2015 FAME VII Conference Notes
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Transcript of 2015 FAME VII Conference Notes
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
2015 FAME VIIConference notes
David J. Moore, Ph.D.
www.efficientminds.com
2015.11.14
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Alpha
• The winners will have more history of data rather than simplymore data.
• Before big data was used and processed by hedge funds. In5 to 10 years individuals will use and process big data.
• Divergence in monetary policy is a significant macro risk.• We are in a policy-driven bull market. Organic growth is
driven by higher wage growth and labor force participation.• China is a big market but there is a lot of bad data behind it.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
The panelists
• John Aiken (JA)Managing PartnerResonate Capital
• Tobin McDaniel (TM)Vice PresidentCharles Schwab
• Karsten Jeske (KJ)Vice PresidentMellon Capital
• Adam Barun (AB)DirectorThomson Reuters
• Kyle Washington (KW)CFOResonate Capital
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Karsten Jeske
• Doesn’t pick stocks. Rather, picks country equity vs. bond.• A top-down approach called “Global Asset Allocation.”• Major clients are institutional investors.• Follows a systematic process-driven approach based on
fundamental signals.• Macro data → Program → Global Asset Allocation.• Some customization is embedded in processes. For
example, program can be told “no Japanese stocks” or“maximize euro denominated returns.”
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
John Aiken• Original company, Majestic Research, sold research to
hedge funds.DJM: If the research is so good, why not trade on it instead ofselling it?
• Resonate clients are university endowments.• Follows a long/short strategy to obtain growth without
volatility (that’s the goal at least).• Can get information from satellite images of cars in parking
lot at retailers (perhaps production facilities also).• Claims to see things a year in advance but does not trade
until they think the average market participant will see it.DJM: “The market can remain irrational longer than you canremain solvent.” -Keynes
• E.g., they noticed Abercrombie was discounting more heavilythan last year. Simultaneously, retail stocks tend to rise afteran oil price drop.
• “The winner will have the most history of data.”• Data collected by themselves via website scraping (e.g., price
escalation of airline tickets) and purchase of “exhaust” data.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Adam Barun
• Data from social media → Hadoop & Spark → predictdefaults.
• Next 5-10 years: “data exhaust” will be big (e.g., Uber knowsyou want to go to Taco Bell).
• Text mining + Altmann Z score + Option data → Pr [default].DJM: could this have greater efficacy: Text mining + AltmannZ score → Option data → Pr [default].
• Before big data was used and processed by hedge funds. In5 to 10 years individuals will use and process big data.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Tobin McDaniel
• Some choose robo-advising because they don’t want to talkto anyone.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
The panelists
• Ben HuntChief Risk Officer (CRO)Salient Partners
• Nelli OsterDirectorBlackRock
• Conrad GlennCOO & CFOCerebellum capital
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Ben Hunt 1/2
• Not trying to predict when to overweight Europe (or anycountry). No cyrstal ball.
• Salient follows a reactive strategy known as “risk parity.”• The goal is to allocate on equal amounts of risk to stocks,
bonds, commodities, and currencies.• I.e., risk-based allocation as opposed to asset-class based
allocation.• Divergence in monetary policy is a significant macro risk.• A deflationary storm around the world is about to weigh on
U.S. shares.• The Fed will raise rates while the rest of the world
dobules-down on stimulus.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Ben Hunt 2/2
• Can’t apply traditional statistics to politically-derived (pegged)rates.
• China has the most to lose when U.S. rates rise becausetheir currency is tied to the USD.
• We have more debt today than the 1930s → leads to wealthinequality → political polarization (way left or way rightpolicies).
• Models can not account for regime changes.DJM: Or can they via Chaos theory?
• Long oil in 2016.• Whack-a-mo (reactive approach) should continue to work
going forward.• We are in a policy-driven bull market.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Nelli Oster
• Also follows a systematic top-down approach.• Investor sentiment is an input.• Divergence: we will move from zero to >0 rates. This differs
from the ECB today. ECB is lower rates. Japan also?• Divergence in rates, currencies, asset performance.• Wage growth and labor force participation is low. Organic
growth is driven by higher wage growth and labor forceparticipation.
• S&P trading at 17X next year’s earnings → expect sidewaysnext year.
• England wants to exit the EU. They want less integration.• There is currently a lot of political risk in the [EU] system.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Outline
1 Technology in investingMellon CapitalResonate CapitalThomson ReutersCharles Schwab
2 Global MarketsSalient partnersBlackRockCerebellum capital
3 Fixed income
4 Perspectives with Kenneth deRogt
5 Alternative investments
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Conrad Glenn
• Follow a long-short equity strategy.• Attempt to neutralize macro risk by breaking risk into three
categories: (1) beta, (2) sector,and (3) Fama-French factors.• After macro risk is neutralized all that remains is idiosyncratic
risk.• Trade on VIX: many people are expecting an increase in
volatility.• China is a big market but there is a lot of bad data behind it.• Don’t go long gold, it is a non-income non-interest bearing
asset.• Generally skeptical of ability to time asset classes. Less
skeptical of timing individual assets.• P/E of 17 has existed in many different rate environments.• The decay in volatility following a spike is gradual and a
function of the type of shock.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
Omega
• The winners will have more history of data rather than simplymore data.
• Before big data was used and processed by hedge funds. In5 to 10 years individuals will use and process big data.
• Divergence in monetary policy is a significant macro risk.• We are in a policy-driven bull market. Organic growth is
driven by higher wage growth and labor force participation.• China is a big market but there is a lot of bad data behind it.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
The panelists
• Jake Saliba (JS)Vice PresidentJ.P. Morgan
• Heather Loomis Tigue (HT)Managing DirectorBlackRock
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
General comments
• JS: Fixed income is used for portfolio protection and income• HT: S&P 5500 dividend yield is 2.4% and the 10 year
treasury yield is 2.3%.• HT: Although jobs numbers were great, what about the
quality of jobs and average wage growth or decline? Whatcould be wrong?
• JS: Looking at preferred stock market to obtain higherincome and save a little on taxes.DJM: I am unsure how taxes would be lower in the preferredstock market. Perhaps the taxes on common stock capitalgains plus dividends are larger than taxes on preferreddividend income.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
General comments 1/2
• Kenneth deRogt is a retired Chief Risk Officer of MorganStanley.
• He does not believe in efficient markets. Over the long termthings are at their fundamentals. In the short term, events likeParis attacks could lead to a 10% drop on Monday.
• Banks are capitalized at very high and safe levels. Case inpoint: the 50% drop in oil prices has caused many oilcompanies to become delinquent or default. However, banksaren’t stressed.
• Highly recommends reading Financial Times.• A lot of disruption going on fueled by technology. Example:
SoFi social financing.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
General comments 2/2
• People still do not manage money well. Drunkenmiller does.• Credit spreads are widening → not a good thing.• Fewer and fewer stocks are driving market upward.• Markets have bottomed when everyone who must sell has
sold.• Low leverage and high transparency are needed for a stable
market.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
The panelists
• Michelle Domanico (MD)PrincipalKKR
• Scott Gray (SG)Senior AdvisorFounders Space
• Peter Meyerdirk (PM)PrincipalAltamont Capital
• John Murphy (JM)Chief Operating Officer / Chief Financial OfficerProbias Partners
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
General comments 1/2
• SG: Chinese are investing more in U.S. startups than others.• SG: VCs are not seeding startups these days. Lots of angel
investors.• MD: You can’t eat relative performance.• PM: Hopes rate increases will bring valuations down.• SG: More difficult to receive seed money.
2015FAME
VIIDavid J. Moore,
Ph.D.
Technology ininvestingMellon Capital
Resonate Capital
Thomson Reuters
Charles Schwab
Global MarketsSalient partners
BlackRock
Cerebellum capital
Fixed income
Perspectives withKenneth deRogt
Alternativeinvestments
General comments 2/2
• MD: Companies like KKR step in where banks can not.Liquidity in the high yield credit market is a problem. Likely ashort opportunity.
• SG: Expects growth in non-silicon valley startups.• SG: Find out what you are good at and be passionate about
that.• MD: For new job market entrants, consider starting in
investment banking. Consider New York.• MD: Consider worst case scenarios of investments.