The quarterly Dynamic Asset Allocation is published electronically, and emailed to subscribers in early March, June, September, and December. It features farrelly's Editorial; long-term outlook for markets; Forecast in Focus; and three different approaches to Implementation...

Classical economists often incorporated human behaviour into their thinking. But in the 1960s and 1970s, homo economicus - the great rational agent of economic theory - was born. It was not until the 1990s that the link between human behaviour and economics began to be re-established.

Behavioural finance supplements traditional financial and investment theory. Findings in the field of behavioural finance may help advisers, consultants and clients better manage their thoughts, feelings, and actions when investing.

The fact is that we don't NEED growth. We need high after-tax returns. High growth at a reasonable price will always be attractive. But so too will no-growth at a high risk-adjusted yield.

Established in 2009, Portfolio Construction Forum Markets Summit is THE investment markets scene setter of the year. With interest rates near historical lows and asset prices around all-time highs, practitioners are grappling with the defensive side of multi-asset portfolios. Downside protection is essential in such an uncertain environment. Arguably, the best offence is a great defence! Markets Summit will help you better understand the key drivers of and outlook for the markets, and the opportunities and risks ahead on a three- to five-year view, to aid your search for return and to help them build better quality investor portfolios.

US President-elect Biden's appointment of Janet Yellen as the next Secretary of the Treasury is good news for the US and the world. No one is better equipped to deal with today's economic challenges.

As financial markets celebrate the coming vaccine-led boom, the confluence of epidemiological and political aftershocks has pushed us back into a quagmire of heightened economic vulnerability.

This lecture instructs IMAC candidates on the fundamentals of investment portfolio performance measurement and attribution.

Beliefs interact with investors' biases and preferences to ultimately influence their behaviour. Two recent papers highlight the impact of individual investors' beliefs about the future and the impact on portfolio behaviour and composition, as well as market returns.

This lecture instructs IMAC candidates on the fundamentals of the portfolio review process.

Private Equity is becoming a more widely available asset class. However, like any asset class, it has its nuances and risks. A key area of complexity is fees. Some seemingly minor differences in fee structure can make a material difference to total fees paid.

There is a fundamental inconsistency over the long run between an ever-rising share of US debt in world markets and an ever-falling share of US output in the global economy.

To say a lot has changed since I spoke to you back in February at Markets Summit 2020 is an incredible understatement. Between now and Markets Summit in February 2021, I'm going to be watching three things.

This lecture instructs IMAC candidates on the principles of investment manager selection and blending in portfolios.

What's new with our live and on-demand continuing education, accreditation and certification programs.

As Joe Biden eked out a victory in the US presidential election, observers of American democracy were left scratching their heads. How did Donald Trump manage to retain the support of so many Americans?

Relatively little is known about what greed is and does. These two papers highlight the importance of greed in economic behaviour, and to a greater chance of engaging in ethically questionable behaviour.

This lecture instructs IMAC candidates on the principles of various portfolio risk management strategies.

This lecture instructs IMAC candidates on practical issues in setting a strategic asset allocation for a portfolio.

This lecture instructs IMAC candidates on principles of international investing.

This lecture instructs IMAC candidates on the foundations of asset allocation in three parts - key principles of asset allocation, optimisation and how to define an asset class.

Just as China led the world in economic recovery in the aftermath of the Global Financial Crisis of 2008, it is playing a similar role today. It is a bitter pill for many to swallow.

In a world where interest rates are zero or negative, we need new ways of valuing assets. This is a very common refrain and it drives me nuts. It is almost all wrong - and on so many different levels!

Culture explains much about how we think, feel, and behave. These two papers explore the influence of culture and cultural distance in a financial context.

The world today is an acceleration and escalation of the world that existed before Covid-19, rather than a whole new world. Broad, multidisciplinary thinking is essential.

In the past, ESG considerations were seen as a choice or a preference but, going forward, they are increasingly becoming a necessity in the evaluation of investment opportunities in a whole new world!

For investors needing more from their fixed income allocation, global convertible bonds offer a whole new world of opportunity.

Decarbonisation and data growth will dominate every aspect of our lives for decades to come. If your infrastructure manager isn’t leveraging off these themes then you need to find a new one.

We are at the threshold of an epic bull market buoyed by the emerging Buenos Aires Consensus and desensitisation to Covid-19. But beware, inflation will eventually re-emerge.

The Covid-19 crisis has triggered a step change in policy, accelerated trends and transformed investment frameworks. Opportunities will arise out of dislocation – but a more regional view is required.

Incumbent investment frameworks such as Value, Shorting, Passive and Index Aware strategies are failing. Going forward, successful investors will need to be extremely selective when allocating capital.

Since the early 1980s, developed market government bond yields have broadly been falling, with investors voicing concerns that the asset class offered little or no value. Continually, they have been proven wrong.

Investors should not attempt to time, but rather allocate to well-diversified and balanced multi-factor portfolios and provide consistent exposure to targeted factors.

Covid has accelerated tech adoption on an unprecedented scale and while the winners have been broad, not all are equal. Short-term investors with simple valuation techniques are missing the bigger picture.

In the US, a durable and economic bottom has formed, and global investors are well-served to re-frame their mindset towards the incipient economic expansion now underway.

This lecture instructs IMAC candidates on the characteristics and analysis of options, futures and other derivative investments.

There have been few US elections with such a discernible difference in the likely quality of the two candidates' economic policies. In this case, Biden's are better. Post-war Democratic presidents have been significantly better for the US economy than Republicans have. There is every reason to believe that trend will continue if Biden wins on 3 November.

This lecture instructs IMAC candidates on the characteristics and analysis of debt investments.

These two papers provide a more sophisticated, behavioural understanding of time discounting, to enable more nuanced conversations with clients about current and future consumption, and help mitigate the potentially negative impacts of present bias.

This lecture instructs IMAC candidates on the characteristics and use of alternative assets in multi-asset portfolios.

This lecture instructs IMAC candidates on the on the the definitions and characteristics and the use of real assets in multi-asset portfolios.

This lecture instructs IMAC candidates on the principles of equity securities and analysis.

This lecture instructs IMAC candidates on the principles of fund manager search and selection as it relates to identifying quality managed investments for possible inclusion in portfolios.

This lecture instructs IMAC candidates on the features, uses and applications of different types of managed investment vehicles.

This crisis may morph over time. The second quarter of 2020 looked like an I, free fall. Quarter three looked like a V, as any rebound from very low levels of activity initially does. My baseline scenario is an anaemic U-shaped recovery.

This lecture instructs IMAC candidates on the fundamentals of client discovery and formulating an Investment Policy Statement in the investment consulting context.

It turns out that 'retiring’ and withdrawing from productive life actually conflicts with our own natural drivers of well-being. The concept of ‘retirement’ is an obsolescent by-product of the industrial era that needs to be retired.

This lecture instructs IMAC candidates on the history of global capital markets and the key principals of capital market valuation.

This lecture instructs IMAC candidates on the fundamentals of applied economics with an Australian perspective.

This lecture instructs IMAC candidates on the principals and applications of behavioural finance theory.

This lecture instructs IMAC candidates on the theory and application of the Efficient Market Hypothesis.

This lecture instructs IMAC candidates on the theoretical and empirical underpinnings of portfolio management, specifically in relation to how portfolios are designed and measured.

The dollar's recent slide is one in a series of readily explicable fluctuations. Indeed, the most striking takeaway is its resiliency. The explanation is "TINA" - There Is No Alternative.

These two research papers present insights into how advisers can better assess and guide how clients think about and structure goals - including savings goals.

In April, I argued equity markets might continue to rally despite the collapse of the world economy. And so they have. But in my 40 years of observing and participating in financial markets, I've learned that August is always a month to watch.

In the last two weeks, very important data on the US economy and corporate earnings have been released. These depressing data are as we had predicted. It remains true that the S&P 500 should drop by 35% from its 1 January level.

One of the most important tasks for any decision-maker is to continuously stress-test assumptions and mark-to-market their hypotheses as to how the future will unfold. Let's "nowcast" a little.

This lecture instructs IMAC candidates on the statistics used to describe and analyse the risk and return characteristics of securities and portfolios.

In February, I warned any number of foreseeable crises - "white swans" - including Covid-19, could trigger a massive global disturbance in 2020. Many are now in play. Why are financial markets ignoring these risks?

Humans categorise and form stories about their world - including their financial lives. Two recent papers emphasise the implications of mental accounting, particularly for any investment professional in a client-facing role.

Regardless of how QSuper justifies their focus on limited advice, they cannot justify calling it advice. It is a product recommendation.

Two research papers exploring regret can help us improve how investment decision-making and outcomes are framed with clients and offer deeper insight into clients' personal and financial goals and priorities.

Much of the new push for industrial policy in the US and Europe is motivated by the perceived Chinese "threat". But economic considerations suggest this is the wrong focus.

The performance of stock markets during the coronavirus pandemic seems to defy logic - until one considers possible explanations based on crowd psychology.

We make automatic assumptions on a daily basis. A critical assumption is that our pre-crisis investment management toolkit will remain relevant in the future.

Early in the Covid-19 crisis, most people anticipated a quick V-shaped recovery, on the assumption that the economy merely needed a short timeout. It was an appealing idea. But now it is July, and a V-shaped recovery is probably a fantasy.

The endowment effect is the tendency for people who own a good to value it more than people who do not. Its economic impact is consequential. Two recent papers offer important and very useful insights for investment professionals.

We are at the half way mark for 2020, and every fibre of my being tells me that the next six months will see many more extraordinary events. Covid-19 can be seen as the great accelerant, or amplifier.

The impact of Covid-19 and the resulting massive worldwide government fiscal response to the crisis has sparked new discussion about the risk of an upsurge in inflation - or deflation. This is not a trivial debate.

No matter how big an economy, it is likely to be influenced by US economic growth, international financial stability, and monetary policy spillovers. The challenge for other countries now is to reduce America's "execution risk".

I foresee a 35% drop in the broad dollar index over the next two to three years. Covid-19 may have spread from China, but the Covid currency shock looks like it will be made in America.

The line between "error" and "reasonable human functioning" is remarkably vague. This Research Review focuses on a widely-cited paper that thoroughly unpacks the various concepts under the umbrella of confirmation bias.

Despite difficult times in recent years, momentum has been the factor that has generated the highest returns over the past 50 years. Three new papers on the topic take us into largely new territory and improve our understanding on how markets operate.

The risk today of a debilitating 1930s-style overshoot in deglobalisation is massive, particularly if the US-China relationship continues to fray. And it is folly to think a retreat from globalisation will not introduce more, vastly more serious, problems.

The US jobs report this past week was euphoric and propelled the stock market to even higher levels. But after the easy gains over the next two or three years from reopening the service sector, the US economy faces a slow nine-year recovery. US equities remain overvalued.

One of the touted benefits of hedge funds is that they provide returns that are largely uncorrelated with other risky assets. In practice, hedge funds returns are highly correlated to equity markets during downturns - when it matters.

Governments are responding forcefully to the COVID-19 crisis with a combined fiscal and monetary response that has already reached 10% of global GDP. The key now is to increase incentives to spend.

Memory is far from being a repository of neutral, reliable information and accounts of past events. This Research Review focuses on a seminal paper published in 1999 on "the seven sins of memory", and a recent 2019 paper on how memory errors impact investment decisions.

According to a new World Bank report, China’s total income has now surpassed the US’s on a PPP-basis. But on a GDP basis, the US economy is still far ahead of China’s. Both measures have distinct implications for geopolitics, so must be considered separately.

In most emerging and developing countries, COVID-19 is causing an economic hurricane, the worst crisis the Bretton Woods institutions have experienced in 76 years. Their response so far has been both admirably fast and utterly inadequate.

As ESG investing has leapt into the investment mainstream, it has become the focus of much academic research. Recent findings show that despite the many positive ramifications of ESG investing, it reduces the efficiency of markets and can introduce risk exposures in portfolios.

The 2020s must be a "decade of action". By harnessing the disruptive potential of fintech, we can create a fairer, more inclusive financial system that propels sustainable development everywhere.

The global economy will be shaped in the years ahead by three trends. While COVID-19 reinforces and entrenches them, it is not the primary force driving them. All three predate the pandemic. The fate of the world economy hinges not on what the virus does, but on how we choose to respond.

The COVID-19 crisis augurs three watersheds: the end of Europe’s integration project; the end of a united, functional America; and, the end of the implicit social compact between the Chinese state and its citizens.

For those who viewed negative interest rates as a bridge too far for central banks, it might be time to think again. Emergency implementation of deeply negative interest rates would not solve all of today's problems. But it would be a start.

The funds management industry has spawned a lot of gurus. This research paper looks at whether market forecasters are any good at what they do.

Ten risks, already looming large before COVID-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair.

If on 1 Jan 2020, I’d thought we’d see US unemployment head to 20%, China’s first quarter real GDP growth at -10% and the global economy shut down, I wouldn't have picked the S&P PE Ratio would now be above its long-term average since the GFC.

Europe needs about €1 trillion to fight the COVID-19 pandemic. Financing the EU Recovery Fund with perpetual bonds is the easiest, fastest, and least costly way to establish it.

The impact fixed income market is becoming more diverse in terms of currencies, issuers and ratings, delivering mainstream returns but with impact.

This lecture argues that a diversified portfolio of core fixed income securities is an essential component of an optimal multi-asset portfolio. What's your philosophy?

To paraphrase Churchill, will those who can end a pandemic well also allow a good recovery? It depends on their understanding of history.

As the COVID-19 virus spreads globally, many emerging and developing economies will stop paying their debts. The world needs to get in front of the problem.

Even with all-out efforts by central banks and fiscal authorities to soften the blow, a deep economic slump and financial crisis are unavoidable. The key questions now are how bad the COVID-19 recession will be and how long it will last.

The move to compulsory superannuation placed huge responsibility on individuals to manage their portfolios. A regular response is to educate people to a higher level of financial literacy.

We are feeling the anxiety effects of not one pandemic but two - the COVID-19 pandemic and a pandemic of anxiety about its economic consequences. The two are different, but inseparable.

On Monday, the US central bank acted with stunning shock and awe. Then, government after government announced the biggest fiscal support packages ever seen in history. All of which begs the billion dollar question - sorry, multi, multi trillion dollar question. Are we out of the woods?

While pandemics are comparatively rare, and severe ones rarer still, I am not aware of a historical episode that can provide any insight as to the likely economic consequences of the unfolding global coronavirus crisis. This time truly is different.

This is a time to be buying not selling. Question marks remain as to how far this market will fall before it bottoms out. But what we do know is that valuations are attractive. The chances of long-term investors earning returns well in excess of Term Deposits over the next five to 10 years are very, very high.

COVID-19 threatens both medical and economic disaster. While it may be too late to avert a public-health crisis, unlike the medical effects of the virus, the economic impact is easy to predict and overcome.

Two weeks ago as the coronavirus crisis began to unfold, I warned that the market could soon drop to 17,500 on the Dow. One very important form of investor ignorance today concerns the market's view that it is prospects for corporate earnings that will matter most. This is wrong.

The market has now woken up to the size of the traumatic shock to the global economy, which just hit a massive air pocket. In the next few weeks, financial markets and the broad capital markets will come under severe stress. How does this end?

The G7 has vowed to use "all appropriate policy tools" to contain the economic threat posed by the COVID-19 coronavirus. That should include those wielded by medical practitioners and epidemiologists.

The new virus is an "unknowable unknown" of the first order. Should the virus turn into an epidemic, all Americans will alter their behavior, such that an outright recession could result.

The world economy was weak, and getting weaker, when COVID-19 struck - and it has brought the Chinese economy to a virtual standstill. China's sneeze may prove to be especially vexing for long-complacent financial markets.

New research shows that media sources generate emotions that transmit to individuals and so influence their investment decisions, resulting in a departure from so-called efficient markets.

Over shorter periods of time, there are market inefficiencies due to well researched behavioural biases. Knowledge of these can help improve our own investment decision making and that of our clients.

Finology is an interesting and unique mix of behavioural finance (“fin”) and investor psychology (“ology”) as it relates to giving investment advice to individual investors. Finology is where investing meets investors™. The finology discipline focuses on identifying investing biases, beliefs and behaviours and the investment outcomes. To achieve this, finology connects behavioural finance and investor psychology - encompassing "know the markets", "know yourself" and "know your clients". Finology knowledge and skills help us better identify and understand how our own and other people's different investing biases, beliefs and behaviours impact investment markets and portfolio construction practices - and therefore, investment outcomes - to enable better quality investor portfolios.

Markets Summit 2020 facilitated debate on the key drivers of and outlook for the markets (on a three- to five-year view) - with particular emphasis on being alert to the high VUCA risks and opportunities ahead - to aid your search for return, and to help you build better quality investor portfolios.

It must be something about Davos. High profile names again spoke out about the attractiveness of the equity market. But the economic cycle is not over. Boom/bust has not been banished.

After a blockbuster 2019 for bond returns, investors should moderate their return expectations while watching for VUCA events and tail risks, especially trade, Brexit and the US elections.

The current VUCA environment creates opportunities for investors to increase diversification and income in their diversified portfolios, using carefully selected, higher yielding parts of the credit market.

As the old certainties break down, the response from policy makers has been to stimulate economies. The liquidity provided is particularly evident in longer dated growth assets. In the context of the Australian market, Australian mid caps is the sweet spot.

With an ageing demographic seeking more stable outcomes, many investors have been steadily increasing allocations to infrastructure securities, to capture the attractive relative income and low volatility.

The world has checked into Hotel California – interest rates are failing to stimulate demand and monetary policy is less effective. Successful adaptation will require a re-think of traditional strategic asset allocation approaches.

Trade Wars, the US Election, Brexit 3.0, natural disasters and pandemic risks are causing fear and uncertainty in Australian equity investors. The key to capturing opportunities is to focus on what matters to long-term returns.

Investors are facing a "Code REDD" with reflation, election, duration and disruption all key themes. The reflation theme is favouring a rotation into more cyclical sectors, lower duration assets and lower rating bonds.

High household debt places Australia in a fragile position for further disinflation, implying that bond yields will remain lower for longer. Investors should look to accumulate bonds and ensure portfolios have an appropriate defensive allocation in anticipation of the next downturn.

The US-China trade deal was supposed to settle global trade uncertainty in 2020. Nothing could be further from the truth. Diversified supply chains are vital to minimising VUCA risks into the 2020s.

Many of the discussions at Davos this year revealed that global elites are struggling to respond to important economic and environmental challenges, in a highly volatile, uncertain, complex and ambiguous world.

Financial decisions are among the most important life-shaping decisions we make. Two recent research papers provide further evidence as to how practitioners can help improve clients' financial decisions.

The world economy is operating dangerously close to stall speed. Ever-present shocks and a sharply diminished trade cushion raise serious questions about financial markets' optimistic view of global economic prospects.

Ten risks could cause the most economic and financial trouble in 2020. But these are not predictions - continuing global expansion is more probable than any combination of these setbacks.

I believe time allows signals to surface amidst the ubiquitous noise. In the spirit of the hit Fleetwood Mac song "Don't Stop" that urges a future focus, I offer this year's set of five-year-forward global predictions.

Central banks have proved willing and able to keep stock and bond prices elevated. For long-term economic well-being and financial stability, a policy response is needed that extends well beyond their traditional remit.