About the Editor
Ben Johnson, CFA, is director of global ETF research for Morningstar. Before assuming his current role in 2012, he was director of ETF research for Europe and Asia. He also previously served as a senior equity analyst, covering the agriculture and chemicals industries. Before joining Morningstar in 2006, he worked as a financial advisor for Morgan Stanley.

Johnson holds a bachelor's degree in economics from the University of Wisconsin. He also holds the Chartered Financial Analyst® designation. In 2015, Fund Directions and Fund Action named Johnson among the 2015 Rising Stars of Mutual Funds.

Investment Strategy
Morningstar ETFInvestor scans the globe for value and improving fundamentals across virtually all asset classes. Editor Ben Johnson draws upon academic and practitioner research — including Morningstar's sizeable bench of stock, bond and fund analysts — to find reliable drivers of outperformance.

Morningstar ETFInvestor features two real-money portfolios.

The ETF Income Portfolio assembles a high-quality collection of income-generating ETFs with the goal of earning 5% in excess of the 30-day T-bill rate over a full business cycle. The portfolio adheres to a benchmark-agnostic strategy in its search for absolute returns.

The ETF Global Asset Allocation Portfolio, on the other hand, is more benchmark sensitive. It seeks undervalued asset classes with improving fundamentals. The strategy seeks to beat the 60/40 MSCI ACWI/Barclays US Aggregate benchmark over a full business cycle, with the least risk possible.

Jun 30, 2015
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Ben Johnson, CFA,
Director, Global ETF Research and Editor
Ben Johnson, CFA, is director of global ETF research for Morningstar. Before assuming his current role in 2012, he was director of ETF research for Europe and Asia. He also previously served
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ETFInvestor Weekly Update - June 26, 2015

Grantham’s 10 Obsessions

This week Morningstar held its annual investment conference in Chicago.  The annual gathering brings together some of the investment industry’s best and brightest and is always one of the highlights of the year. This year’s conference was chock full of great debate and insights. You can access our full conference coverage here.

My favorite session was the opening keynote, delivered by GMO’s Jeremy Grantham, in which he shared his ten current “obsessions” and a host of pithy quotes (the best of which, in my opinion, was, “Facebook is not the steam engine”). My colleague, Jason Stipp has done a terrific job of summarizing Grantham’s session (see link below). Here, I’ve taken some excerpts from Jason’s piece and shared my thoughts on a handful of Grantham’s obsessions.

The limitations of homo sapiens. "I'm not pessimistic," Grantham said. "It's you who are optimistic." He said we humans have a wicked capability for avoiding unpleasant information and denial of facts.

As I discussed in the cover story of the June issue of ETFInvestor “Face the Facts”, investors are wrestling with a number of harsh realities right now. One of the worst things you can do right now is ignore this unpleasant information. Worse yet, you could interpret it as a signal to reach for yield, avoid re-balancing, or introduce new-fangled “diversifiers” into your portfolio.

Pressure on GDP in the developed world. "Negligible growth in population and man-hours offered to the workforce is the most important brake to growth, with a net drop of fully 1% from the pre-2000 trend," Grantham wrote. "Less capital investment and growing income inequality do not help."  

Slower population growth, less investment, and diminishing productivity gains (remember, as Grantham said “Facebook is not the steam engine”) paint a dour picture of future economic growth prospects. Remember that for much of the post-war era, trends across all of these pillars of economic growth have been generally positive.

Corporate responsibility (or lack thereof). Grantham said we're facing a loss of corporate stakeholders. Once upon a time, corporations looked after their workers and the city, state, and country where they operated. "Now it's all about profit maximization," Grantham said. In addition, today's "stock option culture" has been a drag on economic growth. "We buy stock rather than buy a new plant."

In a white paper published in December of 2014 titled “The World’s Dumbest Idea”, Grantham’s colleague James Montier took the concept of shareholder value maximization to task. In the paper, Montier makes the case for “stakeholder capitalism”, arguing that considering customers, employees, and taxpayers and not just shareholders will lead to better outcomes for all. I tend to agree, and I think you will see more investors pressuring public firms to be more proactive and transparent about their efforts to consider all stakeholders in the coming years. Evidence of this can be seen in the growing popularity of impact investing, and Wal-Mart's WMT recent move to raise the minimum wage for over 100,000 of its employees.

Deficiencies of the Fed. The Fed has a "bad job description, badly executed," Grantham said. "It has created a steady stream of bull markets that end badly," even as "they brag about the wealth effect and their ability to push up stock prices."

I can’t say I disagree, but what’s the alternative? It brings to mind Winston Churchill’s quote about democracy: "It has been said that democracy is the worst form of government except all the others that have been tried."

Investment bubbles. Grantham said we're not there yet, but we're well on our way as valuation levels approach the 2-sigma event that creates the sufficient but not necessary environment for bubbles. But every bubble needs a trigger--such as deal mania or mass speculation by individual investors. Those factors are not yet present, Grantham said. "I'm going to be incredibly prudent starting closer to the election," Grantham added. "I recommend the same to you."

The $64,000 question? What is the trigger? Valuations are stretched, but mania and mass speculation are hardly evident in today’s markets.





From Morningstar.com

Jason Stipp summarizes Jeremy Grantham’s 10 Obsessions

We introduced our Active/Passive barometer—a new yardstick for an old debate.

ETFs 2.0 – Alex Bryan summarizes my panel discussion with representatives of the ETF industry’s “big three” at the Morningstar Investment Conference.


Charles Ellis, author of “Winning the Losers’ Game” comes to the defense of (sort of) active management.

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