Event Recap: Technical Analysis Workshop

· · Leave a comment

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.

Spatchcocked

· · Leave a comment
Susanna Gibbons, CFA

Always on the lookout for a better way to prepare a Thanksgiving dinner, I recently came across what I believe to be the latest and greatest method: Spatchcocking. By removing the backbone of the Turkey, you are able to lay the Turkey flat on a cookie sheet, and roast it in a little over an hour. According to my research, the bird will cook thoroughly & evenly, and the shortened roasting time (not to mention height in the oven) makes preparation incredibly efficient.

Interestingly, it appears that spatchcocking is also the rage on Capitol Hill. After a year with few achievements to show for it, there are many members of Congress who appear to have very little left in the way of a backbone. As a result, the current tax plan is being rushed through the legislative process at an incredible pace. Whether this level of efficiency is as desirable in re-writing the tax code as in cooking turkeys seems highly questionable.

As investment professionals, how can we make sense of this process, and incorporate the proposed changes into our analysis? I don’t think we can. There seems to be overwhelming agreement that the tax code is too complex, and needs to be simplified, and that taxes (especially corporate taxes) are too high, and need to come down. The headline grabbing number of reducing the statutory tax rate from 35% to 20% suggests that a lot more money will be dropping down to the bottom line, and this belief has fueled the continued rally in equities.

However, if you look at what corporations actually pay in cash taxes, the Companies in the S&P 500 are, in the aggregate, paying an effective tax rate of – you guessed it, 20%. If the deductions and tax breaks that currently riddle our system are eliminated at the same time, there shouldn’t be any drop in taxes paid. Instead, you will see a shift in the winners and losers. Some companies that currently pay next-to-nothing will have to start writing checks, and others will likely get some relief.

It is virtually impossible to anticipate all of the implications of such a significant structural shift in the tax system. The Commonwealth of Puerto Rico provides a cautionary tale as to the dangers of such dramatic shifts. In the 1970s, Congress passed Section 936 of the tax code to encourage manufacturing companies to locate on the island, which spurred growth. When the tax break was eliminated in the 1990s, it kicked of a long cycle of deterioration from which Puerto Rico has yet to extricate itself.

Now, I am not arguing that we ought to use the tax code to achieve such narrow policy objectives. In fact, I think it is a terrible idea. I mean – Section 936? That’s a lot of sections of code.  I do think that simplification is good idea. But unwinding this mess will be hard. Our entire economy has evolved alongside this current tax system over years, and companies have structured themselves, made investment decisions, and planned for a future based on that system. A complete and sudden shift will be economically jarring. There is enormous complexity to simplification, and the risk of unintended consequences will be high.  Before running off spatchcocked to push through this turkey of a bill, I really hope Congress slows down a little. Instead of ending up with a tasty roast, the long-term impact of hasty tax reform could be pretty foul.

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

· · Leave a comment

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/ 

2017 Alpha and Gender Diversity Conference

· · Leave a comment

Two months ago, I attended the third annual CFA Institute conference on gender diversity in investment management. What really stood out to me was how the conference has evolved since the inaugural conference two and a half years ago. The conference was initiated as a result of the Women in Investment Management initiative CFA Institute has embarked on. Many of the sessions at the first conference were focused on the experiences of women in the industry, and how they found success. The second conference was filled with substantive sessions on the research and data available to make the compelling business case for diversity in decision making. Overall, this year’s event was positive, uplifting and intriguing enough to make me think about attending the next conference.

This year, the agenda built on the success of the earlier conferences with valuable sessions on effective strategies for improving gender diversity. Topics included: an update on gender diversity research, how firms can improve their competitive edge with gender diversity and insights from the C-suite regarding career advancement. In addition, Paul Smith, CFA, President and CEO of CFA Institute discussed his expectation that the lessons learned from the initiative to increase gender diversity will be used to improve other types of diversity in our industry.

I honestly cannot tell you which session was the most informative as most were. There were more than a few interesting surprises.

The first session was an update on new gender diversity research.

Heather Brilliant, CFA, Vice Chair of the CFA Institute Board of Governors and Managing Director of First State Investments session was titled “Improving Diversity: What Really Works?” She began with statistics from the CFA Institute Research Foundation:

  • 45% of investors believe gender diversity does not matter for managing investments
  • 66% of women in the industry have most of the dependent care responsibilities

Could these realities be holding women back?

She then discussed why diversity is not the answer. A 2016 Harvard study found mandatory training leads to disengagement and backlash, and biases can be difficult to train around as we are not aware of those biases.

The researchers from Harvard found that engagement, exposure and accountability do work. In practice, college recruiting programs are effective, task forces and rotation programs are effective ways to provide exposure. You can find the Harvard study and several other relevant articles here.

Heather made two recommendations that were surprising to me. First, she recommended a structured process for talent acquisition – no panel interviews (which I used to like because I did not have to answer the same questions several times with equal enthusiasm), keep potential vs. performance in mind for all candidates and employees and that, contrary to what many believe, formal mentoring works. And here is the most surprising comment: she recommended considering quotas because they can increase female leadership which leads to policy influence. Surprisingly, gender quotas do not lead to back lash among citizens. (I did ask her to define what “quota” meant to her and she indicated that targets tend to not have enough accountability, and she stressed you must not consider unqualified candidates). I should note a speaker from another session had the opposite opinion of quotas.

Brad M. Barber, Associate Dean and Professor of Finance as University of California, Davis continued the update on research with an overview of recent studies related to the impact of role models, and math training on young women choosing a career in finance, in other words, the pipeline issue. This might not be surprise to many of you, but I was surprised the research indicates that role models matter.  (I was oblivious to the fact that I did not have a single female math teacher in high school or college). Barber also proposed we develop mentorship programs for women.

I was not surprised to see Dana M. Emery, CFA, CEO of California based investment management firm Dodge & Cox.  Her leadership is no doubt responsible for the culture of the firm. A few weeks after last year’s conference, I had a due diligence meeting with several people from the firm at their office and saw firsthand that this firm has been operating for years (you could not create this culture overnight) with many of the practices that data and research indicate lead to better decisions and a better business. For example, diverse opinions are not only encouraged, they are expected in the decision-making process and team work is the norm. The performance of the funds speaks to the success of the business. (The following is a link to an interesting study “Top Performing Equity Teams: The Common Factors They Share.”

Two comments from a speaker named Colleen Morehead, Chief Client Officer at Osler, Hoskin & Harcourt LLP are worth mentioning. Her session was about purposeful leadership. She encouraged everyone to harness their authentic voice and use it to their advantage. And, she reminded us that biases are merely shortcuts we are built with – they are neither good nor bad. We just need to be aware of them.

The information from this year’s conference supports the direction of CFA Society Minnesota’s initiation, Changing Perceptions. We have evidence our approach to make gender diversity in our industry visible (role models, mentors, speakers) can have an impact, and more ideas for furthering our MN initiative locally.

The next conference will be held September 20-21, 2018 in San Francisco. CFA Society Minnesota’s Past President of the Board of Directors, Leyla Kassem, CFA is on the organizing committee for this event so we can expect another valuable conference.

Teri Richardson, CFA
Changing Perceptions Initiative Chair

The Evolution of Advice through Digital Technology

· · Leave a comment

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.