Top 10 CFA Institute Conference Proceedings from 2014 Reflect Investor Anxieties
After each CFA Institute conference, editors prepare Conference Proceedings of selected speeches that are likely to have enduring interest for investment professionals. Which are most popular with readers this year? So far in 2014, the 10 most popular Conference Proceedings downloads (via the CFA Institute mobile app) reflect persistent investor anxieties about volatility, currency, downside risk, pensions, active management, and the future of the finance profession. Please find below the full list of our top 10 downloadable Conference Proceedings for your education and enjoyment.
1. The Future of Wealth Management
Wealth management firms need to prepare for six strategic megatrends: emerging markets, competition for natural resources, state-directed capitalism, demographic change, social and behavioral change, and technological change. These long-term megatrends are changing the shape of the asset management industry, even as firms are struggling with shorter-term themes of fiscal pressure and political and regulatory change.
2. Volatility: The Market Price of Uncertainty
Today’s securities markets are pricing in yesterday’s crash, the known unknown, rather than tomorrow’s unknown unknown. To understand volatility as an asset class is to value the forward expectation of uncertainty, which is as much a function of human psychology as it is an expression of mathematics. Since the financial crisis, the pricing of volatility derivatives has undergone wide-scale changes that reflect classic behavioral biases. Not only is volatility an asset class, but in fact, it may end up being the most important asset class for institutional portfolios over the next decade. A strategy of “crisis alpha,” defined as the strategic acquisition of mispriced volatility, is a powerful way to navigate future uncertainty.
Central banks around the world have tried to stimulate their economies with a coordinated increase in their money supplies but without the destabilizing currency depreciations witnessed in the past. Although the US dollar has depreciated, emerging countries have enjoyed currency appreciation. Despite trillions of dollars added to the US money supply since the financial crisis, growth remains sluggish because people are not borrowing or spending. The Fed’s equilibrium models fail to capture the reality that economic sectors are highly integrated and reliant on the financial sector even more now than before the financial crisis.
4. Utilizing Downside Risk Measures
Investment advisers and fund managers could better outperform relevant benchmarks on a risk-adjusted basis by analyzing differently their current and prospective client portfolios. This improved performance can be achieved by focusing primarily on downside risk measures and understanding whether portfolios exhibit asymmetrical return profiles with fat tails. In addition, certain classic risk management strategies are useful, such as the Sharpe ratio and the information ratio, whereas other measures, such as the Sortino ratio and semi-standard deviation, may be misleading during up-market cycles.
5. Distressed Finance: Today and Tomorrow
A shock to asset value caused by dislocations and unforeseen change creates distress. With distress comes the uncertainty of the company’s future, which opens the door to investment opportunity. Future distressed investment opportunities are likely in fixed-asset investment commodities and related companies as well as companies exposed to natural gas.
6. Seeing Investors’ Reality as Our Profession’s Reality
Practitioners in the investment industry often succumb to common behavioral biases that lead to inflated estimates of the value that is being delivered to clients. To raise the standards of professionalism in the industry, practitioners should help clients understand their true goals, use index funds whenever possible, and reduce fees to a level commensurate with the real value added.
7. Balancing Austerity and Strategies for Growth
The combination of rescue fatigue among Europe’s strong economies and austerity fatigue among its debtor nations has resulted in waning support for European integration. Germany is not rich enough to fill the coffers of the southern European countries hardest hit by the financial crisis, and its long-term support for European integration cannot be taken for granted.
8. The Global Pension Cliff: Myths, Realities, and Courses of Action
In the late 1990s, pension plans did not use their big surpluses to immunize their liabilities. They believed that weighting equity investments and achieving a return-on-assets objective would ensure a fully funded plan. Pensions are now running critical deficits. Solving the pension crisis requires realistic accounting rules, a redefinition of traditional asset allocation and risk practices, and a focus on the custom liability index.
9. Financial Market History Roundtable, London
This article comes from a roundtable held in London at Cass Business School on 11 June 2013, the first of several roundtables on the subject as part of the Future of Finance initiative. With a goal of improving investment decision making in the future, the panel of experts was asked to answer this question: What are the key lessons of financial market history, and how can investors apply those lessons?
10. Utilizing ETFs in Active Equity Strategies
The reasons investors use exchange-traded funds (ETFs), rather than other alternative instruments, as part of their active equity strategies are increasing. In North America and Europe, ETFs are becoming popular in managed portfolios and for portfolio cash management. Institutional inertia is being replaced by an appreciation of the low-cost opportunities of using ETFs.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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I am not sure that the download reflects only anxiety. I think it reflects more the will of financial profesionals to better understand those mechanism in order to benefit from them.