Wed, 19 Mar 2014 16:20:39 GMT
As we move from the year of the Snake into the year of the Horse, a few key movements in 2013 are worth a conscious review.
In 2013, long term inflation expectations increased, with the 30 year zero-coupon RPI swap ending the year around 0.5% higher than it started at 3.74%. This compares to the lows of around 3.2% in 2012 and recent highs over 4% seen in 2008. Real yields generally fell back into negative territory over the course of the year.
Overall, interest rates in most major markets ended the year higher than they started. In the UK, long dated interest rat ...
Wed, 19 Mar 2014 11:00:39 GMT
Finance is, somewhat to my chagrin, not a science. This is in part a reflection of the complexity and chaotic nature of the system: a thorough, bottom-up understanding of how everything worked would include psychology, geography, and technology, to name but a few of the many, many factors that ultimately drive the markets. Moreover, even if that were possible, any successful model of the markets would soon have to include itself in its own predictions, and thus either be able to be simplified without being too significantly changed, or else be more complex than itself1. Neither seems part ...
Mon, 24 Feb 2014 11:49:47 GMT
Multi-asset funds have come a long way in the UK. Balanced funds employing static asset allocations dominated the scene during the 1990s and early 2000s. However with time, the sector evolved as there was increased demand for asset allocation to be performed within a fund. The success of a number of managers in navigating the financial crisis was surely the finest hour for active asset allocation and a great endorsement for the sector as a whole in addition to those skilful managers.
These days, we see a large spectrum of multi-asset managers within the UK and indeed a different na ...
Mon, 03 Feb 2014 13:08:41 GMT
If you are a client of Redington, you will have often heard us espouse the importance of setting clear goals, designing an efficient strategy and ongoing monitoring. In my first blog of the New Year I would like to share what I have discovered personally over the past 12 months about starting with a clear goal, maintaining focus, finding your tribe, introspection and resolutions/commitments.
12 months ago, I left paid employment to enter the uncertain world of self-employment driven by the desire of spending more time with my young family. I ha ...
Fri, 24 Jan 2014 12:21:15 GMT
Imagine you are the captain of a ship. You’ve just passed through a great storm and the skies look clear ahead, so you prepare to hoist the main sail and go full speed ahead. However, when you look behind, you notice the storm still looms and appears to be catching up with you. The ship has clearly been damaged and it’s not certain it would survive another battering. What would you do?
Following this week’s “Macro Overview” teach-in, that’s the position I feel investors are in today – the economic outlook ahead appears rosy, with ...
Mon, 13 Jan 2014 15:30:48 GMT
Over the course of 2013 the UK economy saw what Kevin Daly, Chief UK economist at Goldman Sachs, described as a “Lazarus-like transformation.”
The UK economy began 2013 on the brink of a triple dip recession as the coalition’s commitment to austerity was harangued by the opposition and many economists, to the point that many expected George Osborne, Chancellor of the Exchequer, to find his position untenable. 12 months later, everything’s changed. The UK ended the year as one of the fastest growing economies in the developed world. One could be fo ...
Thu, 09 Jan 2014 09:25:21 GMT
At a recent conference, a speaker talked about the difference between risk and uncertainty. The two related, yet very distinctive, concepts are often used interchangeably. So what’s the difference? While risk can be quantified, uncertainty cannot. People spend immense time and effort trying to understand and quantify different types of risks; however, we are still facing (and will always face) the uncertainties inherent in the world around us. To some, uncertainties can be fearful and worrisome. To others, uncertainties can mean opportunities and hope. Thinking about this idea cause ...
Wed, 08 Jan 2014 13:18:23 GMT
In 2013, 81 new articles were published on RedBlog. The following five are the ones you found most popular – any surprises in there?#1 Mitesh Sheth, Is it really possible to identify good fund managers?
Research conducted on US equity funds suggested that funds recommended by consultants do no better than any other. Mitesh responds to this conclusion and picks out the common traits of the best fund managers, including their sources of competitive advantage.#2 Dan Mikulskis, PV01 & IE01: Models on models
The rise in inflation expectations in 2013 was a worrying development ...
Mon, 16 Dec 2013 12:25:25 GMT
Funding plans and contribution schedules are often set on a technical provisions (TP) basis. This is a value broadly expected to represent the amount of assets needed today to be able to pay off all the liabilities. These bases can vary enormously form scheme to scheme, and there is a lot of flexibility in choosing the valuation assumptions; however there are certain reasonably common assumptions which create an underlying drift upwards in the liabilities and scheme deficit.
One simple example is the inflation risk premium. The argument here is that investors will only take inflation ris ...
Fri, 13 Dec 2013 10:45:06 GMT
The main aim of this blog is to leave readers with two key thoughts:
Firstly, hedging is not a method to increase expected return but rather a way of further ensuring that a scheme will meet its objectives by removing the biggest risks in a scheme’s portfolio.
And secondly, the market has already priced in interest rates rising in the future. If rates remain lower for longer, then unhedged schemes should be prepared for falling funding levels.
To provide some context, I recently had the opportunity to speak at a ‘Future Influencer Breakfast&r ...