Author: Mike McLaughlin

How Helpful is Grantham’s Bubble Prediction?

Posted by Mike McLaughlin on Nov 22, 2013, in Thoughts , tagged with bubbles, GMO, predictions

I spent some time today with GMO’s third-quarter letter (PDF) to investors, specifically the already-much-discussed thoughts from Jeremy Grantham. Mr. Grantham touches on a number of topics, but the part that piques my interest is his take on the pending stock market bubble:

…so I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions. My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999…

This take made me think about a recent Slate blog post regarding the value of bubble-related predictions. If you don’t want to click through, here’s the important take from Matthew Yglesias:

I think it’s important to recognize how fundamentally unimpressive it is to call a financial crash years in advance. If I predict to you today that the stock market is going to crash soon and people are going to lose a lot of money, and then people keep making money for the next 40 months and then the stock market crashes, that would hardly make me a genius financial forecaster.

I find that point of view extremely valid. Investment managers consistently throw out “strong” predictions, but too often those predictions are couched in an unspecific timeframe. There isn’t much value in that.

In Mr. Grantham’s case, his prediction is on a middle ground. The 20-30% appreciation is specific; the timeframe less so; and there’s no commentary on how the variables should be balanced (e.g., what if the 30% appreciation happens over the next 7 months?).

As one advisor said to me, “At some point he will be right. But there’s nothing here for me to act on.”

Morningstar’s Missing Ingredient

Posted by Mike McLaughlin on Nov 13, 2013, in Thoughts , tagged with Federated, Janus, Morningstar, T. Rowe Price

A few weeks back Morningstar published a short article called Investors Have Flocked to these So-So Funds. A good title and an analysis of why three purportedly mediocre funds with “lackluster profiles” remain successful in gathering assets had me hooked.

Unfortunately, the analysis left me disappointed. First of all, two of the funds had pretty clear (albeit superficial) reasons why investors would be attracted to them. The Federated Strategic Value Dividend Fund landed in the 97th percentile of its category for 2012 performance; the Janus Triton Fund has generated “strong returns” as Morningstar notes in its very first sentence and currently holds a 5-star rating.

The final fund of the three, the T. Rowe Price International Growth & Income Fund, presents a more interesting case. Per Morningstar it has outperformed peers but not the index, has a portfolio largely undifferentiated from the underlying index, and carries a 3-star rating. Ok, so maybe this is an example of a so-so fund that is garnering assets. Why is that happening?

Morningstar never answers its own question. And the article makes obvious that Morningstar specifically fails to consider a singularly critical ingredient in a fund’s success: distribution. Maybe these funds have premium shelf space with broker-dealers, widespread presence on DC platforms, or just a good story supported aggressively and effectively by wholesalers.

Figuring out why good funds struggle and bad funds thrive is a great challenge, but answering it requires analyzing ALL of the variables that influence those outcomes.

An Additional $0.02: 4 Thoughts on DB Market Share

Posted by Mike McLaughlin on Sep 20, 2013, in Thoughts , tagged with defined benefit, JPMorgan, State Street, two more cents

Sometimes when we get quoted in the press, I wish that we were able to be more expansive in our thoughts. I understand why that doesn’t happen in a reporter’s article, but that doesn’t mean we can’t do it here.

Last week FundFire wrote a story on the market share decline for the top 10 managers in the US Defined Benefit space (35% in 2012, 32% in 2012). In the story we highlighted one very obvious and one moderately obvious conclusion from Cerulli’s data:

In the data, it’s clear that a lot of the net result is numerically derived from what’s happened at SSgA. That said, the relative market share of the top 10 ex-SSgA has also declined in the 2010-2012 timeframe.

So what if FundFire let us ramble on from there? Here are 4 thoughts we’d have added:

It is somewhat arbitrary to draw the line at 10 firms in considering overall industry dynamics. As we see here, 1-2 firms can significantly influence conclusions.

Plus, the US DB market is not very concentrated to begin with relative to numerous other industries. A 32% share among the top 10 with a severely long tail of assets spread across a large pool of niche providers makes the “top 10” a less meaningful group to focus on.

A 3% decline likely does not indicate any clear trend in industry concentration.

And finally, the very nature of the DB market dictates that institutions will always look for other/better options. As John Garibaldi from JPMorgan notes in the article, “[Institutions are] always looking to hire a specialist in every part of the capital market spectrum.”

Things can change of course, but until M&A runs rampant and/or margins squeeze smaller managers out of the business, I don’t perceive a much higher ceiling for the “top 10”.

The Rarely-Seen Mano-a-Mano Marketing

Posted by Mike McLaughlin on Mar 22, 2013, in Thoughts , tagged with Bill Gross, Janus, PIMCO

Check out the banner and whitepaper from Janus, which is smack in the middle of its landing page for Institutional Investors:

The hook is clear: with equities, it’s Janus v. Gross.

The asset management industry almost always takes a live-and-let-live approach to marketing. Certainly there are competing ideas and products, but not often is that competition made so specific in public, especially in print. Count me as a fan of the bold (and certainly smartly-opportunistic) positioning by Janus here.

Digital Fracture: Implications for the Web Site

Posted by Mike McLaughlin on Mar 21, 2013, in Thoughts , tagged with content management, Digital Fracture, Janus, microsites, Pioneer, Putnam, RidgeWorth, Web sites

In a post last week we introduced the concept of Digital Fracture, our term describing the proliferation of technology-driven marketing efforts that are increasingly specialized and disposable. Whereas the proprietary .com was once the overwhelming focus of digital efforts, firms now look at the Web, mobile, and social media as flexible platforms that require multiple, targeted presences.

Putnam provides a simple illustration of this trend. Digitally, Putnam not only has Putnam.com but distinct Web sites for thought leadership and advisor technology, numerous social media initiatives, and several distinct mobile applications.

For Putnam, digital means multiplying presences across multiplying platforms.

This extension of traditional digital platforms into more targeted marketing is a shift that continues to gain acceptance.

What is driving this trend? Let’s start with the Web site. A central problem with firms’ Web sites is a lack of visibility, meaning that:

Not enough prospects and clients visit, and
Valuable content is often lost in the shuffle or hard for find for the people who do visit

So what can firms do? Three options stand out to us as particularly important:

Broaden Content Distribution: many Web sites rely on their ability to attract an audience and promote content. Some accept material for free (M*, Advisor Perspectives), some are pay-to-play, and some require a PR and relationship-building effort to gain access. Purposefully moving beyond the proprietary site is an important opportunity.
Via Google, third-party sites provide higher visibility to Janus’s content than Janus.com
Embrace Tactical Microsites: differentiated product stories typically do not function within the confines of a banner or online fund profile. As a result, we’re starting to see a renewed uptick in the tried-and-true microsite as a way to give timely visibility and depth to firms’ most compelling product/concept marketing. Two good examples: RidgeWorth on midcap equities, Pioneer on its strategic income fund.
Improve Search: the vast majority of our clients remain dissatisfied with their sites’ search capabilities. Meanwhile, outside the industry there is continued innovation with tools like Facebook Graph Search and Google Knowledge Search. As these natural language and logical search tools continue to improve, there will be more reason than ever for firms to their own search offerings to make it easier for people to find what they want.

The common thread across these opportunities is that they go beyond “let’s just improve our content, functionality, and design” and reflect the diversity of leveraging the Web beyond the proprietary .com. This combination of breadth and focus is a reflection of Digital Fracture.

Next up: Digital Fracture for mobile and social.