July/August 2008, Wealth Manager
Will "new and improved" indices enhance asset allocation?
By James Picerno
If you build better indices, the possibility of enhancing
asset allocation strategies naturally follows. Why,
then—in a world that’s minting a new generation of
benchmarks at a record clip—isn’t there more discussion
of the opportunities for improving portfolio design?
Whatever the answer, it’s not for lack of choice.
June 2008, Wealth Manager
If you think TIPS are the last word in inflation-linked government bonds,
think again.
By James Picerno
Inflation respects no political border, which means
that targeting inflation-linked bonds on a global basis
is a natural for investing strategy. It’s also timely.
Pricing pressures are bubbling in economies around
the world. Consumer prices in OECD countries (a proxy
for the developed world) rose by 3.5 percent in the year
through this past January—the highest pace since 2001.
Inflation is also on the rise in emerging markets, including
China, which reported an 8.7 percent jump in consumer
prices for the year through February—up sharply from 2.7
percent for the same period a year earlier.
June 2008, Wealth Manager
Is modern portfolio theory compatible with socially responsible investing?
By James Picerno
Harry Markowitz’s 56-year-old portfolio-optimization
theory may be middle aged, but it’s forever young
in the service of tackling the investment challenge
du jour.
May 2008, Wealth Manager
The financial literature now favors active asset allocation, but it's still risky.
By James Picerno
It has been fIve years since
veteran investment consultant and celebrated
author Peter Bernstein invoked
the word “obsolete” to describe the policy
portfolio, which encourages fixed weights
for multi-asset class investing strategies.
By contrast, dynamic asset allocation is
the superior alternative, he argued in a
widely discussed 2003 article in his newsletter
Economics and Portfolio Strategy.
May 2008, Wealth Manager
Seven fat years haven’t changed Matt Simmons’
bullish view of the world’s most important commodity.
By James Picerno
Sure, it’s easy to be an energy
bull now—after seven years of rising prices.
But it was a lonely job in the late 1990s,
when a barrel of crude oil changed hands
in the $10-to $20-range.
April 2008, Wealth Manager
Macroeconomic risk has been low for 20 years. Will the calm survive a stormy 2008?
By James Picerno
Recessions are inevitable. It’s
the timing and depth of economic contractions
that keep everyone guessing.
March 2008, Wealth Manager
Who’s the newest player in the alternative
investing business? Vanguard, of course.
By James Picerno
Mention the name Vanguard and
while several images come to mind in the
world of money management and fund
companies, alternative investing probably
isn’t among them. Low-cost indexing?
Sure. Several well-regarded actively
managed mutual funds? Yep, those too.
And a growing list of ETFs targeting conventional
betas? Absolutely.
March 2008, Wealth Manager
Is it also smart as a strategic portfolio holding?
By James Picerno
Foreign exchange can be a quandary
for investment strategy. Currencies
generally suffer an expected return of zero
in the long run, a shortcoming that raises
questions about the strategic value of the
asset class. But for shorter periods, forex
risk can enhance portfolio diversification
and boost risk-adjusted performance.
Whatever their charms, currencies in
pure form traditionally have had limited
appeal for the wealth management business.
To the extent that investment strategy
for individual clients has embraced
forex, it’s usually tapped indirectly—almost
as an afterthought—through allocations
to unhedged positions in foreign
stocks and bonds.
February 2008, Wealth Manager
It’s an election year, and politically charged tax talk is back. As an antidote,
we offer a brief review of tax history.
By James Picerno
This being a presidential election
year, taxes are topical all over again. As an
added incentive for chattering about fiscal
matters generally, there’s a vigorously
rising price tag for government programs—
notably Medicare and Social Security—and
questions about how to pay for the bills
going forward. Indeed, the government
budget is firmly in the red. As if that combination
wasn’t sufficiently provocative
and challenging, the Bush tax cuts enacted
a few years back are set to expire in 2010
unless Congress intervenes.
January 2008, Wealth Manager
Does thinking in risk-adjusted terms increase the supply of alpha?
By James Picerno
Alpha is widely viewed as a zero sum game,
and so for every investor who
beats the market, someone must trail it.
If this balancing act accurately describes
how the money game works, there’s a limited
supply of alpha—which is to say something
other than beta. And of this finite
quantity, then only half is positive alpha.