Author Archives: CFAMNEB

2018 Annual Dinner Recap

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By Elliot Smallidge, a student at the University of Minnesota Carlson School of Management, Class of 2019

I was ecstatic when I heard about the opportunity to see Professor Jeremy Siegel speak. As the highly acclaimed author of Stocks for the Long Run, I knew that Dr. Siegel’s lecture would complement everything I had learned in school. His take on investing would corroborate the conclusions of class after countless class: buy and hold stocks because you can’t beat the market. I arrived at the Minnesota CFA Society Annual Dinner eagerly awaiting his remarks.

Dr. Siegel contracted the flu and was forced to withdraw on short notice. Replacing him would be Doug Ramsey, CIO at Leuthold Weeden Capital. This change of speaker didn’t just shake up my night, but rather my entire perspective on investing.

Every undergraduate portfolio management class teaches that markets are efficient. No amount of fundamental analysis, and especially not technical analysis, could give an investor a sustainable edge. Enter Doug Ramsey, CFA, CMT, and master of market technicals.

His remarks upended everything I had learned in class about investing. Never had I seen anyone seriously attempt to understand markets by examining patterns in the relationships between various economic data in the way that Mr. Ramsey did. His opening comments centered on what he called the eight “Bellweather” indices. Displaying a chart of the S&P 500, Dow Jones Industrial Average, and several sub-sectors, Mr. Ramsey pointed out that every sector (except utilities) had trended upward in unison through January 26; the market was rising broadly across all industries. In a further analysis, we broke the S&P into deciles based on market capitalization and found a similar result: strong stock performance across the board. This pattern, Ramsey explained, has historically indicated not the peak of a bull market, but rather an average of 59 more prosperous weeks.

All my life I learned that there was no science to historical trends, yet here it was so clear before me. I will admit, some of Mr. Ramsey’s further analysis went a bit over my head, but his message has stuck with me. I now know that, however unpredictable the markets are, I cannot discount the value of patterns in historical data.

I was fortunate enough to meet Mr. Ramsey the next week at his office. In a phrase, the theme of our conversation was trust yourself. News outlets and publications are important, but at the end of the day, he cautioned me, your own analysis and critical thinking are the most valuable assets.

Although I did not have the chance to hear Dr. Siegel speak, my experience at the Annual Dinner altered my perspective on investing and opened my eyes to a brand new skill set in a way that I never could have imagined.

Thank you, Doug Ramsey and CFA Society Minnesota, for this wonderful opportunity.

Event Recap: Technical Analysis Workshop

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By Joseph G. Ogega, a student in Financial Mathematics at the University of Minnesota and CFA level I candidate.

On Tuesday December 5th, the CFA society hosted a technical analysis workshop with Ralph Acampora, a renowned enthusiast of market analytics. Ralph comes with a broad range of experience from Wall Street, not to mention, he’s previously served as the Director of Technical Analysis Studies at New York Institute of Finance, a currently holds the Director of Technical Research at Altaira Capital Partners.

Ralph started by giving a brief intro on how he, in the company of his friend, initiated the idea behind CMT (Chartered Market Technician), in the early days of his career. Up until then, there was no well-known technical analysis library, which he later helped set-up. He defined technical analysis as the study of data generated from demand and supply of price activity. Ralph further believes that a holistic diagnosis of market dynamics should encompass fusion of technical and fundamental analysis. He also put emphasis on trading with movements in price and volume simultaneously. Typically, stocks go through cycles of four phases of price activity: accumulation, momentum, diffusion and consolidation. This perhaps was the highlight of the workshop.

While there could be many ingenious ways of drawing trend lines, Ralph prefers the simplistic approach of connecting ascending lows and declining highs. The decision on how often one would like to trade, whether daily, weekly or monthly, will highly influence the type of time-bounded charts they will find useful. “Always keep your eyes to right of the price chart and draw them slowly to the left, looking out for ‘support’ and ‘resistance’ price-levels,” says Acampora.

In summary, Ralph shared this approach regarding investing in equities:

  1. Choose index
  2. Look at the internal breadth of the market. taking into account the proportion of stock that goes up vs. down
  3. Sentiments: includes market info, company perception and inside activity
  4. Sector analysis
  5. Intermarket analysis

As a parting thought, Ralph spoke about the four-year presidential cycle exhibited in the stock market. Historically, presidential elections year tend not to have any significant effect on the price of stocks. However, in the succeeding year, stock prices have consistently gone down, before the market recovers up until the next election period, which marks the beginning of the next cycle.

Event Recap: “Inclusion in Investment Management: Beyond Checking the Diversity Box”

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By Amanda Carter, CFA and Charles Hannema

The CFA Society of Minnesota hosted a panel discussion on the topic, Inclusion in Investment Management: Beyond Checking the Diversity Box on October 4, 2017. The panel was facilitated by Kim Brustuen, CFA, SVP and National Sales Manager – Corporate Treasury, US Bank with Colin Lundgren, CFA, Global Head of Fixed Income at Columbia Threadneedle, and Paul Smith, CFA, President and CEO of the CFA Institute, as panelists.

In response to questions prompted by Bruestuen and the audience, Lundgren and Smith articulated how Columbia Threadneedle and the CFA Society defined diversity within their respective organizations, how definitions vary across different global constituents, and how having a diverse talent pool has benefited the investment management community.

Kim Brustuen referenced a McKinsey & Company white paper, Diversity Matters , in her comments and questions. The McKinsey paper cited analysis showing a statistically significant relationship between a more diverse leadership team and better financial performance. Much of the discussion centered on gender diversity and why, although strides have been made at entry level for women, there are still significant concerns about gender diversity in senior management. Paul Smith noted that female candidates outside the United States comprise a much larger percentage of candidates in the CFA Program.

The discussion, in our opinion, prompted more questions than it answered, particularly with respect to diversity that is not gender related. The evening reinforced the value of deliberate inclusion of diverse thought and background while prompting the need to expand the discussion.

    

Additional event photos are located on our society Facebook page https://www.facebook.com/cfaminnesota/ 

The Evolution of Advice through Digital Technology

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By Joseph G. Ogega, a student in Financial Mathematics at the University of Minnesota and CFA level I candidate.

The Evolution of Advice through Digital Technology

On Tuesday, November 2, 2017, CFAMN hosted a presentation by Randy Bullard, General Manager-Wealth Management for SIGFIG Wealth Management LLC- an online wealth advising company based in San Francisco, CA. Bullard shared his perspective on digital advising, and how likely it’s going to impact financial advising in the future.

How did it start?

Mr. Randy believes that, whereas there may have been some form of digital advising prior to 2007/2008, it is after this period that most start-ups sprang to life, providing digital solutions/advice to address the aftermath of the financial crisis. This space was later explored by Fortune-500 companies through acquisition of these firms.

Why is this happening?

Increase in digital consumption, adoption and technology advancement in robotics, systems integration vis-à-vis account aggregation, have accelerated switching to forms of digital advising. Bullard further believes, collapse of active asset management and introduction of passive indexed investing at a cheaper cost in most asset classes, may have been a catalyst as well. Also, the initiative to promote transparency to stampout bad practice and compress service fees (from 250 bps to 50 bps), significantly contributed to embracing digital advising. The success realized so far is believed to be anchored on the basis that, application data science on digital advising is easily quantifiable and measurable.

Which are the operating models?

He highlighted the following operating models that are applied in practice i.e.:

  • Self -service advice
  • Advisor led, digitally enabled
  • Hybrid on-line /call center
  • Local office experience

Perceptions of Financial Advisors towards technology

According to Bullard, FAs believe that advancement in digital technology provides a fluid way to interact, engage and educate clients as well as provide platforms through which firms can collaborate. Moreover, FAs have witnessed significant growth in business through leveraging social media to build brands and improve client experience (e.g., Client retention ↑ 77%; Assets under Management ↑74%; Client Interaction ↑73%).

Conclusion

Bullard predicts that in the near future, there will be fewer FAs who will primarily focus on adding value to high net-worth clients with some form of wealth complexity. He foresees that today’s traditional financial advising will evolve into a superior sophisticated full service, with capabilities of digital advice at a lower fee (<25 bps), and consequently wealth management firms will transition into digital advice as their primary source of service delivery.

EM Markets Outlook Event Recap: Solid Recovery Underway

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By Andrew Carlson, a student at the University of Minnesota Carlson School of Management majoring in finance and history

Pronouncing the resumption of long-term growth in emerging markets (“EM”) bolstered by more structurally robust political economies, Jan Dehn, Global Head of Research at Ashmore, spoke to CFA Society Minnesota on October 31, 2017 over an investment climate he finds favorable to EM. Succinctly, his thesis leverages pro-growth dynamics in EM, from both economic and financial perspectives, in the midst of fading developed market QE trades to argue for allocation shift to the class.

Dehn has a wealth of experience in emerging markets, having served the Ashmore Group, a British fund manager, in research and strategic roles since 2005 and with previous EM background at Credit Suisse and the World Bank.

Core Thesis

Convergence, the principle of emerging market economies realizing their development potential after the Cold War, appeared fantastical as the Asian and Russian financial crises of the late ‘90s portended a volatile road to growth. The principle resided on a dearth of capital in emerging markets that, when mixed with the underfinancing of labor, would yield higher ROIC, but institutional investors instead took the EM trade as a proxy for risk-on/risk-off, selling the asset class wholesale even in unrelated crises.

Interestingly, the trade may be have returned. Since the ’98 Russia crisis, all +10bps VIX spikes came from developed market sources, while structural shifts in the EM economies made many less dependent on fickle commodity revenue with negative feedback loops involving currency depreciation and foreign divestment. Practically, as Dehn, notes, a roughly $100T fixed income market with only $20T being EM-issued does not match the 60% of global GDP yielded by emerging markets. Furthermore, the development of domestic pension funds smoothens potential fx crises and puts a floor to the risk-off trading behavior of the past.

Expectation

QE trades (longing USD, USD equities, German sovereigns) bet on the buying power of developed market central banks, distorting a global economy that now must slowly reallocate capital to the EM private sector where meaningful growth can be expected. Concurrently, fears of Chinese crises engulfing emerging market bonds may be overblown as the fundamental data demonstrates a greater importance of intra-EM trade for these sovereigns with China having a much more prosperous connection/tether to developed markets.

Summary

Ashmore lists a few key takeaways to understand the thesis and some possible iterations of the trade

  • “A longer-term EM recovery is now underway based on value, fundamental, and light positioning”
  • “Positioning in EM assets remains extremely light”
  • “Strong EM fixed income value proposition”
  • “EM equities – a structural growth play still priced as a cyclical story”
  • “EM currencies have significant upside after 5 years of decline”
  • “EM growth premium is back”
  • “EM is a safer bet as populism engulfs Developed Markets”