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Active Failures; Common Prosperity

#Active Failures

Comparing returns of a balanced portfolio over various time frames - A Wealth of Common Sense

If the year were to end today, the current year-to-date return of -12.1% for a 60/40 portfolio would be the sixth-worst annual return over the past 100 years or so.
Since bonds are having such a rough go at it during a correction in the stock market, this year is currently on par with 60/40 returns in 2008 and 1930.
There has never been a negative return over 10 years for a 60/40 portfolio as of a calendar year-end.

Comment: This short piece clearly puts the market turmoil this year in perspective. The benefit of thinking longer-term trumps short-term concern. Whilst it might seem like a bad start to the year, extending the time horizon for investments makes everything look a lot rosier. The market has a great track record. Volatility is a feature of the market, not a bug.

Active fund managers continue to fall behind major indexes - CNBC

More than three-quarters of active mutual fund managers are falling behind the S&P 500 and the Dow.
The latest report marks 12 consecutive years the average actively managed large-cap fund underperformed the S&P 500.

Comment: This doesn't mean there's not a place for active funds. Volatile markets like we have now make active funds more appealing. Also, bottom-up stock pickers markets that have a distinct small and mid-cap segment, like India, favour active management. In India, on average, the active manager has outperformed the benchmark.

However, for the majority of long-term investors with diversified portfolios, a largely passive approach will triumph as most successful managers fail to continuously outperform.

More Doses of Finance

#Common Prosperity?

China's real estate tycoons lose $65 billion as "common prosperity" marks the end of an era - Bloomberg

China’s yearlong campaign to control runaway property prices has pummeled its biggest developers, tanking home sales 11 months straight and obliterating $65 billion in wealth for real estate moguls.
Accounting for nearly 30% of gross domestic product, the [real estate] sector is one of the biggest economic drivers.
Since the beginning of last year, Chinese developers have defaulted on at least $18 billion of offshore dollar bonds and the equivalent of $2.5 billion of onshore yuan-denominated debt.

Comment: The golden days do indeed seem to be over for real estate being the driver of China's economic growth and investing in Chinese property is no longer the sure bet that it used to be.

A phrase dating back to Mao Zedong and Deng Xiaoping, 'common prosperity' - the idea that China would let some get rich first and later allow the whole country to prosper - has instilled a sense that this will lead to slower development and to more autocratic socialism. Or, as it relates to modern-day economic policy reality, does Xi's common prosperity in fact mark a shift to more high-quality development to ensure the rest get rich concurrently?

Whilst the current situation is stifling confidence right now, sooner or later, China's doors will be open again for both domestic and foreign investment to help the country to continue to catch up with the rest of the world. Short term, the market expects the government to launch a stimulus package at 3-5% of China's GDP to help achieve the 5.5% growth target this year, although this still seems too ambitious.

Some argue that we are seeing China abandon long-term economic objectives for transitory, politically motivated gains against Covid, and that there are going to be other long-term constraints as well: falling productivity, an ageing population, declining birth rate, policy mistakes, and the list goes on.

However, there is a reasonable argument that economic conditions will improve due to a boom in pent-up demand in the months ahead, with the worst months of lockdown-induced stress now behind us.

Whilst longer-term impact of short-term policy is hard to determine, it is clear that China is on a new economic path, certainly slower, but not so certainly destructive. With zero Covid here to stay, the coming months will be telling in the build up to the 20th National Congress where Xi looks to secure a historic third term.

#Sources of Interest