There’s been a lot of debate about the idea of a “great rotation” from bonds to equities, and every Wall Street strategist has a view (consensus: the equity bit will happen soon, but bond yields won’t rise yet as central banks keep on buying).
Alain Bokobza at SocGen has come up with a lovely chart to back up their view that money should be flowing into equity mutual funds, as indeed it has started to do. Read more
Active investment still has some active defenders, at least in the UK, to judge by the reaction to a recent Long View on the subject. And digging into the reasons for active funds’ persistent problems, it is easy to see why. Despite the claims of the Efficient Market Hypothesis (EMH) that it is impossible to beat the market other than by luck, it appears that an impressive number of managers do achieve the feat.
The problem is that they do not manage to beat the index by enough to be able to pay themselves and still pass on a decent performance to their clients. In other words, to quote Jack Bogle, the founder of Vanguard and the spiritual father of index investing, the case for passive investing rests on the CMH (Cost Matters Hypothesis), not the EMH. Read more