James Montier on Today's Investment Fashions
James Montier of GMO's asset-allocation team (striking a blow against grade inflation, that appears to be his official title) is among the fund industry's top writers.
tackles important subjects, glides past the distracting details without oversimplifying, and knows his
letters are on my short list.
is silent about the prospects of momentum but not about small/value and quality.
At today's prices, he
writes, choose the latter.
finds both small and value stocks to be relatively expensive.
It's not overly fond of quality U.S. stocks, either, but it regards them as the currently superior option.
is considerably kinder toward smart beta than he
is toward risk parity.
The latter, he
writes, "is the antithesis of everything at GMO
we hold dear.
That's putting the matter directly.
To those dangers, Montier
adds the concern that a near-term market swing can squeeze a short into prematurely closing a position.
writes, can transform "the temporary impairment of capital (price volatility) into the permanent impairment of capital.
In contrast, steep losses to an unleveraged long holding need not force that asset's sale.
also dislikes risk parity because its portfolios can be unstable, as changing measurements of risk can dictate large portfolio re-allocations.
In addition, Montier
disparages risk parity because it does not require that the user forecast asset-class returns.
As forecasting asset-class returns is GMO's
calling card, and a task it has conducted with some success, he
is naturally scornful.
Those items don't bother me as much as they do Montier