Conference 2016 - Resources Kit

Investing is supposed to be about the incremental replacement of human capital with financial capital over the long term - that's the theory. But the reality is that today's environment and our behavioural biases conspire against such a pure case. Fuelled by the 24/7 news cycle and constant churn of social media, the world operates on ever shorter cycles. Politicians promise what will see them re-elected, instead of doing what's best for multi-decade economic and social benefit. Companies focus on looking their best for the next reporting season, often at the expense of future growth. Public outrage flares, dissipates and moves on to the next issue within hours with social media fanning the flames.

In short - short-termism seems rife!  We see the effect in the ever increasing emphasis on fees and reporting of short-term returns for markets, securities, funds and portfolios. Is the concept of long-term investing increasingly irrelevant?

Conference 2016 facilitated debate on the markets, strategies and investing, with particular focus on the friction between short-term and long-term investing imperatives - and the portfolio construction decisions that must be made.

Quicklinks

This online Resources Kit is a key feature of the Conference 2016 program (in fact, all our programs feature an online Resources Kit). It enables all Members (whether or not they were part of the "studio audience" at the live program) to "attend". It's an invaluable set of continuing education material.

This Resources Kit includes all the presentations and papers for each session.

Session titles
Faculty of speakers
Session resources

An overview list of all the sessions from the jam-packed program;
50+ leading international and local investment professionals;
Presentations (sync'd video/audio with slides), papers, podcasts, slides and Faculty bios.

Sessions

The jam-packed two-day program delivered 50+ high conviction ideas on how to manage the friction between short-term and long-term investing imperatives - and the portfolio construction decisions that must be made.

Faculty of speakers

Conference featured a stellar line up 50+ leading investment thinkers from around the world, presenting their high conviction thesis around the Conference theme - The long and short of it (is long-term investing increasingly irrelevant?).

Session Resources

CRITICAL ISSUES FORUM 1

  

The long and short of it
Investing is supposed to be about the incremental replacement of human capital with financial capital over the long term - that's the theory. But the reality is that today's environment and our behavioural biases conspire against such a pure case. Fuelled by the 24/7 news cycle and constant churn of social media, the world operates on ever shorter cycles. Politicians promise what will see them re-elected, instead of doing what's best for multi-decade economic and social benefit. Companies focus on looking their best for the next reporting season, often at the expense of future growth. Public outrage flares, dissipates and moves on to the next issue within hours with social media fanning the flames. In short - short-termism seems rife! We see the effect in the ever increasing emphasis on fees and reporting of short-term returns for markets, securities, funds and portfolios. Is the concept of long-term investing increasingly irrelevant?

Graham Rich, Managing Partner & Dean, PortfolioConstruction Forum (Sydney)

Resources

Engaging investors' long-term view is our moral duty - part 1
The central moral question we have to address is: are we going to appeal to investors’ short-term emotions, or take a longer-term view and engage their reason? By encouraging investors to control their emotions and by choosing the right funds, we can help them meet their long-term needs.

Don Phillips, Director, Morningstar (Chicago)

Insight

Commitment brings the best out of liquid alpha - part 1
It remains possible to generate alpha from liquid strategies but investors must shift their focus away from short-term performance, and towards longer-term measurements of success. Commitment is one of the most powerful tools we can give people, to help them grow their portfolios.

Carol Geremia, Co-Head of Global Distribution, MFS Asset Management (Boston)

Insight

CRITICAL ISSUES FORUM 2

  

Philosophy
Purpose-driven portfolios perform better
Two thousand years ago, Socrates said "It is rational to be moral”. Yet today many assume a trade-off between investing for financial returns and social impact. This assumption is false and misleading. It underestimates the opportunities presented by serving real human needs at vast scale, and how downside risks are mitigated by 'backing the good guys'. There is a synergy between profit and purpose.

Andrew Kuper, PhD, Founder & CEO, LeapFrog Investments (Sydney)

Resources

The past is passive, the future is definitely active
Passive investment has flourished since the GFC but we are entering a new environment where active management will thrive. The opportunity for practitioners to add value has gone up significantly, and clients need advice on asset allocation and asset manager selection, now more than ever.

Charles Carroll, Deputy Chairman & Head of Global Marketing, Lazard Asset Management (New York)

Insight

Philosophy
We must change our legacy for the better
The financial system that we (banks, portfolio managers, researchers, advisers...) bequeath is unstable, un-trusted and built on inappropriate theory with mis-aligned incentives. Its dysfunction damages society through excessive short-termism, mis-allocation of resources, and abuse of power.

Jack Gray, PhD, Adjunct Professor of Economics, University of Technology Sydney (Sydney)

Resources

Short-termism obscures long-term vision
The long-term ambitions of investors and politicians are often thwarted by short-term pressures. For individuals with long-term investment goals, the solution may comprise a combination of passive and high conviction alpha strategies, in areas such as infrastructure, real estate and private credit.

Geraldine Buckingham, MBBS, MD & Global Head of Corporate Strategy, BlackRock (New York)

Insight

Engaging investors' long-term view is our moral duty - part 2
The central moral question we have to address is: are we going to appeal to investors’ short-term emotions, or take a longer-term view and engage their reason? By encouraging investors to control their emotions and by choosing the right funds, we can help them meet their long-term needs.

Don Phillips, Director, Morningstar (Chicago)

Insight

CRITICAL ISSUES FORUM 3

  

Client expectations are rising – average is not an option
Only asset managers who are able to meet client requirements, while navigating investment risk and responding to industry challenges, will survive. Client solutions will require the use of both smarter passive and high conviction active strategies, allocated in a way to meet the needs of individuals.

Martin Flanagan, CFA, CPA, President & CEO, Invesco (Atlanta)

Insight

Markets
Global policy rates will stay low for the rest of the decade
Yellen and the market (EDZ8) agree – there is a New Neutral. The result? Global policy rates will stay low for the rest of the decade. Short-term gyrations, data dependencies, and our innate need for immediacy create unwanted noise. Open the aperture to the secular horizon and you will see only a handful of major forces that could change this outlook.

Tony Crescenzi, Executive Vice President, Market Strategist & Portfolio Manager, PIMCO (Newport Beach)

Panel

Tony Crescenzi, Executive Vice President, Market Strategist & Portfolio Manager, PIMCO (Newport Beach)
Mark Burgess, Chair, Jamieson Coote Bonds Advisory Board / Channel Capital (Melbourne)
Luis Freitas de Oliveira, Portfolio Manager, Capital Group (Geneva)
James Swanson, CFA, Chief Investment Strategist, MFS Investment Management (Boston)
Stephen Weeple, Global Equity Portfolio Manager, Standard Life Investments (Boston)

Resources (Tony)

Resources (Panel)

Active managers require three ingredients for success
Active fund groups with the right combination of culture, technology and philosophy enable investors to protect and grow their capital in a complex world. By focusing on companies which generate free cash flow, fund managers can deliver positive risk-adjusted returns over the long run.

Bill Priest, CFA, CEO, CO-CIO & Portfolio Manager, Epoch Investment Partners (New York)

Insight

DUE DILIGENCE FORUM 1

  

Markets & Investing | Debt - Specialty
Not all Australian income funds are fit for purpose
Driven by uncertain financial markets and changing demographics, many investors have developed a preference for headline yields, paying scant regard for what is under the hood. Declining interest rates globally have made heroes of bond, infrastructure, property and equity investors alike – but the structural tailwinds favouring these asset classes are abating and the return outlook is muted and far lower than recent experiences and expectations. The structure of Australia’s domestic bond market has evolved over time – for instance, government debt issuance has grown enormously, along with greater liquidity and continued overseas investor interest in our market. However, many managers are hamstrung due to sub-optimal product design and approaches to investment management. As the Australian bond market grows and sub-sectors emerge, investor must ask – is my defensive allocation true-to-label?

Charles Jamieson, Executive Director, Jamieson Coote Bonds / Channel Capital (Melbourne)

Resources

 

 

Markets & Strategies | Equities - Global
Traditional asset allocation fails to capture long-term trends
Rapid technological innovation, near-instantaneous yet affordable communication, and demographic shifts are reshaping the world. These trends are long term in nature, influence multiple markets and have the potential to continue to generate powerful investment returns over the decades ahead. Already, they have changed the business landscape and spawned a new breed of companies – creative, nimble and networked. The traditional country/regional approach to asset allocation is not optimal for capturing these emerging new opportunities. Investors need to think more globally and long term, and less regionally and tactically.

Luis Freitas de Oliveira, Portfolio Manager, Capital Group (Geneva)

Resources

 

 

Markets & Investing | Equities - Specialty
Long-term investing is a fool’s paradise
"Prediction is very difficult, especially about the future." - Neils Bohr. Hindsight bias leads most people to severely overestimate their ability to predict the future. Finance principles tell investors to buy good companies at attractive prices and they should perform over the long term. The world is changing at an ever increasing pace, though, and what worked last century won't necessarily stand true this century. Adjusting to new information in a timely fashion is essential to long-term investment success. Who will do best in this 'new world' paradigm? Diversified strategies with many different sources of alpha or those taking a broader range of investment decisions will be able to deliver more consistent returns.

Sean Fenton, Director & Portfolio Manager, Tribeca Investment Partners / Grant Samuel Funds Management (Sydney)

Resources

 

Markets & Investing | Equities - Specialty
Demographics does not mean dull
Layering the investment decision – incorporating long-term with short term considerations by anchoring the investment decision in companies where earnings are driven by slowly emerging demographic trends, then incorporating participation in high growth, disruptive emerging industries – facilitates investor access to long-term structural growth. Demographic trends are long-term in nature, slowly emerging over time and as such are highly predictable. Equity markets on the other hand, are myopic, driven by companies focused on quarterly earnings and sell side analysts focused on one to two years earnings forecasts, at most. This represents an inefficiency available to the active equity manager to exploit, by focusing resources on forecasting outer year earnings. Demographic trends give a solid basis from which to forecast beyond the usual two-year time horizon. But demographics does not mean dull. Instead, it means a safer anchor from which to participate in newer disruptive industries, thus reducing investor risk in highly volatile markets. Demographic layering of equity investment decisions can be a powerful structural growth tool as well as a strong risk mitigator.

Alva Devoy, PhD, Investment Director, Fidelity International (Sydney)

Resources

 

 

Markets & Strategies | Multi-asset
Headlines battle facts, but fundamentals will prevail
As an investor, allowing yourself to be distracted by quick interpretation of market dynamics will lead to poor allocation decisions. Instead, we need to separate good information from distracting/immaterial information. The misunderstood business cycle is a perfect example. News flow has been focused on immaterial factors such as no/slow growth, higher/unjustifiable valuations and geopolitical risk. But long-term drivers persist – corporate profitability drives stock prices. Look to the facts that underlie superficial observations to see the true sustainability of returns within asset classes to make optimal allocation decisions. Ultimately, fundamentals will win out for long-term investors.

James Swanson, CFA, Chief Investment Strategist, MFS Investment Management (Boston)

Resources

 

 

DUE DILIGENCE FORUM 2

  

Investing | Equities - Global
Smart-beta managers can't replicate idiosyncratic stock selection
The active versus passive debate is being displaced by ‘active versus smart beta’ as investors increasingly diverge into these two groups. This trend is driving greater scrutiny of the drivers of active managers’ returns and if the drivers are sustainable over the longer term or if smart beta strategies perform just as well. Active managers need to demonstrate that their investment philosophy is designed to exploit inefficiencies that are sustainable over time, and are not overly-reliant on factors that can be replicated by a smart-beta approach.

Stephen Weeple, Director of Research - Equities & Global Equity Portfolio Manager, Standard Life Investments (Boston)

Resources

 

 

Strategies & Investing | Equities - Specialty
Prudently managed, equities are an excellent income generator
Catering to the rising demographic of baby boomers in retirement is proving ever more cumbersome, given traditional income producing strategies are no longer viable with interest rates at record lows the world over. Maintaining a solid level of income for the retiree must remain at the forefront of our thinking and a move up the risk spectrum into equities provides a solution. When managed prudently and focusing on income and capital stability, increasing equity exposure for the retiree does not have to be a daunting move. Breaking down the index shows that income and not capital has been doing the heavy lifting over the longer term. Companies that have through-the-cycle recurring earnings have proven over the long term to have both a stable and growing capital base – and have been excellent income generators. 

Jason Teh, Senior Portfolio Manager, Investors Mutual (Sydney)

Resources

 

 

Strategies & Investing | Equities - Specialty
Investor time horizons impact infrastructure returns
The genesis of listed infrastructure was to allow investors to access large direct infrastructure assets via a portfolio of listed securities providing liquidity for both investor requirements and portfolio management flexibility. Over an investment cycle, asset level returns between infrastructure businesses with common regulatory or contractual frameworks should be similar, and listed and unlisted infrastructure investment are complimentary ways to access the same underlying cash flows. Varying investor time horizons, however, lead to different valuation techniques, differing views of risk and, ultimately, the hurdle rates used for investment which all impact the investment returns both targeted and achieved. Understanding these differences is crucial to matching investment outcomes to client portfolio objectives.

Nick Langley, Founder, Co-CEO & Co-CIO, RARE Infrastructure (Sydney)

Resources

 

Markets & Investing | Alternatives
Data has and will continue to revolutionise financial markets
There has been a revolution in the growth of data – and, subsequently, attempts to use data to understand and predict the future. Finding patterns in data that predict futures prices in markets is now a reliable and tested approach to superior investment returns. The approach relies on an empirical, skeptical, scientific mindset - what does the data tells us is true - rather than a theoretical approach that believes in a set of economic axioms (the efficient market hypothesis being perhaps the most relevant and dangerous) – to identify signals to enable portfolios to make money in falling or rising markets.

Mitesh Patel, PhD, CFA, Vice President & Researcher, Winton Capital Management / Macquarie Investment Management (London)

Resources

 

Strategies | Multi-Asset
SMSF portfolios need an asset allocation rethink
SMSFs have a clear bias towards Australian equities (often direct and concentrated), property, and cash which can lead to poor investment outcomes. Increased diversification is a worthwhile goal for SMSF funds but this doesn’t necessarily mean locking into the longer term strategic asset allocation model favoured by so many other investors. In constructing a diversified portfolio, SMSF investors should adopt an asset allocation approach that considers both prevailing asset valuations and their own investment return and risk objectives. Current portfolios are inefficient - creating an opportunity for investors to either increase returns for the current level of risk or reduce risk to achieve existing returns over the shorter term.

David Wanis, Senior Analyst & Fund Manager - Multi-Asset, Schroders (Sydney)

Resources

 

 

CRITICAL ISSUES FORUM 4

  

Embracing low cost is an important principle
Cost structure will continue to evolve rapidly, as more firms and individuals realise that cost is the one component than investors can control, to improve their outcomes. Fee compression will challenge certain business models, requiring asset managers to demonstrate their value to clients.

F. William McNabb III, Chairman & CEO, Vanguard (Valley Forge)

Insight

Markets & Strategies
High returns with low risk is possible in a low/negative yield world
Is it now impossible to produce high fixed-income returns with low risk in the near-zero/negative cash rate world that prevails in the short- and possibly long-run without loading up on interest rate duration, credit or liquidity risk? Are cash/bonds dead as a result? No. It is possible to generate high returns with low risk irrespective of where short-term cash rates or long-term government bond yields may be. Distortions induced by unprecedented government interventions in asset pricing are creating tremendous opportunities for true “alpha” generation through active valuation models that find mispriced fixed-income securities that can bequeath substantial future capital gains.

Chris Joye, Co-CIO, Smarter Money Investments & Contributing Editor, Australian Financial Review (Sydney)

Resources

 

Markets & Strategies
It is time to go long Australian banks
Australian banks face a number of headwinds:
- Low growth in their lending books after many years of stellar growth;
- Dividends are under pressure and may not be sustainable;
- APRA will force them to raise more capital, diluting earnings;
- Provisions for credit losses on their commercial lending book will rise; and,
- The residential property boom could burst increasing credit losses on the banks home loan book.
These headwinds are real, but could better be described as zephyrs. The market knows all of this and has overreacted. Buy the banks.

Tim Farrelly, Principal, farrelly's Investment Strategy (Sydney)

Resources

CRITICAL ISSUES FORUM 5

  

Asset managers must adapt to serve their clients
Capital preservation and income are becoming more important, as cheap money inflates asset prices and growing numbers of baby boomers shift into retirement. Client needs are changing. And these changes will challenge asset managers, especially as the industry goes through consolidation.

Doug Hodge, CEO & Managing Director, PIMCO (Newport Beach)

Insight

Markets & Strategies
This time is not different, we’re just predisposed to think so
We live in uncertain times. Markets are volatile and events are unprecedented – or at least that’s what we’re told and have been conditioned to believe. The truth is a bit different. It’s true that we live in uncertain times and markets are volatile, but they always have been and they always will be. Investors should build their portfolios based on facts and without bias, not on conventional wisdom derived through sentiment, so as to navigate financial markets over the long-term based on knowledge of data, not conjecture. 

Philippe Jordan, President, CFM / Winston Capital Partners (London)

Resources

Finology
Lead for impact and with pride
We live in a time where leadership is often over-glorified. Politicians and high profile leaders with impressive titles get all of the attention in most media outlets, so it is easy to assume that leadership (or a lack thereof) only occurs in upper level, high status positions. The long and short of this premise needs to be scrutinised to question where the major impact really takes place, and how influential leadership moments are actually achieved, who achieves them, and the manner in which they are achieved. We must recalibrate our thinking.

Troy Hendrickson, PhD, Duke CE  (Perth)

Resources

CRITICAL ISSUES FORUM 6

  

Self-determination is the first step to achieving redress
Improving the relationship between governments and indigenous peoples in Australia is fraught with difficulty, and historically we have been unable to overcome entrenched problems. Greater self-determination and social justice for Aboriginal and Torres Strait Islander peoples, combined with meaningful constitutional reform, offer a path to progress.

Mick Dodson, AM, PhD, Director of the National Centre for Indigenous Studies, Australian National University & Professor of Law, ANU College of Law (Acton)

Insight

Markets & Strategies
Unfavourable candidates can be favourable for the US economy
There has never been a more divisive US election season than the one we are witnessing right now. While the rhetoric and opinion polls are captivating on a weekly basis, the long game is what matters. The hysterical cries to build walls and curtail immigration will not materialise under a Trump White House and when it comes to the economy., there are too many known unknowns. For Hillary Clinton, the market is underestimating what her White House would represent. Hers would not simply be a third term of the Obama Administration, but one that would see compromise on issues that would be supportive to economic growth and animal spirits.

Libby Cantrill, CFA, Executive Vice President & Executive Officer - Public Policy, PIMCO (New York)

Resources

 

Markets & Strategies
Geopolitical risk? Ignore terrorism, focus on East Asia
The media is focused on the terrifying prospects of more terrorist attacks, as well as the ongoing conflicts in the Middle East. Fueled by social media and society's focus on the short-term, the Islamic State continues to grip investors, despite losing 20% of its territory in Iraq and Syria. Meanwhile, geopolitical tensions between China, the US, and countries of South East Asia are growing. Most investors dismiss the region as a risk, since "much money is to be lost" if policymakers engaged in aggression. But we are today at a precipice of a left-tail risk event due to increasingly aggressive posture of all the countries involved.

Marko Papic, Chief Geopolitical Strategist, BCA Research (Montreal)

Resources

 
 

Panel

Libby Cantrill, CFA, Executive Vice President & Executive Officer - Public Policy, PIMCO (New York)

Marko Papic, Chief Geopolitical Strategist, BCA Research (Montreal)

Keith Suter, PhD, Managing Director, Global Directions (Sydney)

David Millar, Head Multi-Asset & Fund Manager, Invesco (Henley-on-Thames)

Resources

 

CRITICAL ISSUES FORUM 7

  

Patience is the hallmark of long-term investment
Long-term investment demands a patient mindset but it cannot be defined by holding period alone. Rather than adopting a set-and-forget approach, long-term investors should be engaged asset owners and take a broader perspective on risk, in order to achieve sustainable investment returns.

Hendrie Koster, Director of Strategic Research Pacific, Mercer Investments (Sydney)

Insight
  

Strategies
Long-term investing pays... if you can handle the pressure
The benefits of long-term investing extend beyond just being able to invest in illiquid assets. Patience can pay its own dividend. Short-sighted markets occasionally throw up great opportunities for those able to stay the course. The challenge is holding at bay the relentless pressures to respond and deliver over the short term. Doing this requires: an investment approach that cuts through the short-term noise; strategies for dealing with the fact that the long-term is distant and uncertain; and, managing agency issues, in particular having devices that shift the focus of evaluation away from short-term performance.

Geoff Warren, PhD, Research Director, Centre for International Finance and Regulation (Sydney)

Resources
 

Strategies
Manager benchmarking is a pox on both investors and markets
It seems sensible to make investment managers accountable by requiring them to perform relative to a benchmark. But this kind of motivation has a perverse effect, contributing to short-termism, market mispricing, risk-return inversion and booms and busts. Further, benchmarking is to the detriment of investment returns as it undermines the performance of those managers that do have skill. The ultimate in benchmark constrained portfolios are index funds which similarly fail both investors and markets. There is very little that appears sensible in investment markets that work for the investor.

Ron Bird, Professor, University of Technology Sydney & Course Director CIMA Investment Management Analyst Program (Sydney)

Resources

 

Strategies
Capital allocation is a (mostly) long-term game
Longer-term assessments of risk and potential returns will always underpin the construction of multi-asset or diversified portfolios, particularly where assets are less liquid, and will inevitably be held for the long-term. However, context matters: valuations matter, risk and opportunities posed by current and prospective macroeconomic environments matter, fees matter, as does the need to deliver competitive performance over time periods that end investors identify with. In reality, constructing multi-asset portfolios has to balance all these concerns in pursuit of the longer run real returns investors need.

Ian Patrick, CFA, Chief Investment Officer, Sunsuper (Sydney)

Resources

DUE DILIGENCE FORUM 3

  

Markets & Strategies | Equities - Global
Use centuries of investment wisdom in portfolios today
With all the wisdom of four centuries of investing, not much has changed in financial markets. Boom and bust cycles still exist and speculation is higher than ever. It seems animal spirits are still hard to tame, just as they were in 1720. Our human nature will not change quickly. What is constant over time is the cycle in the investment culture, driven by human behavior. Agency problems are being not solved and regulators have not created incentives for fund managers to decrease risk.

Jan Sytze Mosselaar, CFA, Senior Portfolio Manager Quantitative Equities, Robeco (Amsterdam)

Resources

 

 

Investing | Equities - Specialty
Tracking error causes short termism
What is tracking error? How is it measured? What are the goal-posts that active managers aim for? Tracking error constraints on active management focus on short-term outcomes and don’t align with most investor goals, which are longer term. So how else can portfolios be designed? The long and short of it is that a benchmark unaware approach gives the portfolio the opportunity to invest or indeed NOT invest across the entire benchmark universe. But investors don’t want to be exposed to just a few companies, they need diversity to manage risk in an increasingly uncertain environment.

Olivia Engel, CFA, MD & Head of Active Quantitative Equity Asia-Pacific, State Street Global Advisors (Sydney)

Resources

 

 

Markets & Investing | Equities - Specialty
Infrastructure provides reliable earnings irrespective of crises
The infrastructure asset class, when defined in a disciplined manner, generates reliable earnings from the provision of essential services to communities. Earnings are reliable because demand for infrastructure services is underpinned by long-term structural forces and this demand is highly price inelastic. The key risks to the earnings derived by infrastructure assets are either changes to the structural forces that underpin demand or changes to the pricing. While pricing could be affected by changes to regulation, demand could arguably be affected by terrorism, epidemics and technology disruption. History suggests that these risks are immaterial and, for the foreseeable future, earnings of infrastructure assets will continue to be reliable. Hence, provided investors define infrastructure in a disciplined manner, investment in infrastructure will continue to deliver investors reliable earnings over time.

Gerald Stack, Head of Investments and Portfolio Manager (Infrastructure), Magellan Asset Management (Sydney)

Resources

 

 

Investing | Alternatives
It's time to turn to liquid alternatives
Liquid alternatives have the potential to provide significant short- and long-term benefits for investors, helping reduce anxiety-inducing volatility and providing a return stream that exhibits low correlations to traditional asset classes. Such characteristics may be useful adjuncts to a typical stock and bond portfolio with the added benefit of liquidity. Critics have charged that liquid alternative funds have weaker returns due to their inability to invest in illiquid holdings, may not provide exposure to quality hedge fund managers, and exhibit lower performance potential due to restrictions on leverage. However it is important to not let common misconceptions about liquid alternatives undermine their potential benefits.

Sam Mann, MD & Head of Investment Solutions APAC, Franklin Templeton Investments & MD, K2 Advisors (Sydney)

Resources

 

 

Markets & Strategies | Multi-asset
Mind the Gap: 2-3 years is the most fertile hunting ground
Framing the appropriate investment horizon, with a comprehensive view of economic and market dynamics, is critical to generating returns and managing risks within a multi-asset portfolio. In this context, good investment ideas are revealed by adhering to a two- to three-year timeframe that dissects the conflict between short-term “cyclical” drivers and long-term “structural” trends. Furthermore, with most market participants distracted by short-term noise or focussed on mean reversion of long-term valuations, the gap in the middle is an under-researched and fertile hunting ground.

David Millar, Head Multi-Asset & Fund Manager, Invesco (Henley-on-Thames)

Resources

 

DUE DILIGENCE FORUM 4

  

Markets & Investing | Global - Debt
Spurn the supernova and fight the fear of fixed income
Fixed income has delivered positive absolute returns to investors for the past 25 years. With global yields at record lows, bond market Cassandras proclaim the formation of a supernova, warning of the investment perils. Such proclamations focus exclusively upon duration, and neglect the other sources of total return that are available within fixed income markets. Deeper analysis into each driver of total return reveals a far less ominous outlook, and one where positive outcomes are still more likely than negative ones. It's time to spurn the supernova talk, and stick with the core, defensive anchor provided by global fixed income.

Jeff Grow, Senior Portfolio Manager & Executive Director, UBS Asset Management (Sydney)

  Resources

 

 

Markets & Investing | Property
Over inflated long duration assets will lose you money
Real assets including real estate have overinflated valuations due to extraordinary low interest rates and a myriad of potential global exogenous risks. Current global real estate valuation are a cause of serious concern in the context of risk and returns with a focus on current fundamentals and an uncertain future. The frame work that is necessary to manage the trade-off between shorter term returns and longer term risks needs to be understood if investors are going to preserve and grow their capital.

Stephen Hayes, Head of Global Property Securities, Colonial First State Global Asset Management (Sydney)

Resources

Markets & Investing | Equities - Global
Global Equity Income - it's timing not time in that counts
We live in an uncharted world with cash and bond yields at or near historic lows and 40% of the world developed government bonds trading with negative yields. The returns and income expectations on long term buy and hold strategies have never been lower. Generating meaningful income and return in this environment calls for innovative thinking and an active mindset. While not traditionally known for income, there are literally thousands of dividend income opportunities amongst global companies offering short-term income and return generating opportunities which can provide income levels similar to Australian shares.

Don Hamson, PhD, Managing Director, Plato Investment Management / Pinnacle Investment Management (Sydney)

Resources

 

Markets, Strategies & Investing | Equities - Specialty
You don't own enough global small caps
In periods of heightened uncertainty, investors often prioritise avoiding short-term risks at the expense of long-term returns. Yet a satellite allocation to global small caps can increase portfolio efficiency over the long term as lower correlations can reduce overall risk and the small cap premium contributes to excess returns. Investors can harness the long-run benefits of active satellites like global small caps to drive better portfolio outcomes despite volatile markets.

Rob Failla, CFA, Client Portfolio Manager, Lazard Asset Management (New York)

Resources

 

 

Strategies | Alternatives
All portfolios must have an active currency policy
Going global is a fundamental step to improve portfolio outcomes through diversification. The long-term benefits of creating a well-diversified portfolio are well documented, however investing offshore requires currency exposure. Currency impacts can wash out over time, but its tidal forces are strong and independent of a client's retirement time frame. In a low return environment, these currency forces need to be understood, managed and captured. Currency is both a risk and an investment opportunity: A portfolio’s long-term currency settings are continuously being challenged by short-term market forces.

Dori Levanoni, Partner - Investments, First Quadrant / Affiliated Managers Group (Los Angeles)

Resources

 

CRITICAL ISSUES FORUM 8

  

Commitment brings the best out of liquid alpha - part 2
It remains possible to generate alpha from liquid strategies but investors must shift their focus away from short-term performance, and towards longer-term measurements of success. Commitment is one of the most powerful tools we can give people, to help them grow their portfolios.

Carol Geremia, Co-Head of Global Distribution, MFS Asset Management (Boston)

Insight

Finology
Impatience is very real but it can be managed
People vary tremendously in their degree of impatience, and for many it is a real struggle to take the long view. For them, it is a great challenge to stick to a budget, accumulate savings, and resist the urge to sell in a downturn. Practitioners must identify, early, their truly impatient clients and help those clients manage impatience. Recently, researchers have developed new methods for determining who is impatient and managing the tendency to seize immediate gratification at the cost of long-term goals. This frontier research shows us how to identify and manage financial impatience.

Daniel Silverman, PhD, Rondthaler Professor of Economics, Arizona State University & Head of Research, Capital Preferences (Arizona)

Resources

Finology
It's a whole new world out there and it's time to change
The last decade has brought dramatic change, leading to a quiet revolution in financial services. On the one hand, a perfect storm of low yields, low expected returns, and increasing longevity have placed enormous pressure on investors. On the other, the tools available to investors have multiplied to include ETFs, Smart Beta and Robo-advice. Investment managers need to change, offering outcome-focused solutions or genuine alpha. Practitioners need to change, moving away from a focus on simple performance towards holistic client management. The industry needs to change, rebuilding trust with better diversity and transparency.

Ron O'Hanley, President & CEO, State Street Global Advisors (Boston)

Jonathan Shead, Head of Portfolio Strategists Asia Pacific, State Street Global Advisors (Sydney)

Insight

Resources

CRITICAL ISSUES FORUM 9

  

Flexibility is key to goals-based strategies
Individuals underestimate the degree to which their lives will change over the long-term, so how can practitioners build portfolios which are likely to meet their clients’ future needs? A barbell approach may be prudent, combining both low-risk investments and higher-risk, longer-term allocations.

Michael Kitces, CFP, CLU, Partner & Director of Wealth Management, Pinnacle Advisory (Washington DC)

Insight

Philosophy
Let your philosophy be your rudder
Making investment decisions based on short-term market issues is akin to a casino - the outcomes are usually binary and almost impossible to predict. Be firm in your convictions, have a clear investment philosophy as this will be your rock in times when short-term noise plays havoc with your portfolios. All portfolio decisions should tie back to your investment philosophy.

Lukasz de Pourbaix, CIMA, Chief Investment Officer, Lonsec Investment Solutions (Sydney)

Resources

Investing
Look for the signal amongst the noise
When analysing investments, we too often only look at pure performance over too short a timeframe.  For better investment analysis we should seek to understand investment performance behaviour. To do that properly means we must lengthen the timeframe, adjust for risks, before we can begin to know whether value has truly been added.

Michael Furey, CFP, Managing Director, Delta Research & Advisory (Brisbane)

Resources

Finology
Hold your nerve to avoid the herd
Most investors don’t experience the same returns of the portfolio or fund they are invested in - and it's little wonder. If you start with a map to arrive at a specific destination but then change direction mid-journey, you end up in a different place. That's what most investors do. Investment discipline is the key - not emotion, not market noise - to ensuring you arrive at your planned investment destination.

David Wright, Managing Partner, Zenith Investment Partners (Melbourne)

Resources

This is not the time to stop thinking
While parts of the asset management industry appear to be dumbing down, we must continue to educate individuals on the differences between investment and speculation. It’s our duty to encourage investors to focus on the long-term direction of businesses and economies, rather than where share prices are going in the next 6-12 months, and they will be considerably better off in the long run.

Hamish Douglass, CEO, CIO & Lead Portfolio Manager, Magellan Financial Group (Sydney)

Insight

Andrew's story – The Wayside Chapel
Andrew, a baker at Sydney’s Wayside Café, has risen from rags to riches. Andrew’s story epitomises how disadvantaged people may, can and do re-engage with society and contribute positively, when given a hand up by the rest of us.

Andrew Windsor, The Wayside Chapel

Insight

Philosophy
There is a long-term impact to short-term thinking
Short-term thinking in finance is nothing new. However, improved technology and new political factors have transformed an old impulse into new opportunities. But where will it end? Paradigms don’t necessarily suddenly burst upon the world. A new paradigm may emerge slowly and without much publicity (much as economic rationalism itself emerged as a political idea in the 1970s, ). Listen for weak signals - ideas may emerge in some unconventional ways.

Keith Suter, PhD, Managing Director, Global Directions (Sydney)

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