Brian’s Brainstorm
Active Fund Manager Performance
Over the past seven years active fund managers have struggled to outperform their benchmarks. There are a number of reasons for this. The most obvious is cost. Passive funds have a lower cost structure than active funds and this gives passive funds an advantage from day one. A second reason is that stock markets worldwide have become more correlated. One influence behind this development has been the indiscriminate boosting of asset prices by central banks through quantitative easing. Furthermore this has contributed to an unprecedented bubble in government bond markets to the point where some government bond yields have become negative.
There is some evidence that another reason why discretionary fund managers have under performed their benchmarks is that they have not participated in the latter stages of the bond market bubble as fully as passive funds have. Discretionary fund managers point out that they are not prepared to buy assets that offer no value even if they may go up further in the short term.
Now if QE by central banks tapers off and is even unwound, we might see less correlation between stock markets in the future and we might be entering the peak of tracker out-performance as bond yields firm. With the possibility of this mean reversion eventually occurring investors should consider that the good comparative run they have had in passive instruments might be coming to an end. At this juncture it might be sensible to have a mix of active and passive exposures.
Staff Matters
- Training is well underway for the Great Manchester Run with all three team members guilty of having gone on at least one run in the last month. Some of us have even been on two.
- Unfortunately Ian is still recovering from his various skiing injuries and our earlier confidence about fast times isn’t quite so strong as it was in February.
- Despite the bragging rights at stake in the interoffice rivalry we are still running to raise money for Headway. This UK wide charity works to improve life after brain injury and we are proud to support their work. The link to our JustGiving page can be found by clicking on the logo.
Statistical Information
| Last Month | This Month | Change | |
|---|---|---|---|
| CPI | 2.3% | 2.3% | – |
| RPI | 3.2% | 3.1% | -0.1% |
After last month’s inflation growth exceeded the Bank of England’s inflation target of 2.0% for the first time since late 2013, many expected the latest figures to record another consecutive month of increases. This was not the case as the Consumer Prices Index remained unchanged at 2.3% while the the Retail Prices Index actually fell by 0.1%.
Food & non-alcoholic beverage prices provided the largest single upward effect on the inflation rate but alcohol, tobacco, clothing and footwear all recorded significant prices jumps as well. These movements were balanced out by transport costs, most notably air fares but to a lesser extent motor fuels, all coming down.
The continued weakness of sterling combined with a global inflationary trend resulting from increased food and energy prices means that, despite the figures for this month, inflation looks set to keep rising.
| February 2017 | March 2017 | Change | |
|---|---|---|---|
| Base Rate | 0.25% | 0.25% | 0.00% |
The Monetary Policy Committee (MPC) met on the 16th March and voted 8-1 to keep the Base Rate at 0.25%. This vote marked the first time Kristin Forbes elected to increase the Base Rate since she became a MPC member in July 2014.
The MPC is next due to meet on 11th May.