Tuesday, 6 January 2015
2015 - The year of the whip for markets but also index funds.
One of the most notable things about 2014 was the demise of the macro funds at the expense of the index tracker. But 2015 feels as though it is going to be a game of many halves. As we saw towards the end of 2014 sector rotation was massive and though the performance of your long only general index may have not given you cause to think there was anything wrong with your investment decision paying minimal fees as all equities rallied, there was monstrous opportunity lost. Discretionary performance picked up into the year end just as long only indices started to put in shabby performance vs spectacular volatility. Plenty of this performance will have been currency related but when the index fund holder looks at their risk return vs discretionary they probably won't care as when the trends abate and the performance dwindles they will start looking for something a bit more creative.
So here are some calls for the fund market in 2015 -
- Trends in equities and bonds will end. This is the year of the whip.
- Though general equity indices will see a path of general sidewayness with high volatility there will be large sectoral oscillations.
- Because of the above, funds will start to move from index trackers towards discretionary as the point above means that GOOD discretionary starts to perform.
- Discretionary macro will find they are short of portfolio managers as they have mostly been replaced by quants who are absolutely brilliant at working out value in their space but unfortunately don’t have a clue as to how someone else’s space effects their space, especially if it hasn’t happened before.
- Macro hedge funds that have sold their souls to pension funds and real money investors will feel like straight jacketed loons peering out at freedom from the confines of their asylum as the risk rules imposed upon them by their new masters of dull money mean that they can’t participate in the way they would really like to. Or stay in when under pressure.
- Fast swings will seek out and eat at the edges of risk boundaries. Much as lions will take down the wilderbeast on the edge of the heard, funds that can’t move fast enough or are too restricted by process will under-perform as their positions are taken away from them in a steady stream of stop losses on both sides of the market.
All in all it's lining up to be a very whippy year.