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Investment commentary–5 ways to outsource

Market and portfolio performance commentary is an important part of communications strategy for most investment and wealth managers. But sometimes writing that commentary becomes a drag on the firm’s employees. Or perhaps the firm realizes that its employees are better at strategy and portfolio management then writing. If this describes your firm, it may be time for you to outsource your investment commentary.

I see five main models for commentary outsourcing, depending on the kind of commentary you need. These vary in terms of how much control you give up over the content and the process.

Option 1: Completely surrender control of your investment commentary

If investing isn’t a core part of your firm’s expertise, you may not feel the need to express insights specific to your firm or your portfolios. In this case, you can simply buy ready-to-use commentary or commission a trusted financial writer to create the market recap and outlook that goes to your clients.

Buying commentary from a provider who sells the same text to multiple clients is likely to be easy on your budget. You can find the names of providers on my list at “Ready-to-use content for financial advisors.”

Alternatively, there are writers—not me—who specialize in writing marketing commentary based on their own research. Both the content providers and the writers may allow you to customize their content. Before you edit or slap your name on their content, check the terms of your agreement with the provider.

Option 2: Hire someone to write interview-based market commentary

When you have distinctive, well developed views and the evidence to back them up, then this is a good option for you. Firms that struggle to find time to generate commentary also find this helpful, in my experience.

To ease your quarterly crunch, schedule your interview prior to the quarter’s end. I usually suggest seven to 10 days prior, so you have a good sense of how the quarter is shaping up.

Involve your key decision-makers in the interview. Sometimes that means only your investment strategist. Other times that may mean your investment policy committee, or one person who’s an expert on stocks and another who’s an expert on bonds. A good interviewer will give you questions to mull over prior to your call. This will help to find your commentary’s focus.

Here are some sample questions for your interviewer:

  • What is the most important message you want readers to take away from your commentary?
  • How did your clients’ portfolios perform relative to the market—and why?
  • What factors most influenced the market during the period? Do you expect their influence to continue?
  • Are there a few statistics that you’d like to highlight?
  • How have you adjusted your portfolios during the period under discussion and do you anticipate more changes?

Above all, it’s helpful to focus on how the information in your commentary affects your clients’ portfolios. After all, that’s their biggest concern.

After the interview, your writer will digest the information to create an outline or draft for your review. She will highlight questions or data gaps that she’d like you to fill. Then it’s your turn to provide the missing information and give feedback.

If multiple people give feedback, I suggest that you consolidate it in one document, with Microsoft Word’s “Track Changes” turned on. “Track Changes” will help your writer identify text to be proofed for grammar and related issues. If two of the evaluators disagree on a substantive issue, please reconcile your views before you forward your document to the writer.

What if significant new data comes in between the time of your interview and when you’re giving feedback to your writer? I ran into that with congressional negotiations over the sequester in 2012. One option is to discuss potential scenarios at the time of your interview, so your writer is prepared. Another option is to jot down your take on the news as part of your feedback to the writer, who can smooth out the words to make them more compelling, clear, and concise. Another possibility is to request a brief update call with your writer. Prior to that call, it’s helpful if you can send her some bullet points with your take on the news, so she can focus her questions to make the most efficient use of your time.

This interview-driven approach isn’t right for everyone. If your commentary typically changes significantly between the first and final drafts—or if it relies heavily on data that comes in late—you’re more likely to find option 3 more helpful.

Option 3: Hire an editor for your commentary

For investment professionals at some firms, putting their ideas into writing is a useful exercise. It helps them to discover their opinions and collect the supporting evidence. This is a form of writing to learn, as writing expert William Zinsser discusses in his book, Writing to Learn: How to Write – and Think – Clearly About Any Subject at All.

However, the folks who generate this commentary become so engrossed in the details that they may find it difficult to edit themselves. It’s hard to get distance from material when you’re immersed in it. Plus, a financial education usually doesn’t include intensive training in copyediting or in understanding the reader’s perspective.

One of the most valuable things that an editor can do is to reframe and reorganize the flow of your information. For example, she can expand on the WIIFM—“What’s in it for me”—of the content. She can also improve logical flow of the piece, and apply my first-sentence-check test.

Other valuable functions that your editor can perform include adding informative headings, streamlining text, and checking grammar and punctuation issues. Headings make it easier for skimmers to absorb your opinions and perhaps even be drawn into the details of your commentary. Sentences that average 14 to 22 words and lack distracting errors also help with reader comprehension and retention.

Option 4: Hire a writer for attribution-driven performance commentary

In contrast with market commentary, attribution-driven performance commentary is specific to your firm’s funds or portfolios. Mutual funds’ annual and semiannual reports also fall into this category.

The components of this commentary may include:

  • Your portfolio’s returns versus the benchmarks for the relevant periods
  • Attribution analysis—for stock funds, this would include the impact of sector allocations, stock selection, and possibly the cash position
  • Discussion of specific holdings that contributed to or detracted from performance relative to the benchmark
  • Optional: market commentary, transactions during the relevant period, and investment strategy

Some companies provide all of the necessary data directly to their writer, while others incorporate research or portfolio manager interviews conducted by the writer.

Option 5: Commissioning a critique for the DIY commentary writer

Some firms can boost the quality of their commentary simply by implementing suggestions they receive from a one-time critique of their writing. A writer-editor who’s familiar with commentaries can identify your commentary’s strengths and weaknesses, and provide guidelines for improvements.

For an assessment of your current commentary or newsletter, you can hire me to critique one example of your work or to coach you.

 

What’s next for you?

If you’re rethinking your firm’s approach to your commentaries, contact me to learn how I can help.

 

Disclosure: If you click on the Amazon link in this post and then buy something, I will receive a small commission. I only link to books in which I find some value for my blog’s readers.
Note: I am re-publishing this post in 2018 because it remains relevant. I edited this piece on Dec. 21, 2014 to correct some typos.

 

Bond market commentary rewrite

The best bond market commentary is written so its writing style doesn’t interfere with readers’ understanding of the content.

Here’s a screen shot of some bond market commentary that I received via email in November. It could use some help. (By the way, I’m not out to embarrass anybody. Before I started critiquing this piece, I googled the text to make sure the author couldn’t be identified easily.) Let’s analyze and rewrite this piece.

bond market commentary

 
 
 
 
 
 
 
 
 
 
 
 

What’s good and bad?

One good thing about this commentary is that it was published promptly after the end of the quarter. Most commentary takes days if not weeks to get published. The speedy production cycle probably meant the author didn’t have lots of time to process his or her ideas. Nor was there much time for editing or proofreading. It’s not easy to pump out clean commentary under these circumstances.

Let’s look at the commentary’s weaknesses.

  1. It lumps together a bunch of sentences that don’t stick to a single theme. It jumps around chronologically, going from September to August to October to second quarter to June to September to October. The subject-matter progression is a little better organized, going from credit to risk assets to the Fed to the VIX. However, these subjects shouldn’t all be in one paragraph because the author doesn’t write about them in relation to each other.
  2. The paragraph lacks a topic sentence that says why all of these items are grouped together.
  3. The paragraph is dense and intimidating.
  4. It’s confusing that the paragraph writes about October as if it’s in the future, saying “The Fed will also start gradually unwinding its balance sheet in October.” Did the person mean to write “November”?
  5. It’s strange to start the Fed section with old news from June. it’s better to start the section in the present, as you’ll see in the rewrite below.
  6. The paragraph has grammatical errors. Credit doesn’t trade to “their tightest levels.” It should be “its tightest levels.” “The proposed Trump’s tax reform” should be “Trump’s proposed tax reform.” It’s a little light on commas for my taste.
  7. The paragraph has a spelling error. “Geopolitical” is one word.

Note: I give a pass to this commentary for using technical language, such as “credit,” “risk assets,” and “FOMC” because this commentary is aimed at practitioners. It’s fine to write in the language of your audience. In fact, it’s appropriate, as long as you don’t expect regular folks to understand you.

My thoughts about how to rewrite this piece

The main change I’d make to this piece is to reformat it. I think this piece was intended to provide some quick information without building a bigger argument, so I’m not writing an introduction or strong topic sentences. I am, however, adding bullet points and headings.

I don’t follow the bond market closely so I may make some factual errors in my rewrite.

I raise some questions about the content in red text.

My bond market commentary rewrite

Third quarter 2018 review

  • Corporate credit spreads: Corporate credit spreads tightened into September, after widening a little in August due to geopolitical tensions. Since the September sell-off, largely triggered by North Korea/US tensions, credit traded back to its tightest levels [tightest since when?] into the end of the third quarter.
  • Bond market fundamentals: Fundamentals have remained solid from a free-cash-flow perspective, as second-quarter earnings mostly exceeded analyst expectations with technology sector showing the strongest earnings growth. Rising oil prices improved profitability and credit metrics in the energy sector. However, non-financial leverage continued to rise, which is a negative.
  • Risk assets: The market’s expectations for Trump’s tax reform proposal contributed to positive returns for the S&P 500 index and other risk assets.
  • Fed policy: The fed funds rate is currently between 1% to 1.25%, following the Fed’s raising rates in June for the second time this year. The market-implied probability of a December rate hike increased from 25% in the first week of September to 70% as of the quarter’s end. The Fed is expected to start gradually unwinding its balance sheet in [what month or time period?].
  • VIX: The VIX has mostly remained subdued, with market volatility remaining low for most of the quarter.

 

If you’d like to read some well-written fixed-income commentary, check out the links in my post on “Who are the fixed-income commentary winners–and why?

 

Quarterly client letter poll: Where do you put performance?

Performance is an important component of quarterly letters to asset management clients, so I wasn’t surprised to hear the following question at an investment commentary workshop: “Where should you discuss performance—at the beginning or end of your quarterly letter?

Here is what I think:

  • Either spot can work but your placement should be consistent from quarter to quarter. This lets your clients know where you answer the question of “How am I doing?”
  • It’s good to relate performance to your market commentary no matter where you place your clients’ performance.

Below are the results of a poll I conducted. Placing performance at the beginning of the letter was by far the most popular choice.

Performance placement poll results

Need hands-on help with your commentary?

I can write your commentary based on interviews with your investment professionals or based on attribution analysis and other materials provided by you. I also edit commentary you’ve written to make it more compelling and reader-friendly.

If your budget is limited, hire me to evaluate your newsletter and suggest improvements that you can implement yourself.

 

Note: On January 28, 2014, I deleted the poll and replaced it with a screenshot of the poll results.

Key lesson for investment commentary writers from my professional organizer

My personal possessions aren’t as neatly organized as my writing, so I’ve worked with several professional organizers. They’ve taught me a lesson that is critical for folks who write market, economic, or portfolio commentary: Put like with like.

Just as I should keep my overabundant collection of sweaters in one drawer, rather than scattered over all of my dressers, you should organize your commentary topics in a logical manner. This isn’t easy when you’re an investment professional who is under pressure to churn out commentary at a quarter-end, right when you’re busy with other quarterly tasks.

How does this translate into quarterly commentary? For example, you might separate commentary into sections on the economy, stocks, and bonds. I imagine many of you already do this. However, you can take this one step further.

Use some sort of organizing principle within each section. For example, don’t dump economic statistics in any old order. Consider dividing them into positive and negative indicators, or employment, manufacturing, and income statistics. This kind of organization makes it easier for your reader to grasp your message.

Organize your information well, and you’ll make it as easy for your readers to find your message as it would be for me to find my navy blue cardigan if I divided my sweaters into cardigans vs. pullovers and then sorted them by color.

Market commentary with wit and wisdom

Can you recommend sources of market commentary with wit and wisdom? This request from a reader inspired me to ask my social media colleagues for suggestions.

Personally, I enjoy Off the Charts by Floyd Norris in The New York Times. If you’re a longtime reader of this blog, this may not surprise you. I’ve written several blog posts in praise of his writing skill, including “Plain English can bring your financial topic to life.”

Below you’ll find a list of other people’s suggestions. I credit the source in brackets when they gave me permission to name them. Some of the commentaries were recommended by their writers or someone working for their firm.

Still looking for more ideas? Check out the commentaries at Advisor Perspectives. To see what others like, click on the link to the most popular commentaries.

Your suggestions for witty and wise commentary

Did we miss any great sources of market commentary?

Please mention any other great market commentaries in the comments below.

Thank you very much, all of you who so generously contributed to this list.

Image courtesy of Keattikorn/ FreeDigitalPhotos.net

Ideal quarterly investment letters: Meaningful, specific, and short

Investment managers’ quarterly investment letters should be meaningful to clients, specific to the manager, and short. These are the key conclusions I drew from my quarterly investment letter survey.

Meaningful content

“Clarity,” “insight,” and “candor” were the most popular answers to the question, “What’s the ONE WORD that best describes what investment managers should strive for in their quarterly letters to clients?” I think these popular answers can be summed up by the term “meaningful content.”

The image below gives a visual overview of the responses. Type size is proportional to the number of respondents choosing a word as their answer.

 

Here are examples of how respondents explained their word choices.

  • “Clarity” suggests that you have done the reading, research, analysis and due diligence on what you’ve taken in. You have synthesized it. Rather than repeating a litany of what you’ve read, you provide a simple summary of what key points you commend to their attention and why.
  • Clarity. Clients appreciate honesty, and the best way to demonstrate honesty is to be clear in what you are saying. Always consider the client’s perspective. Put yourself in their shoes and ask yourself what is important / relevant, and how you would want it shown. And be honest with your answers.
  • Candid. Warren Buffet discusses both types of investment – the ones that made money and ones where he lost – candidly.
  • Clarity – The world and financial markets are very dynamic, intertwined, and complex. The ability of an investment manager to take seemingly disparate and complex topics and distill them down to an explainable relationship, etc is rare but very value-added.
  • Needs to reflect the voice of the investment team not marketing fluff.
  • Relevance – As a customer, it’s about my money, my future, my family, it’s not about your strategy, your brilliance, your research department. I need to know: Can I count on you?

Content specific to the manager

The survey asked respondents to specify whether various letter components were very important, important, somewhat important, unimportant, or not applicable. Respondents placed the highest importance on the manager’s investment strategy and review of the past quarter’s portfolio performance. Here’s the rank order:

  1. Manager’s investment strategy
  2. Review of the past quarter’s portfolio performance
  3. Manager’s market outlook
  4. Graphs, tables, or other illustrations
  5. Client-specific portfolio returns
  6. Stock-specific or security-specific comments
  7. Sector-level strategy
  8. Review of the past quarter’s market and economy
  9. Something not listed above

These results say to me that readers want content they couldn’t read elsewhere.

Here are some relevant responses:

  • The investments are a commodity…the client bought the firm and that brand should be consistently presented in all interactions.
  • What is missing in the vast majority of reports from managers is any genuine clue as to how and why they made/lost money. Market or asset class reviews or forecasts and returns summaries are ultimately meaningless if the manager doesn’t understand the drivers of his return. I like to see a thorough and genuinely insightful “attributions analysis” that makes it plain to the reader that the manager knows precisely why/how/where the money was made.
  • Needs to be something more than what I get from Bloomberg or WSJ commentary. I want to understand their outlook, and how that shapes their strategy.
  • Manager should include “what went right, what went wrong” during the quarter relative to investment performance. In other words, performance attribution at a high level.

Keep it short

More than 40% of respondents thought a quarterly investment letter should run two pages or less. A length of five pages or more was the least popular response, as you can see in the graph below.

Respondents favor shorter letters that are reader-friendly, as the comments below show.

  • Investors want you to tell them what THEY need to know, not everything YOU know!
  • I read a lot of quarterly letters, and I selfishly would like to be able to pull out the important nugget(s) quickly. More importantly, as an investment advisor I know that my clients will not put a lot of time into reading these letters. If they look long and boring, they simply won’t bother.
  • As an investment manager researcher, I read numerous quarterly commentaries from our sub advisors. The managers that are able to deliver the highlights clearly and in a concise manner stand out because they are better able to communicate their message to me and our clients.
  • In my experience in investment communications, I’ve learned that less can be more. Get to the point quickly! Most financial advisors (and investors) don’t have much time to read and are in a state of information overload. Many receiving a 3-page commentary will put it in their “read later” pile (meaning it may never be read). However, if they received a shorter commentary (1-page would be ideal), they might read it upon receipt, getting information in a much more timely manner.
  • People are busy and finance isn’t always the easiest or most scintillating topic; keep it short and sweet so you can keep your clients engaged and informed, Value their time.
  • After three pages, most people get bored 🙂

Make it personal

It’s not easy to make quarterly letters feel personal and customized without spending lots of time on them. Some of the techniques that respondents suggested for achieving this included:

  • Using “you”
  • Integrating data from portfolio accounting
  • Know the type of client that is attracted to your investment strategy and speak to that client’s biases and need for information.
  • Answer the question, what is in it for them? Comfort them? Encourage them?
  • Add a personal note within the body of the letter. “I took my son shopping for school supplies and Walmart…” and if there is an investment tie-in, so much the better.
  • Include  a personal touch regardless of how long it takes. These clients give us their hard earned money to manage and we should take time to report to them.

Well-written

A number of comments supported my belief that letters should be well written.

  • I’m busy and I read a lot of investment letters, I don’t have time to reread investment letters in an effort to understand what the manager is really trying to tell me. I want a straightforward letter that I only have to read once to understand.
  • You must write to the level of the average individual, not at a level that will impress your peers. Your clients would not be working with you if they did not believe you are intelligent…you don’t have to show them how intelligent you are by spewing out words that fly over their heads. If you want personalized and relevant letters, you must bring yourself to their level.
  • I try to speak in my natural voice, rather than a “writing” voice. I also find that humor and self-deprecation (on non-professional issues) resonate with clients.

Thank you, CFA Institute LinkedIn Group members and other respondents!

I am very grateful to all of the people who responded. Your comments made this topic come alive. I wish I could have included more of them.

I believe most of the survey respondents are financial or marketing professionals, but I didn’t collect their demographics. However, I suspect that members of two of my LinkedIn Groups–CFA Institute Members and Financial Writing/Marketing Communications–were particularly generous with their contributions.

Note: I edited some of the language for clarity on June 1, 2014.