Bloomberg Portfolio Mashup Notes: Alternatives, Investor Behavior, Top-Down or Bottom-Up

Don’t miss my notes from this morning’s sessions here, including China and Emerging Markets investing.

Below are my unedited notes from the afternoon session of the Bloomberg Portfolio Manager Mashup conference…


Jack Foster, Head of Real Assets, Franklin Templeton Real Asset Advisors
Frank E. Holmes, CEO and Chief Investment Officer, U.S. Global Investors, Inc.
Art Steinmetz, Chief Investment Officer, OppenheimerFunds, Inc.
Joshua Tarnow, Managing Director and Portfolio Manager on the BlackRock Leveraged Finance Portfolio Team, Blackrock, Inc.

“Volatility is a code word for stocks going down”

“We’ve had a decade or so of subpar stock performance which has led people to look for alternatives in record numbers.”

Art Steinmetz (Oppy): “We could be in a sweet spot for getting into credit, balance sheets are in good shape, rates are benign…”

Jack Foster (Franklin Templeton): Liquidity is at a premium right now so property stocks (like REITs as opposed to actual property) have been on fire.  Property stocks tend to lead the broader stock market by 12 to 24 months.  Investors cannot market-time, they must get invested in a diversified way  and be willing to wait.

Frank Holmes (US Global Investors) is a pimp: “What I love about this game is that you can count the cards, you can’t do that in a casino.”  He’s gold bullish – rising GDPs in India and China (half the world’s total population) will keep buying as their economies grow.  This year and next year, Japan and the US are gonna roll over $8 trillion in debt at negative interest rates – buy gold.

Josh Tarnow (BlackRock) “Everything is correlated, my dude” – I’m paraphrasing.  The only non-correlated asset classes are those with less data and no index to reference.

Jack Foster (Franklin Templeton): Real estate is one of the most inefficiently priced asset classes, hence should create opportunities in a non-correlated way.

Steinmetz (Oppy): True alternative investing means isolating the beta, capturing alpha and hedging away all of the market drivers as best you can.  He likes loans as an asset class (synthesizing bonds and hedging back up to regular duration).  Editor’s note: I don’t know what the fuck he’s talking about, no one else here does either.

Jack Foster (franklin Templeton): More complexity than there’s ever been (securitization, derivatives of derivatives, fund of fund of funds) – the speed and pace of computer power and model-building is not going away, we are all up against scientists now, kids are graduating school and coming to financial markets to INCREASE not decrease complexity.

Steinmetz: “Our desire for order exceeds our ability to provide it.”

Frank Holmes (US Global Investors): In some ETFs you’re overpaying for assets on the up days and selling below the value of the assets on down days.  “There need to be more analysts looking at ETFs, not just stocks.”  Also “less coverage of small cap companies and more ETF influence on stocks – means small gold companies, for example, can go up when gold goes up even if they report bad results.”

Jack Foster (Franklin Templeton): In alternative assets, benchmarks are suspect (RE data supplied by the actual owners of the real estate, survivorship bias in hedge funds, etc) – there are no real benchmarks for alternatives.

The panelists seem to agree on everything, which is hilarious as this panel is called “Alternatives”.  Everybody giggles, Go Groupthink!

Steinmetz: “Right now people are overpaying for safety (downside skew in options etc.), makes it very expensive to protect against Black Swans.”



Daniel Egan, Head of Behavioral Finance and Investment Philosophy, Americas, Barclays Wealth
Joel B. Fortney, Portfolio Manager, Principal Global Investors
Anil Suri, Managing Director, CIO of Multi-Asset Class Modeled Solutions and Head of Investment Analytics, Merrill Lynch Global Wealth Management

Joel Fortney (Principal Investors): Emotions, memory and habits drive our decision making but those things all get in our way when the information changes.  Most money managers we’ve analyzed give back all or more of their buy alpha with poor selling decisions.  You can’t invest without an exit strategy, you have to learn how to sell effectively – but we spend so much more time focusing on “when to buy” and how to construct a portfolio.  Managers become attached to positions because when they’re working, they spend so much time showing them off as “good investments they’ve made”.

Dan Egan (Barclays):  Sunk Cost is one of the most powerful drivers of poor decision-making.  Emotional hedging strategies allow people to keep risk exposures and ride out cycles.

Anil Suri (Merrill Lynch): Help investors pre-experience outcomes through hypothetical scenarios – will facilitate a dialog about how risk averse they really are.

Joel: Your best selling opportunity is when your opportunity cost is exceeded by a different opportunity.  Most professionals do have a positive buy alpha, but it is the sell-side where they fall down.  “They start rationalizing as things change, their thesis drifts.”  The question to ask is “would I buy this stock again, or would I do something else?”  Surround yourself with devil’s advocates, keep it collegial but make sure you have people challenge you.

Dan Egan: “We like things that are familiar – this creates a positive feedback loop.”  This is how momentum begets momentum, people like their stocks when they go up a lot more.

Anil: “If you had owned the top Dividend Aristocrats that had increased their dividends every year going into 2008, you would have been down about 40% that year – a dividend payer is still a stock.”

Joel: There are lots of opportunities in financial stocks, where professional investors are very underweight – they are all committing the same bias crimes as retail investors.

Dan: “Risk is not volatility, risk is how much can I lose.”



Moderated by Dominic Chu from Bloomberg Tv, he’s the man.

John O. Barr, Portfolio Manager, Needham Asset Management
Michael J. Hogan, EVP and Head of Equity Investments, Delaware Investments
Daniel O’Keefe, Managing Director, Artisan Partners; Lead Portfolio Manager, Artisan Global Value Fund; Portfolio Co-Manager, Artisan International Fund

Dan O’Keefe (Artisan): Uncertainty does not overwhelm commerce in the end, if you bought stocks the day after Pearl Harbor making that bet you were buying into maximum uncertainty.  Weird analogy, fell flat.

Mike Hogan (Delaware Investments): Equity investors need to understand that equities are long-term investments, the history of people moving in and out of markets over the short term has been horrendous, a ton of value lost.  “There’s a new crisis every year, it is the nature of a global capitalist system.”

John Barr (Needham) on central banks: Liquidity is coming into the markets, it is the only way out of this.  Last summer it didn’t pay to pick ideas, but those correlations have broken down.

Mike Hogan (Delaware Investments): Equity market PE ratios are highly susceptible to short-term factors in the market, but the earnings structure itself seems to be okay.  The big issue now is how much investors are willing to pay for those earnings.

John Barr (Needham):  RIAs are really the ones allocating the assets.  They are picking which buckets (funds) and making changes around the edges.

Dan O’Keefe (Artisan): “People are obsessed with the macro right now, that’s why they’re sitting in ten year bonds earning less than ten percent.”  Editor’s note: O’Keefe is in a gray suit and has a shaved head, he looks like a thinner Dr. Evil.

These are smart guys, but they have no answer to an audience question “How do I allocate for the best shot at earning 8 percent a year annualized over the next 10 years?”  Editor’s note: Five years ago they all would have said “Stocks. Period.”  Telling…

John Barr (Needham): The market in small and midcap growth is very mispriced, we like data centers and suppliers to Apple will also outperform.

Advice to audience:

John Barr: Look at top-down and systemic risk – but make sure you consider the debt levels and cash levels at the individual corporate level.

Mike Hogan:  There will always  be a continuous stream of these macro events, you need to look at your own behavior.

Dan O’Keefe:  Own competitive companies that can adapt and work their way through things like inflation and deflation, that’s your best bet.


Thanks for tuning in for this, hope it was helpful! – JB



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