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My Notes From the CFA Institute’s Annual Conference

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I spent the first half of this week at the CFA Institute’s Conference in Philadelphia. The conference is targeted toward CFA charterholders and covers a very wide range of topics. It’s also an international conference, with the third biggest delegation of attendees, behind the U.S. and Canada, coming all the way from South Africa. I’ve got several pages of notes from the conference and will distill them into a few highlights below.

Yale University’s Robert Shiller and University of Pennsylvania’s Jeremy Siegel spoke during the same session before sitting down together for a bit of back-and-forth. Shiller described the current level of his CAPE (cyclically adjusted price-earnings) ratio as signaling a modest return for stocks going forward. He described the U.S. market as halfway to being overvalued, but still thinks long-term investors should mostly hold onto stocks. Shiller also believes a stagflation narrative currently exists—something that hasn’t occurred since the Great Depression. Siegel, who also continues to favor owning equities (and is widely regarded as being persistently bullish), thinks stocks could realize a 5% to 5.4% real (inflation-adjusted) return over the long-term given prevailing valuations or a small increase in the price-earnings ratio. Though positive, his forecast is less than the historical real return for stocks of 6.7%. Siegel attributed the ongoing low interest rate environment to slow growth, demand for liquidity, regulation and risk aversion—not the central banks. Shiller countered that “we don’t understand inflation.”

Vanguard founder John Bogle anticipates lower returns relative to the historical averages as well. He anticipates annualized returns of 4.0% over the next 10 years due to the current high price-earnings ratio. Much of his prepared remarks and his responses during the Q&A portion of the session echoed what he said at the Morningstar Investment Conference last month. He was critical of the mutual fund industry, citing the costs and paraphrasing Adam Smith by saying “serving the customer is everything.” When asked for his opinion on smart beta funds, Bogle cautioned that successful marketing strategies are rarely good long-term investing strategies. He expressed concerns about the proportion of stocks now owned cumulatively by BlackRock, Vanguard and State Street. Regarding advice, he encouraged the audience to focus on limiting costs (“costs matter”), limiting the amount of trading (“trading transfers money out of clients” portfolios) and developing good lifetime investing strategies.

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The Week Ahead

The U.S. financial markets will be closed on Monday in observance of Memorial Day. We wish you a happy (and hopefully sunny) holiday weekend.

We’re hitting the quarterly lull for earnings news. Just six members of the S&P 500 are scheduled to report: Analog Devices (ADI), Hewlett Packard Enterprise Co. (HPE) and Michael Kors Holdings (KORS) on Wednesday; and Broadcom (AVGO), Cooper Companies (COO) and Dollar General (DG) on Thursday.

The week’s first economic reports will be April personal income and outlays, the March Case/Shiller home price index and the Conference Board’s May consumer confidence survey. Wednesday will feature the May Chicago PMI, the April pending home sales index and the periodic Beige Book. The May ADP Employment Report, revised first-quarter productivity, the May PMI manufacturing index, the May ISM manufacturing index and April construction spending will be released on Thursday. Friday will feature May jobs data—including the change in nonfarm payrolls and the unemployment rate—as well as April international trade.

San Francisco Federal Reserve bank president John Williams will speak on Wednesday.


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