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Scott Burns at Morningstar spoke with AQR Capital Management’s Cliff Asness on stock picking and said, “I tend to be on the cynical side when it comes to stock-picking. The fewer people who do it, the less cynical I would get.” Asness pointed out that there are “two dimension” to active managers, one depends on how much they differ from the index, while the other depends on how often they readjust their portfolio.
“…Active does not have to mean–a topic I’m going to avoid completely today, high-frequency trading. Active can be very different than the market but hold for very long periods, think Warren Buffett. Active can be fairly close to the market, but imagine you had a fairly fast trading strategy that just tried to add a little bit.”
Despite all the chatter that the popularity of index investing is creating an opportunity for active investors, Asness exercises some caution. The value of the research that stock pickers do will go up he admits. “I’ve been a long-term cynic, not necessarily that all stock-picking doesn’t work, but to invest with active stock-pickers, you not only have to believe that it works, you have to believe you can figure out who has the skill beforehand,” he says. “So I don’t think we’re necessarily near a world where it’s easy pickings by any means. I am still a net cynic. I have to say, if fewer dollars try, it will get easier.”
78% of the 680 high net worth individuals (HNWI) surveyed by US Trust’s for its Wealth and Worth report had created their own wealth. It also found that Millennials and those in the 18-32 cohort were more likely to have inherited their wealth than Gen X and baby boomers. Moreover, 25% said they have provided financial support to their parents or in-laws. When it comes to supporting their parents or in-laws 44% of Millennials said they expect to, as compared to 17% across all cohorts.
Succession planning is increasingly being seen as a growth strategy since 99% of advisory practices go out of business once the founder retires, according to a new report from FP Transitions and SEI. The paper surveyed 771 financial advisors and found that only 32% said they had a succession plan.
“Advisors are beginning to realise that succession plans and continuity plans can actually become growth tools,” John Anderson, head of SEI Practice Management Solutions said in a press release. “By taking the time to plan for the future, advisors are giving themselves a key competitive advantage in the present. The process gives them a clearer picture of their firms’ overall health, prioritizes finding a new generation of talent, and sends the message to clients that the firm will be viable for years to come.”
How Advisors Can Handle The Top Investment Question From Clients (The Wall Street Journal)
Clients have one investment question they love to ask: “Is now a good time to invest?” writes William Suplee president of Structured Asset Management in a WSJ column. He thinks it is important for advisors to remind clients that they shouldn’t try and time the market and to stop them from “obsessing over things that are beyond their control.”
“The main thing is for advisers to help clients avoid becoming overly enthusiastic or pessimistic at peaks and troughs of market cycle,” he writes. “It’s impossible to tell what’s going to happen. If an adviser can communicate that to clients it will make them feel more comfortable.”
Small-Caps Have Lagged Large Cap Stocks But This Could Reverse (AllianceBernstein Blog)
Small-cap stocks have had a rough few months as compared to large-cap stocks. “The underperformance was global in scope, but it appeared to be most extreme in the US,” writes Vadim Zlotnikov, chief market strategist in a piece for AllianceBernstein Blog. What caused this? “Differences in the way small-cap and large-cap stock indices are composed had a hand in the recent shortfall for small-caps. …Relative to the S&P 500, the Russell 2000 had a greater concentration of high-beta, low-profitability stocks and financial-sector stocks — neither of which was in favour.” Zlotnikov writes that an uptick in mergers and acquisitions could help turn this around, since M&As tend to target smaller companies. Stronger GDP growth and a stronger dollar also bode well for small caps.
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