Following the losses of last quarter this quarter decided to play mind games with investors as world stockmarkets posted near to double digit positive returns. If the nerves of ordinary investors weren’t already frayed by global politics, they may have snapped watching markets move so sharply up and down in the last year or so. Investors who have withdrawn into cash recently (and the stats suggest that plenty have) might yet be proved right but equally might have lost money already and struggle to find the right time to reinvest. Recently released research from Dalbar confirms what it has every year which is that the returns the actual investor gets are much worse than the returns they should have received because of this jumping in and out of markets/funds.
Last quarter we said that the outperform of passive over active management in poor markets was a trend to key an eye on. This quarter added nothing to our knowledge as markets roared away and passive funds with their full market exposure and low costs performed the best. A vanishingly small number of active funds outperformed their passive brethren over the longer-term and so we are still waiting for proof that active management is worth paying for. As costs of active fund management have never been clearer (with some discretionary managers disclosing annual costs of nearly 3% for 2018) justification is needed for using them. Equally care should be taken when paying advisers large ongoing fees to recommend wholly passive strategies as this is no better from a cost perspective but just has a different label on it.
All of this adds up to further evidence that investors are better off investing with an eye on a long-term objective and not short-term political, economic or financial news. So, are quarterly commentaries redundant? Well possibly if you pay them any attention, however if you focus on the message of Keep Calm and Stay Invested you will have absorbed half of the value an adviser adds to their clients (the other half is probably tax planning, but I can’t back either of those numbers up).