Author: Mike McLaughlin

The Rise of Digital Fracture

Posted by Mike McLaughlin on Mar 05, 2013, in Thoughts , tagged with , , , ,

Florida in February, 100+ attendees, and a series of truly interesting sessions – needless to say, we were fortunate to be part of the MFEA’s Distribution Technology Summit last week.

Our opening presentation introduced the concept of Digital Fracture. What is that? We’ll go into more detail in posts over the course of March, but for now we’ll let this quick synopsis we delivered after our session set the table:

DTS – Mike McLaughlin from FundchatS.

For a complete summary of the day’s events and perspectives on everything from predictive analytics to mobile-supported wholesaling, check out the MFEA site.

 

Are the Barron’s Rankings Bad for Asset Managers?

Posted by Mike McLaughlin on Feb 22, 2013, in Thoughts , tagged with , , , , ,

Last week Barron’s published their annual fund family rankings. As they typically do, Barron’s focuses first and mostly on one-year results, noting that most of this year’s winners “rose from the very bottom of the 2011 list”.

Did they ever. Only one of the top 10 firms from last year remained in the top 10 this year. Putnam finished first a year after placing 57th.

Putnam touted their #1 ranking in Barron's on their Web site.

Putnam touted their #1 ranking in Barron’s on their Web site.

The Barron’s list gets a lot of attention and the winners tend to use the results as promotional fuel. But as I digested the results, I started to wonder if the Barron’s rankings do more harm than good for fund families.

The volatility of the list is one damaging aspect. Besides the short-term shuffling, this year saw 2011’s 10-year winner drop all the way to 15th in this year’s 10-year rankings.

I think it’s entirely plausible that these results can lead people to question if it’s possible for managers to have a sustainable advantage. At a time when actively-managed equity products in particular have hemorrhaged money, painting a picture of randomness is far from favorable.

The other problematic aspect of the rankings is the overwhelming emphasis placed on one-year results. Managers almost universally preach long-term thinking – that it is market cycles that matter, not days or weeks or months.

Yet, when given a chance to focus on positive one-year results, many of the firms embrace that opportunity to the fullest. Most of the top 10 have done something to trumpet the Barron’s list, something that I see as counter to a central tenet of their overall marketing and brand.

I’m not saying that firms shouldn’t be proud of good performance. But I think that to a certain degree it should be promoted in the consistent wrapper of long-term thinking and results.

Are Firms Delivering an Inconsistent Message on Alternatives?

Posted by Mike McLaughlin on Jan 17, 2013, in Thoughts , tagged with ,

Ignites ran an op-ed (subscription required) from Jon Short at PIMCO about the firm’s promotion of liquid alternative investments. Sometimes in reading a piece like this, I look for the natural contrarian question to ask, and in this case I found it when I reached the following statement:

To be sure, liquid alternative funds are and should remain a portfolio complement rather than a core holding for most investors.

This position has become the stock position of many asset managers. To paraphrase: “Alternatives are great, but you shouldn’t use too much of them (or use them the way an institutional investor does).”

I find this take difficult to reconcile, with the obvious question being: why shouldn’t alternative strategies form the core of an investment portfolio? As it turns out, I’ve already asked a version of this question before. It also turns out that there are pockets of the investment community pushing for alternatives as the foundation of portfolios.

But Mr. Short’s piece makes me further consider the marketing implications of this issue. Consider how Mr. Short continues his thought process by citing that alternative strategies often:

  • Offer a go-anywhere approach to take advantage of the best investment opportunities
  • Have low correlation to traditional equity and fixed income strategies
  • Can be combined to customize a portfolio based on an investor’s goals and risk profile

These seem like the very things many investors are looking for. If alts are the best way to deliver these benefits, I’d expect some firms to be more aggressive in positioning how they should be integrated into some investors’ portfolios.

Of course, there may be data-driven research that confirms a cautious approach in allocating to alts (though I have yet to see firms cite it). And there are two very simple reasons why firms wouldn’t be more aggressive in positioning alts:

  • Self-Interest: the majority of existing assets are tied up in traditional strategies
  • Human Nature: gradual change is an easier story for people to accept than one centered on MAJOR upheaval

Even so, I ultimately think the discussion around alternatives and the types of roles they can play in portfolios needs to evolve from its current state. The current uniformity of the messages from most asset managers, and the disconnect between the substantial benefits of alts compared to the low recommended use of them, means there is a good opportunity for firms to have more differentiated, interesting discussions moving forward.

How Did Asset Managers Respond to QE3?

Posted by Mike McLaughlin on Sep 14, 2012, in Thoughts , tagged with , , , , , , , , ,

It’s almost old news by now. Yesterday, the Fed announced QE3 and ongoing purchases of mortgage-backed securities at the rate of $40B per month. So, how did asset managers respond?

Using Twitter as an (incomplete) proxy for firms’ responses, here’s the short, chronological list of activity as of 5pm on the day of the news:

That is six responses within about six hours. As a sidebar, it’s interesting that none of the content referenced any of trending conversations on Twitter (#QE3, #Fed, etc.). Per the screen capture below, a search showed Oppenheimer and Russell taking advantage of Twitter’s social features. But these were from before the Fed’s announcement.

I don’t know exactly what I expected when I started to look, but overall I’d characterize the volume as a bit disappointing. The biggest financial news of the week warranted a bigger, faster response. Firms know that; it’s still a matter of getting the process ironed out.