Matthew Gaude • FSC Securities
- Gaining the peer-to-peer advantage: The 2015 NAAIM annual conference highlighted the importance of collaboration by Linda Ferentchak
- Debate over valuations heats up
- Fundamentalists vs. technical analysts by Martha Stokes, CMT
- Marketing the unrealized potential of 403(b) plans (Ryan Finnell, Retirement Tax Advisory Group)
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
Carla Zevnik-Seufzer • The Strategic Financial Alliance
- The problem with pie charts by Greg Gann
- Oil price surge troubling, but still within ranges
- Serving special needs (Russell Luce, Foresters Equity Services, Inc.)
A recent behavioral finance webinar from Unified Trust delivered by Dr. Gregory Kasten. Link to the replay can be found below.
http://bit.ly/BehavioralFinanceWebinar
4 active vs passive advisor insert funds flows dfa (advisor present) p. 1-3, ...Weydert Wealth Management
This excellent article contains three key graphics illustrating how average investors flow into and out of investments at the wrong times and contrasts this with the average DFA investor who remains much more consistent and disciplined.
Bob Pearson • Transamerica Financial Advisors Inc.
- Experts need experts: 10 questions to ask third-party money managers by Kellye Whitney
- Do record margins pose market threat?
- “Rule of 240” compounding by Ron Rowland
- Hot-button topics drive seminar attendance (Matthew Gaude, FSC Securities)
Can Traditional Active Management Be Saved?Clare Levy
Active managers need to start incorporating the lessons of behavioural science if they have a chance of reversing the flow of assets into passive investment vehicles. Eric Rovick highlights some of the areas of cognitive risk evident in active investment management and provides a managerial and operational framework for addressing them.
Numis Growth Capital Survey (1Q20) - ContagionDavid Kelnar
To give clarity amidst volatility, over the last 72 hours we surveyed 18 of the world’s leading growth investors – including Andreessen Horowitz, Greylock and Sequoia.
Our survey reveals economic pessimism, sustained investment appetite, diverging valuation dynamics and new
strategic success factors for scale-ups.
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
Carla Zevnik-Seufzer • The Strategic Financial Alliance
- The problem with pie charts by Greg Gann
- Oil price surge troubling, but still within ranges
- Serving special needs (Russell Luce, Foresters Equity Services, Inc.)
A recent behavioral finance webinar from Unified Trust delivered by Dr. Gregory Kasten. Link to the replay can be found below.
http://bit.ly/BehavioralFinanceWebinar
4 active vs passive advisor insert funds flows dfa (advisor present) p. 1-3, ...Weydert Wealth Management
This excellent article contains three key graphics illustrating how average investors flow into and out of investments at the wrong times and contrasts this with the average DFA investor who remains much more consistent and disciplined.
Bob Pearson • Transamerica Financial Advisors Inc.
- Experts need experts: 10 questions to ask third-party money managers by Kellye Whitney
- Do record margins pose market threat?
- “Rule of 240” compounding by Ron Rowland
- Hot-button topics drive seminar attendance (Matthew Gaude, FSC Securities)
Can Traditional Active Management Be Saved?Clare Levy
Active managers need to start incorporating the lessons of behavioural science if they have a chance of reversing the flow of assets into passive investment vehicles. Eric Rovick highlights some of the areas of cognitive risk evident in active investment management and provides a managerial and operational framework for addressing them.
Numis Growth Capital Survey (1Q20) - ContagionDavid Kelnar
To give clarity amidst volatility, over the last 72 hours we surveyed 18 of the world’s leading growth investors – including Andreessen Horowitz, Greylock and Sequoia.
Our survey reveals economic pessimism, sustained investment appetite, diverging valuation dynamics and new
strategic success factors for scale-ups.
Commodities managers may in fact benefit from a distinct advantage over their equity and fixed income peers – that is they seem to have a credible information advantage.
John McGonagle • EPI Advisors, LLC
- Understanding the relevance of risk-adjusted returns by Dave Walton
- Strongest jobs gain since 2012 surprises markets
- Building stronger visibility for an advisory firm (Rodger Sprouse, Titan Securities)
Jay Blanchard • NEXT Financial Group, Inc.
- Tackling the herd through sentiment indicators by Linda Ferentchak
- Conflicting data adds to market uncertainty
- Social Security strategies as prospect "hot buttons" (Richard D'Ambola, Questar Capital Corporation)
The Outsourced Chief Investment Officer Model: One Size Does Not Fit AllCallan
As investors reach for returns in a sometimes bruising market, they are adding private equity, hedge funds,
and other alternatives, leading to increasingly sophisticated—and complicated—portfolio monitoring and
management. Heightened regulatory and compliance requirements have further increased the time and
resources required to meet fiduciary responsibilities. This has led some investors to consider delegating
investment oversight, monitoring, and management duties.
The industry press regularly reports on a large and rapidly growing outsourced chief investment officer
(OCIO) market, and some fund sponsors wonder if this model would serve them better than the traditional consulting model. Funds managed through an OCIO are beholden to the same challenging market environment and regulatory atmosphere, but the burden of balancing these challenges can be largely shifted from the investment committee to the OCIO provider. Some funds find this solution meets their needs.
In the outsourced chief investment officer (OCIO) model (also known as “implemented consulting,”
“discretionary consulting,” or “delegated consulting”), an institution shifts discretionary authority to an
advisory firm to manage some or all of the investment functions typically performed by the investment committee. The precise definition of this model varies as much as the name, making the size and scope of the marketplace difficult to pin down.
The increasing popularity of this model is in part a response to the frustration investment committees
have felt amid a shifting environment in which portfolio management requires more resources. While an OCIO offers an elegant solution, it is not a panacea for all the issues facing institutional investors, and relinquishing all fiduciary oversight is not an option.
In this paper we describe the OCIO market and Callan’s approach, which acknowledges that each investor faces unique challenges that require custom solutions. We offer two case studies and a series of questions that might assist fund sponsors in weighing the appropriateness of the OCIO model for their fund.
Why Emerging Managers Now? - Infusion Global Partners WhitepaperAndrei Filippov
Traditional asset classes appear to offer uninspiring beta returns at present, and recent years’ hedge fund returns have disappointed both in magnitude and diversification benefits, likely reflecting capacity pressures associated with the concentration of AUM and inflows with larger funds. We argue that, by contrast, Emerging hedge funds offer a rich opportunity set with far fewer capacity issues where skilled managers with concrete competitive advantages in less efficient, smaller capitalization market segments can generate better, more sustainable and less correlated excess returns. Emerging managers do involve more investment and operational risk than larger peers; to that challenge we offer some suggestions on a thoughtful and rigorous approach to constructing an Emerging Managers allocation and balancing effective due diligence with scalability.
According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis.
The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools.
Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk.
Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward.
According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing.
The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings.
The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.
Did you know that 45,000 businesses in the United States fail each month? And that 44 percent of small businesses used credit cards as a source of financing in 2008, compared to 16 percent in 1993, according to the Small Business Administration? Learn how to take a proactive approach to managing your debt and creating cash flow with out borrowing money. Join the National Restaurant Association, Nation's Restaurant News and SettleSource, Inc. for this free one-hour event. Learn more at http://bit.ly/dqfzkI .
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Mark...Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
Damon Ridley • FSC Securities Corp.
- The efficient frontier fails the test of time by Linda Ferentchak
- Wage growth mixed amid “just right” employment report
- Market high? Pie in the sky by Ian Naismith
- Maintaining a high-profile practice (Marlow Felton, Chris Felton, Transamerica Financial Advisors Inc.)
Marlow Felton, Chris Felton • Transamerica Financial Advisors Inc.
- A Millennial’s perspective: How we really feel about money and investing by Nick Halle
- The continuous bid under the market
- The force of Supply at major tops in the U.S. equity market by Tracy L. Knudsen, CMT
- Working a structured referral process (Don Meredith, Lincoln Financial Advisors Corp.)
Commodities managers may in fact benefit from a distinct advantage over their equity and fixed income peers – that is they seem to have a credible information advantage.
John McGonagle • EPI Advisors, LLC
- Understanding the relevance of risk-adjusted returns by Dave Walton
- Strongest jobs gain since 2012 surprises markets
- Building stronger visibility for an advisory firm (Rodger Sprouse, Titan Securities)
Jay Blanchard • NEXT Financial Group, Inc.
- Tackling the herd through sentiment indicators by Linda Ferentchak
- Conflicting data adds to market uncertainty
- Social Security strategies as prospect "hot buttons" (Richard D'Ambola, Questar Capital Corporation)
The Outsourced Chief Investment Officer Model: One Size Does Not Fit AllCallan
As investors reach for returns in a sometimes bruising market, they are adding private equity, hedge funds,
and other alternatives, leading to increasingly sophisticated—and complicated—portfolio monitoring and
management. Heightened regulatory and compliance requirements have further increased the time and
resources required to meet fiduciary responsibilities. This has led some investors to consider delegating
investment oversight, monitoring, and management duties.
The industry press regularly reports on a large and rapidly growing outsourced chief investment officer
(OCIO) market, and some fund sponsors wonder if this model would serve them better than the traditional consulting model. Funds managed through an OCIO are beholden to the same challenging market environment and regulatory atmosphere, but the burden of balancing these challenges can be largely shifted from the investment committee to the OCIO provider. Some funds find this solution meets their needs.
In the outsourced chief investment officer (OCIO) model (also known as “implemented consulting,”
“discretionary consulting,” or “delegated consulting”), an institution shifts discretionary authority to an
advisory firm to manage some or all of the investment functions typically performed by the investment committee. The precise definition of this model varies as much as the name, making the size and scope of the marketplace difficult to pin down.
The increasing popularity of this model is in part a response to the frustration investment committees
have felt amid a shifting environment in which portfolio management requires more resources. While an OCIO offers an elegant solution, it is not a panacea for all the issues facing institutional investors, and relinquishing all fiduciary oversight is not an option.
In this paper we describe the OCIO market and Callan’s approach, which acknowledges that each investor faces unique challenges that require custom solutions. We offer two case studies and a series of questions that might assist fund sponsors in weighing the appropriateness of the OCIO model for their fund.
Why Emerging Managers Now? - Infusion Global Partners WhitepaperAndrei Filippov
Traditional asset classes appear to offer uninspiring beta returns at present, and recent years’ hedge fund returns have disappointed both in magnitude and diversification benefits, likely reflecting capacity pressures associated with the concentration of AUM and inflows with larger funds. We argue that, by contrast, Emerging hedge funds offer a rich opportunity set with far fewer capacity issues where skilled managers with concrete competitive advantages in less efficient, smaller capitalization market segments can generate better, more sustainable and less correlated excess returns. Emerging managers do involve more investment and operational risk than larger peers; to that challenge we offer some suggestions on a thoughtful and rigorous approach to constructing an Emerging Managers allocation and balancing effective due diligence with scalability.
According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis.
The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools.
Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk.
Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward.
According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing.
The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings.
The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.
Did you know that 45,000 businesses in the United States fail each month? And that 44 percent of small businesses used credit cards as a source of financing in 2008, compared to 16 percent in 1993, according to the Small Business Administration? Learn how to take a proactive approach to managing your debt and creating cash flow with out borrowing money. Join the National Restaurant Association, Nation's Restaurant News and SettleSource, Inc. for this free one-hour event. Learn more at http://bit.ly/dqfzkI .
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Mark...Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
Damon Ridley • FSC Securities Corp.
- The efficient frontier fails the test of time by Linda Ferentchak
- Wage growth mixed amid “just right” employment report
- Market high? Pie in the sky by Ian Naismith
- Maintaining a high-profile practice (Marlow Felton, Chris Felton, Transamerica Financial Advisors Inc.)
Marlow Felton, Chris Felton • Transamerica Financial Advisors Inc.
- A Millennial’s perspective: How we really feel about money and investing by Nick Halle
- The continuous bid under the market
- The force of Supply at major tops in the U.S. equity market by Tracy L. Knudsen, CMT
- Working a structured referral process (Don Meredith, Lincoln Financial Advisors Corp.)
Jerry Ganz • Packerland Brokerage Services
- Can lower returns lead to more money in retirement? The impact of sequencing and volatility on portfolio value by David Witkin
- Jump in Swiss franc triggers short-term losses and long-term uncertainty
- Crude oil’s message for the stock market by Tom McClellan
- Growing a referral network (Trish Beine, The Strategic Financial Alliance)
Chris Gurnee • Foresters Equity Services Inc.
- 85,000 on the Dow: Pipedream or realistic possibility? Book review by David Wismer
- European stocks continue on torrid pace
- Risk on, until it isn’t by Jeanette Schwarz Young
- Managing 403(b) referrals in a tight-knit academic setting (Johnathon Davis, Retirement Tax Advisory Group)
Johnathon Davis • Retirement Tax Advisory Group Inc.
- Profiling ultra-high-net-worth clients by Katie Kuehner-Hebert
- Will weak jobs numbers delay Fed rate hike?
- Why you have way too much invested in U.S. stocks by Meb Faber
- Building a “niche” into a practice focus (Phylyp Wagner, Matt Quattlebaum, H. Beck)
Ryan Finnell • Retirement Tax Advisory Group
- A "living in the moment" guide to investing by Jerry Wagner
- Sell in June and go away?
- Market “truths” subject to change by Rob Hanna
- Client appreciation: A sound investment (Jim Bowen, LPL Financial)
Don Meredith • Lincoln Financial Advisors Corp.
- The Millennial obsession by David Wismer
- Global decline in oil prices leads to “Fracklog”
- VIX ETFs not right for investors by Tom McClellan
- A generational shift in target marketing (Bryce Winkel, Transamerica Financial Advisors Inc.)
Phylyp Wagner & Matt Quattlebaum • H. Beck
- How often should you review your investment returns? The results may surprise you by Jerry Wagner
- The most scrutinized Fed rate hike ever?
- Recent Q1 highs lacked “oomph” by Tony Dwyer
- Expanding the family business tradition (Jeff Pesta, LPL Financial)
Brian Glaze & Larry Ware, CRPC, CLTC – Proactive Advisor Magazine – Volume 5 ...Proactive Advisor Magazine
Brian Glaze & Larry Ware • LPL Financial
- Why hasn’t the Efficient Market Hypothesis disappeared? by Linda Ferentchak
- Climbing U.S. dollar makes exports less competitive
- The seasons of the stock market by Paul Desmond
- Selling proposition: "Plan-based investing" (Jerry Ganz, Packerland Brokerage Services)
Jeff Pesta • LPL Financial
- Is it time to retire your strategy, manager, fund, or ETF? by Dave Moenning
- Dollar strength has uncertain implications
- The Anchored Momentum Indicator by Ron Rowland
- Converting positive feedback into new business (Steve Molesky, Kalos Capital Inc.)
Mike Jones • ProEquities, Inc.
- Bucket investing with risk-managed portfolios by David Varadi, Jerry Wagner, J.D., George Yang, Ph.D. & CFA
- Employment increases set new record
- Referrals fueled by process management (James Franke • Harbour Investments, Inc.)
Nancy Hairsine • Foresters Equity Services, Inc.
- How do you anticipate the unexpected? by Jerry Wagner
- Record-setting Fed funds rate policy continues
- Building 360-degree relationships with clients and prospects (James Hamer, Global View Capital Management)
John Gutfranski, CFP, AIF, CRPC & Debra White Stephens, CFP – Proactive Advis...Proactive Advisor Magazine
John Gutfranski & Debra White Stephens • Cetera Advisor Networks LLC
- Is modern portfolio theory seriously flawed? by Linda Ferentchak
- Budget deficit on track for six-year low
- Three approaches to client acquisition (Chuck Bigbie, Geneos Wealth Management)
Trish Beine • The Strategic Financial Alliance
- Dissing the investor by Linda Ferentchak
- Ratio of gold to oil hits levels of the 1990s
- What will the next bear market look like: Grizzly or Teddy? by Marshall Schield
- Frequency of client touches leads to referrals (Randy Kerns, Voya Financial Advisors, Inc.)
The last decade has been a challenge for many investors, especially those investing for the long term and retirement. Given declines in global stock markets, many investors have seen little to no real growth in their portfolios over this period. This Wealth Guide explains why investors’ portfolios may underperform in both bear and bull markets and incur substantial costs in the process. It also details the impact this chronic underperformance can have on achieving long-term financial goals.
For more free wealth management guides on portfolio performance and for expert consultation, visit SolidRockWealth.com.
DealMarket Digest Issue117 - 14th November 2013Urs Haeusler
November 15, 2013 - Issue 117
- Cautious Optimism for MENA Dealmaking
- Growth in Multi-Trillion Sovereign Wealth Fund Assets Could Boost PE
- Shoes, Handbags & Mascara: Private Equity’s High Fashion Passion
- Smart Money Monitors Private Equity Costs
- Sustained Recovery Predicted for Global M&A
- Quote of the Week: Outperformance – Algorithms versus Humans
Daniel Namey • H. Beck, Inc.
- The (not so) indomitable investor: 9 reasons most investors lack the discipline to succeed by David Wismer
- Can gold maintain momentum?
- Setting client expectations around active management (Carla Zevnik-Seufzer, The Strategic Financial Alliance)
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q3 2015Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
Journal of Applied Corporate Finance • Volume 22 Number 2 A Mo.docxpriestmanmable
Journal of Applied Corporate Finance • Volume 22 Number 2 A Morgan Stanley Publication • Spring 2010 1
It Ain’t Broke: The Past, Present, and Future of Venture Capital
BT
by Steven N. Kaplan, University of Chicago Booth School of Business
and NBER, and Josh Lerner, Harvard Business School and NBER*
he U.S. venture capital (VC) industry is currently
subject to a great deal of uncertainty and contro-
versy. Some observers and practitioners believe
that the VC model is broken and that the U.S.
VC industry needs to shrink.1 In this paper, we put the U.S.
VC industry into its historical context, assess the current state
of the VC market, and discuss the implications of that history
and the current conditions for the future.
We begin by describing the fundamental problem that
entrepreneurs face and VCs need to solve in order to invest
successfully. There is a great deal of evidence to support what
is now a highly developed theory of how the U.S. VC model
provides an efficient solution to this basic problem of entre-
preneurial finance. And there is little doubt that the U.S.
venture capital industry has been very successful. A large
fraction of IPOs, including many that are now among the
most successful public companies in the world, have been
funded by VCs. And, where possible, the U.S. VC model has
been copied around the world.
Next we look at the historical patterns of commitments
to U.S. VC funds and investments in companies by those
funds. U.S. VC investments in companies have represented
a remarkably constant 0.15% of the total value of the stock
market over the past three decades—the period for which we
have reliable data. Commitments to VC funds, while more
variable, have been consistently in the 0.10% to 0.20% range.
These percentages have not changed in recent years.
Third, we consider the historical record on VC fund returns,
paying particular attention to returns of post-2000 “vintages.”
Contrary to the popular impression, we do not find that returns
to VC funds this decade have been unusually low (or high)
relative to the overall stock market. This is true despite the
relatively low number of IPOs. Overall, VC investment and
returns have been subject to boom-and-bust cycles over time.
Based on our historical analyses, we make some observa-
tions about the current situation and consider what is likely to
happen going forward. The level of commitments to and the
investment pace of VC funds since 2002 have been consistent
with the long-term historic averages. At the same time, the
returns relative to the overall stock market appear to have
been roughly average. This does not suggest to us that there
is too much money in U.S. VC, or that the VC model is
broken. Instead it appears to reflect the natural evolution of
a relatively competitive market.
In fact, given the unusual and unexplained paucity of IPOs
between 2004 and 2007, we argue there is more upside than
downside for the VC vint ...
Victor Gadoury, CLU, ChFC • LPL Financial
- Active investment managers at NAAIM believe their way is better by Susan Baber and David Wismer
- NASDAQ Composite poised to break all-time levels
- The trend-following play by Dave Landry
- Marketing in a multi-target sales process (Katie Williams, LPL Financial)
Katie Williams, AIF, CRPC, CRPS, CFP • LPL Financial
- Women & investing: Is this time different? Why the message of active investment management should resonate with female prospects by Greg Gann
- Dow Theory says market divergence is troubling
- Sentiment readings as a market indicator by Jeanette Schwarz Young
- The soft sell of cross-marketing (Rod Smith, National Planning Corporation)
Rod Smith • National Planning Corporation
- What is your investment style? by Ron Rowland
- Solid, if unspectacular, full-year 2014 GDP—even as Q4 disappoints
- What volatility derivatives can tell you about the stock market by Lawrence G. McMillan
- Promoting a partnership approach (Brian Glaze & Larry Ware, LPL Financial)
Rodger Sprouse • Titan Securities
- Swimming with the sharks by Linda Ferentchak
- Oil price decline has divergent impact on stock sectors
- Adapting business practices for the next generation of clients (Robert Kinnun, Madison Avenue Securities, Inc.)
Robert Kinnun • Madison Avenue Securities, Inc. (“MAS”)
- Growth of passive index investing increases the need for active management by Linda Ferentchak
- Technology sector tops Q3 earnings season
- Brokerage options: an "instrument-rated" approach to 401(k) plans (Mike Jones, ProEquities, Inc.)
Steve Redelsperger • Cadaret, Grant & Co., Inc.
- Risky business: How to create a better investor behavioral profile by Kellye Whitney
- October lives up to volatility reputation
- Creating tax-advantaged financial strategies (Gary Strawn, Transamerica Financial Advisors, Inc.)
Tu Bui • Transamerica Financial Advisors, Inc.
- Millennials and risk management by Katie Kuehner-Hebert
- High yield sector shows divergences
- Passionate about paying it forward (Nancy Hairsine, Foresters Equity Services, Inc.)
James Hamer • Global View Capital Management, LTD
- What does alpha have to do with the weather? Understanding the "seasonal performance" of actively managed strategies using market type by Dave Witkin
- Conflicting data continues to present mixed economic picture
- Active management: a good fit for cultural attitudes (Jong Oh, FSC Securities Corporation)
Rich Ralston • WRP Investments, Inc.
- The perils of predictions by David Wismer
- Will September be the cruelest month?
- Why fee-based active management works (Jim Mardock, Transamerica Financial Advisors, Inc.)
Jong Oh • FSC Securities Corporation
- Market philosophy: where active management begins by Linda Ferentchak
- U.S. bull market "long-in-the-tooth" - or is it?
- Technology enhances firm and client communications (Rich Ralston, WRP Investments, Inc.)
Joe Wirbick • J.W. Cole Financial, Inc.
- Diversification and the active manager by Linda Ferentchak
- Germany 2-year bond yield falls to negative territory
- Balancing active and passive investment strategies (Gary Ziegler, Transamerica Financial Advisors, Inc.)
Richard D'Ambola • Questar Capital Corporation (QCC)
- When history rhymes: Identifying realistic estimates of future investment strategy performance by Dave Walton
- Buybacks slowing while CEO confidence remains high
- Outsourcing to increase productivity (Steve Miller, Transamerica Financial Advisors)
Steve Miller • Transamerica Financial Advisors
- Active management in plain English: An advisor's perspective by Greg Gann
- Spike in VIX briefly shatters market calm
- Making a 10-year succession plan work (John Gutfranski & Debra White Stephens, Cetera Advisor Networks LLC)
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
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how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
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We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
1. June 11, 2015 | Volume 6 | Issue 10
Active investment management’s weekly magazine
Debate over valuations heats up
2015 NAAIM
annual
conference
Marketing the unrealized
potential of 403(b) plans
Fundamentalists vs.
technical analysts
Gaining the peer-to-peer
advantage
Matthew Gaude
Goodbye,
status quo
2.
3. Advisor perspectives on active investment management
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Investing across
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Actively managed portfolios are appropriate across
all risk spectrums. Even the most conservative
clients can allocate some of their money to work
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For the aggressive investor, there are strategies that
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LOUD & CLEAR
James Franke • Milwaukee, WI
Harbour Investments Inc. • Franke Martens Group
3June 11, 2015 | proactiveadvisormagazine.com
LOUD & CLEAR
4. Gaining the
peer-to-peer
advantage
By Linda Ferentchak
The 2015 NAAIM annual conference
highlighted the importance of collaboration
proactiveadvisormagazine.com | June 11, 20154
5. he investment advisory industry can
be a very challenging environment
for established advisors, let alone
new entrants. By taking an active management
approach, financial advisors potentially step
outside the protection of the herd. With a
buy-and-hold approach, there’s always the easy
scapegoat of “the market”—while the active
manager takes the battle to the market. In times
of uncertainty, particularly with a market that
many believe is at the mercy of global central
banks and financial engineering, the sharing of
knowledge among peers is critical.
The National Association of Active
Investment Managers (NAAIM) Uncommon
Knowledge 2015 National Conference provid-
ed that insight to more than 100 RIA attendees
during three days of presentations and net-
working. Held on May 3-6 in Newport Beach,
California, the conference offered attendees
extended, interactive sessions that promoted
peer-to-peer exchanges, complemented by pre-
sentations of interest to the active investment
community.
explaining their thoughts and frustrations, what
they have found works and doesn’t work, and
where they were still looking for answers. But
the interaction of the audience transformed the
sessions from presentations to a networking
exchange of ideas designed to change lives and
businesses.
The conference also saw the conclusion
of the 2015 NAAIM Shark Tank/Manager
Showcase with John McClure of ProfitScore
Capital Management taking top honors with
a long-short government bond strategy. Ken
Graves, of Capital Research Advisors LLC,
captured second place with a short-term equity
index model, followed by Potomac Advisors’
Rich Paul with his EVO-Evolution Market
Timing System.
There were also many insights from thought
leaders in the financial industry. Anne Mathias,
senior macro strategist with Guggenheim
Investments, presented the case for continued
strength in the U.S. equity market. While
weather is often blamed for the unexpectedly
management of ERISA retirement accounts. As
currently proposed, she said, the rule will make
the brokerage model obsolete and impact invest-
ment advisors more than they realize. The core
of the DOL’s concern is related to rollovers from
company retirement plans to IRAs and the belief
that individuals are better provided for within
the constraints of the company plan.
The effect of the rule will be to reduce
guidance in the management of retirement
accounts. Ironically, guidance requests have
skyrocketed at Fidelity, with people looking for
more help, not less.
Asbury Research’s John Kosar, CMT, pre-
sented “A Technical Look at Stocks, Market
Sectors, Interest Rates, and Gold,” offering
a number of investable ideas and analytical
wisdom. Mr. Kosar’s near-term forecast is for
vulnerability in Q2 for the U.S. stock market.
For the bigger picture, however, he views a
potential summer correction, amid the right
conditions, as a potential longer-term buying
opportunity. Mr. Kosar said it is usually wise to
follow some fundamental technical guidelines:
Asset flows matter
Asset flows provide the horsepower for
market moves and signal that when every-
body is getting out of the pool, it would be
wise to follow.
Simple is better
The more moving parts, the more chances
of surprise and of something breaking
down in an investment model.
Look for confirmation
You don’t want to be “the first one in a
good idea.” Does price trend correlate to
what is happening in asset flows?
Watch the VIX 50-day
moving average
It has identified every near-term market
bottom.
Frank Barbera, CMT, executive vice
president of Sierra Investment Management
Inc., took the prize for the most worrisome, if
not downright scary, set of charts and graphs.
continue on pg. 13
T
As active managers step outside the
protection of the buy-and-hold herd
and into the market battle, insight
from one
,
s friends is welcome
“There’s a lot going on in the investment advi-
sor space and no better time to reach out to peers
in the industry for new ideas and directions,”
said Jason Wilder, outgoing NAAIM president.
“For all attendees, this was a great opportunity
to build relationships with other managers who
face the same challenges. As individuals, we are
the experts when it comes to providing active in-
vestment management through an RIA format.
We have a lot to offer each other.”
Three extended sessions focused on the busi-
ness development plan, building a collaborative
trading model, and succession planning. In each
session, NAAIM members led the discussion,
low growth in Q1 GDP, Ms. Mathias believes
the West Coast dock workers’ dispute had a sig-
nificant impact. With 40% of U.S. exports and
imports moving through the West Coast ports,
the labor slowdown had widespread economic
repercussions. With the renewed movement of
imports and exports, she anticipates the econo-
my will return to higher growth rates, driving
equity values.
Shahira Knight, vice president of govern-
ment relations and public policy at Fidelity
Investments, offered a view from Capitol Hill
of the Department of Labor’s proposed fidu-
ciary requirement for financial advisors in the
June 11, 2015 | proactiveadvisormagazine.com 5
6.
7. Debate over
valuations
heats up
anet Yellen, Federal Reserve chair, recently
set in motion another round of debate on
market valuations in this long-in-the-tooth
bull market.
On May 6th at an economic forum in
Washington, she commented, “I would highlight
that equity market valuations at this point gener-
ally are quite high.” Yellen tempered her remarks,
saying there were few “hallmarks of a bubble,” but
rather a situation to “watch closely.” This opened
up the floodgates to comments from all corners on
whetherornotYellenwascorrectinherassessment.
At least one of the Fed chair’s colleagues dis-
agreed. Federal Reserve Bank of Atlanta President
Dennis Lockhart told a Bloomberg reporter,
“I don’t at this moment have reason to be in-
tensely concerned about the valuation level of
the equity markets.” Wharton finance professor
and oft-quoted bull Jeremy Siegel would not be
surprised by a market correction this summer, but
maintains, “With low interest rates, 20,000 is still
fair market value on the Dow (about 13% higher).”
Against this backdrop, equity market valu-
ations on the S&P 500 have been running at a
trailing P/E level between 18.0 and 18.7—around
the average of 18.2 for the past 25 years, but
hitting a five-year high. However, many analysts
are predicting corporate profits will slow in 2015,
leading to a lower “E” in the equation and a
potential significant drop in equity prices. With
J
Source: Bespoke Investment Group, May 2015
the S&P 500 backing off recent record levels and,
as of this writing, barely in the green for the year,
everyone from Dow Theorists to proponents of
Elliot Wave analysis seem to be calling for further
market declines.
One notable voice in support of Yellen’s
assessment comes from Yale economics professor
Dr. Robert Shiller. He said Yellen was right in
pointing out possible market distortions: “It’s part
of their job to disturb the tranquility and I praise
Janet Yellen for doing that. On the other hand, she
was also right not to be alarmist about it.”
Shiller, a Nobel Laureate, co-created the
Cyclically Adjusted Price-Earnings (CAPE) ratio.
The CAPE ratio (also known as the P/E 10 ratio)
is basically defined as “price divided by the average
of ten years of earnings (moving average), adjusted
for inflation.” As such, it is principally used to assess
likely future returns from equities over time frames
of 10 to 20 years, with higher-than-average CAPE
values implying lower-than-average long-term
annual average returns.
Doug Short recently published an exhaustive
analysis at Advisor Perspectives comparing tradi-
tional trailing P/E measures to the P/E 10, which
he much prefers. He believes the P/E 10 is sending
up some strong warning signals: 1) at a current
level of 26.9, it resides in its highest historical
quintile (going back to the 19th century); 2) it is at
levels not seen since 2007; and 3) it is well above its
historical average of 16.6.
Short concludes: “The prevailing question is
whether or not March 2009 was the beginning
of a secular bull market. Perhaps, and certainly
the new all-time highs repeatedly set over the past
several months are conspicuous tick marks for the
optimists. But the history of market valuations
suggests a cautious perspective.”
S&P 500 TRAILING 12-MONTH P/E RATIO: SINCE 1998
7June 11, 2015 | proactiveadvisormagazine.com
TOPPING THE CHARTS
8. Goodbye, status quo
By David Wismer
Photography by Chris Hamilton
Delivering the risk management that investors want
requires new strategies that can respond to changing markets
8 proactiveadvisormagazine.com | June 11, 2015
9. Matthew Gaude is a Registered Financial Advisor with
FSC Securities in Atlanta, GA and co-president of
Clarus Financial Group. Mr. Gaude is deeply involved
with setting Clarus Financial Group’s investment policy,
formulating investment strategies, and conducting due
diligence on money managers.
Mr. Gaude started his professional career as a
commodities broker and then worked with indepen-
dent financial advisors as a business development
manager in the Mid-Atlantic region for a national
broker-dealer.
He is an avid student of the markets and global
economic conditions and says, “It is equally import-
ant to preserve wealth as it is to grow it. Managing
risk is a prime mission for our clients in a world
that has many unstable factors and the possibility
of domestic and global economic turmoil more often
than anyone would like to see.”
Mr. Gaude is a native of the Knoxville, TN area and
attended the University of Tennessee, Knoxville.
He graduated with a B.S. in Finance and credits a col-
lege internship with a major financial services firm as
“motivating me to pursue a career in the industry.”
He currently resides in Cumming, GA with his wife,
Cyndee, and sons, Miles & Gavin. His family stays
very busy with youth baseball and they also enjoy
swimming, fishing, and tubing at Lake Lanier.
Matthew Gaude
FSC Securities
Atlanta, GA
Co-president, Clarus Financial Group
The old investment pie chart is no longer a good tool
for planning or implementing investment strategy
Proactive Advisor Magazine: Matthew,
what have you taken from your different
roles in the business?
Starting out as a commodities broker for
about four years taught me the supply and
demand equation of the markets. It is a chal-
lenging side of the business and one where you
constantly have to be aware of risk, a lesson
important for any role in this industry.
On the broker-dealer side, I was working
with advisors across the Mid-Atlantic region. I
was a supervisor, helping advisors in all aspects
of their business, including marketing, recruit-
ing, and managing human capital. I worked
with about 50 different advisors on best practic-
es for their client relationships and implement-
ing a sound investment methodology for client
money: What part of the investment process
did they feel they could handle themselves
and when would they think it appropriate to
outsource to a third-party money manager? I
acquired some valuable insights on that process
and also what types of investment strategies
worked well in different market environments.
How did you approach the investigation
of third-party money managers?
It really started with the mindset of a particu-
lar advisor: Were they were more of a static asset
allocator or were they more active or tactical in
the methodology that they wanted to employ
with their clients. We would point them in the
right direction or bring them a handful of differ-
ent managers to choose from. They could then
dig down deep, do their own due diligence, and
determine which manager, or maybe multiple
managers, would be best suited for their method-
ology and their clients.
What about your own investment
philosophy?
We have an article on our website that is titled,
“The status quo no longer works,” and I firmly
believe that. When the economy went into reces-
sion and the market dropped in 2008, it became
clear that what used to work does not work
anymore. New strategies were not only needed to
help clients in preserving what they have, but also
to help grow their wealth. These two things can
be achieved in combination, unlike what many
advisors have thought for the past 30 or so years.
Research shows that more people approaching
retirement want peace of mind than they do accu-
mulating as much wealth as possible, or beating
the market. This is what we also see with our client
base. It is not all about trying to get the highest
returns; it is about risk management, preserving
assets, and having more modest and consistent
long-term financial strategies.
We believe that active investment manage-
ment can really pay dividends for our clients. The
purpose of active management is to help reduce
risk to a level where a client can stay with their
investment plan with a relatively high degree of
confidence. We know from investor behavior
research, such as DALBAR, all of the behavioral
issues that can get in the way of investors being
successful.
Active management helps in that process—
versus a passive approach where clients might
literally not have the time, and often not the
patience, to wait years and years for investments
to recover from the steep losses of bear markets.
continue on pg. 10
One of the biggest things that we can help them
with is managing their emotions. We want to see
that they participate in market increases, but at
the same time are trying to make sure that they’re
taking the level of appropriate risk to be able to
achieve that.
How do you work with third-party money
managers?
My partner and I are hands-on in formulating
investment strategies that meet client needs and
are constantly attuned to what is happening in the
investment environment. For example, for many
of the clients that we work with in consultative
fashion on their 401(k) plans, we develop and
send out a quarterly video that gets very granular
on current economic and market conditions.
June 11, 2015 | proactiveadvisormagazine.com 9
10. Securities and advisory services offered through FSC Securities Corporation, member FINRA, SIPC, and a Registered Investment Adviser. Clarus Financial Group is not affiliated with FSC Securities
Corporation or registered as a broker/dealer or investment advisor.
We are also very involved in conducting due
diligence on money managers that we think can
add appropriate value for our clients.We focus on
those third-party money managers that have the
same basic investment philosophy that we have.
They are very sophisticated by nature, but that
plays out in a practical, commonsense approach:
If the market situation arises where they need to
raise cash, they’re going to raise cash. They’re not
going to stay in the markets just because they
have a charter that says they have to.
In planning for the next inevitable bear
market, we have found that it is critical to un-
derstand the money managers’ sell strategies, not
just their buying parameters. They need to be
able to employ their models to identify what the
prevailing trends are today, and to also be very
adaptive as the trends may change tomorrow.
The old investment pie chart is no longer a
good tool for planning or implementing invest-
ment strategy. In a general sense, we are believ-
ers in a core and satellite approach, employing
some more traditional passive strategies, while
also using active and tactical managers in their
areas of specific expertise.
In our opinion, clients can have the best of
both worlds where part of a portfolio is in a core
that will take advantage of the broad increases
in the markets and then take advantage of those
sectors of the market that are trending signifi-
cantly higher, or cutting exposure to sectors
that are performing poorly.
The difference in our approach is that every
part of the portfolio is managed with an eye to
risk. We can cut exposure levels throughout the
portfolio if market conditions call for that. The
real key is setting shared expectations with clients
so they understand upfront how we are going to
formulate an investment plan that can help them
meet their broad financial goals. We explain our
total wealth management process thoroughly,
and maintain consistent communications with
our clients according to their wants and needs. It
is very gratifying that they are comfortable with
our approach and the relationship.
continued from pg. 9
Matthew Gaude
10 proactiveadvisormagazine.com | June 11, 2015
11. - A custodian that makes your life as an RIA simpler.
The best of summer
reading for advisors
Book suggestions cover everything from practice/
sales management to how to teach children to be
responsible with money.
Market crashes haunt
investors for decades
“Post-traumatic crash disorder” is the tendency to
obsess over the past and project it forward as the
most likely future outcome.
The sum of advisor-created
value
Is it possible to quantify the incremental economic
value advisors can bring to clients?
L NKS WEEK
June 11, 2015 | proactiveadvisormagazine.com 11
12. Fundamentalists vs. technical analysts
Martha Stokes, CMT, is the co-founder and CEO of TechniTrader®
and a former buy-side technical analyst. Since 1998, she has developed over 40 TechniTrader®
stock
and option courses. She specializes in Relational Analysis™ for stocks and options and Market Condition Analysis.An industry speaker and writer, Ms. Stokes is a member
of the Market Technicians Association and earned the Chartered Market Technician designation with her thesis, “Cycle Evolution Theory.” www.TechniTrader.com
undamentalists and technical analysts
have been at odds with each other for
more than 100 years. Part of the reason
is the continuing myth that technical analysis
is a means of predicting price action—it is not.
During the early years of the Dow Theory,
which is one of the original foundations of
technical analysis, “Random Walk” theorists
discarded Dow Theory entirely.
Later, as cycle theories about the stock
market emerged during the 1930s, the goal
was to prove that the stock market actually did
have cycles. These early theorists attempted to
predict the stock market trend and direction
over extended periods of time.
Most of those predictions failed dismally,
just as most predictions about the stock market
today do not predict accurately. This forti-
fies the assumption of fundamentalists that
technical analysis is worthless, a bogus school
of thought that has no value to professional
fundamentalists.
Technical analysis should not be used
as a predictive tool; rather, its worth and
value comes from the relational analysis it
has provided that extrapolates fundamentals
into a graphical form. This can provide more
understanding and insights into the price
action of both short- and long-term trends,
enabling fundamentalists to confirm their
quantitative fundamental interpretations
with the reactionary response of price to those
fundamentals.
The market now comprises nine distinctly
different market participant groups, each trad-
ing and investing with their own unique agenda,
tools, venues, fundamental data access, process
for transactions, and the business of portfolio
management and trade management.
F
Whentechnicalanalysisisviewedasagraphical
representation of the market participant cycle and
fundamentals of a company, the patterns become
relevant even to fundamentalists who have never
used technical analysis.
Professional funds managers can see aspects of
how the leadership of the market, which generally
is represented by the giant buy-side and sell-side
institutions, has interpreted and responded to the
fundamentals in chart format. Confirmation of
the expected reaction to fundamentals, financial
reports, and earnings reports is also clearly reflected
in price and trend.
As an example, the accompanying chart of the
S&P 500 shows the response and reaction of the
major institutions to the past two earnings seasons.
In December, the chart shows volatile
value action, yet lows that hold and remain
stable. Fundamentalists know that the earnings
picture started to decline at that time, oil
commodity prices were plummeting, and that
prices for most S&P 500 stocks had exceeded
underlying value.
The most recent Q1 earnings season in
2015 shows a sideways pattern this spring as
giant funds quietly rotated to lower their held
positions and many smaller-lot investors were
convinced to “buy on the dip.” The recent
higher lows within the sideways pattern con-
firm that redemption demands are very low,
that smaller funds are buying, and that money
is continuing to flow into the S&P 500.
Technical patterns reveal how different
market participant groups react to earnings
seasons. This can be invaluable information for
the professional investor.
Proactive Advisor Magazine presents weekly commentary provided by well-known market analysts, financial authors, investment newsletter publishers, and economists. The opinions expressed
each week represent their personal perspectives and not necessarily those of the magazine.
Source: TechniTrader.com
proactiveadvisormagazine.com | June 11, 201512
HOW I SEE IT
13. Therecanbenoassurancethatanyinvestmentproductwillachieveitsinvestmentobjective(s).Therearerisksassociatedwithinvesting,includingtheentirelossofprincipalinvested.Investinginvolvesmarketrisk.The
investment return and principal value of any investment product will fluctuate with changes in market conditions. Guggenheim Investments represents the investment management businesses of Guggenheim Partners,
LLC. Securities offered through Guggenheim Funds Distributors, LLC. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC. x0516 #17180
Explore how a tactical approach may help
maintain diversification.
How diversified are investor portfolios? The answer is that, when diversification
is needed most, portfolios may not be as diversified as investors assume. In this
paper, we will explore the concept of portfolio diversification, the impact of
evolving financial markets, and why we believe tactical management is playing
an increasingly pivotal role.
Call 800.258.4332 or visit guggenheiminvestments.com/dilemma
The Diversification Dilemma
Tactical Management and
Today’s Evolving Markets
By Douglas C. Mangini, J.D., Senior Managing Director
Chicago | New York City | Santa Monica
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continued from pg. 5
The current Zero Interest Rate Policy (ZIRP) has
not helped anyone but the banks, he maintained,
resulting in a $7 trillion transfer from individ-
ual savings to financial institutions since 2001
and taking discretionary spending out of the
economy. With growth now the scarcest global
commodity, he maintains the prospect for global
deflation is very real.
NAAIM member, technical analyst, and
consultant Greg Morris asked attendees, “How
many things about investing and finance do you
believe but have never questioned?” He proceed-
ed to knock the pins out from under a multitude
of investing truisms—from the wisdom of dollar
cost averaging to the illusions of forecasting.
Mr. Morris is the author of “Investing with
the Trend: A Rules-based Approach to Money
Management,” which makes a strong case for
trend-following and critiques some of the funda-
mental tenets of buy-and-hold investing.
Cyber security expert Jeffery Ingalsbe, who
recently joined Flexible Plan Investments,
stressed that the first priority of Internet secu-
rity is to avoid providing unwanted access to
IT resources. For example, too many financial
firms make it relatively easy for security breaches
to happen by failing to follow the most basic
security protocols around filters, apps, security
patches, and wireless systems. When it comes
to protecting data, Mr. Ingalsbe recommended
that investment advisors first identify, “What is
your treasure? Draw a picture of it, know how
it moves, and make certain it is protected at rest
and in motion.”
The final takeaway from three days of discus-
sion came down to the growing importance of
active investment management of client assets.
Volatility and political uncertainty, slowing global
economic growth, a bull market of over six years,
and many indicators reaching extremes, all have
made for a cautious NAAIM crowd. The positive
counterpoint—voiced by many attendees—was
that with active management, they have a plan
firmly in place to manage risk.
Mr. Wilder perhaps said it best: “It is more
important than ever that managers maintain their
awareness and discipline and stick to their plan.
There is always going to be an opportunity to
make money in the future as long as the investor’s
principal is preserved. I know of no better way to
have one’s belief in the wisdom of active manage-
ment confirmed than to meet and talk with peers
in this business.”
Peer-to-peer advantage
Linda Ferentchak is the president of Financial Communications Associates
Inc. Ms. Ferentchak has worked in financial industry communications since
1979 and has an extensive background in investment and money manage-
ment philosophies and strategies.
“There is no better
way to confirm the wisdom of
active management than to talk
with peers in this business.”
13June 11, 2015 | proactiveadvisormagazine.com
15. Active Management
There is a great deal of confusion surrounding the term “active
management” created by the business press. When one reads a headline
in any given year that “active managers” are underperforming or overper-
forming their benchmarks, this typically is referring to “active” managers
of a mutual fund—who are being measured against a specific index or
competing funds within that style.
Within the field of true active portfolio management, this narrow and
misleading definition really has little significance.
Active investment management is not about exceeding a specific
benchmark or “beating the market.” Active management seeks favorable
risk-adjusted returns in any market environment, generally employing
sophisticated algorithms and models to capture gains and protect against
losses in a wide variety of sectors, asset classes, and geographies.
It is about controlling risk in the markets, finding new ways to
dynamically diversify, and smoothing out the long-term volatility typically
found in any asset class. Active managers tend to rely on quantitative
approaches for asset allocation, exposure to the market, and adjustments
to portfolios based on current market conditions. When it comes to
evaluating returns, they generally will not compare to the S&P 500 or
global total market indexes, but are far more interested in risk-adjusted
returns and in meeting their portfolio objectives.
In theory, it is fundamentally about a long-term approach to portfolio
management that is diametrically opposed to “buy-and-hold.”
Fee-based revenues remain strong among advisors
101
Dynamic
Strategic
Diversification
Tools Models
Strategies
5 reasons to consider active management
Buy-and-hold is dead(ly)—While bull market runs are impressive,
history shows it is not a matter of “if” but more a matter of
“when” for the next bear market. Investment expert Kenneth Solow
sums it up: “Patiently waiting for stocks to deliver historical average
returns does not rise to the level of an investment strategy.”
Bear market math is daunting—It takes longer than most in-
vestors think to recover from bear markets—a gain of 50% is
needed to overcome a 33% portfolio loss.
Risk first: Always—As one prominent active manager has said,
“No one would ever jump into a car without brakes, so why
would investors even consider having an investment strategy that did
not have a strong defense?”
Active management aligns with investor psychology—Behavioral
finance studies have documented the tendencies of investors to
operate on the destructive principles of “fear and greed.” Disciplined
active management takes emotion out of the equation.
Does “set it and forget it” really make sense?—For retirees or
those approaching it, the “sequence of returns” dilemma can
have a devastating effect on future income needs. Active management
offers a prudent path to achieving the twin goals of asset preservation
and compounded capital growth.
Resources for Advisors
Websites
Proactive Advisor Magazine: Active investment management’s weekly magazine, providing
advisor perspectives, topical issues in active management and commentary on strategy and
tactical tools. www.proactiveadvisormagazine.com
National Association of Active Investment Managers (NAAIM): Peer-to-peer networking
in the active investment management community, providing best practices among successful
advisors and advisory firms. www.naaim.org
Market Technicians Association (MTA): Leading national organization of investment analysts,
stock market analysis professionals and certified market technicians. www.mta.org
Advisor Perspectives: Audience-generated and vendor-neutral forum where fund companies,
wealth managers and financial advisors share their views on the market, the economy and
investment strategy. www.advisorperspectives.com
Whitepapers
“Bucket Investing with Dynamic Risk-Managed Portfolios,” Flexible Plan Investments
goto.flexibleplan.com/download/whitepaper-bucket-investing.pdf
“Comparison of ETFs and Mutual Funds—The True Cost of Investing,” Guggenheim Investments
guggenheiminvestments.com/rydex
“Understanding Leveraged Exchange Traded Funds,” Direxion Investments
www.direxioninvestments.com
“Small Accounts, Big Opportunities,” Trust Company of America
www.trustamerica.com/resources
“Why Gold? Seven Enduring Reasons,” Flexible Plan Investments
goldbullionstrategyfund.com
“The State of Retail Wealth Management, 5th Annual Report,” PriceMetrix
www.pricemetrix.com
2012 2013 2014
Fee-Based Assets (% of Total Assets) 28% 31% 35%
Fee-Based Revenue (% of Total Revenue) 45% 47% 53%
Average Fee Accounts per Advisor ($000s) $258 $293 $293
Average Assets of New Client HHs ($000s) $475 $477 $538
Source: PriceMetrix Insights – The State of Retail Wealth Management 2014 – 5th Annual Report (Aggregated
data representing 7 million retail investors and over $3.5 trillion in investment assets.)