Ruth Sullivan

Norway’s Government Pension Fund seems to have it all. Oil wealth, decent returns and a responsible approach to investment.

The decision to put part of its oil wealth to work for the country’s pension pot is one that makes many pension savers in other parts of the world gnash their teeth in envy, particularly if they happen to live in a resource-rich country that has not invested its black gold in the same way, such as the UK. 

Sophia Grene

This is very odd – instead of talking about how the last year has destroyed the efficient markets hypothesis and its friend modern portfolio theory, here’s someone pointing out that they couldn’t have been disproved because Nobody Believed In Them anyway.

It’s not the first time someone has pointed this out, but it is a nice succinct summary. This disposes very usefully of a strawman that has been brilliantly used by both sides to divert attention from the real problem, which is that markets have always been and always will be inefficient and clever greedy people like to capture the economic rent from this fact.

Pauline Skypala

Despite the academic hours put into debating whether active fund managers outperform, no one has definitively won the argument it seems.

The debate has been fuelled recently by papers from Eugene Fama and Kenneth French (Luck versus Skill in the Cross Section of Mutual Fund α Estimates) and Laurent Barrat, O. Scaillet and Russ Wermers ( False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas).

Neither make good reading for active managers.

Ruth Sullivan

 

a man in a business suit with dunce cap

Consumers have low levels of financial literacy

Are we financially savvy enough to make the right decisions about how to  invest for retirement or calculate mortgage payments or avoid the danger of repossession?

Not enough people are, according to the OECD. In a recent study  the organisation found consumers not only have low levels of financial literacy preventing them from making informed financial decisions but they often overestimate their knowledge and skills.

Now Allianz has launched a website where people can find out about a whole range of financial terms to help their decision making, from estate planning to merging portfolios after marriage. There’s even a chance to trace how the price of coffee has increased in the past 30 years or how it might change in the future.

And if that doesn’t help to demystify some of the jargon then try the Financial Times lexicon.

Sophia Grene

According to the research, most investors prefer full-replication exchange traded funds. That is, they prefer the straightforward product that does something relatively simple – tracking an index – by the most straightforward means possible – buying the underlying stocks.

But db x-trackers and Lyxor, two ETF providers that rely exclusively on synthetic replication, have found no shortage of investors, despite  using derivatives, oh anathema!

A recent survey by Credit Suisse and Deloitte reinforced the notion that investors want the simpler products. 78 per cent of respondents said they would prefer ETFs with full replication methodologies. So what is going on?

According to Oliver Schupp, head of alternatives at Credit Suisse, it is a question of uninformed versus informed opinion.

“When you really take a piece of paper and write down the pros and cons [of full-replication vs synthetic], it comes down to a toss of the coin,” he says. While investors cite increased risk, namely counterparty risk, as the reason for their declared aversion to synthetic ETFs, Mr Schupp points out that many full-replication products use security lending, which has its own counterparty risk.

“The general consensus is that when you sit down with professional investors and walk them through it, they’re comfortable with swap-based ETFs.”

At the moment, Credit Suisse’s growing ETF platform only has full-replication ETFs, but it is planning to introduce swap-based products early next year, so this issue is a live one for Mr Schupp.

Pauline Skypala

Hewitt risks raising expectations too high

Hewitt risks raising expectations too high

Most days I can rely on a communication from some investment consultant or other landing in my inbox bemoaning something about pensions.

Today it is Hewitt Associates, which quotes some nice round figures about the danger of 15,000 people in the UK losing at least 20 per cent of their pension benefits if trustees of defined benefit schemes do not “take control of investment strategy”. It says £150m of pension benefits are at risk over the next two years.

Ruth Sullivan

The challenge of setting up independent pension trustee boards is an uphill task.

Any hopes of making progress were dashed today, reading the latest findings from Trustee GAAPS. Only one third of pension trustee boards of FTSE 100 companies are independent, according to the trustee search firm.

Sophia Grene

Fund managers are in the unhappy position of being able to see the oncoming train but unable to move because their hands are tied. Even though they think climate change is a source of investment risk, their short-sighted clients are not letting them do anything about it.

According to research by FairPensions, nearly 90 per cent of fund managers think climate change is an investment issue, but feel they can’t do anything because of short-term analysis and lack of demand from pension funds.

Sophia Grene

are ETFs 'good', 'bad', or 'I dunno'?

In the balance: are ETFs 'good', 'bad' or 'I dunno'

ETFS – are they low cost, simple investment tools for the retail saver (GOOD), or a complicated device for enhancing the profitability of investment banks (BAD), or even a bewildering mix of the two (UH- dunno)? If the recent wave of commentary on the blogosphere has left you feeling confused, here’s a helpful guide from the Aleph blog – The Good ETF.

But remember, according to Tadas Viskanta at Abnormal returns, size really does matter for ETFs.

Sophia Grene

Is there an equity risk premium? Can investors take advantage of it? Yes, according to Jeremy Siegel. No, according to a delightfully scornful riposte from sometimes FTfm writer John Keefe.

Feel free to join in the fight in comments, but bear in mind that in the long run, we’re all dead.

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.


Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.

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