Last week’s top conversations were started by APViewpoint thought leader Michael Edesess and members John Coumarianos and Lance Roberts. They generated thoughtful discussions on: how many “monkeys” does it take to find a successful strategy; “stockbroker economics” and overestimating diversification; and whether $19 trillion in federal debt is a problem.
Michael Edesess’ How Many Monkeys Does it Take to Find a Successful Strategy? received seven comments in which thought leaders debated the value of index-based ETFs and, in particular, smart-beta strategies. Some advisors called into question the effectiveness of smart-beta strategies, and argued that such products charge exorbitant fees. They pointed to recent research publications disputing claims that smart-beta products can outperform the market, and that the design of such products are based on faulty mathematics. However, others pushed back and argued that there are other methods that demonstrate smart-beta strategies are effective. For instance, smart-beta strategies are shown to be effective when they produce robust premia that persists throughout fluctuating economic conditions in various countries, when the strategies are implementable after costs, and when “there are intuitive risk-based and/or behavioral explanations where limits to arbitrage and costs can allow well known anomalies to persist.”
John Coumarianos’ Stockbroker Economics and Overestimating Diversification provoked seven comments about the asset allocation used by investment professionals in varying market conditions. APViewpoint members shared their reactions to recent forecasts by GMO, Rob Arnott and Jack Bogle claiming that virtually all asset classes are likely to perform poorly over the next decade. A number of advisors called into question the predictive power of those forecasters, arguing that even though those pundits have strong track records, “it seems wise to take a forward-looking rather than merely a historical view when allocating assets to various classes.” However, some APViewpoint members argued that communicating forecasts to clients is necessary, and that given bleak outlook they are erring on the side of caution. That is, some advisors are opting to use inputs that assume higher-than-average volatility in order to produce more conservative retirement-funding projections for their clients.
Lance Roberts’ Why $19 Trillion in Debt is a Problem inspired 16 comments as it marched into its second week of discussion. As the conversation shifted away from the economic value of entitlement spending, advisors began discussing the potential issues that can arise when countries amass debt for extensive periods of time. A number of advisors cautioned that sustaining high debt levels can lead to major issues, and that what the debt funds determines the extent to which it can provide financing. However, others contended that limits to sovereign debt are difficult to define, and that issues caused by debt are simply “inflation or, somewhat equivalently, the depreciation of [a country’s] exchange rate and loss of value of its currency,” which can be resolved by printing additional currency.
APViewpoint will be hosting its next CE eligible webinar, No Portfolio is an Island, on Tuesday, June 7, at 4:15PM ET. In this presentation, David Blanchett will show advisors how to achieve a more holistic approach to financial planning and portfolio optimization. Blanchett will review strategies that advisors can use to integrate each client’s wealth elements, including investable assets, human capital, real estate and pensions, into their analysis. You can register for the webinar on the APViewpoint events page here.
