can help improve clients' financial decisions.
I believe time allows signals to surface amidst the ubiquitous noise. In the spirit of the hit Fleetwood Mac song "Don't Stop" that urges a future focus, I offer this year's set of five-year-forward global predictions.