Author: Anu Heda

Improve Your Blog (1 of 5)

We reviewed dozens of firms’ blogs and hundreds of individual posts in 2011 to provide a short list each week. Some blog posts were fantastic. A few were truly terrible. Most were in the middle. In reviewing those posts, we came up with five ideas for any asset manager to consider – whether introducing a new blog or refreshing the current process. First, inject personality.  … [read more]

Contingency Planning: Building a Better Mousetrap

Many executives have  to dance around budget issues throughout the year, often in short-order. How many times does a macro-economic event occur that requires executives to reduce spending? This happens at least yearly at many firms. Some places call it “giveback.” Others call it “contingency.”

Whatever the name, people  malign it and describe the process similarly to a root canal.

After a recent discussion on contingency, I thought of the stage gate process often used for product development. In that process, an organization defines 3 to 5 stages before launching or refreshing a product. At each stage, there’s an opportunity to continue, stop, or redefine.

So in budget planning, I think that perhaps a step-wise approach could be effective. For instance, in defining a budget for developing a mobile app, the budget set-up could follow something like (timeframe and costs are illustrative only):

1. Step 1 – competitive assessment & define requirements
• timeframe: 3 months
• budget: $25,000
2. Step 2 – build prototype
• timeframe: 3 months
• budget: $50,000
3. Step 3 – test app
• timeframe: 1 month
• budget: $10,000
4. Step 4 – launch with marketing support
• timerame: 2 months
• budget: $50,000

The owner starts the year asking for $110,000 and 9 months to complete this project. In this example, management has three clear places to reconsider budget and if need be, stop.

There are numerous ways to do this, but it seems valuable to plan for “contingency” since this occurs frequently at many firms.

ETFs – too many, not enough?

They keep coming and coming and coming. Firms are creating ETFs, seemingly as fast as rabbits multiply. When reading about another new ETF, I think about my few trips to Vegas.

[Disclaimer: About to travel into Anu’s brain.]

I really dislike casinos. Not for ethical or religious reasons. I simply find them overwhelming.

Overwhelming because there are more ways to lose your money in a casino that I can believe. I struggle to comprehend all of it, especially the sportsbooks. I think, who needs to bet on the total points scored by the end of the 3rd quarter of some random game.

ETFs overwhelm me like casinos. I don’t equate investing in ETFs to gambling. Not at all. It’s the variety that’s overwhelming. But when I give it a little thought, the only good reason to be overwhelmed is the break-neck growth. Similar to the casino floor – it may not be the total number of games, but the experience of going a few steps from a sidewalk into the main hall with the thousands of choices.

Think about tilted ETFs, like the three coming online from SSgA shortly. The momentum tilted ETF may amplify the returns (or losses) from the S&P 1500. If an advisor has reason to believe that’s in the best interest of his/her client, this ETF has three advantages:

• Easy to explain
• Low cost
• Provided by a big, reputable firm

The advisor’s alternatives have issues:

• hedge fund – probably difficult to sell client on; requires minimum; has long lock-up; difficult to find a reputable one
• structured products – also difficult to sell client on; requires understand of derivatives; brings a level of credit risk most investors avoid
• long/short mutual funds – difficult to understand the overall strategy and perceived to be high cost
  
• stock/bond portfolio – difficult and time consuming to monitor and re-balance.

So it may be that there aren’t enough ETFs, but for investors and FAs, the proliferation is difficult to assimilate.