Weekly Market Update

What we are working on this week

August 28, 2023
Last week the InvestSense team spent much of the week preparing for and attending the Portfolio Construction Forum Strategies Conference.

Evaluating Managers: A Data-Driven Approach

One of the standout sessions at the PCF StrategiesConference was the discussion on evaluating managers. The session featured GregDean and Claire Finn Levy, who explored the question of whether there is abetter way to judge managers beyond traditional methods such as past performanceor subjective interviews.

ClaireFinn Levy, an expert in coaching managers and analysing their investmentdecision-making, presented a data-driven approach to manager evaluation. Sheemphasized the importance of quantifiable metrics such as hit rate, decisionquality, and payout analysis. This approach allows for a more objectiveassessment of managers, providing valuable insights into their decision-makingabilities.

Whilethis data-driven approach is not entirely new, Claire's process offers a uniqueway to quantify and analyse manager performance. The availability of suchinformation could potentially revolutionize how we evaluate and select managersin the future. However, it's important to be cautious and recognize thelimitations of relying solely on statistical metrics. The introduction of theSharpe ratio had its drawbacks - insurance or relative strategies can haveoutstanding Sharpe ratios, especially if calculated with a limited data setthat doesn’t include the inevitable pay-out, drawdown, or ‘fat-tail event’.Fund managers often control the data and the experience/performance historybeing marketed can look very different from the experience a few years down theline. So far this looks like something that could help us cut the wheat from thechaff but it’s not yet clear how it can be used across a wide variety ofstrategies.

 

The Rise of Artificial Intelligence in Portfolio Construction

Artificial intelligence (AI) was another prominenttheme at the PCF Strategies Conference. While it didn't receive as muchattention as expected, the discussions shed light on the challenges andopportunities surrounding the implementation of AI in portfolio construction.

Wewere somewhat surprised at the difficulty people are having in grasping theconcept of AI and its practical application. In particular, were think thescepticism of many in the audience stems from a lack of differentiation.Between generative AI, such as GPT models, and extractive AI needs to be madeclear. Generative AI involves creating new content from very broad andunstructured data sources, while extractive AI focuses on extractinginformation from a narrow, trusted data set.

Thediscussions highlighted the need for a better understanding of how AI it can beeffectively utilized in research and advisers’ practices. We think we can helpadvisors with some of the early low-hanging fruit and will be arranging awebinar for our clients on this subject in the next few weeks.

 

Geopolitics: A Key Factor in Portfolio Decision-Making

Geopolitics also took centre stage at theconference, with Vikram Mansharamani providing some striking insights into theglobal landscape. One of the key topics discussed was the potential decline ofthe US dollar as the world's reserve currency. Mansharamani highlighted thegrowing pushback from various countries and proposed the idea of the BRICScountries coalescing around a jointly-backed currency, potentially tied to gold.

Whilethe feasibility of such a currency remains uncertain, the implications of sucha shift would be significant. It could impact the value of the US dollar, USTreasury yields, and various other aspects of the global economy. Thisthought-provoking idea opens up a new avenue for portfolio managers to considerwhen making investment decisions.

 

Private Assets: Exploring New Investment Avenues

Private assets, including private debt and privateequity, were also extensively discussed at the conference. Severalpresentations focused on the potential benefits and risks associated withinvesting in these alternative asset classes.

Privateequity, in particular, was a topic that sparked debate and prompted furtherinvestigation. While some presentations painted a rosy picture of the assetclass, others raised critical questions. This has spurred us to critically analysenot only some of the assumptions in some of the presentations but also our own.Several Private debt presentations made a compelling case from a return-seekingperspective but we wonder whether many of these shadow banking strategies havereally been stress-tested in adverse economic scenarios or even in ahypothetical sense (as actual banks must do for the regulators). In the US the Securitiesand Exchange Commission has just kicked off a series of initiatives looking atpretty much the same thing. Expect white papers on the subject of both issuesin the near future. 

Ona slightly different tangent, one presentation suggested that an index approachto private equity could be a viable option, similar to what has beensuccessfully implemented in listed equities. This is a brave new world but, whoknows, maybe it could spark the same rationalisation of the industry that wehave seen in public equities. Key Insights from Thought-Provoking Sessions

 

Active Opportunities in listed equities

There were several there were presentationshighlighting the cyclical undervaluation of emerging markets and global smallcaps. The rotational nature of these markets during recessions was discussed,suggesting potential opportunities for investors although many portfolioconstruction professionals remained concerned that a recession scenario was notideal for these cyclical assets we continue to hope that enough people worryingabout that means it doesn’t happen and we get something more akin to thefollowing graph. Apologies for repeating ourselves with the following graph butwith all of this talk of recessions we are trying to maintain an optimistic andconstructive mindset! Who knows, stranger things have happened.

Still, forewarned is forearmed, and with Andrew Huntin town this week we hope to benefit from both attributes in equal measure.Next week we will report in more detail on his current thesis where inflationgives way to disinflation and potentially beyond into deflation.

The Implications of Trump's (likely) Clean Sweep: A Turning Point for the Global Economy

November 8, 2024
Read More

Markets Hold Steady with Eyes on the U.S. Elections and Economic Updates

October 31, 2024
Read More

Key Insights from the H&B NSW 2024 Wealth Symposium

October 30, 2024
Read More

Markets Mixed as Australia Shows Resilience Amid Global Slowdown Signals

October 30, 2024
Read More

10-Year Series Part 5: The Anglo Saxon Property Reset and Productivity and Energy that Doesn't Cost the Earth

October 30, 2024
Read More

10-Year Series Part 4: Japan -Euthanasia of the Saver & Eurozone Competitiveness Differentials

October 16, 2024
Read More

Markets Steady Amid Geopolitical Tensions and Inflation Concerns

October 16, 2024
Read More

10-Year Series Part 2: QE Addiction and the Non-Bank Credit Boom

October 11, 2024
Read More

How Elections, Central Banks, and Geopolitical Tensions Moved Markets

October 11, 2024
Read More

10-Year Series Part 3: The Future Ain't What It Used To Be & Geopolitics

October 11, 2024
Read More

Strong U.S. Jobs Report and China's Disappointing Stimulus

October 11, 2024
Read More

Markets Brush Off Fed Rate Cut as the Outlook Remains Uncertain

September 30, 2024
Read More

"What do I tell a client who wants to invest in Crypto?"

August 2, 2024
With 2021 bringing cryptocurrencies into the spotlight for both retail and institutional investors, is there a place for these currencies within client portfolio's?
Read More

The market has a "breadth" problem

August 2, 2024
Join InvestSense Director Jonathan Ramsay and Andrew Hunt of Hunt Economics as they discuss the markets ‘breadth’ problem and how strong liquidity should keep things afloat until February.
Read More

Finding value and maintaining confidence in a FOMO world

August 2, 2024
Join host Toby Potter of IMAP with Nick Kirrage of Schroders and Jonathan Ramsay of InvestSense as they discuss value as a style, and as a driver of conviction when investing.
Read More

Inflation in 2022 - Beware of cross currents in 2022

August 2, 2024
With inflation appearing to be on the way up again, what are some of the possible scenario’s for 2022? Where does inflation go from the zero bound we’ve reached?
Read More

What happened in markets in 2021, and why?

August 2, 2024
Join InvestSense Director, Jonathon Ramsey to reflect on the price action seen in markets in 2021 and what this might mean for 2022.
Read More

We've got a bad case of FOMO, but it's not what you think

August 2, 2024
With valuation still being the lightening rod for when markets react to external forces, the most expensive things tend to move the most. What does this mean for global asset allocators, and what is InvestSense’s position?
Read More

Helping your clients assess the climate impact of their Portfolio

August 2, 2024
Nathan Fradley explains how the ethosesg technology can help you assess and design an ethical portfolio that aligns to an investor’s personal values.
Read More

Carbon credits and investing – is it the outcome we expect?

August 2, 2024
ETFs that invest in carbon credits are now available. Why should we assume that their price will go up over time? And does buying a carbon credit ETF actually contribute positively to emissions reduction? Will it actually generate the outcome investors are expecting? This article explores the issues around investing in carbon credits.
Read More

Better World makes a difference with investment in renewables

August 2, 2024
There are many direct assets and funds that contribute positively to climate action within the InvestSense Better World Portfolios. Meridian Energy is one of the stand-out direct assets in the portfolio with a climate energy focus.
Read More

Bad news equals good news

August 2, 2024
In recent years professional investors have got increasingly used to the fact that good news is bad news for markets because higher interest rates are likely to be necessary, and of course vice-versa. However, last week the effect was stronger than ever and stocks rallied mid-week amidst reports of widespread lay-offs and expectations of a weak US jobs report.
Read More

‘Buy the dip’ opportunism start surfacing

August 2, 2024
The US market finally market caught a bid last week. Early in the week the market was down few percent after an earnings miss by ad dependent social media platform Snap (of Snapchat fame) combined with weak guidance raised more doubts about the economy and economic resilience of tech companies.
Read More

US momentarily dips into official bear market territory

August 2, 2024
The seventh negative week in a row for the US sent it briefly into official bear market territory before it recovered slightly late on Friday. The world’s largest stocks (Apple, Microsoft Amazon and Google) are all down 25%.
Read More

How Mark Lewin saved 13 hours a week with Managed Accounts

August 2, 2024
Mark Lewin was a financial planner, but is now the Director of Back Office Heros. In his planning business he gained significant efficiencies by recommending and implementing managed accounts for his clients. He tells us how...
Read More
Icon of a letter

InvestSense insights, delivered straight to your inbox.

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news