We all know that international equities should be included in most diversified portfolios to take advantage of the risk premia and to diversify away from the risks of extreme home bias. It’s also conventional wisdom, based on practical realities, that ordinarily a well rated fund manager is the most sensible way of accessing offshore markets.
But, here’s the rub that counters these two basic investment tenets. International equities markets have never been so difficult to read — added to which, they haven’t performed for Australian investors over the past 20 years.
And now, not only are international equity markets increasingly complex and volatile, but we also have to cope with a high and volatile Australian dollar and the issues that brings, as well as whether to bias towards emerging markets or developed markets.
And then, of course, we have to select a mix of quality fund managers and investments, and the independent fund ratings houses have material divergence of opinion.
When was it any more complex or confusing? Having a clearly articulated, robust, contemporary and defensible portfolio construction policy in this key advice area is essential.
The FPA PortfolioConstruction Masterclass has been designed specifically and exclusively by PortfolioConstruction Forum, to address these issues. The Masterclass is the major investment-specific session of the FPA Conference and will be led by PortfolioConstruction Forum publisher, and long-time fund and portfolio construction researcher, Graham Rich.
PortfolioConstruction Forum provides specialist portfolio construction professional development programs for practitioners. Recognised and independent experts have been co-ordinated for this Masterclass, with workshop presentations from the heads of consulting from farrelly’s Investment Strategy and the six major fund research houses — Lonsec, Mercer, Morningstar, Standard and Poor’s, van Eyk and Zenith — to help answer three core questions about investing in international equities:
1. How should we manage the developed/emerging markets economic growth dichotomy?
- If much of the developed world is facing an extended period of low growth, is there really any point investing in their equity markets?
- If emerging markets are where the growth is, shouldn’t we all be overweight to those markets? If so, ‘overweight’ compared to what?
- How do we identify and compare the very different risks of the developed vs emerging economies?
2. What should I do about currency?
- What are the real risks that come from currency exposure?
- What are the costs and benefits of currency hedging?
- Even if we can’t forecast currencies, can we make sensible currency hedging decisions?
3. What are the key factors that should drive my choice of international equity managers?
- Which managers fit my philosophy?
- What analytics help me choose quality international equities managers?
- How do I decide when to fire an international equities manager?
This four-hour workshop is designed to help senior, experienced financial planners and investment advisers (and their support staff) develop their international equities portfolio construction policy, methodologies and skills.
Although the Masterclass is included within the FPA 2011 National Conference program, delegates are required to preregister as numbers are limited, and registered delegates are expected to do the pre-Masterclass readings and attend the whole four hours.
Rich has worked with this year’s Conference Committee, and the presentation panel, to ensure that delegates not only get relevant high-level content, but also ample time to question presenters and share views among peers. In addition to a workbook, a resources kit will be made available afterwards on PortfolioConstruction.com.au and via the FPA Conference website.
Graham Rich is founder and publisher of PortfolioConstruction Forum.