The Investors’ Dilemma
The investors’ dilemma for institutions is the contrast between their long-term horizon obligations and the regulatory, market and behavioral pressures to think short-term. While the notion of long-term investing may sound compelling, in practice implementation has proved tough. However, some of the world’s largest institutional investors have now begun to coordinate to promote the concept and practice of long-term investing. In this article, we examine recent developments in these initiatives.
Barry Gillman authored this article as Research Director of the Brandes Institute Advisory Board.
Active Share Is A Fuzzy Number
Active Share has gained increasing visibility among investment managers, consultants and clients, given that it appears to provide a route to potential outperformance of a benchmark. But as with many things in life, it may not always be as cut and dried as it seems. Some managers may claim a “high Active Share” and infer this is a link to good performance, but the reality is more complex and potentially quite fuzzy!
When Active Share is Not What it Seems
Active Share is increasingly used in the investment industry to measure the degree to which a manager makes active decisions. But Active Share is always measured relative to an index. The concentration of that index makes a big difference, so much so that there is no universal answer to whether a specific level of Active Share is high or low. We believe investors need to be aware that when a benchmark is especially concentrated, it is very hard to push Active Share to levels that are generally perceived as high. This research provides a practical framework for investors to evaluate a manager’s Active Share.
As Research Director of the Brandes Institute advisory Board, Barry Gillman co-authored this research, published by the Brandes Institute and SEB Investment Management.
Barry Gillman, Erianna Khusainova, and Juan Mier
Contact info@longevityFC.com for more information on this exciting new financial development.
As authors of “The Predictive Power of Portfolio Characteristics” we aim to demonstrate how to improve predictions of future equity fund results, using only measurable portfolio characteristics as opposed to past performance. After publication at the end of 2014, the paper quickly rose to rank #1 in downloads for its category in the Social Science Research Network’s online database.
This research may prove to be a valuable tool for anyone involved in manager or fund selection. The abstract and a link to the full paper can be found at
The New Wave of Pension Plans in America
The Evolution of Hybrid Plans
Conventional wisdom suggests the American pension industry is heading for disaster as DC plans increasingly replace DB. If DB plans go the way of the dinosaur, does the US face an era of penury for pensioners? We disagree!
This new research focuses on the evolution of hybrid or variable plan structures that can provide adequate retirement benefits at a cost that sponsors can afford. Right now, these plans are just a blip on the radar (just like DC was thirty years ago). This presentation argues that new ideas and proposals for hybrid plans can change the future course of the pension fund industry, with major implications for plan sponsors, consultants, participants, and asset managers.
An analysis of long-term care insurance policies with the goal of finding a better value-for-money solution
Our research suggests that standard LTC policies are generally not good value for money if you are in average or above average health. LTC policies are only a good deal for folks who are in significantly below average health, and hence more likely to claim. But insurance companies typically reject those applicants. But even if LTC is poor value for money, most healthy individuals do need LTC coverage to reduce the risk of financial hardship and potential ruin.
There is a better solution, especially for those who enjoy above average health. Our research paper “Long Term Careless?” takes a detailed look at handling the considerable financial strains of long-term care and answers the questions individuals and their advisors need to ask.
Why Is Longevity Important?
For anyone around retirement age you should be pleased to know that on average your chance of reaching age 90 is about double what it would have been if you had been born a generation earlier. Human longevity has been increasing fairly steadily over recent decades due to improvements in medical science as well as lifestyle and environmental factors.
This may make you feel better. And so it should, assuming you relish the idea of a longer lifespan. Then after a brief glow of self-satisfaction your thoughts move onto another topic. But the increase in longevity is much more than a “feel-good” factor. Understanding the concepts and applying easy to-find information can make a dramatic difference in your financial decisions today with far-reaching results for decades.
Boomers Behaving Badly: A Better Solution to the Money-Death Problem
The biggest single financial worry for American workers may be “money death,” the fear that they will run out of money during retirement. Americans within 10 years of retirement number 60 million and are forecast to grow to more than 75 million within the next decade. Investment strategies for retirement rooted in conventional wisdom or extrapolated from successful past approaches may no longer be ideal for healthy and wealthy Boomers. Supported by a proprietary modeling tool—the Brandes Retirement Simulator—we are able to estimate wealth outcomes based on personalized financial and lifestyle inputs. The results suggest that the baby-boomer generation should consider contrarian strategies, including equities and fixed income assets with higher-return potential to address the “money death” problem.
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