S&P500 at record highs - time to stay in or pull out?
Discussion
Panamax said:
Fidelity has put out some comment on the active/passive debate. I'll link the article but the parts that caught my eye were,
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
There is a good but a bit old attribution analysis of his fund."Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
https://www.aqr.com/-/media/AQR/Documents/Insights...
Up to 2019, they really enjoyed the "quality" factor over the benchmark. However, they totally missed the "momentum" factor, starting from 2019 to YTD now. (Rough comparison between value and momentum below, for only US). Well, an average passive investor enjoyed this ride without doing anything at all, as this totally reflects a good portion of the most world trackers out there.
Speaking of "calamitous consequences", I think, investors should be more worried about low-tech "stock pickers" with high fees, than the low-risk, cheap world trackers...
Panamax said:
Fidelity has put out some comment on the active/passive debate. I'll link the article but the parts that caught my eye were,
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
All that I know about Terry Smith is that he was held in high regard for out performing the market for many years.
I did read that recently his fund(s) have suffered poor performance and consequently clients have reacted by making withdrawals.
What his excuses (above) mean I have no idea. All sorts of confusing waffle.
The only point that stood out to me though, was -2.9% (+11.2% MSCI World Index).
My little effort to June 2026 resulted in +11.59% (FTSE 100 +5.81%), so what has he done to be so far adrift from the benchmark?
Yesterday there was a welcome, but unexpected magnificent day on the London market, so YTD is at present +12.37%.
After the huge increase in 2025, I had no positive expectations at all for this year. HSBC has to my surprise continued to be a top lister in the league table at YTD +27.1% (plus two dividends received) So far so good though, but none of us know what will happen next, so hard hats always at the ready.
There are many well known names (London listings) that at present are up over 10% YTD, so perhaps Mr Smith has just been unfortunate with his mix of holdings.
Edited by Jon39 on Saturday 18th July 17:20
Panamax said:
One of my thoughts is the same investors who buy without thinking because "it's easy money, the market always goes up 10% a year" may be the ones most likely to panic when there's a drop. Combine that with automated trading and things might accelerate downwards rather vigorously.
A lengthy market downturn hasn’t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..Phooey said:
A lengthy market downturn hasn't been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..
Can't argue with that."Untested" is exactly the point. My own position does its best to remain simultaneously "optimistic" and "a bit cautious". Hence the complexity. Can things be opposites at the same time? Now there's a question!
Phooey said:
A lengthy market downturn hasn t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..
It's what money market funds are for. I plan to use some of the 10-20% I hold in them to buy at the market low. If the market falls even further then tough poo.pingu393 said:
It's what money market funds are for.
I imagine there's one or two of us stacked up in those bad boys. More or less keeping place with inflation (in a tax free wrapper) while offering both protection and flexibility.Poor old Rachel thought she was going to tax them and then realised she'd backed herself into an impossible corner. Makes you wonder about the financial acumen of her highly paid Civil Service advisers, on their fat salaries and generous public sector pensions.
pingu393 said:
Phooey said:
A lengthy market downturn hasn t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..
It's what money market funds are for. I plan to use some of the 10-20% I hold in them to buy at the market low. If the market falls even further then tough poo.bmwmike said:
pingu393 said:
Phooey said:
A lengthy market downturn hasn t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..
It's what money market funds are for. I plan to use some of the 10-20% I hold in them to buy at the market low. If the market falls even further then tough poo.
bmwmike said:
pingu393 said:
Phooey said:
A lengthy market downturn hasn t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..
It's what money market funds are for. I plan to use some of the 10-20% I hold in them to buy at the market low. If the market falls even further then tough poo.Phooey said:
Panamax said:
One of my thoughts is the same investors who buy without thinking because "it's easy money, the market always goes up 10% a year" may be the ones most likely to panic when there's a drop. Combine that with automated trading and things might accelerate downwards rather vigorously.
A lengthy market downturn hasn t been tested yet on these levels of concentration and participation in passive investing. Over the past 5 or so years BTFD investors have produced some of the fastest recoveries. You would have to assume it can work both ways..When or if it becomes a problem is impossible to know but I think the rapid rise of passive *could* add an extra layer of risk to the next major downturn. What to do about it today is equally difficult because all markets (stocks) initially fall together, but it's the recovery where things can "show who's been swimming naked", and against the advice of holding cash - because we're told historically it has been the worst performer - my personal opinion is I think cash is the safest diversifier today.
Phooey said:
my personal opinion is I think cash is the safest diversifier today.
Bingo. You can just about keep pace with inflation so long as you're in a tax free wrapper. These days I hold very little other than equities and cash.Whether Money Market Funds would be exposed in the event of a big crash is, I guess, a question in itself. Hopefully that risk is purely theoretical.
gotoPzero said:
So what do we think for the FED tomorrow? CME thinks 30% chance of a rate hike... some are saying he might do a shock rise.
The BoJ is inbound too.... which I think could move things more than the FED tbh.
Defo a hold.The BoJ is inbound too.... which I think could move things more than the FED tbh.
The "whats your big gamble thread has died i guess all out big gambles are down alot. I know mine are.
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