Editor’s Letter

The decade from 2000-2009 had a tremendous impact on investors, but it was particularly devastating for investors who began investing in 2000 and expected to remain in the market for 30 or more years. We lead off our Summer issue with Jones’ examination of the effect on future performance for these investors as well as his thoughts on likely probabilities of future rates of return. This is followed by Mozes and Cooks’ investigation of the impact of inflation on stock returns. Rauterkus, Rauterkus, and Bos test a model to estimate the equity risk premium based on a stock valuation model suggested by Alan Greenspan. Next we have Klement’s discussion of bond returns where he determines that many investors use inaccurately high long-term historical averages in their assumptions. Kohlert examines the effects of the economic recovery on frontier assets and suggests these assets could offer considerable diversification benefit as well as superior performance.

In their article, Deng, McCann, and O’Neal address the problem in reporting the average term of bond mutual funds. The ambiguity in this statistic can lead to increased risk exposure for investors. The following article by Viole and Nawrocki discusses utility functions and the need to be less generalized. Athanassakos examines whether value investors add value in the stock selection process by being able to identify truly undervalued stocks from a universe of possibly undervalued stocks. This is followed by Al-Shakfa and Lypny who discuss the restrictions imposed by religious or social screening of portfolio and whether these restrictions affect the ability to diversify. We conclude our regular section with Blank and Hanes’ analysis of hedge fund returns on a macro-economic level and the ability to use this information to predict future returns.

Our special section in this issue of the journal covers transition management. The section begins with Brzezinski and Kidambi discussing the significant effect of trading costs and risks on performance and offering ways to avoid the negative impact. Johnsey demonstrates the importance of monitoring the transition process to ensure a successful outcome. Weiler and Iannucci examine the similarities between fixed-income and equity transitions—including the benefits. Cook explores the use of trading benchmarks in transition management and discusses their use in performance attribution. We conclude the section with Bagley andMurphy who examine transition management for the shift to liability-driven investing. Restructuring continues to be a priority this year, making transition services in great demand. We hope you will find these articles both timely and relevant.

As always, we welcome your submissions. We value your comments and suggestions, so please contact us at journals{at}investmentresearch.org.

TOPICS: Pension funds, style investing, fixed-income portfolio management

Brian Bruce

Editor-in-Chief

• © 2011 Pageant Media Ltd