Day 1: Thursday, February 20

Transcription

1 Day 1: Thursday, February 20 7:00a East Registration Desk Sonoran Ballroom Breakfast 7:00a 9:00a Grand Sonoran G Registration Open Sponsored by T. Rowe Price 8:00a General Session 8:10a 9:05a Welcome Address Joe Mansueto, Chief Executive Officer, Morningstar, Inc. Puzzles, Premiums, and Popularity: Asset Allocation & Stock Selection Roger Ibbotson, Ph.D., Professor, Yale School of Management, Chairman and Chief Investment Officer, Zebra Capital Management, Founder, Ibbotson Associates Across asset classes and in fixed income, the greater the risk, the greater the return. Can we get more return while taking on less risk in the stock market? What does behavioral finance tell us about popularity and how to invest? Can we package the less popular premiums to outperform our benchmarks? Why do investors not like small, value, or less-liquid stocks? The answers to these questions provide the key to effective management of asset allocation and stock selection. Breakout Sessions (Choose one) 9:15a 10:00a Quantitative Equity Ratings: Predictions Derived from Expert Crowds Lee Davidson, Quantitative Analyst, Morningstar, Inc. Last year, Morningstar launched a series of forward-looking quantitative ratings for equities, effectively expanding Morningstar s global equity coverage more than tenfold. While statistical in nature, the quantitative ratings have been designed to be philosophically analogous to those produced by Morningstar s cadre of equity analysts. How is this done and is it even worth doing? Lee Davidson will discuss the methodology employed to incorporate Morningstar analysts preferences and highlight the inherent advantages and challenges of this quantitative approach. 8 Morningstar Ibbotson Conference 2014

2 Grand Sonoran C & D Momentum, Acceleration, and Crash James Xiong, Ph.D., CFA, Head of Quantitative Research, Morningstar Investment Management Accelerated stock price increases are a strong contributor to both poor future performance and a higher probability of crashes. James Xiong will show this implies that accelerated growth is not sustainable and can lead to big drops. Our findings also reconcile the two-month to twelve-month momentum phenomenon with the one-month reversal phenomenon. Grand Sonoran H & I Controlled Volatility Strategies: Beyond the Guaranteed Model Rajneesh Motay, CFA, Research Consultant, Morningstar Investment Management Interest in controlled volatility strategies has spread beyond the variable annuity provider wishing to limit the cost of hedging the guarantees it has sold. Now, institutional investors designing non-guaranteed portfolios and even individual investors are trying to manage to volatility targets. Rajneesh Motay will present an overview of current product offerings, a straightforward approach to managing volatility, and the pros and cons of this approach for investors with no liability to hedge. Refreshment Break 10:00a 10:20a Sponsored by: Vanguard General Session 10:25a 11:20a The Future of Emerging Markets: Booms, Busts and Protests James Upton, Senior Portfolio Specialist and Chief Strategic Officer, Morgan Stanley James Upton will discuss the fault lines challenging the Emerging Markets (EM) including the slowing growth implications of China s excessive credit expansion and the vulnerability of countries with current account deficits in a rising interest rate environment. However, EM valuations now discount a lot of growth concerns and the sixth year of a bull market typically tends to be challenging for developed markets. Growth prospects vary across EM with differing currency, credit, investment, and leadership cycles and politics may help provide greater dispersion. There are bright spots and rigorous country allocation and active stock selection will be critical. 9

3 Breakout Sessions (Choose one) 11:30a 12:15p Industry-Specific Human Capital, Outside Wealth, and Optimal Portfolio Choice David Blanchett CFA, CFP, AIFA, QPA, Head of Retirement Research, Morningstar Investment Management Assets such as industry-specific human capital, region-specific housing wealth, and pensions often represent a significant portion of an individual investor s total wealth, yet are commonly ignored by practitioners when building portfolios. In this presentation, David Blanchett will explore the potential benefits and implications from considering these other assets when optimizing a portfolio. He will demonstrate that optimization routines that focus entirely on the financial assets are insufficient, and that a holistic perspective of wealth is necessary to build truly efficient portfolios. Grand Sonoran C & D Do Fund Flows Signal Future Performance? Using Sales Figures As a Contrarian Indicator John Rekenthaler, Director of Fund Research, Morningstar, Inc. Academic papers and informal Morningstar studies have suggested that mutual fund cash flows serve as a contrarian indicator for intermediate-term performance. Fund categories that have enjoyed strong inflows show weaker returns over the next one to three years, while those that have been heavily redeemed tend to rebound. Morningstar researcher, John Rekenthaler, puts the theory to its most thorough test yet; using two different approaches to measure fund flows, including exchange-traded funds as well as open-end funds. Is the theory correct? If so, are there practical ways to implement it? Grand Sonoran H & I Global Economic Outlook Francisco Torralba, Ph.D., CFA, Economist, Morningstar Investment Management Economic output in most advanced economies is well below the pre-2008 trend, almost five years after the end of the Great Recession, and in spite of massive amounts of fiscal and monetary stimulus. Francisco Torralba will present a mosaic of explanations for this sluggish recovery, and then derive their implications for the mediumterm outlook on growth, inflation, monetary and fiscal policy, and asset returns. 10 Morningstar Ibbotson Conference 2014

4 Lunch 12:20p 1:00p Grand Sonoran G Keynote Address 1:00p 1:45p Grand Sonoran G Sponsored by Guggenheim Investments What to Do When Great Isn t Good Enough to Grow Your Business Scott McKain, CSP, CPAE, Distinction Expert, Business Leader and Author Based upon Scott s upcoming book Create Distinction (expanded and revised release of bestselling book, Collapse of Distinction named by thirty major newspapers as one of the Ten Best Business Books of the year), Scott reveals why it is so difficult for customers to distinguish one competitor from another; then outlines the specific steps organizations and professionals must take to truly create distinction and establish superiority in a competitive marketplace. Breakout Sessions (Choose one) 2:00p 2:45p Making it Stick: Exploring Persistence in Mutual Fund Performance Jeffrey Ptak, CFA, President and CIO, Morningstar Investment Services Numerous academic studies have noted a distinct lack of persistence in mutual fund performance, with mean-reversion and other factors creating the appearance of randomness. Join Jeffrey Ptak as he surveys the data and posits ideas for improving the odds of future success when picking managers from a crowded field. Grand Sonoran C & D Optimal Portfolios for the Long Run Michael Finke, Ph.D., CFP, Professor and Director of Retirement Planning and Living, Texas Tech University Academics don t agree on the existence of time diversification the anomaly where equities become less risky over longer investment periods. Join Michael Finke as he explores this concept using 113 years of historical returns from 20 countries. Examining optimal portfolios for varying investment horizons and risk levels as well as various cash flow and withdrawal assumptions, Finke finds compelling evidence for greater equity exposure for long-horizon investors even if they are highly risk averse. 11

5 Grand Sonoran H & I Time-Varying Return Building Blocks A New Model for Estimating Equity Returns Philip Straehl, Portfolio Manager and Senior Research Consultant, Morningstar Investment Management Estimating capital market assumptions is fundamental for any asset allocation process. It also can be a highly ambiguous process for which there is no agreed-upon method. Philip Straehl will review recent advances in asset pricing theory and then introduce the new Morningstar/Ibbotson model. This novel approach for deriving capital market assumptions accounts for the fact that expected returns are not constant by introducing the concept of time-varying return building blocks. Refreshment Break 2:45p 3:05p Sponsored by: William Blair General Sessions 3:10p 4:05p Diminishing Headwinds, Stronger Tailwinds: An Improving Economic Outlook in the Year Ahead Harvey Rosenblum, Ph.D., Former Executive Vice President and Director of Research, Federal Reserve Bank of Dallas The U.S. and global economies have grown slower than the long-term trend for nearly five years, despite the most accommodative monetary policy in modern history. In 2014, two of the stronger factors holding back expansion European recession and government austerity at all levels are subsiding. The improved financial health of the U.S. banking system has converted a strong headwind of recent years into a noticeable tailwind. U.S. economic growth could gain considerable traction in 2014 if policy uncertainties healthcare costs, taxes, government functionality, and reduced monetary stimulus can be resolved. 4:05p 5:00p The Arithmetic of Uncertainty: A Cure for the Flaw of Averages Sam L. Savage, Executive Director, ProbabilityManagement.org, Consulting Professor, Stanford University Just as Arabic numbers established standards for performing arithmetic, new data structures are establishing standards for performing arithmetic on uncertain quantities. This has the potential to cure the Flaw of Averages, a set of systematic errors that occur across a wide array of industries, when single numbers are substituted for uncertainties. Examples will range from interchangeable libraries of assumptions for stock returns to teaching modern portfolio theory to middle school students. Cocktail Reception 6:00p 8:00p Desert Kivas (outdoor) Sponsored by Putnam Investments 12 Morningstar Ibbotson Conference 2014

6 Day 2: Friday, February 21 Breakfast 7:00a 9:00a Grand Sonoran G Sponsored by Sierra Investment Management General Session 8:00a 8:55a Low Volatility Investing Nardin Baker, Chief Investment Strategist, Guggenheim Partners Nardin Baker has worked to understand the low volatility effect for more than two decades. He will discuss his extensive research in the area of low volatility investing and how investors can take advantage of the opportunity. His research has covered markets around the globe, identifying the size and persistence of the benefits of low volatility equity investing. The evidence has been particularly strong in emerging markets, and he will share the results of his continuing work in this arena. Breakout Sessions (Choose one) 9:00a 9:45a Controlled Volatility Strategies: Beyond the Guaranteed Model Rajneesh Motay, CFA, Research Consultant, Morningstar Investment Management Interest in controlled volatility strategies has spread beyond the variable annuity provider wishing to limit the cost of hedging the guarantees it has sold. Now, institutional investors designing non-guaranteed portfolios and even individual investors are trying to manage to volatility targets. Rajneesh Motay will present an overview of current product offerings, a straightforward approach to managing volatility, and the pros and cons of this approach for investors with no liability to hedge. Grand Sonoran C & D Economic Policy Reform in China After the Third Plenum : A Brief Introduction Barry J. Naughton, Ph.D., Professor, University of California, San Diego China s new leadership has kicked off a new round of revitalized economic reform. The objectives of the reform are bold, and designed to propel China into a new era of middle income growth. However, the implementation of these reforms has scarcely begun, and there is considerable uncertainty about the specific content and design of the reforms. Moreover, the trajectory of the reforms will largely be determined by the balance of influence between a group of market-savvy technocrats and a far more cautious and less committed group of career politicians. This uncertainty creates new risks, but also will create new opportunities as market-opening extends to new sectors. 13

7 Grand Sonoran H & I Global Economic Outlook Francisco Torralba, Ph.D., CFA, Economist, Morningstar Investment Management Economic output in most advanced economies is well below the pre-2008 trend, almost five years after the end of the Great Recession, and in spite of massive amounts of fiscal and monetary stimulus. Francisco Torralba will present a mosaic of explanations for this sluggish recovery, and then derive their implications for the mediumterm outlook on growth, inflation, monetary and fiscal policy, and asset returns. Refreshment Break 9:45a 10:05a Sponsored by Mainstay Investments Breakout Sessions (Choose one) 10:10a 10:55a Industry-Specific Human Capital, Outside Wealth, and Optimal Portfolio Choice David Blanchett CFA, CFP, AIFA, QPA, Head of Retirement Research, Morningstar Investment Management Assets such as industry-specific human capital, region-specific housing wealth, and pensions often represent a significant portion of an individual investor s total wealth, yet are commonly ignored by practitioners when building portfolios. In this presentation, David Blanchett will explore the potential benefits and implications from considering these other assets when optimizing a portfolio. He will demonstrate that optimization routines that focus entirely on the financial assets are insufficient, and that a holistic perspective of wealth is necessary to build truly efficient portfolios. Grand Sonoran C & D Time-Varying Return Building Blocks A New Model for Estimating Equity Returns Philip Straehl, Portfolio Manager and Senior Research Consultant, Morningstar Investment Management Estimating capital market assumptions is fundamental for any asset allocation process. It also can be a highly ambiguous process for which there is no agreed-upon method. Philip Straehl will review recent advances in asset pricing theory and then introduce the new Morningstar/Ibbotson model. This novel approach for deriving capital market assumptions accounts for the fact that expected returns are not constant by introducing the concept of time-varying return building blocks. 14 Morningstar Ibbotson Conference 2014

8 Grand Sonoran H & I Jazz, Firefighters, & Hedge Funds Brian Portnoy, Ph.D., CFA, Managing Director, Chicago Equity Partners How we adapt to dynamic, uncertain environments is a broad and important topic, though one rarely explored in the vocation of investment management. The notion of rules for improvisation may sound like an oxymoron, but experts across many domains experiment with ways to navigate uncertainty, with mixed results. The relevance of this insight for managing portfolios and evaluating fund managers is profound, especially for hedge funds with ample discretion. Among other things, it speaks to the tension between style drift versus opportunism in the quest to generate alpha. General Session 11:00a 11:55a Behavioral Finance: Good Risk vs. Bad Risk David Laibson, Ph.D., Robert I. Goldman Professor of Economics, Harvard University Investors generally dislike risk when they should instead discriminate between good risks (those that have a weak relationship with other risks on the household s balance sheet) and bad risks (those that have a strong relationship with other risks on the household s balance sheet). Using a behavioral finance perspective, David Laibson explains how investors can avoid narrow framing and loss aversion, thereby improving asset allocation by increasing investment in good risks and reducing investment in bad risks. 11:55a 12: 05p Closing Remarks 15