Critiques of Passive investing According to Bank of America Merrill Lynch, passive investing now accounts for 45% of all US assets (up from 25% a decade ago), with equity passive funds amounting to c.$3 trillion at present.Our attention has recently been drawn to another high-profile investor, Michael Burry (article here), who believes that Passive investing is responsible for creating (another) bubble in asset prices, comparing it to the sub-prime mortgage bubble in that “price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.” He follows other notable investors, s…
In March 2018 it appeared that global growth would exert pressure on interest rates, forcing the rate of inflation ever higher, making bonds a weaker investment prospect. Things have not worked out quite as market participants then might have expected.The Fed’s policy changes and quantitative tightening in 2018, combined with the high existing global debt levels snuffed out any inflationary impulse. Following the COVID-19 fuelled stockmarket crash bond yields all over the world are now 1% or less.
The first Quarter of 2020 was the poorest equity market performance since 2008 for the S&P 500, but that was not the weakest asset class.The oil market had a truly dreadful 3 months, falling by a massive 66%, its worst ever quarterly return. The refusal of Russia to agree to cuts in oil output levels by OPEC+, the OPEC nations plus Russia, led to Saudi Arabia discounting their oil prices and gearing up oil production to force prices lower.
The Coronavirus panic has changed quite a few things in its short life.We no longer stand within two metres of each other without being forcefully reminded to move apart, we no longer seem to mind washing our hands several times per hour or the restrictions being placed on our everyday lives in the name of “flattening the curve” , whilst governments across the world have awoken from their apparent apathetic attitude towards the economy’s performance. The latest US and UK stimulus packages, in addition to the usual Central Bank monetary responses, cutting rates, printing more money, provided banking system liquidity infusions, are now leading governments into the realm of fiscal policy or state spending; it is almost as if the Coronavirus has decided that we were to have a UK socialist government irrespective of the last election result.
Things are getting wilder by the day – it is said that markets stop panicking when Central Banks start panicking, and it appears that they have now done so. According to Goldman Sachs, there have been 14 days in the last 23 when the S&P 500 has moved up or down by more than 3%, the highest concentration since 2009. The moves in US equities for the last week have been, shall we say, unusual.12/3: Limit Down13/3: Limit Up16/3; Limit Down17/3: Limit Up18/3: Limit Down…
As unexpected shocks go, Coronavirus ranks in the very top tier of events capable of disconcerting investors, amongst the Great Financial Crisis (GFC) and Black Monday. Whilst news continues to horrify many investors with the human and economic implications, buried in the latest data in what statisticians refer to as “the inflection point of a logistics curve”, is a sign that the very worst may be over. February news was dominated by the global spread and impact of the Coronavirus (Covid-19). Dow Jones, S&P 500 and the FTSE All-Share fell by over 14%, 12% and 11%. So far in March (16th March 2020), these Index markets have been continuing their decline and the correction has now developed into a full-scale bear market.
[This post is a follow-up to that of October 2019, in the light of further falls in interest rates; the message remains very much the same however: stick to the plan. Changing asset allocation in response to market movements remains fraught with danger. Stay diversified].
EBI Portfolios adopt a buy and hold strategy, which means that one year performance is not a sound basis for decision-making with regard to asset allocation etc. However, we recognise that clients wish to know how their assets are performing and so a yearly review is undertaken to allow them to understand the sources of returns; it is not always possible to discern the rationale for why millions of investors (most of whom are much better informed than we are) do what they do, so any interpretations offered here are just that-interpretations- and may be in error. But taken as a rough guide, it may help investors to better understand how markets have performed in 2019. On the basis that any information is better than none at all, we offer the below.
More than two years ago, we discussed the rise in social unrest across the globe as nations start to split apart. This has got much worse since then and it appears to have become generalised as the cleavage between populations has now spread to families. Why now and how will it all end?