It was a good week for UK economist Angus Deaton who scooped this year’s Nobel Prize for Economics partly for his work on economic growth. It was a bad week for Toki Sekiguchi who was knocked to the ground by outgoing mayor of London Boris Johnson in a game of touch rugby in Tokyo meant to promote Japan’s hosting of the 2019 world cup.
Prime minister of Japan Shinzo Abe will be hoping that the hosting of the tournament will help the country’s flagging economic growth, which was shown this week to be a bit ropey.
The government of Japan said this week that there were “pockets of weakness” in the recovery and many investors are now keeping an extra focus on Japanese equities and the chances its central bank will announce more QE at its next meeting on 30 October. Fingers crossed!
While you’re waiting why not have a read of our best stories of the week? Everyone on the FE Trustnet team wishes you a great weekend and good luck to anyone supporting Wales in the rugby.
The passive equity income fund topping the tables since Black Monday
Senior reporter Daniel Lanyon dug down deep into the data this week and found a startling statistic for anyone invested in a UK equity income fund.
It is that almost 98 per cent of UK equity income funds have failed to beat the FTSE All Share index since the Black Monday sell-off back in August.
The highly popular IA UK Equity Income sector has only two funds that are ahead of the FTSE All Share since the sell-off: one passive and one active.
The Vanguard FTSE UK Equity Income Index fund, which uses the FTSE UK Equity Income index as its benchmark (made up from the biggest dividend payers in the UK equity space), is the only passive residing in the sector and is also its best performer since Black Monday.
Normally noted for their defensive characteristics, most will have avoided much of the strongest rally stocks in the market such as miners.
Click through to see which active fund beat the FTSE.
Bonds are still a lose-lose for investors, warns Jane
The low yields on offer and limited negative correlation to equities means investors should not be considering a wholesale rush back into bonds at the moment, Miton’s David Jane argued this week.
Jane, head of multi-asset at Miton, points out that as a 10-year UK gilt yields 1.84 per cent, it is mathematically impossible that bonds rally strongly from here or can continue to offer a decent hedge against equity market volatility like they have done in the past.
According to FE Analytics, the Barclays Sterling Gilts index is up 4.11 per cent since mid-July compared to a 4.72 per cent loss from the FTSE All Share after investors sought out perceived safe havens. However, Jane is not overly optimistic on the asset class’ outlook.
Performance of index since July 2015
Source: FE Analytics
“The challenge you have is you can’t make any money out of them. Even if we are right and the market is overestimating future interest rates and you buy in today, you will get very limited negative correlation with equities,” he said.
“Although bonds did go up when equity markets went down, they went up so little it didn’t really make that much difference to your portfolio. Unless you ran a portfolio that was 20 per cent equities and 80 per cent ultra-long-dated bonds, you basically lost money. So why would you take that bet?”
What does Godfrey’s departure from the IA say about the funds industry?
Last week there was a lot of attention on the Investment Association, after it emerging that several high profile members were considering leaving and chief executive Daniel Godfrey stepped down amid criticism of his approach.
The dispute appeared to be centred are the association’s recent focus on retail reforms and some members believing that it was not paying enough attention to issues such as international legislation and the pension reforms.
A common argument was that the Investment Association was almost acting like another financial regulator on the asset management industry.
Editor Gary Jackson offered his take on the events, arguing that while a trade body should look to defend the interests of its members, this doesn’t mean it should stop pushing to make the industry “better” before a before a regulator forces change anyway.
“At the end of the day, Godfrey lost the faith of the Investment Association’s paying members – leaving little alternative but for his departure. But I think in the long run his successor will need to have more of Godfrey’s vision and aspirations for their industry than his critics at the moment might suspect,” Jackson concluded.
The top-performing core funds which have preserved your wealth the best
News editor Alex Paget put the Investment Association’s four multi-asset sectors under the spotlight this week to see which members have outperformed by minimising drawdowns for their investors.
Only eight funds from the 177 that make up those four peer groups have been top quartile for both their total returns and maximum drawdown over the past 10 years in both their own sectors and the four sectors combined together.
The £275m CF Ruffer European fund, managed by Timothy Youngman and (more recently) Guy Thornewill, leads the pack with a 182.48 per cent total return over the past decade and has encountered a maximum drawdown of just 12.19 per cent.
Source: FE Analytics
The table shows that Ruffer, as a group, came out very well in this study with three of their funds featuring on the list, showing that their managers have largely stuck to their objective of “producing consistent returns and not losing money”.
Jupiter Merlin: Active management is “a moral responsibility”
Over on Trustnet Direct, Jupiter Merlin’s Amanda Sillars kicked a hornet’s nest by urging financial advisers to remove trackers from their clients’ portfolios.
“I would suggest that trackers and passives are flawed investments for long term investors and pension plans – they’re not worth it at any cost,” she said.
She justified this view by pointing to numerous examples of capital being permanently destroyed when sectors that made up a significant proportion of the FTSE 100 at the time subsequently crashed.
She then highlighted how the Jupiter Merlin Growth Portfolio was able to position itself to shield clients’ money as these crises – the dotcom bubble, the financial crash and the recent commodities crash – were unfolding.