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53: Sunsuper's Andrew Fisher – Asset Allocation, Pandemic and Retirement Products
Andrew Fisher is Head of Asset Allocation at Australian pension fund Sunsuper. We discussed the impact of how the markets have changed since the 2008 financial crisis on asset allocation and whether these changes are structural or part of a very long cycle.
We also discuss the fund's partnership program, whether value is truly a risk premium and retirement products. Enjoy!
Overview of podcast with Andrew Fisher
1:00 On ultra marathon running
2:00 Getting started in investing
4:50 Everybody is good at the pure maths side of things, where people differ is how they apply that knowledge
6:00 Markets are more driven by emotion today
7:30 Changing how we think about foreign currency
9:15 Talking distressed opportunities
10:00 NZ Super’s strategic tilting program
12:00 I’m not convinced that strategic asset allocation has stopped working
13:00 As the markets were falling, we definitely increased equity allocations
14:30 You shouldn’t base your defensive assets on the most recent crisis
18:00 Value versus growth: structural or cyclical
18:45 I have a healthy scepticism about whether there is a risk premium in Value
19:40 There is definitely a cyclical dislocation in certain sectors of the market
20:30 Technology is overvalued against almost every other sector.
24:00 On machine learning
25:30 Partnership program and strategic review
28:20 We are going to wait and see; we don’t really want to sell anything, but we also don’t really want to buy anything
30:30 Retirement, I’m not sure that anyone has been able to deliver anything better than the allocated pension
52: Northern Trust AM's Michael Hunstad – Unintended Equity Risks
Michael Hunstad is Head of Quantitative Research for Northern Trust Asset Management. Michael and his team have produced a report which analyses risk in more than 200 portfolios and over a 1,000 equity strategies over a period of four years. They found that there are six drivers of unintended outcomes in portfolios, including uncompensated risk and unintended style biases. We speak with Michael about the report, how to avoid these traps and how the pandemic would affect the results. Enjoy!
Overview of podcast with Michael Hunstad:
1:30 Starting out in investing
2:30 Changes in the hedge fund industry
4:00 Unrewarded risks in institutional portfolios are as high as 50pc of the portfolio
6:30 Unrewarded doesn’t mean unknown. To what degree do investors know about these risks?
8:20 Is it possible to get rid of unrewarded risk?
11:00 The Cancellation Effect, capacity and diversification.
13:00 Active share cancellation
16:30 It is not about how concentrated or diffuse a manager is, but what remains after the portfolio is put together
17:30 Unintended style biases.
18:30 We still have a high conviction in the value factor. We feel we are in a cycle and it is always darkest before dawn
20:45 I get concerned when I see the multiple dislocations that we see today
22:30 Chasing returns and manager selection
24:30 On return cycles of manager outperformance
27:00 Is manager blending an underestimated art?
28:45 Does this mean we should all just go passive and factors?
30:00 How would the pandemic affect the findings of the report?
30:40 When a risk is not properly priced, it is usually uncompensated
32:00 Pandemic and structural changes for the investment climate
33:00 We can see an increase in volatility spikes and it is accelerating
35:00 As a former algorithmic trader, I’m also concerned about the amount of algorithmic trading that is occurring at the moment
36:00 The future of equities is very much about how you manage these tail risk events.
51: MMT's Bill Mitchell - Unemployment, Surpluses and Investments
Professor Bill Mitchell is one of the key figures behind the Modern Monetary Theory, a term he coined himself. We talk to Professor about the impact of the pandemic on economies, what can be done about the sky-high unemployment rates and why ultimately unemployment is a political choice.
Overview of Podcast with Bill Mitchell, University of Newcastle
1:00 You coined the term ‘Modern Monetary Theory’?
3:00 Starting tto blog: http://bilbo.economicoutlook.net/blog/
5:00 More interest from the investment industry
6:00 The Australian economy has collapsed
7:00 Most of the collapse could have been prevented
9:00 We are about $100 bn short of government spending
10:00 Not against the lockdowns
12:00 Much attention goes to MMT’s comments on deficits, but what it says about budget surpluses is much more interesting: it detracts from economic activity.
15:00 What is the role of fiscal policy? It is to ensure that spending in the economy is sufficient to maintain production at levels which will provide jobs for everybody.
16:30 To run a deficit is to undermine economic activity. That is okay in the case of Norway (where the economy runs hot).
17:00 A surplus not only undermines economic activity but it also destroys private sector wealth
22:30 Can we solve unemployment? A very pertinent problem at the moment.
23:30 Mass unemployment like we have today is a political choice
27:00 The Green New Deal or Green Transition.
28:00 If I was the government I would be embarking on large scale investments in renewables, transition technologies, in speeding up the process of carbon elimination.
28:30 Why not use the Hunter Valley culture of high productivity manufacturing to build a renewable energy hub for Australia and create jobs in manufacturing, R&D, et centera.
31:00 What do you want people to take away from MMT?
34:00 Does working from home distort the measuring of worked hours?
35:30 There is a massive distortion in economic data. This is not to blame the statistic agencies, but it is just very hard to measure right now.
50: PRI's Nathan Fabian - Climate Risk Pricing
Nathan Fabian is Chief Responsible Investment Officer with the Principles for Responsible Investment (PRI). The PRI believes that financial markets today have not adequately priced-in the likely near-term policy response to climate change. In this podcast, we talk about the release of the Inevitable Policy Response, a project that aims to prepare investors for the associated portfolio risks.
Overview of Nathan Fabian, PRI, podcast:
1:30 You were an advisor to Senator Penny Wong. What was that about?
2:00 What does a Chief Responsible Investment Officer do?
4:30 The PRI recently launched its Inevitable Policy Response. What is inevitable about it?
6:00 It can be hard, sitting in Australia, to see how political neutral climate is as an issue in most countries in the world.
9:00 Coal: “Institutional Investors broadly have already made a judgement on coal.”
11:00 Coal: “We are really just exiting a legacy industry at this point.”
13:00 Stranded assets: “A fire sale of assets is not going to be in the interest of institutional investors.”
14:30 How do you translate the uncertainties of climate risk into a valuation model? Is it possible?
16:00 Give your best estimate and adjust your valuation along the way. You can’t just ignore it.
17:00 We did some asset level modeling to get estimates.
18:45 Australia is still considered in the policy paper as a country that will phase out coal in an early stage. Why?
20:00 Is there a danger that the message will get lost in the turmoil of the pandemic?
20:30 “Will the support packages under the pandemic prolong the life of companies that were already struggling? That certainly is a risk”
22:30 “Are we accelerating the energy transition, or are we propping up companies that we are going to have to unwind anyway in the future? We are at important crossroads.”
24:30 “There is this myth around the green transition that you have to come up with unproven technologies that are going to radically transition our economies. But most of the opportunities are there and they exist in all sectors of the economy.”
26:00 “We think land use has been overlooked. But we expect a lot of change in this sector.”
27:30 So what are the next steps with the policy paper?
49: Blackrock's Stephen Laipply – Fixed Income ETFs
In Episode 49 of the [i3] Podcast, we speak with Stephen Laipply, US Head of iShares Fixed Income ETFs for BlackRock. We discuss how fixed income exchange traded funds (ETFs) fared during March and April of this year, when many bond markets froze due the global pandemic. We talk about price discovery in listed and OTC markets and the question whether we will ever see an institutional grade portfolio comprising solely ETFs.
1:00 My father bought me my first stock when I was a child and it happened to be Apple, but...
3:00 First encounter with ETFs
5:30 The changing use of ETFs by institutional investors.
6:30 ETFs in Tactical Asset Allocation
8:00 Have fixed income ETFs remained liquid when credit markets froze?
8:44 We saw half of last year’s volume trade in a single quarter
9:30 How accurate do fixed income ETFs reflect the prices in the OTC market?
10:30 March 12 was one of the most challenging days in the risk off market.
11:00 If you compare 90,000 trades to a dozen of trades, then we have more confidence in the price discovery of those 90,000
13:00 You wrote a paper on fixed income ETFs as leading indicators?
15:00 Can you develop strategies based on the slight lag in information?
18:30 Sometime regulations can be a benefit to the sector. After the GFC, tighter regulations increased the demand for fixed income ETFs.
21:00 What type of institutional investors use these ETFs?
23:30 Relative trades with ETFs
26:00 Do fixed income ETFs trade like equities in the short term?
27:00 Just become an asset trades on an exchange, that doesn’t change the character of the asset class
29:00 What type of innovation do you expect to see in ETFs in the coming years?
31:00 Will we ever see an institutional-grade portfolio build completely out of ETFs?
48: Research Affiliates' Rob Arnott - The Value Factor
Rob Arnott is the founder and Chairman of Research Affiliates. In January, he published a paper that looked into the question of why the value premium hasn't worked for the last decade, called 'Reports of Value's Death May Be Greatly Exaggerated'. In this interview, we talk about the paper, how the current downturn due to the coronavirus might impact factors and why Arnott would never take Research Affiliates public.
Overview of Rob Arnott Podcast:
1:00 Is this time different?
2:00 Will things be different three years from now?
4:35 The idea that tech stocks won’t be hit is naive.
7:30 The narratives for why value fails, don’t work, with one exception
7:50 Book/value is a terrible measure of value
8:50 By capitalising intangible assets, you boost the value of companies
and some might not look like growth companies anymore.
9:00 By taking into account intangible assets, value works better
10:00 Even Benjamin Graham, in 1937, wrote about the mediocrity of book-to-price
10:30 Today, over half of the assets of a typical business are intangibles that don’t show up in the book value
11:30 Are private equity investors arbitraging the value factor away?
12:00 I cannot imagine Research Affiliates going public. I would instantly resign!
15:30 You will never hear a momentum manager tell you the simple fact that momentum hasn’t worked since 1999
17:20 We wrote a paper for a journal on machine learning in which we went through a laundry list of things that could go wrong
18:00 What would you do in the current environment?
18:30 You want to buy at peak fear.
19:25 Value stocks as a segment will come back; they are trading at the cheapest level since the tech bubble
21:00 In Emerging markets you have a crisis every two years, so this is just another, nasty crisis.
22:30 Will the new announced fiscal stimulus and QE distort factors?