Disciples of factor-based investing need to respond to a new challenge - while factor analysis is valuable for two reasons, investors are better served by a strategy based solely on allocating to asset classes, a new study claims.
The efficient frontier for retirement income generally consists of combinations of stocks and income annuities - perhaps surprisingly, bond funds do not serve a useful role in the optimal retirement income portfolio.
With interest rates at record lows, it is a really good time to revisit how we build debt portfolios. A three box approach can really help in making and communicating investment decisions for the secure part of their portfolio in the new, low interest rate environment.
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.
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?
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.
The progress we have seen in European markets in 2015 is sustainable over the next 12 months. But, investors should temper return expectations and anticipate continued market volatility.
PortfolioConstruction Forum Strategies Conference 2015 featured a carefully selected faculty of more than 35 international and local portfolio construction experts offering their best high conviction ideas about critical portfolio "crossroads". Here are the highlights.
Our eclectic Panel - a politician, a pastor, a professor, a portfolio manager, a practitioner, a provocateur, and a 'preneur, moderated by our Publisher - addresses Conference 2015 delegates' questions about key Crossroads, Dilemmas and Decisions.
A recent survey of 1000 Australian investors found that individuals who are advised have greater confidence in their retirement readiness and a heightened awareness of the retirement strategies and solutions available.
The danger that “sequence of return risk” can devastate a retirement portfolio is both increasingly recognised and frequently misunderstood. Three concrete, research-driven strategies can help manage it.
Portfolio construction specialists face a new set of challenges. What matters is the ability to deliver a robust and predictable outcome. This requires institutional capabilities.
While 36% of investors say they are ‘reviewing their need for downside protection’, only 8% are currently implementing it. Yet there are many strategies to manage risk in portfolios.
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.
With traditional asset classes expensive and historically low yields on bonds compromising their role as a diversifier, investors are at a crossroads. Investors should be looking for alternative sources of return and genuine diversification.
Recent stock market volatility demonstrates that asset price growth expectations can’t be taken for granted in China, despite intervention from policymakers. The bursting of China’s property bubble poses a major risk to the stability of China and the global economy – and a critical dilemma for investors.
QE has driven a search for yield globally, resulting in a unique Australian experience that has seen the major ASX indices become increasingly concentrated. We are at the crossroads for active Australian equity management.
The US Federal Reserve is (reluctantly) ending a long period of abnormally low rates. Investors should consider flexible benchmark unaware approaches in their fixed income portfolios, to potentially mitigate adverse market conditions going forward.
Investors need to be more focused on downside risk management. An environment of lower expected returns and higher volatility means risk management is just as important as return management.
The diverse range of quality small cap companies with recurring earnings and growing dividend yields offer investors essential risk diversification and should be incorporated into portfolios.
Our panel debated the contrasting views of the two presenters who addressed this "crossroad" - that rates are likely to go higher than most expect over the next three years vs that markets will go on tolerating lower interest rates for far longer.
The view that markets will go on tolerating lower interest rates for far longer is the more benign, market friendly (almost bullish) outlook than the common thinking that higher interest rates will be good.
With the Fed signalling its intention to raise rates, there is great disagreement about the quantum of rises ahead. Rates are likely to go higher than most expect - and the risk of a material equity market correction is elevated.
It is time to properly account for risk characteristics of client’s most valuable asset - their human capital. This isn’t easy to implement and places practitioners in a difficult situation...
Investors can substantially improve the risk/return characteristics of their strategic asset allocation by considering not only the classic equity premium, but also other premiums present in the equity market.
High active share is often profiled as "better" but such portfolios can exhibit risk concentrations which may lead to volatile return streams. Low active share funds should not be excluded from asset allocators’ tool kit.
The single most important macro-trend of our time is China's attempt to transform itself from a typical (if large) emerging market into an empire. The interesting bit for investors is that growing empires usually breed strong currencies.
A simple ratchet-style "safe" withdrawal rate approach, where spending is increased by 10% any time the portfolio rises more than 50% above its starting value, beats the traditional 4% rule, generating equal or better retirement spending, even while being conservative enough to not require a spending cut in the event of a market pullback in the future.
We should acknowledge the Greek crisis for what it is - the death-knell for the European dream of empire. The growing reality is the return of borders, national preferences, and opt-outs. The euro has become a structurally weak currency and European bonds are likely to underperform those of other, nonshrinking, empires.
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.
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.
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.
PortfolioConstruction Forum Academy challenges and advances portfolio construction knowledge and wisdom. Open to a select group of just 80 senior, experienced portfolio construction practitioners each year, Academy will enable you to continuously develop, test, and validate your portfolio construction philosophy and decision-making framework.
The surprising result of a recent study is that the "conventional" view that earnings rise steadily (above inflation) throughout our careers is not accurate. Good spending habits established early on can make an astounding difference to wealth over a lifetime.
Divergences in global economic and policy outcomes have important implications for markets around the world. This policy divergence has directly influenced asset prices across the globe with implications for stocks, bonds and currency markets.
China now has to deal with a massive excess supply of property… This is unlikely to be “just another property cycle” in China. The bursting of China’s property bubble poses a major risk to both the country’s stability and the global economy.
In this environment, what’s very important is capital preservation. The problem investors have is that there are very few places to hide. So, while cash may not be king, I think it could end up being a very handsome prince.
Portfolio construction should focus on three risk buckets – beta, smart beta, and alpha. If not, you run the risk of creating a poorly diversified (that is, over diversified) portfolio – and, worse, a portfolio that costs far more than it should.
Each of our Symposium 2015 DDF presenters gave a 2-minute overview of their high conviction portfolio construction strategy idea.
Rather than large, liquid companies with significant global revenue bases which dominate benchmark allocations, investors should seek exposure to India’s surging local demand…
When combining managers together to form a multi-manager global equity portfolio, investors should still aim to keep active share relatively high.
uilding NZ fixed interest portfolios is harder than it has ever been… Portfolios need to be constructed for the specific needs of clients, which will typically be a combination of liquidity, income, quality, and diversification
Investors will need to hunt out alternative sources of yield to meet their investment objectives. All is not lost. Yield can be preserved in a low yield world but investors need to be aware of the risks and trade-offs.
Each panelist outlined which high conviction markets idea from Symposium 2015 day one they agreed with most, and which one they agreed with least.
What return premia - if any - are attached to different types of investment risk? And just how reliable are those premia are in practice? Can the risks be diversified?
It’s possible, or more likely probable, that for future generations, our money will run out before our body does. This means that our historical models of accumulation and decumulation will not work for future generations.
As we all brace for lift-off in the key US Federal funds rate, a robust, top-down macro perspective will be even more critical to the success of portfolios than ever.
Our Symposium 2015 debated their high conviction ideas on the drivers of, and medium-term outlook for, the New Zealand economy.
Our Symposium 2015 Faculty debated their high conviction ideas on the drivers of, and medium-term (two to three year) outlook for the markets.
Despite a genuine desire to invest in New Zealand on behalf of a substantial Australian superannuation fund, after several years of trying, no money has been invested.
For investors, one of the most important events of 2014 was the dramatic collapse in the oil price. The long-term equilibrium price is now likely to be lower. Overall, portfolios must be repositioned for increased volatility.
Returns in defensive equity yield and income sectors have been outsized as bond yields have fallen. Growth sectors have underperformed. But globally, technology shares are cheap on a relative basis.
World-wide low interest rates are not a temporary phenomenon. The world has changed and it is highly likely that the current low rate environment will be with us for decades. Getting used to low rates will be a critical adjustment for all investors to make in the coming years.
Slow growth is an old story. The new story is that world is finally beginning to re-balance - a process that unfortunately will take another 20 years. Well-intended policies are causing bubbles and distortions to asset prices.
PortfolioConstruction Forum Publisher and Symposium NZ 2015 Moderator, Graham Rich, opened Symposium NZ 2015 in his usual thought-provoking (and entertaining) way, highlighting key issues to consider over the jam-packed, marathon program.
With NZ fixed interest portfolios arguably harder to build than ever before, this paper introduces a framework for practitioners to build fixed interest portfolios for to meet the needs of individual clients.
In recent years, academics have been at war over whether the small cap premium exists. This recent paper finds it does - if you control for quality - and that it is significant, and not time or market specific.
This paper by Rob Arnott and Denis Chaves looks the effects of different age cohorts on GDP and asset class returns.
Markets Summit 2015 - Cyclical? Structural? Secular? - featured 19 international and local investment experts debating their best ideas on the key cyclical, structural and secular issues driving the medium-term outlook for markets - and, of course, the implications for portfolios. This Resources Kit is a deluge of videos, podcasts, and papers for all sessions of the jam-packed program so you can "attend" even if you weren't there.
In this not-to-be-missed session of a not-to-be-missed program few prisoners were taken in debating the moot "overweight int'l equities, underweight Au equities.
In this simulated investment board meeting, our day's 17 international and local Faculty members debated and voted on whether to overweight international equities and underweight Australian equities in portfolios on a two- to three-year view.
In 2014, we witnessed the return of market volatility. With potentially significant market return and volatility, investors should consider portfolio positioning before the fact.
The fourth D confronting investors - the disruptions wrought by technological change. Cash cows, thoroughbred stocks and roll-ups are best placed in a world challenged by the four Ds.
While demographics will still dominate into the future, energy and automation are quickly rising to be just as important with significant implications for portfolios.
As its capital markets develop, the macro picture improves, inflation comes under control, and the economy grows, India's credit and rates markets present a compelling opportunity.
Since Q4 2014, oil prices have plunged, currency markets are at war and intraday volatility of stock indices is disturbing. A crisis mode has started. Asset allocators must mitigate risks before this next crisis inevitably hits.
One of the most important events of 2014 for investors was the dramatic collapse in the oil price. Overall, investment portfolios must be repositioned for increased volatility.
Lower 'neutral' monetary policy rates across the developed world will continue to serve as an important anchor for the secular valuation of all asset classes.
Emerging markets will face a more challenging economic and financial outlook over the next few years - but systemic risk across the emerging world is lower than before the Asian crisis.
Differentiation is key for emerging markets. Secularly, countries enjoying the rise of consumerism are expected to drive local company earnings above the global norm.
The US secondary corporate bond market is in a time of significant upheaval. Changes to regulations has caused a new, insidious liquidity risk.
After a run of historically rapid improvement in living standards in the first decade of the millennium, emerging markets will face a more challenging outlook - not a crisis - over the next few years.