GMO: We're Stuck In 'Purgatory Of Low Returns'

Dante purgatoryWikimedia CommonsDante gazes at purgatory in this 16th-century painting.

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GMO’s James Montier Says Investors Need Recognise That They’re In “The Purgatory Of Low Returns” (Advisor Perspectives)

In an interview with Robert Huebscher of Advisor Perspectives, James Montier of Grantham Mayo van Otterloo’s (GMO’s) asset allocation team talked about what investors need to do at a time when cash is generating negative returns and when bonds are not “enticing.”

“The answer is, you have to recognise that this is the purgatory of low returns. This is the environment within which we operate. As much as wish it could be different, the reality is it isn’t, so you have to build a portfolio up that tries to make sense. That means owning some equities where you think you’re getting at least some degree of reasonable compensation for owning them, and then basically trying to create a perfect dry-powder asset.

“The perfect dry-powder asset would have three characteristics: it would give you liquidity, protect you against inflation and it might generate a little bit of return.

“Right now, of course, there is nothing that generates all three of those characteristics. So you have to try and build one in a in a synthetic fashion, which means holding some cash for its liquidity benefits. It means owning something like TIPS, which are priced considerably more attractively than cash, to generate inflation protection. Then, you must think about the areas to add a little bit of value to generate an above-cash return: selected forms of credit or possibly equity-spread trades, but nothing too risky.”

Advisory Firms That Want To Sell Should Switch To The Fee-Based Model (The Wall Street Journal)

Fee-only advisory firms have a client turnover of between 1-3% each year, writes Mark Hurley CEO of Fiduciary Network in a new WSJ column. This means these practices will have stable client relationships and fees. In comparison, those that charge commission are “dinosaurs.” And when it comes to selling your business, Hurley writes that “what these advisers don’t seem to understand is that commission-based revenue streams have absolutely zero value when selling your business.” These also expose buyers to regulatory risks.

“So for commission-based advisers out there, this should be a wake-up call. If you’re planning on selling your business in the next five years, it’s time to get your act together. Forgo that short-term sugar high from the commissions and start working on really developing stable relationships with your clients. If you want to get the most value for your business, it’s time to change your model.”

Most Advisors Don’t Have A Strategy In Place To Lure Younger Clients (Investment News)

The financial advisory industry faces a generational shift in terms of clients and advisors. But six in 10 advisory firms don’t have any strategy on attracting younger clients, according to a recent report from TD Ameritrade Institutional. “Businesses often feel that the most important thing is taking care of things today and focusing on existing leads,” Philip Palaveev, chief executive of the Ensemble Practice told Carl O’Donnell at Investment News. “It’s very rare that a 60 year old will refer a 35 year old. … This is a natural property of social networks. If you look around, most of the people you are friends with are probably within five years of your age.”

RBC Capital Is The Most Influential Brokerage In Social Media (

Megan Leonhardt at has ranked the top five most influential brokerages in social media based on their “Twitter influence and outreach, LinkedIn followers and Facebook presence.” Here are the top five with their Kred scores. Kred is a social media monitoring company. RBC Wealth Management came out on top. Ameriprise, Robert W. Baird & Co, Bank of America/Merrill Lynch, and Wells Fargo Advisors rounded off the top five, in that order.

BILL GROSS: Investors Are Saying We Want Safety In Principal (Bloomberg TV)

PIMCO’s Bill Gross sat down with Bloomberg TV’s Stephanie Ruhle and Erik Schatzker to discuss where investors are putting their money and where they’re pulling it out of. “Well they’re saying we want safety in principal,” Gross said.

“This is a Will Rodgers idea, Stephanie, back in the ’30s. Not so much concerned about the return on my money as the return of my money. What product does that represent in terms of that possibility? Something with a relatively short duration and something with relatively short credit risk or credit spreads. Unconstrained bond funds are one example at PIMCO that are garnering a lot of attention. I’ve been managing that recently and it’s doing really well.

“The total return fund is doing really well. It’s up 1.5 to 2 per cent for the month with some good stability and prospects for inflows. So bonds are back. They’re not all the way back, and I doubt they’ll get all the way back to the point of 16, 18 months ago in which interest rates in the 10-year was at 1.65. But bonds have a — have a stable position in almost all portfolios if only for diversification. So unconstrained bond funds, lower duration bond funds, diversified income, equities at some point.”

Gross also added that the era of getting rich quick was over and that investors should pare down their expectations on returns.

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