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The Case for Macro

Our Dynamic Allocation Strategies team explains why global macro investing offers many potential benefits when included in an investment portfolio. Read More (PDF)

Emerging Markets Outlook for 2017

The past 12 months have been fairly turbulent in emerging markets, but a number of factors support emerging market performance.  Read More (PDF)

A Level Playing Field

March 23, 2018 | Multi-Asset


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The Dynamic Allocation Strategies team has always had deep conviction that a daily dialogue is critical to our success.  Importantly, the manner in which this dialogue is structured is critical in ensuring its efficacy.

Daily Dialogue

Typically, the daily conversation is multi-dimensional, covering both a research topic set in advance (an update on Brazil, for example) as well as a discussion about recent and anticipated developments across the investment landscape.

Structured Process

This dialogue takes place via a team meeting held every day. It starts at 8:00 a.m. Chicago time and runs from anywhere from 60 to 120 minutes. All team members, wherever they are in the world, participate.

Avoiding Nonverbal Cues

Fundamentally, we believe the manner in which this dialogue takes place is paramount to its success. The structure of this dialogue is a daily call, meaning no matter where each team member is located on any particular day—be it in the same building or across the world—everyone dials in individually. We believe this is crucial because it eliminates the possibility that nonverbal cues unduly affect the conversation.

The alternative to this structure would be an in-person meeting and for those not on location, calling in. While we do find some merit in discussing a topic face-to-face, we also believe there are some material drawbacks. For one, any team has some degree of hierarchy and that can affect how much an individual will dominate the face-to-face conversation. And they can do that not just with his or her words, but even more so with his or her presence.

For example, if Brian Singer, the head of our team, were listening to another team member present some research and he happened to briefly yawn, that might signal to the analyst that Brian was bored with the analysis even though his action was unintended. The repercussions of this innocuous cue would likely involve the analyst (and potentially other team members) shrinking back and refraining from offering additional insights. While this may seem like an innocuous gesture, if this type of action and reaction were to occur on a daily basis it could potentially snowball into a systematic problem within the team.

As a new team member, this meeting format and structure can take some time to get used to. Indeed, some adjustments must initially be made, but we believe that the format allows for the best ideas to rise to the top, regardless of their point or location of origin.

Free-Flowing Ideas

We also believe that the nature of the discussion is as important as is how the dialogue is externally structured. This is important because while strategy is ultimately set by our portfolio managers, the entire team is involved in the formation of the strategy.

To achieve the best ideas, we intentionally have built and maintain a cognitively diverse team.

The dialogue is structured by having preset topics. We may revisit an established game theater as part of our geopolitical analysis or discuss general market developments. While the discussion is structured we ensure that it is kept free-flowing enough to provide the flexibility needed to flesh out the best ideas.

To arrive at and embrace the best ideas, we intentionally have built and maintain a cognitively diverse team. We believe that because we run global portfolios, we should be a global team—not just in regard to where we are located, but in regard to where we were born, where we were educated, the languages we speak, and the cultures to which we have been exposed.

Having cognitive diversity and input from the team allows for the best ideas and the best analytical capabilities to ultimately rise to the top.

Blind Submission

We involve the entire team in the discussion, often through blind submission of opinions or rankings of particular ideas. This allows everyone on the team to come into the debate with his or her own unbiased viewpoint.

Once a topic is determined—for example, growth assumptions for China for the next eight years—each team member independently submits his or her opinion, and our research director aggregates the thoughts and sends them back to the entire team.

These viewpoints may be well-informed and researched, or they may be simply intuitive. In the end, the basis for these viewpoints does not matter because at this point in the analytical process we are merely trying to establish a starting point with an independent lens.

The team dialogue then typically begins with those submissions or ideas that are outliers. In our view, the most valuable information is found in the tails of the distribution. We enjoy beginning a particular discussion with the team members who have diametrically opposing views because why they have different views can be valuable to those in the middle.

So, let's say we are talking about growth assumptions for China for the next eight years. One analyst may set expectations at 1% per annum, whereas another expects 4.5%, while the rest of the team may be somewhere in the middle. Our natural inclination is to start with the two analysts explaining they came up with 1% and 4.5%, because the research and analysis that supports results on the opposite ends of the spectrum are likely to be very valuable. That's not to say that the ultimate growth rate we set for China is going to be 1% or 4.5% or even in the middle—it may end up being 5%, for example. But as the rest of the team weighs in and discusses whether they support either analyst's point of view—or even a lower rate or a higher rate—the dialogue informs the entire team's evolving opinion.

Ultimately, this type of structured analysis allows the portfolio managers to pull away valuable information that any single individual alone may not have been able to provide.

PMs as Analysts

To best facilitate a true team approach to investing, we aim to level the playing field during investment meetings. One aspect to that translates to different team members taking ownership of different aspects of the process, different regions, or different parts of the portfolio.

Another aspect is to have portfolio managers approach research as an analyst. At times portfolio managers lead conversations with analysis that they produce, and at other times they're part of the team, listening to somebody else lead the conversation. This approach helps give everybody an equal voice.

A third way in which we facilitate a true team dialogue is by conducting every investment meeting via teleconference, as previously mentioned. By removing the chance that non-verbal cues interrupt or influence the dialogue, we ensure that the most robust analysis and opinions manifest themselves directly into the setting of portfolio strategy.

Portfolio Implications

Lastly, we seek to come out of each dialogue with a sense of portfolio implications. So, the call isn't merely an intellectual exercise where we're discussing the ramifications of the latest launch in North Korea, or Putin's motivations in supporting Russian troops in Ukraine; we're trying to assess how developments like these might affect the current or potential exposures we're managing in the portfolio.