Unlike their US or Eurozone counterparts, UK pension funds will readily pay quite a premium for inflation protection. However, that premium is relatively unattractive for multi-asset investors, who we think can find better ways to manage UK and global inflation risks.
At times, over 50% of fixed income managers outperform their benchmark indices. Understanding the drivers for that is important for manager selection, but far too often it's attributed to the wrong causes. It's time to pulp the fiction and instead recognise the roles that non-benchmarked investors and new issue premiums play.
Regardless of intention, I think a lot of the commentary on active management performance is misleading. High or low success rates for active managers are far too often explained in nonsensical ways. In fact, there are just four main options in my view and three of these likely explain the anomaly in small-cap equities.
When making decisions, data on similar past decisions and their outcomes provide a useful starting point as a ‘base rate’. Too often though people ignore them or give them too little weight. Base rates of the historic performance of active fund managers provide an insight into the potential benefits and costs of choosing them in different asset classes.
‘Less is more!’ That is what correlation wants to brag about to enhance diversification. However, following the financial crisis, many believe that correlations are at an all-time high – is this the end of low correlations? We think not.
2017 marks a number of financial anniversaries; the 1987 stockmarket crash, the 1997 Asian financial crisis, and the beginning of the global financial crisis. As we haven’t really experienced an extreme boom or crisis recently, looking back will be a refresher as to what could occur, but also provide a wider perspective on investment returns. Nothing is as evocative of the past as its music, so we accompany our look back with a soundtrack of those hits we think have withstood the test of time, and those hits that we would rather forget.