Fund managers rarely outperform the market for long

THE big investment shift of recent years is from active to passive. Clients have been buying index funds, which passively track a benchmark like the S&P 500 index, and shunning fund managers who actively try to pick the best shares.

One reason for the shift is that passive managers charge lower fees than active funds. Many clients would be happy to pay more if that translated into better performance. However, it is very difficult for investors to select fund managers who can reliably beat their peers. Performance does not persist, as the latest data from S&P Dow Jones Indices show clearly.

Suppose you had picked one of the best-performing 25% of American equity mutual funds in the 12 months to March 2013. In the subsequent 12 months, to March 2014, only 25.6% of those funds stayed in the top quartile (see chart). That result is no better than chance. In the subsequent 12-month periods, this elite bunch is winnowed down to 4.1%, 0.5% and 0.3%—all figures that are worse than…Continue reading

This post was originally published in the Economist.

Fund managers rarely outperform the market for long

Why the falling oil price isn’t hurting markets

INVESTORS could easily get confused about the impact of oil-price rises on the economy and markets. The story seemed to be clear: high prices bad, low prices good. The two great oil shocks in the 1970s were unambiguously bad for Western economies—ushering in stagflation and transferring spending power to the oil-producing countries. In turn, low oil prices in the late 1990s coincided with the dotcom boom.

But when oil fell in the second half of 2015, that was seen as a bearish sign for the global economy and markets. Now oil is falling again, with both Brent crude and West Texas intermediate dropping more than 20%. But the decline has barely made a dent in the upward march of the S&P 500 index.

The key to the differing market reaction is why the oil price is falling. Back in 2015, the fear was falling demand. Investors worried in particular that the Chinese economy was slowing. If that assumption had been right, demand for much more than oil would have suffered. The equity markets did not…Continue reading

This post was originally published in the Economist.

Why the falling oil price isn’t hurting markets

Investors snap up Argentina’s 100-year bonds

ONE hundred years ago, Argentina was not the country it is today. Thanks to a belle époque of lavish foreign investment, rapid inward migration and bountiful agricultural exports, its GDP per person in 1917 was comparable to that of Germany and France. Although the first world war brutally interrupted international trade and investment, the country profited from filling the bellies of soldiers on the front with tinned corned beef.

No one knows how Argentina may change over the next 100 years. But many investors seem willing to bet on one forecast: that its government will in 2117 repay $2.75bn-worth of dollar-denominated, 100-year bonds, sold to enthusiastic investors on June 19th.

Since Argentina has defaulted six times in the past 100 years, that belief seems brave. But instead of looking backwards, investors are looking from side to side, at the miserable yields on offer elsewhere. Argentina’s “century” bonds yield almost 8%. That…Continue reading

This post was originally published in the Economist.

Investors snap up Argentina’s 100-year bonds

Amazon’s big, fresh deal

JEFF BEZOS does not like sitting still. In his annual letter to Amazon’s shareholders this year, he warned of “stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.” Competitors are toiling to avoid the same fate but it is hard to keep up. On June 16th Amazon said it would pay $13.7bn for Whole Foods, an upscale grocer known for its organic produce. Lest be accused of sloth, four days later Amazon announced a new service to let shoppers try clothes at home, for no fee, then return those they don’t like.

The news that Amazon would make clothes shopping even easier is a blow to America’s apparel chains, many of which are already in the middle of that excruciating decline. Yet it was the Whole Foods deal, more than ten times bigger than any acquisition Amazon has made so far, that caused the bigger stir.

The deal’s precise impact is hard to gauge. Buying Whole Foods hardly gives Amazon a stranglehold on food and drink: the combined…Continue reading

This post was originally published in the Economist.

Amazon’s big, fresh deal

Cisco adapts to the rise of cloud computing

WHEN John Chambers ran Cisco, the world’s biggest maker of networking gear, his hyperactivity nearly matched that of the high-speed switches and routers that made the firm’s fortune. He pushed Cisco into dozens of new businesses, from set-top boxes to virtual health care. He travelled the world preaching the virtues of connectivity. In interviews it was hard to get a word in edgeways. Conversations invariably ended on a restless question: “What should we do differently?”

Chuck Robbins, who succeeded Mr Chambers in July 2015, has two decades of experience selling Cisco gear and seems more comfortable talking about its core business than about diversifications. He avoids the limelight and comes across as almost shy. But he, too, is aware of the need to keep moving. “Networking is getting complex. We need intuitive networks that are secure and can learn and adapt.”

Different times require different bosses. Mr Chambers led Cisco to the top during the dotcom boom; in…Continue reading

This post was originally published in the Economist.

Cisco adapts to the rise of cloud computing

The prospects for the world’s biggest IPO

THE proposed sale of 5% of Saudi Aramco is not just likely to be the biggest initial public offering (IPO) of all time. “It’s like Gibraltar selling the rock,” as one expert on Saudi Arabia’s oil policy puts it. The world’s biggest oil company keeps the House of Saud in power, bankrolled 60% of the national budget last year, and is a paragon of efficiency in an economy otherwise mired in bureaucracy.

The elevation on June 21st of Muhammad bin Salman, the 31-year-old architect of the IPO, to crown prince is likely to add more momentum to a sale planned for the second half of 2018. The news will further sideline domestic critics of the IPO, some of whom wonder whether it would be better to borrow the money than sell the family silver. But the success of the IPO is not guaranteed. The tendency of MBS, as the prince is known, to micromanage the listing runs counter to the spirit of openness and liberalisation that he says he wants for Saudi Arabia. That could backfire on the IPO…Continue reading

This post was originally published in the Economist.

The prospects for the world’s biggest IPO

A trendy Asian lifestyle chain opens in North Korea

Shop till you pop

WHEN Miniso said in January that its stores would “bring the happiness of stress-free shopping to the Koreans”, you would be forgiven for thinking they were referring to emporium-loving Seoulites. In fact, the home-goods store, co-founded by a Chinese entrepreneur and a Japanese designer, was announcing that it would be taking its capitalist trinkets into (ostensibly socialist) North Korea. In a joint-venture deal with one of the country’s state-owned enterprises, it agreed to establish the first foreign-branded chain store in Pyongyang, the destitute country’s showcase capital.

The first Miniso store opened there in April, eight months after its first shop in South Korea began operating, and just before it launched in America. Its arrival is remarkable in a place where displays of branding are rare (the exception is a handful of billboards advertising a local car firm, Pyeonghwa Motors).

Miniso’s coup in the secretive…Continue reading

This post was originally published in the Economist.

A trendy Asian lifestyle chain opens in North Korea