The complexity of Market View, House View, Client View & Your View?
Ever wonder what is Market View or House View? Ever found disagreement with Client View or having strong belief in your View about the financial market?
Here, we look at the complexity of Market View, House View, Price View, Client View and Your View.
No. 1 House View
As long as you are working for any financial institution, there would be a Chief Economist or Chief Investment Officer, Equity, Fixed Income or FX Strategist. Together, they will form a committee and discuss about economic and investment trends and put together what is known as the house view.
House view express and direct the investment strategy and stance. Example of House View:
|Financial Assets||12 Months Forecast|
|Investment Grade Fixed Income||Neutral|
|Non-Investment Grade Fixed Income||Neutral|
The house views from the financial institution provides the overall direction for everyone, from product structuring to client advisory. House views can be very influential as can be seen from the 5 largest Fund Management Co. below. Read More: 2015 Fund Management at a Glance. Together, they manage & invest a combine value of $10.65 trillion assets.
|Fund Management Co.||AUM (US$)|
|Blackrock Investment Management||$4.72 Trillion|
|Fidelity Investments||$2.06 Trillion|
|JP Morgan Asset Management||$1.7 Trillion|
|PIMCO Investment Management||$1.52 Trillion|
|Deutsche Asset Management||$1.28 Trillion|
Source: Caproasia Intel 2015
Complexity: There are a few thousand financial institutions in the world. If your financial institution house view is overweight and another is underweight, what would you do? What if you are the Chief Economist or Chief Investment Officer? What if you are on the opposing side of Warren Buffett or the top Hedge Fund Manager in the world?
No. 2 Market View
The financial market is made up of market participants such as market movers and market players. Market movers could be central banks, large financial institutions or conglomerates while Market players could be traders, investors or companies with financial needs.
Analysts put together market analysis where most of these institutions use as references for their investment decisions. There would also be polls conducted or disclosure of financial forecasts, in which a consensus forecast is accepted such as:
- 79% Analysts’ FX forecast USD to go up in 12 months
- 23 out of 26 Equity Analysts forecast ABC Company to reach a price target (average) of $2.60 from $2.13.
- IMF and World Bank forecast China GDP to grow 6.9% this year, up 0.2% from 6.7% last year.
This is an aggregation of all views, also known as Market view, largely undisputed on the merits of research and done by a large pool of qualified professionals.
Complexity: The consensus estimates or accepted market view carry clear validity. So does the remaining analysts’ forecast against the market view.
No. 3 Price View
The best example of a price view is forwards and futures. Although the prices are bought and sold by market participants, it represent the most agreed and accepted price today about what may happen in future.
What about now? That is the spot price, like the share price today, the FX price today, the bond price today.
Price view is simple and complex. It is not only decided by market participants, intrinsically, price view is quantified by measurable factors such as interest rates, standard deviation, risks of underlying assets. These factors would be prevalent in instruments such as bonds, options, futures. Equity linked instruments such as Stocks or Exchange Traded Funds would be measured by factors such as profits, earnings and asset valuation.
Complexity: If what is known in 12 months are priced correctly today, then should price view would be the predominant view? Would that means relying largely on forwards, futures and options pricing?
Searching for lost keys
One night a policeman saw a macroeconomist looking for something by a light pole. He asked him is had had lost something there. The economist said, “I lost my keys over in the alley.” The policeman asked him why he was looking by the light pole.
The economist responded, “it’s a lot easier to look over here.”
No. 4 Clients View
As wealth managers & investment professionals, within a short period of time you would be able to understand more than the complexity of house view, market view and price view. It is client view.
Clients’ views are unpredictable. Mostly derived from simple logic, news, rumours, hearsay, past experiences, mood, personality, savings & spending habits, current circumstances to name a few. Some may exhibit better investment sense, or could even be a professional financial expert for a period of their life, where their views are clear and more articulate, good for an afternoon discussion.
Complexity: What if they contradict your house view and market view? And what if they are right? And as you would not only have one client but many clients, there’s always going to be clients that agree and disagree. This means you have always have winners and losers. At all times, you will always have clients that went the wrong way, and vice-versa.
No. 5 Personal View
As a Wealth Manager & Investment Professional, you are an expert yourself. And being in touch with the financial market daily, economic & investment trends, there is certainly no doubt you will have a view of your own. And your past experiences, and the above mentioned house view, market view, client view had likely given you headache and havoc at some point of your wealth management career, you may find relying on yourself is better.
Ideas such as Herd Mentality, Contrarian Investing, Value Investing, Growth Investing, Fundamental Analysis, Technical Analysis, Absolute Return, Benchmark Tracking, Index Tracking comes in. Great strategies, but all these had nothing to do with views.
In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand
~ Benjamin Graham
Complexity: To be able to formulate a consistently strong personal view of the financial market is extremely tough. Would you be able to go against the large financial institutions with strong research and trading support or the brilliant minds of hedge funds or the occasional star trader from home? How about going against the Central Bank?
Movies / Documentaries
- The Movie – Rogue Trader
- Nick Leeson bankrupt Barings Bank
- Bernie Madoff Scamming of America – The $50 Billion Ponzi Scheme
No. 6 Algorithm View
Human brains are great except it encompasses emotions which to many financial institutions, are the weakness to high standards of analysis. Make popular by computers in the modern decades, the same human logic and interpretation has now been formulated and neatly placed into a set of instructions for the computer to monitor, analyse and present views that otherwise may have been impacted by the vulnerability of human minds.
For most of the basic monitoring, it works perfectly. For advance signals and triggers, it works and sometimes it doesn’t. But increasingly, everyone is relying on Algorithm View.
Complexity: Did we say neatly placed into a set of instructions? Instruction means a human had provided the instruction to the computer, and the computer work according to the instructions to arrive at a desired view. What if the instructions were fundamentally flawed?
These are the complexity of views. Are you torn by them? Which one?