The question I asked in the recent Converesation was fairly straightforward: how do you handle your new role as your clients' macroeconomist?  I was expecting advisors to talk about using mutual fund managers who were top-down-oriented; in fact, I am seeing a lot of advisors shift rotational spins on their manager selection process, moving from excellent bottom-up fundamental managers to funds that take a more global, macroeconomic, top-down approach to surfing the opportunity set.

For two reasons. First, you get an overlay of thinking about which assets are overvalued and which are undervalued, which seems to matter for long-term returns.  Roger Gibson's presentations now include a slide which breaks down PE10 ratios into quintiles, lowest to highest.  When you invest at the lowest quintile, your average annual return for the next ten years is 14%.  When you invest at the highest quintile, the returns are dramatically lower.  This is the U.S. market, large cap stocks, but none of us would be surprised if the same pattern held true for virtually every category of stocks in every international market--and for other asset classes as well.

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