articles

  • Mon, 23 Mar 2015 09:00:00 GMT

    Summary: Implementing our investment principles means that it would be useful to measure the complexity of different assets and asset allocations via a complexity ranking. As complexity increases the average expected return tends to increase but the average fund manager fee also increases. Increasing complexity can be a way of increasing returns without increasing risk. Low complexity portfolios may not be the best solution for clients needing high returns. Background Two of our investment principles are: “Investment strategy should be as simple a ...

  • Tue, 27 Jan 2015 16:15:10 GMT

    Tim Ferriss has enjoyed a cult following since publishing the “Four Hour Workweek” in 2007. Ostensibly, Ferriss’ book helps readers to pack in their 9-5, outsource all their quotidian responsibilities and instead, join the “New Rich” travelling the world, fulfilling their dreams. One could be forgiven for dismissing the book as a tacky, get-rich-quick scheme. The title alone makes the book sound like an infomercial. Look beyond the marketing, however, and you will find a new perspective on time management and productivity. Ferriss combines established id ...

  • Wed, 07 Jan 2015 16:15:07 GMT

    An old chess anecdote tells of how the Russian master, Nimzowitsch, was unsettled when his opponent took out a cigarette case and placed it next to the chess board during a match. Nimzowitsch, who hated cigarette smoke, immediately called the organizers and lodged a complaint. The poor officials argued that as the man had not lit up and there was no smoke there could be no complaint. “I know” retorted the great Nimzo, ‘but he threatens to smoke and you know as well as I, that in chess, the threat is stronger than the execution’. As in chess, so may it be in ...

  • Mon, 05 Jan 2015 11:10:23 GMT

    Optimist: “The glass is half full.” Pessimist: “The glass is half empty.” Engineer: “This container is too big for the amount of water it is holding.”   We all know that for many things in life the Goldilocks approach works pretty well. Nevertheless when confronted with a complex problem, we often seem keen to find the easiest, quickest solution. In most cases, this simply does not work. A car engine or an airplane is a fiendishly complex thing to design and build. It took Airbus 11 years of work and estimated development costs of &eur ...

  • Tue, 23 Dec 2014 14:39:12 GMT

    A huge thank you to all our readers and authors, we hope you have enjoyed RedBlog this year—and it provided some food-for-thought. There is much more to come in 2015 so we look forward to seeing you all then. Before that, here is our eCard to get you into the festive spirit!   With season’s greetings and best wishes for the New Year, Gurjit  

  • Tue, 16 Dec 2014 13:10:42 GMT

    Summary: Friends Provident was one of the first pension schemes to undertake a large scale LDI hedge years ago. Over the last 11 years real yields have fallen by 276 basis points, an average of 25 basis points every year. 30 year nominal gilt rates have fallen while 30 year inflation break-evens have risen. Equities and index-linked gilts have provided similar excess returns. 30 year USD swaps and EUR swaps have also fallen substantially over the last 11 years. Friends Provident was one of the first UK pension schemes to undertake a large scale LDI he ...

  • Fri, 12 Dec 2014 11:32:34 GMT

    Are Rates Low? Above all else, the mark-to-market value of long-term liabilities is determined by long-term interest rates. The relentless fall in interest rates over the last few years has hit pension funds hard. However, many argue that such valuations are misleading because interest rates are artificially low, and will rise back up soon. To say interest rates are low, compared to history, seems eminently fair. Using data on US 10yr rates from Professor Robert Shiller, current rates are just above the 10th percentile; so for nearly 90% of the last 144 years US 10y rates were high ...

  • Thu, 11 Dec 2014 11:00:00 GMT

    Summary: GBP real swap rates are around minus one percent. Most of this fall has been due to falling nominal rates rather than falling inflation expectations with similar moves in USD and Euros. While the Federal Reserve has ended QE the Bank of Japan has increased QE and the ECB may be about to start. Concerns about inflation in the UK undershooting the Bank of England’s 2% target. GBP Swap Real Rates Fall to Record Lows Real GBP swap rates have fallen substantially year to date with even the long end part of the curve now close to minus one percen ...

  • Mon, 08 Dec 2014 11:46:07 GMT

    Charles Dickens’ novel “A Christmas Carol” is a widely celebrated festive tale that details the transformation of the famous Christmas humbug Ebenezer Scrooge. In the book Ebenezer is a “wrenching, grasping, scraping, clutching, covetous, old sinner!" whose business is loaning money and ruthlessly chasing repayments. What Dickens neglected to portray was that Mr. Scrooge’s money lending business also had the daunting commitment of a Defined Benefit Pension Fund. In this blog I uncover the previously untold supple ...

  • Thu, 04 Dec 2014 15:56:29 GMT

    The Government’s pension reform programme since 2010 gained a powerful boost in last year’s Budget with the announcement that people saving in DC schemes would, from next year, no longer have to purchase an annuity when they retire. At a stroke, the retirement landscape in DC changed dramatically and we are still digesting the implications. We have subsequently gained a little more clarity concerning the guidance that people will be able to access before they make any final decisions, but there is still a heated debate underway about the impact of these changes. The tr ...