Japanese crisis good for European economies, strategists say

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Will the Japanese crisis help or hurt European economies?

The answer hinges on how it affects nominal growth in European countries’ gross domestic product, said David Bowers, managing director of global strategy for Absolute Strategy Research (ASR), a London-based macroeconomic research firm. He spoke during the Q&A session following “Europe: ‘This could be Heaven or this could be Hell,’ ” a March 17 presentation to the Boston Security Analysts Society.

Higher capital expenditures

In Europe, as in the U.S., companies have been hoarding cash. It’s likely these firms will open their capital expenditure spigots wider, according to Bowers. Why? Because the crisis presents an opportunity to gain market share at Japanese companies’ expense, Bowers said.

Ian Harnett, ASR’s managing director for European strategy, said this opening should appeal to Germany, which competes directly with Japan in areas such as heavy machinery.

Another plus for European economies is that Japan’s plight makes central banks less likely to raise interest rates for fear of sparking a return to recession.

Quick check for writers, with an economic commentary example

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You CAN edit your own writing.

First-sentence check

Here’s a tip that will help you check how well your piece is structured. Read the first sentence of every paragraph. In combination, do they give the reader a good idea of your main points? If so, you’ve written something that’s likely to survive a busy reader’s scrutiny.

This first-sentence check works because strong business writing typically starts each paragraph with a topic sentence that summarizes the paragraph’s main point or topic.

You can also incorporate the first paragraph into your quick check of your writing. When I write something longer than a blog post, I like to set up my main points in the first paragraph.  This lets me convey my argument to readers who don’t have the patience to read any more.

Example: “Today’s employment report” by Cumberland Advisors

Let’s use “Today’s employment report,” a piece of economic commentary by Cumberland Advisors in Sarasota, Florida, to test the first-sentence approach to checking your writing.

Below you’ll see the first sentences of the first six paragraphs of the commentary. By the way, I’m not copying all of the first sentences because I don’t want to infringe on the firm’s copyright.

  1. Today’s employment report is a disappointment.
  2. Markets got ahead of reality; this is weak economic recovery.
  3. The United States faces the worst employment conditions seen during the entire Post World War II period.
  4. The human tragedy is large.
  5. If you look at the U-6 unemployment rate, you realize that 1 out of 6 in the labor force has either no income or pay that is less than it was three years ago.
  6. To understand the dynamic at work in the US one has to drill into the headline number.

After reading these sentences, do you have a sense of the author’s opinion on the employment report? I think so. To check the relationship between this six-sentence summary and the original commentary, go to “Today’s employment report.”

I like the commentary on the Cumberland Advisors website. It states opinions in an appealing style. I almost feel as if I’m in a conversation with the firm’s investment professionals. You can read more by visiting Cumberland’s commentary archive.

What if your writing flunks?

If your writing flunks the first-sentence test, you may simply need to tweak your content.

For example, if all but one of your first sentences work, you can zero in on the problem sentence’s paragraph of origin. Your problem may be that the topic sentence doesn’t sum up or introduce the paragraph’s main point. You can fix this by rewriting the first sentence.

Alternatively, the offending first sentence may be a sign that the entire paragraph doesn’t belong. Perhaps you’ve gone off on an unnecessary tangent. If so, you can axe the entire paragraph.

Another possibility: Your sentence and paragraph are fine, but belong higher or lower in the commentary. Move the paragraph and you may be set to go.

 

Image courtesy of Jonathan Baker Photography via flickr licensed under CC BY 2.0

Guest post on emerging markets: What about China?

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Emerging Markets for Dummies author Annie Logue discusses China in her guest post. I’m happy to welcome Annie’s second guest post for this blog. Her first was “Talking to clients about social investing.”

She’s also giving away one copy of her book to one reader with an address in the U.S. who comments on her guest post. Be sure to input your email address, so she can contact you.

How can you say that China is an emerging market?

When I was working on Emerging Markets for Dummies (Wiley 2011), I had a question from my editor that probably nags at a lot of folks who are looking at international investing: How can you say that China is an emerging market when its economy is so big?

Well, yes, China is big. China has the third-largest economy in the world, behind the European Union and the United States, but it is nevertheless considered to be an emerging market. That’s for two reasons. First, China has the largest population in the world, so its economy per person is quite small. Divide China’s $8.2 trillion GDP by its 1.3 billion people, the result is a GDP of $6,700, ranked 130th in the world, right between El Salvador and Turkmenistan. Compare that to the United States, with a per-capita income of $47,400. (The US is ranked 11th internationally in GDP; Qatar is first at $145,300 – and it is also considered to be an emerging market because its leaders are working furiously to diversify the economy away from oil.)

To the average Chinese person, the country has a long way to go to be developed. Although the growth has been phenomenal, the nation has nowhere near the prosperity of the United States, Canada, or Japan.

Second, China’s infrastructure is still developing. For much of the 20th century, there was little spending on public works. In fact, some misguided political efforts such as the Cultural Revolution led to the destruction of perfectly fine schools and roads. Modern China needs roads, schools, electric power lines, airports, and all of the other niceties of a modern nation. The major cities are mostly set right now, but the nation’s vast rural areas are playing catch up. Beijing reaped the architectural rewards of the 2008 Olympics, but it has only 22 million people. More than a billion other Chinese are living in places without spectacular public parks and swimming pools.

When looking at China and India in particular, their national accomplishments have to be considered in the context of their massive populations. The CIA World Factbook, which is a great reference for anyone discussing emerging markets, says that only 61 percent of the population over age 15 is literate. To put it another way, India has more illiterate people than the United States has people.

It’s not easy to for an economy to be large enough to meet the needs of all of its people. China and India have a great deal of risk, despite their enormous progress. However, the creativity and hard work that goes into the attempt make for some great investment opportunities, even now.

I’ll give away a copy of the book to a random commenter with a US mailing address who responds to this post by March 1, 2011. Enjoy!

New publishing opportunity for investment professionals

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Investment professionals, mark April 1 in your calendar if you’re interested in expanding your professional publications.

April 1 is the deadline for submissions for potential publication in the September 2011 issue of the New York Society of Security Analysts’ new online peer-reviewed journal.

The society says it is “particularly interested in articles on financial regulation and risk management.”

The journal is aimed at practicing investment professionals. Here’s how it describes its goals.

  • Educate investment professionals on theory and practice in securities analysis
  • Offer a forum for the latest in thought leadership in the investment industry
  • Promote discussion among various groups in the industry: professionals, regulators, private investors, company boards of directors and CEOs, students, etc.
  • Supplement the programs and professional development curriculum offered by NYSSA
  • Serve as a career development resource for readers

Start writing today!

“Smart people”: A good ad by Bessemer Trust

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“You” is one of the most powerful words in the English language. You’re much more likely to read a sentence that addresses “you” than one that starts with “we.” But sometimes alternatives work, as in a recent ad by Bessemer Trust, which uses “smart people” instead of “you.”

Do you think of yourself as one of the “smart people”? Bessemer Trust plays on its audience’s desire to be smart in its recent ad. If you still have The Wall Street Journal from yesterday, you can see it on page A5.

The ad starts with the following text:

THERE’S NO SUCH THING

AS SMART MONEY.

ONLY SMART PEOPLE.

THE MONEY JUST GOES

WHERE THEY GO.

Bessemer’s text hooked me. I’ll bet it also snared your attention.

The text benefits from being short and plain, in addition to working the “smart people” angle. It has a nice conversational tone. It sounds more like a blog post than an ad by a firm that was founded in 1907.

If you saw this ad, I’d like to know what you thought of it.

FEB. 11 UPDATE: View the Bessemer Trust campaign online

You can view the entire Bessemer Trust ad campaign on the website of www.munnrabot.com. Go to “current work” and then Bessemer Trust. Click on the ad that appears there to see more ads. Thank you, Orson Munn, for letting me know this!

Financial writing tip: Don’t ignore the elephant in the room

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Don’t write about something controversial as if it is an accepted fact.

“Research has shown that the most active managers can beat their benchmarks handily,” wrote Eleanor Laise in “The Return of The Market-Beating Fund Manager” in The Wall Street Journal.

Oh, really? Many financial advisors and investment professionals disagree.

Laise should have acknowledged that her statement was controversial. Her failure to do so undercuts the credibility of her article. Keep this in mind the next time you say something that isn’t widely accepted.

Laise could have rephrased her sentence along the following lines: “New research suggests that most active managers can beat their benchmarks handily.”

Research on active managers’ outperformance

Laise’s article alerted me to an interesting research paper, “Active Share and Mutual Fund Performance,” by Antti Petajisto of NYU University’s business school.

Here’s a provocative quote from Petajisto’s abstract:

I find that over my sample period until the end of 2009, the most active stock pickers have outperformed their benchmark indices even after fees and transaction costs. In contrast, closet indexers or funds focusing on factor bets have lost to their benchmarks after fees. The same long-term performance patterns held up over the 2008-2009 financial crisis.

My LinkedIn contacts responded with scepticism when I quoted Laise’s sentence. What do YOU think about the performance record of actively managed funds?


Defining investment outperformance: You’ve got strong opinions

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You don’t agree on how to define outperformance by stock funds, the focus of my latest poll. You expressed your disagreement in votes as well as in your comments on my blog post, some of which I’ve quoted verbatim below.

Outperformance poll results

Almost 30% of you said that an advantage of even one basis point (0.01%) was enough for an investment to claim outperformance. Close to 20% put the break point at 10 basis points (bps). Overall, more than two-thirds of you said there was an absolute level at which asset managers could claim outperformance.

For the rest of you, it seemed that outperformance was relative. Twelve percent defined an investment’s outperformance in terms of “a certain percentage of its benchmark.” The rest of you–21%–said outperformance was defined by “None of the above.”

Here are the poll answers and the percentage replies:

* 1 basis point (0.01%): 29% of all votes
* 10 bps: 18%
* 25 bps: 0%
* 50 bps: 6%
* 100 bps: 15%
* A certain percentage of its benchmark’s return: 12%
* None of the above: 21% (Percentages may not total 100 because of rounding)

The minimalists’ approach

“Technically, a mere 1 bp excess return should arguably count for ‘outperformance,'”wrote David Spaulding of the Spaulding Group in his comment on my blog. His comment was echoed by Jeff McLean, Ph.D., who said, “I believe that a stock, fund, or variable annuity that outperforms a benchmark by any margin, no matter how small, can claim outperformance.”

Consider the benchmark

John Lowell said he’d like a manager’s performance to exceed the benchmark by at least one standard deviation, but preferably 1.5 standard deviations, before he applied the term outperformance. “To really be outperforming, I’d like to see them outperform by at least 1 standard deviation 3 years out of 5 and cumulatively over the 5-year period.”

Some of you who commented on my blog took issue with the idea of comparing performance net of fees with the performance of a benchmark that’s not reduced by fees. Here’s what Frazer said:

For example, if you have a fund with a 50BPs expense ratio being compared with the SP500 (which investors can access via ETF with an 8BPS expense ratio), you should subtract the fees from both numbers to get an accurate view of relative performance by the manager.

In this case, the fund would need to outperform the SP500 by 42BPS to claim “outperformance” over the benchmark.

I imagine that the SEC doesn’t like this approach. What marketer wouldn’t do this if it were legal?

Then, there’s the issue of what benchmark to use. Steve Smith said, “Leaving aside the degree of outperformance, two baseline criteria are also required: 1) choosing the proper benchmark (i.e. “best fit” index) and 2) having a very high (mid-90%) R squared.”

Remember the client

The financial advisors who responded to my poll said that “outperformance” is meaningless if client goals aren’t considered.

David B. Armstrong, CFA, said

I define outperformance as this – when an investor’s portfolio does better then the return required by the financial plan to meet the investors goals – that’s outperformance.

Moderately outperforming the return required in a financial plan is probably ok – most investors can get away with that safely from time to time. It’s when your outperformance is like going 95 mph in a 65 mph zone that investors have a problem. How many investors experienced a ticket or a wreck in their portfolios in late 2008? Or better yet – how many advisors sat in the back seat of the car and let their clients drive 95 mph…drunk!

Stephen Campisi, CFA, agreed, saying “…outperformance is really not about return; it’s about having more money than you need to meet your tangible financial goals.”

Campisi also suggested that fiduciary responsibility comes into play. “As fiduciaries, we need to start thinking in terms of our loyalty standard, and start thinking about meeting the client’s financial goals – and these are money goals. So, we need to “show them the money” and when we talk about return we need to show them an internal rate of return over a long period. We need to show them the return that incorporates their beginning wealth, the money they were able to pull out of the portfolio for their goals, and their ending wealth. Then (and only then) will we be acting in the best interests of the client.”

My take on this issue

I like the idea of defining outperformance relative to client goals. This is an area where financial advisors and asset management firms focused on separate accounts can improve. However, if you’re a fund company producing investment performance reports for a diverse group of investors, you lack information about client goals. So you’ve got to define outperformance relative to a benchmark.

Thank you, commenters!

I’m grateful to everyone who commented–both on my blog and in a lively discussion on the members-only Financial Writing/Marketing Communications LinkedIn Group. You made me see new dimensions to this issue. I love learning from you.

Thank you–and please continue the conversation!

Best practices for institutional asset manager websites–Can you add anything?

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Best practices for institutional asset manager websites don’t get as much attention as retail sites in the blogosphere. So I’m asking all you seasoned institutional marketing experts to help compile a list of best practices.

In this post, designer Margaret Patterson offers tips on firm-specific information, educational content, and search optimization for institutional investment management websites. Read on for the details of Patterson’s suggestions.

Firm-specific content

In addition to the basics, include the following, suggests Patterson:

  1. A complete “Executive Experience” organization chart, clearly featuring all analysts and their areas of expertise
  2. A client list, but only after getting permission from each of them
  3. Use each search optimization word or phrase at least twice somewhere in your website.

Educational content

Small institutional investors appreciate education, says Patterson. For example, a glossary of terms and analytical definitions, such as free cash flow, operating cash flow, etc.

Here are more of Patterson’s content recommendations:

  1. Downloadable white papers are a big draw. For example, “Actively Managing Bonds vs. Laddering: Pros and Cons.”
  2. Consider offering email market and industry commentaries PDF files.  Google searches favor sites that have been recently altered. Regularly adding new documents improves the odds that Google will lead potential investors to your site.

Special content for special targets

Provide a page or two of content for institutional consultants, suggests Patterson. “For example, a liability-driven approach or exceptional reporting capabilities, when applicable, are music to their ears. I push service, service, service when consultants are among those being pitched.”

If you have questions for Patterson, you can email her at mpco@verizon.net.

Please help add to this list.

Use the “comment” section below or email your suggestions for best practices to
info@investmentwriting.com.

Career strategies for wealth managers without a “book of business”

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“I can’t get a job because I don’t have a book of business.”

I’ve heard many CFA charterholders in the field of wealth management say their career prospects are limited by their lack of clients who will follow them to a new employer. If you’re in this fix, I have some suggestions for you, thanks to a lively discussion on the CFA Institute’s LinkedIn Group. I’ve quoted only LinkedIn Group members who gave me their permission.

The wealth manager’s dilemma

Sometimes your technical skills aren’t enough to attract potential employers, especially now.

“When the times are good, the industry will place more value on the technical skills because of more demand for labor. When the times are bad, the industry will place more value on soft skills because of more demand for assets to manage in order to pay for labor,” says James H. Barker, Jr., CFA, managing director of Haynes Barker Investment Management in Tennessee.

The skills necessary to earn your CFA charter and to manage money for individuals and families won’t build your client base. At least not overnight. So what can you do if you need a job, but lack that all-important “book”?

In the near term, you can pursue one of the following courses.
1. Look for a company–most likely a large company–that hires specialists.
2. Become a consultant or start your own business using your analytical skills.
3. Become a great networker and marketer.

Career strategy #1: Work for a large company

If you want to focus solely on your technical skills, look for a company–most likely a large company–that hires specialists.

Ted Everett, CFA, a fellow Boston Security Analysts Society member, says “Larger firms accept a higher rate of turnover in clients as a necessary evil of their firm size but offset it with efforts by dedicated sales teams. They are more apt to add personnel to fill a gap in coverage without the portfolio manager having to bring a book with him/her. ”

Barker says, “Small companies will desire their employee/owners to be proficient with both technical and soft skills. Large companies will desire their employees to provide skills for what each is specifically hired for. To survive the bad times with a large company, you better have a book of business or the ability to communicate effectively to retain business and build for the future.”

Career strategy #2: Start your own business

You can become a consultant or start your own business using your analytical skills. This will require some marketing–but not necessarily asset-gathering–skills. However, consulting and some businesses don’t require as much of a “book of business” as a wealth management company would seek.

I know some consultants who work for only one client at a time. It’s a lot like having a regular job. The downside? These consultants are always looking for the next gig–or they have down time when they’re not making money. I’ve experienced this at times as a freelance writer. It helps to have an emergency fund to tide you over.

Here’s what David Malone, CFA, a fellow Boston Security Analysts Society member, says about his business.

I have found that without my own book, I cost too much, at least today. To solve this problem I started Wintergreen, which focuses on stock research versus asset-gathering. If a CIO is under cost pressure and cannot hire enough staff, I can fill the temporary stock picking needs on a contract basis.

This eliminates my need to gather assets and allows me to focus on what I love. I enjoy networking and informing CIOs and other managers that I can help them.

Career strategy #3: Become a great networker

If you hone your networking skills, you’ll be in touch with the right people once the right job becomes available. You’ll also have a better shot at developing the all-important book of business.

“Part of the answer, in my opinion, is to work on networking and telling one’s own story. This is not comfortable for many of us, but it is the only way to really participate in the market for knowledge work,” says David Robertson, CFA, CEO of Arete Asset Management in Baltimore, Md.

Other CFA charterholders recommend the following:

  • Taking public speaking or sales classes–I notice the New York Society of Security Analysts sponsors free Toastmasters meetings
  • Giving talks or seminars
  • Joining a chamber of commerce or other local organizations
  • Going wherever you can to meet prospective clients and referral sources

Should the CFA Institute and local societies play a larger role?

Several LinkedIn Group members suggested that the CFA Institute should more actively publicize the value of the CFA credential for wealth management. There’s also interest in local CFA societies helping members to develop their soft skills.

Introducing Susan to marketing managers at investment and wealth management firms

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White papers, articles, and investment commentary are great marketing tools. But it’s not easy for your firm’s experts to find the time—or maybe the skill—to turn their insights into compelling prose. I can help. I can interview your subject matter experts, review research materials, and write a piece your company can publish under its name. If you prefer, I can edit your draft. Or even teach you how to do it yourself.

You may benefit from my writing, editing, or training services if you are a marketer or communicator for

  • Investment managers—especially if you’re marketing to financial advisors
  • Wealth managers
  • Vendors to any of the above

What you want to write–and how I can help

If you are bursting with ideas, I can turn them into

  • White papers
  • Articles
  • Market or investment performance commentary—commentary may be based on interviews or on attribution analysis and other materials provided by you

If you want to write a piece—or improve your draft—you have several options. You can hire me to

  1. Interview your experts and write your piece
  2. Turn source materials you provide into a polished piece
  3. Use a combination of methods 1 and 2

When you contact me, ask for the graphic of my typical writing process. You’ll get a better idea of how we can work together.

 

How you’ll benefit from working with me

  • Your content will attract a bigger audience because the value you provide will be highlighted in reader-friendly text.
  • You receive your finished product quickly and on schedule. Having worked as a staff reporter for a weekly trade publication, I understand the importance of deadlines.
  • You don’t have to explain yourself in endless detail because I understand your industry. I’m a CFA charterholder who can use language as a financial professional and a journalist.

Contact me today to learn more! You can also check my testimonials on LinkedIn.

 

Boost your writers’ skills

Want to help your subject-matter experts and writers deliver better content? Take advantage of my writing workshops. I’ve presented “How to Write Investment Commentary People Will Read” to CFA societies across the U.S. and Canada. I’ve also spoken about “Writing Effective Emails and Letters” and developed customized writing workshops for corporate clients.

This post was updated on Dec., 19, 2013