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Editor’s Letter

Jean L.P. Brunel
The Journal of Wealth Management Spring 2017, 19 (4) 1-3; DOI: https://doi.org/10.3905/jwm.2017.19.4.001
Jean L.P. Brunel
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As this issue is our first of 2017, let me offer to our readers our best wishes for a healthy, happy, and successful new year. With this Spring 2017 issue, The Journal of Wealth Management enters its 20th year! Many thanks are due to many people: readers, authors, peer reviewers, office and production staff, the publisher, Advisory Board members, and many more.

Because many Advisory Board members have been providing advice since 1997, it occurred to Dave Blide (our publisher), the Institutional Investor Journals team, and me that certain members might wish to modify their faithful involvement—thus the idea of creating two boards. The new one, which we have named the Ambassador Board, allows current Advisory Board members to remain involved as advocates, but with minimal commitment to reviewing or sourcing papers, although any effort made to source papers will always be greatly appreciated. The second, which retains the Advisory Board name, comprises current and new individuals who have made the commitment to review and source at least two papers a year, as well as to provide important advice to the publisher or me.

So, first, let me congratulate the eight new members of the Ambassador Board who were all members of the Advisory Board until now: Charlotte Beyer, James Garland, Sara Hamilton, James Hughes, William Reichenstein, Stephen Ross, Richard Sincere, and Meir Statman. Thank you for all the help and insight you provided over the past many years.

The Advisory Board will comprise 20 members at the outset: Jan Annaert, Roberto Apelfeld, Tom Arnold, Paul Bouchey, Terrence Burns, Lee Dunham, Gordon Fowler, Jr., Robert Gordon, Lisa Gray, Greg Gregoriou, Stephen Horan, Kevin Irwin, Jr., Maher Kooli, Kristi Kuechler, Tom McCullough, Jackson Parham, Jr., Willi Semmler, Raymond Théoret, Jos van Bommel, and Scott Welch. Congratulations to all of you, and a special welcome to Jan Annaert, finance professor at Antwerp University; Tom Arnold, finance professor at the University of Richmond; Paul Bouchey, chief investment officer of Parametric Portfolio Associates; Lee Dunham, finance professor at Creighton University; Kristi Kuechler, president of the Family Office Exchange Private Investor Center; Willi Semmler, economics professor at the New School for Social Research and Bielefeld University (Germany); and Raymond Theoret, finance professor at the University of Quebec at Montreal, who just agreed to join the board. We look forward to working with you over the next many years.

Finally and somewhat sadly, but understandably, 12 members of the current board are leaving us for a variety of excellent reasons: Steven Albrecht, Robert Arnott, Katherine Cattanach, Jim Cohen, Sydney Dickstein, Christopher Geczy, James Hedges IV, Harry Kat, James Poterba, Katherine Rickman, David Stein, and Kent Womack. Your advice will be sorely missed, and we wish you all the best.

The Spring 2017 issue of The Journal of Wealth Management remains as diversified as usual, although I cannot start the year without inviting authors with insights into the noninvestment aspects of the wealth management challenge to contribute articles, as this topic is still underrepresented.

The first article stands on its own. It is by Charlotte Beyer and it discusses the three main factors behind the evolution and disruptive changes occurring in the wealth management industry, and the way in which future winners will need to adapt. The next three articles can be thought of as addressing broad investment policy issues. The first, by Edward Aw, Stephen LaPerla, and Gregory Sivin, focuses on the impact of socially responsible investing/environmental, social, and governance–conscious investing (SRI/ESG) on investment returns. The authors conclude that the top-quintile (most compliant) stocks ranked by ESG score underperform the out-sample research universe, but incorporating ESG into a robust quantitative investment process can mitigate the adverse effect, thus providing investors with a portfolio that outperforms a benchmark while embracing ESG. This article deserves some follow-up to determine whether the negative impact of SRI/ESG investing may or may not be reflective of unintended factor bets, which a quantitative process might work to control.

The second, by Wei Ge, makes the case for the cautious use of leverage by examining the various abuses of leverage and showing that employing leverage properly can bring significant benefits, such as obtaining ideal risk-adjusted returns and avoiding suboptimal investment vehicles. The third, by Paul Bouchey and Mahesh Pritamani, studies a key question facing taxable investors—how much of the equity portfolio should be invested in a tax-managed core portfolio versus active satellite managers. The authors suggest that for taxable investors with moderate levels of risk aversion, the optimal allocation to the core portfolio should typically be greater than 50%, even if one expects satellite managers to deliver pretax excess returns of up to 4%.

The next five articles are focused on specific aspects of the investment spectrum. The first, by Stein Frydenberg, Kjartan Hrafnkelsson, Vegard Strand Bromseth, and Sjur Westgaard, compares the time-varying estimates of alphas and betas for hedge funds in bear and bull market periods. The authors suggest that most hedge fund strategies vary their beta risk exposure in accordance with changing market conditions and display significant positive alphas for the whole period, but none generates significant alpha in the combined bear periods. The second, by Nicola Zanella, shows that only a subset of long-term interest rate fall years is responsible for the high equity premium realized over the following periods and that they are the years when the dividend-price ratio increases. The third, by Sandip Mukherji, Jin-Gil Jeong, and Nilotpol Kundagrami, investigates the controversial issue of stock return predictability by using commonly used regression methodology and a parsimonious set of business cycle variables, providing out-of-sample stock return predictability related to business cycles. The fourth, by Hongfei Tang and Xiaoqing Eleanor Xu, reviews recent issues, developments, and advances in fixed-income indexing and index investing. The authors provide an introduction to major U.S. and global families of fixed-income indices, review key return and risk characteristics of broad-market fixed-income indices along with their stock index counterparts, discuss various index weighting methods, and characterize the emergence of fixed-income exchange-traded products as an important channel to execute fixed-income index investing strategies. Last, but not least, is an article by Akash Dania and Sandip Dutta, which extends the literature on the financial performance of REITs by examining whether U.S. REIT returns are impacted by global REITs and other real estate subsectors, such as the U.S. Real Estate Index (USRE) and the U.S. Mortgage Finance Index (USMF). The author suggests that U.S. REITs are impacted by USMF returns.

Our next two articles do not easily lend themselves to categorization. The first, by frequent contributor John Haslem, dives into one of the multiple aspects of mutual fund management and investing. After reviewing how mutual fund portfolio manager structures—and their attributes and implications—impact fund risk and return performance, he posits that there is no evidence that investors share in the returns provided by manager skill. Our final article, by Tom Arnold, John Earl, Jr., and Cassandra Marshall, explores the use of Google Sheets, a spreadsheet software similar to Microsoft’s Excel software that is available to anyone with a Gmail account. They show that it can be used, with very little programming, to compute many different aspects of a mortgage, given knowledge of three out of four possible mortgage inputs (i.e., loan amount, monthly payment, maturity, and interest rate).

TOPIC: Wealth management

Jean L.P. Brunel

Editor

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The Journal of Wealth Management: 19 (4)
The Journal of Wealth Management
Vol. 19, Issue 4
Spring 2017
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Editor’s Letter
Jean L.P. Brunel
The Journal of Wealth Management Jan 2017, 19 (4) 1-3; DOI: 10.3905/jwm.2017.19.4.001

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Jean L.P. Brunel
The Journal of Wealth Management Jan 2017, 19 (4) 1-3; DOI: 10.3905/jwm.2017.19.4.001
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