BNY Mellon’s Jack Malvey spoke about the Search for Global Relative Value During the Great Transition Age, 2009-2025, to the Boston Security Analysts Society yesterday.
I tweeted some of the bits that interested me the most. I was especially interested to learn that he holds no bonds in his personal portfolio.
If YOU attended the session, I’m interested to learn your thoughts about it.
Aspiring freelance financial writers seeking advice contact me occasionally. If you’re one of them, here’s some advice.
“Freelance financial writer” is made up of three words, each of which contains clues to the freelance financial writer’s success. I discuss them below in order of importance.
Do whatever you can to improve your writing, including
r. Strong writing skills work across disciplines, as I said in “Writing resources for equity research analysts.”I took many great classes through the Boston Security Analysts Society on my way to earning my CFA (chartered financial analyst) credential. Your local society of the CFA Institute, other professional societies, or colleges may offer relevant classes in person or online.
Industry experience helps, too. I took my first job in financial services back in the 1980s.
You may be a great writer with a strong command of finance. But if you can’t run a business, you’re lost.
Here are some online resources for learning more about freelancing:
Here are some relevant posts from my blog. While they’re aimed at CFA charterholders, they’re relevant to others who understand investments.
If you’re in New York City, you can pick up more writing tips from me at my New York Society of Security Analysts presentation on “How to Write Investment Commentary People Will Read” or the annual writers conference of the American Society of Journalists and Authors.
European cyclical stocks and banks in the continent’s peripheral countries offer the best investment opportunities, 
according to Ian Harnett, managing director for European strategy at Absolute Strategy Research (ASR), a London-based macroeconomic research firm. He made his comments during “Europe: ‘This could be Heaven or this could be Hell,’ ” a March 17 presentation to the Boston Security Analysts Society.
Why cyclicals?
“Globally, excess liquidity will continue to make ‘risk assets’ more attractive,” said Harnett. Cyclical stocks in core Europe will benefit most from loose monetary policy and weak exchange rates.
More reasons to favor cyclicals include the following:
The main points I took from ASR’s description of Europe’s situation were
Europe’s woes have both structural and cyclical elements, said Harnett. However, he said, fiscal deficits such as we’ve seen recently are nearly always cyclical rather than structural. Harnett made his point with a graph showing the correlation between “Budget Balance as a % of GDP” and “Industrials Hiring Intentions.” “This has been a jolly good indication of deficits until now,” he added. “Europe’s woes are more ‘cyclical’ than ‘structural,’ ” he concluded.
Investors are moving into “safe havens,” such as Germany, at the expense of Europe’s peripheral countries, Harnett said. As a result, the core countries of Europe are paying an inappropriately low cost of capital. German consumer confidence is at record highs, so they are spending.
“The German locomotive can carry a very heavy load,” said Harnett. German excess demand is being funneled to Europe’s peripheral countries. Germans are vacationing abroad and buying peripheral countries’ exports. Trade imbalances within the euro zone are shrinking. Eventually, banks will benefit, especially in the peripheral countries, assuming they survive the current turmoil. ASR is currently very long on European peripheral banks and neutral on the banks of core Europe. Harnett added that he expects ASR’s next move will be to overweight core banks.
The euro is a political creation, so politicians will ensure its survival, according to Harnett. So your investment strategy shouldn’t bet against the euro, if you agree with ASR’s opinions.
For more on ASR’s views, go to “Japanese crisis good for European economies” and “U.S. companies may move supply chain home.”
U.S. companies may move more of their production back home, 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.
The lessons of the past few years suggest that companies should bring their supply chain home to avoid “the risks of exchange rates or tectonic plates,” suggested Bowers. The disruptions caused by the Japanese tsunami have been in the news.
Ian Harnett, ASR’s managing director for European strategy, agreed, elaborating on Bowers’ exchange rate comment. Offshoring is based on low foreign exchange volatility, he said. But foreign exchange volatility is rising. Food price inflation will encourage foreign countries to allow their currencies appreciate. As a result, labor costs could rise by as much as 10 times, depressing the wage advantage overseas. This argues for in-sourcing, Harnett concluded.
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.
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.
“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.
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.
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.”
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.
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:
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.
The U.S. housing market was the focus of a December 2 presentation to the Boston Security Analysts Society on “The U.S. Residential Housing Sector: Are We Near the Trough?” Scott B. Van Voorhis, lead real estate blogger for Boston.com, moderated a panel including Karl E. Case, founding partner, Fiserv Case Shiller Weiss, Inc.; Laurie Goodman, senior managing director, Amherst Securities Group, L.P.; and Brian Kinney, managing director, State Street Global Advisors.
Karl Case, who’s well-known for his role in creating what’s now known as the S&P/Case-Shiller Home Price Indices, said he’s neither optimistic nor pessimistic about housing prices.
On one hand, Case is concerned about a potential fall in the number of home buyers if immigration falls and more adult children end up living with mom and dad. The 1990 census showed that we had 10 million people whom we didn’t know we had, said Case. He’ll feel discouraged if the 2010 census shows we’ve got a smaller population than expected due to a decline in immigration or other factors.
On the other hand, said Case, affordable house prices help. You can buy a house today for half of what you would have paid on a monthly basis three years ago, he said. Low interest rates help, too.
In Case’s opinion, the next one-and-a-half years are likely to see a 0% change in housing prices. If prices don’t decline, we’re happy, said Case. Moreover, “When prices begin to rise, it’ll be a whole different ball game,” he added. A small number of people coming into the market can have a big impact on prices because valuations are set by a small number of transactions. In “A Dream House After All,” a September 2010 op-ed essay, Case said, “…a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision. And emotions can change on a dime.”
Case’s fellow panelists were more pessimistic, both projecting a house price decline of 5%-10%. Houses are affordable by traditional standards, said Goodman. However, that plus is offset by a huge number of houses and limited credit availability. This poses an obstacle to reform of Freddie Mac and Fannie Mae. Kinney agreed that reform will be a big challenge.
Case pointed out that housing prices vary by region. For example, California suffered from a boom in house prices, but not an oversupply of housing. So it’s recovering ahead of states such as Nevada and Arizona that overbuilt. However, California accounts for one-quarter of the nation’s housing by value. That means as California goes, so goes the nation, according to Case. The state’s house prices have been rising since the spring of 2009.
Goodman made the point that the foreclosure crisis isn’t over. She believes that about 95% of 5.2 million non-performing loans will eventually be liquidated. The government’s measures have stretched out the foreclosure crisis, rather than solving it, she said.
Principal reduction for mortgage holders who are “under water” must be part of the solution, said Goodman. The Home Affordable Modification Program hasn’t gone far enough, in her view. For the sake of the U.S. economy, the government should make principal reduction mandatory, she said.
She also suggested the following:
I’m curious to learn your take on the housing market. Please leave your comments below.
For another perspective, check out “Could Your Children Buy Your House?” by David Glen. Dave, whom I was delighted to meet in person for the first time at yesterday’s BSAS meeting, also discusses the panel.
Photo credit: cindy47452
Some marketing techniques work better than others for financial advisors.
The five most effective techniques for freelancers (who share key characteristics with financial advisors) include the following, as 
described in The Wealthy Freelancer:
My network has always worked best for me, but the other four techniques help, too.
My referrals come mostly from current and past clients, many of whom subscribe to my monthly e-newsletter, another big contributor to my marketing successes. Although my clients typically work for large companies that aren’t big on social media, they seem impressed by my social media visibility. Social media has expanded my network to include some great professional colleagues, referral sources, and an occasional client.
Smart local networking inspired me to launch my business. Many Bostonians have been generous with their time, advice, and connections. The Boston Security Analysts Society became one of my first clients and its timely presentations have provided the topics for many of my blog posts.
Direct mail has been the least effective technique for me. But I probably haven’t given the U.S. mail a fair chance because I’ve been so lucky with referrals from my network.
Thank you, all of my colleagues and referral sources, who have encouraged me! Every little bit helps.
What works best for you? Please answer the poll in the right-hand column of this blog. Feel free to leave a comment, too. I’ll report on the results in my January 2011 e-newsletter.
Boston’s asset managers need to boost their competitiveness, according to the leaders who spoke on “Where Are We Heading? The Future of Investment Management in Boston.”
Our new poll asks “What does Boston need more of to achieve this goal?”
Please check as many answers as apply in the poll that appears in the right-hand column of this blog. You’ll need to scroll down below “Recent Posts.” If I missed something, please leave a comment.
The poll will run until I’m ready to report the results in my August e-newsletter. Not a subscriber to my free monthly? Sign up today! As bonus, you’ll receive a free electronic copy of my Top Tips.
The future of investment management in Boston was the focus of a panel presentation to the Boston Security Analysts Society’s annual meeting on June 24.
The view that Boston is being left behind made the greatest impact on me, but I’ll report some of the opinions of the four speakers, all of whom are industry veterans.
Reamer: Emphasis on actively managed equities hurts Boston
The investment world is shifting toward aggressive hedge funds and passive quantitative funds, said Norton Reamer, vice-chairman and founder, Asset Management Finance LLC. There’s also currently an emphasis on fixed income. This is because the public has been discouraged by the stock market returns of the past two years. They want defensive, safe investments. On a related note, large pension funds are moving more toward indexing.
These trends don’t favor Boston, the home of the original mutual fund, because local firms emphasize actively managed mutual funds. At least these trends don’t bode well in the immediate future.
For Boston to prosper, it must attract assets from around the world, said Reamer. However, he sees the action shifting to New York, London, and even Philadelphia and California. Boston has only one of the 10 largest hedge funds and three of the 30 largest. While Boston has a history of venture capital, venture capital is less important than private equity, which is concentrated elsewhere, said Reamer.
One of Reamer’s comments held a glimmer of hope. Universities–along with arbitrage groups, traders, and others–are the source of the new ideas that are changing the investment world. Boston has some great universities. Perhaps the universities can fuel the region’s resurgence as an investment center. I’m happy to note that the Boston Security Analysts Society’s program committee has a subcommittee devoting to inviting speakers from academia.
Putnam: Four trends will create many losers, few winners
Investment management is a craft, said Don Putnam, managing partner of Grail Partners, who moderated the panel. He emphasized the need to avoid losing sight of the craft before he described the four trends that he believes are changing the industry.
As a result of these trends, there will be many losers and few winners, said Putnam. The winners will be global firms as well as small cadres of capable people. The big challenge for money management will be to connect these two groups.
Trend 1: The long, complicated supply chain is reordering. For example, people are seeing the problems with “the slices taken off for people who deliver golf balls.” I assume Putnam was referring to wholesalers and the broader issue of 12b-1 fees and the like, though he said that he was not making a case for fee-only advisors. Changes are coming as a result of regulatory pressures, client demands, and “better mousetraps,” such as ETFs and active ETFs. Putnam said he’s sceptical about growth opportunities for the mutual fund industry.
Trend 2: The relevance of specialization is declining. Why? Because the efficient frontier–and the need to diversify into many slices of the market–has been challenged. “It has been proven to be nonsense for the client,” said Putnam. Clients’ “true utility equation” can be delivered more efficiently with quantitative solutions, he added.
Trend 3: The arithmetic of the investment business is changing with the rising importance of asset allocation. As the utility of money management has declined, fees have risen, said Putnam. This can’t last. While clients have bought the “myth of comfort and control,” the past three years have increased client dissatisfaction.
Trend 4: Technology is increasing in importance. Technology should be woven into every aspect of money management, said Putnam. Technology’s influence on money management has barely begun.
Manning: Structure your firm to have an edge over your competition
You must deliver great results to keep assets, said Robert J. Manning, who spoke as CEO of MFS Investment Management, but is scheduled to become the firm’s chairman on July 1. This means you must structure your firm to have an edge over your competition. Manning discussed three key elements of MFS’ structure.
1. Follow a long-term investment philosophy. The world is preoccupied with short-term investment returns. However, MFS believes that you need a culture of long-term investing backed by an appropriate compensation structure. When MFS conducts performance reviews, it only considers periods of three years or longer.
2. Create a global footprint. If your people are only in Boston, you can’t be a winner, said Manning. For example, if you don’t have staff in Europe, you can’t respond quickly enough when credit default swaps widen in Europe. As part of the global footprint discussion, Manning emphasized the need to integrate the firm’s fixed income and equity teams.
3. Analysts are more important than portfolio managers. The old model is broken, said Manning. The most important employees are career analysts who have expertise in specific sectors. MFS has eight global sector heads. These are the people who, if they “see a storm coming” get the entire firm out before it hits.
The increased importance of analysts has been driven partly by the fact that clients want to buy “specialized sleeves of alpha.” This is reflected in analysts’ compensation. At MFS, analysts earn more than portfolio managers.
We sell the global research platform, not the portfolio manager, said Manning. The portfolio manager simply assembles the alpha streams from the analysts the way that clients want.
Hughes: Confident in Boston’s future
Larry Hughes, CEO of BNY Mellon Wealth Management, said that Boston’s talent and innovation makes his firm feel confident about Boston’s future.
Still, the next decade will pose challenges for wealth managers in terms of how to protect clients against continued market volatility and how to capture the related opportunities. Hughes suggested three areas for focus.
1. Investment innovation–The “set it and forget it” ways of the past won’t work any more, said Hughes. It’s important to capture trends that develop–and disappear–in months, or perhaps even just weeks.
2. Seamless and dynamic planning–Wealth managers must “plan across silos,” considering all aspects of clients’ lives, including taxes, estate planning, health care, and more.
3. Better manager-client engagement–It’s important to speak in your clients’ terms. Clients don’t talk about the efficient frontier, standard deviation, or r-squared, said Hughes. So neither should wealth managers. Instead, wealth managers should present issues in straightforward terms, such as “helping you maintain your lifestyle.”