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If The Fed Continues This, "There Won't Be Any Active Managers Left In 5 Years"
As the dash-for-trash continues in US equities, Neuberger Berman sums up the state of investing currently, "there has certainly been little reward for owning high-return, superior business models that are conservatively financed," as Bloomberg notes, Fed policy has had the “unintended consequence” of boosting the stocks of companies with heavy debt and little or no earnings. Typically after a recession, such companies lose out to firms that generate more cash and have better balance sheets; this time, no “Darwinian” shakeout happened and low-quality stocks ruled. Managers say they haven’t changed, the market has. The Fed's QE/ZIRP world has artificially inflated prices of lower-quality U.S. stocks, punishing those who focus on businesses with the best fundamentals, "if the next five years are the same, there won’t be any active managers left."
As Bloomberg reports, only twenty percent of mutual funds that pick U.S. stocks beat their main benchmarks in 2014, and 21 percent topped the indexes in the five years ended Dec. 31, according to data from Chicago-based Morningstar...
Managers say they haven’t changed, the market has. The easy money climate of near-zero interest rates engineered by the Federal Reserve has artificially inflated prices of lower-quality U.S. stocks, they say, punishing those who focus on businesses with the best fundamentals. At the same time, the relentless climb of prices across equity markets has left them with few chances to sniff out bargains or show what they can do in more-volatile times.
“In straight-up markets you don’t need active managers,” D’Alelio said in a telephone interview. “If the next five years are the same, there won’t be any active managers left.”
...
“We have been using the same process to pick stocks for 40 years and we have confidence in it,” Frank Gannon, co-chief investment officer for Royce, said in a telephone interview.
In his view, the Fed keeping interest rates near zero for the past six years has had the “unintended consequence” of boosting the stocks of companies with heavy debt and little or no earnings.
Typically after a recession, such companies lose out to firms that generate more cash and have better balance sheets. This time, no “Darwinian” shakeout happened and low-quality stocks ruled, Gannon said.
“There has certainly been little reward for owning high-return, superior business models that are conservatively financed,” Neuberger Berman’s small-cap stock team wrote
...
“People speak as if we have gone through a whole cycle,” said Neuberger’s D’Alelio. “Show me a cycle where stocks go straight up with no corrections.”
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As Baupost's Seth Klarman recently noted,
A value investor’s task in 2014 was made more difficult by these loose money policies and the resultant tide of bullishness.
For six years and counting, optimists have been relentlessly rewarded, and skeptics punished.
Our caution continues to be an ongoing and unavoidable drag on current investment performance. We remain determined to avoid speculation, while maintaining our disciplined, long-term orientation.
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They don't give a shit!. THIS is all a super pump and then collecting the crash assets for pennies
my neighbor's mother makes $86 /hr on the computer . She has been laid off for 10 months but last month her pay was $21128 just working on the computer for a few hours. go to the website... www.globe-report.com
If it continues like this for another 5 years there won't be a need for ANY managers because the Fed and PPT will already own everything.....
Index funds are the market, and all bonds rise until they are worthless.
The new normal.
Oh they do give a shit. They're printing to make the existing debts easier to pay off and allow deleveraging to occur.
Oh, wait a minute - existing debts are now LARGER than they were in 2008 and leveraging is even GREATER than it was in 2008.
DavidC
"livable" income dole given by govt. controllling the dinner plate and income..........primary goals.
Dey took er jebs!
Tk R Jaaaarrr...
This is a great breakdown of how we got here and where we might b going for anyone who might be knew to all this. http://debtcrash.blogspot.com/2015/02/history-and-introduction.html?m=1
you knew about this for many years. You will sink with us, like ordinary people.
Just Buy the Index style investment has over ridden stock picking. The stock picker manager was shown to likely underperform the index long before 2009. Same pattern continues and same people complain, high cost managers.
Actually, government policies or the actions of central planners like the Fed or European central banks is 100 times more important than any investing strategy you have. One sentence from any government official or GSE can rock the markets no matter how wonderful the new iPhone, SUV, or MacFood item is.
So, place your bets on the table, gentlemen.
But the so called Active Managers dont seem to be considering Govt Policies as 'Business Fundamentals' to base their investment strategies on. Thats the thing that fundamentally changed in last 5 years. You dont make money, then you are wrong in the market. Why always keep complaining that the markets should crash and that shit never happens- frikkin idiots.
"We remain determined to avoid speculation, while maintaining our disciplined, long-term orientation"
Maybe, but are you doing your fiduciary duty if your fund continues to lag much less expensive Index managers? This is the catch 22 that fund mangers will be facing with the new proposed 401K and IRA regulations. Can't beat them with current Fed actions, and if you can't beat them, you aren't being a proper fiduciary if you let anyone invest with you.
The other side of the active management argument is that they can produce returns with lower Beta (volatility) than the index- proer fiduciary standards take that into account as well.
Unfortunately..... just another metric shot to shit for active managers in recent years. Can't get no alpha, can't lower the beta. Game, set, match.
no need for brains any more its all automated and predictable don't you see it?
everything is kewl when you're part of the team
OK, how gay was that video?
My guess is that by the end of the year you'll be able to identify at least a dozen ILLUMINATI 'pre-happenings' that were part of that choreography. [starting with the clocks]
Why was the assumption made this was an unintended consequence? Of course this is what the banking system and the FED would want. Throw the captured government and regulators into the mix, and voila instant treasonous crimes. They will do this and deny any wrongdoing even unto the end. Their backroom comments for the last 20 years have been, " We've engineered this, we'll complete this, but almost everyone will be too poor and starving to do anything about it" None of this happening is by mistake, but due to active collusion meant to look like policy fumbles and shortsightedness. Of course they'll just keep doing this since it will take only a violent rebellion to stop them, and most people until perhaps it's too late will not have the balls, the awareness, the health, nor the energy for such a momentous fight, until perhaps their finally up against the wall and finally choose to fight it out.
and we need active managers for? Shit only goes up, almost like it foats...
A chicken in every pot, well some pots, okay a select few pots, Big Club pots. Cluck, cluck Bitchez.....
First, you keep insolvent companies on artifical life support so that they don't release their market share, or do but very slowly. Then, even the strongest companies can't earn a profit in real terms. Finally, every business starves at a different rate. Of course, they could all just be Apple.
Yep I think that is where this ends up. Zero interest rates and zero profits.
Centrally planned Communist countries do not require money managers. The government take care of little stock market comrad. USSA need many waiter and waitress to take care of government employee. You apply maybe you get useful job. Your friend, Sergei.
Active management has been shown to be a fraud for over 30 years. Random luck accounts for the years they beat the market. If they beat the market this year, they won't succeed for a few more years. It's all hype.
I have a cousin who manages a large fund in the Boston area. We were at a family Christmas party in about 1987, long before he was "Dr Anthony X" and I asked him a simple question.
"If you had a monkey throwing darts at the Wall Street Journal, would it beat most active fund managers?" He laughed and said yes.
All these fund managers know they are just monkeys with darts. The rest is hype and marketing.
I've been burned. You have to play several games. Gold,stocks, real estate, cash, when is the system going to crash etc..... nobody knows. I'm suprised it lasted this long. Too many people left cash on the table because they were certain the end was near. Good luck.
They're not even talking about stock picking, they're talking about two things, one that all stocks are going up regardless, and two that they are highly valued with absurdly high debt.
On the later point they ignore that due to ZIRP the debt is so cheap, a rational actor will borrow all of it they can.
On the first point they are wrong, it's not ZIRP that raises all boats, it's much more direct intervention to control stock prices issue by issue. Exactly how I dunno, but there is simply no other explanation.
Great depression ll will fix this. But not immenant by my estimation, 10+ years from now. Enjoy the ride. Dow 30,000.
You can be as dumb as a rock and just pick the indexes and win.
A Darwinian shakeout in 2008 would have closed down all Wall Street's investment banks.
We used to call it Capitalism.
Haha , dumbo's at the FED are killing the last large and dominant industry that is left in the USA, the financial services industry.
Let us see how money market funds does with negative rates.
Netwerk Juncker: "Wij laten mensen onderling schulden met elkaar verrekenen, zonder rente. Zo laten we die lokale economie weer draaien."
http://www.trouw.nl/tr/nl/4492/Nederland/article/detail/3873023/2015/02/...
Het systeem 'Liegen om te Leven' is helemaal dolgedraaid en dus zijn er experts die uw maandelijkse loonstrookje kunnen ontcijferen. In het DAB-systeem kunt u uw loonstrookje ongeopend bij de post laten liggen, want de 'brij aan cijfers en onleesbare afkortingen' verdwijnen als sneeuw voor de zon, indien u kiest voor het systeem 'Leven en Laten Leven'.
http://www.volkskrant.nl/dossier-werk/zo-ontcijfert-u-de-cryptische-loon...
Op allerlei plaatsen in Nederland lopen al initiatieven om het GELD=ZUURSTOF-paradigma uit te testen. Natuurlijk is 'een plaatselijke munt' niet het antwoord op de crisis, maar zolang de ECB niet wil werken volgens het DAB-systeem, moet je de mensen toch iets te doen geven.
http://www.volkskrant.nl/film/deflatie-dreigt-als-de-laser-van-darth-vad...
In steeds meer landen lijken consumenten aankopen uit te stellen, waardoor het systeem 'Liegen om te Leven' steeds verder in de problemen komt. De Gouverneur van de Bank of England zei gisteren tijdens een hoorzitting in het Lagerhuis dat hij niet kan voorzien wat de toekomst gaat brengen. Het beste wapen tegen het deflatiespook is de invoering van het onvoorwaardelijk basisinkomen, maar dit ziet netwerk WitteGejT nog steeds niet zitten. Voorzitter Janet Yellen van de Federal Reserve liet gisteren ook al doorschemeren dat een Amerikaanse renteverhoging nog ver weg is. Dus ...
Translation:
Network Juncker: "We let people mutual debts set off together, without interest So let those local economy running again.."
http: //www.trouw.nl/tr/nl/4492/Nederland/article/detail/3873023/2015/02 / ...
The system 'Lying to Life "is completely stripped and so there are experts who can decipher your monthly paycheck. In the DAB system, you can have your paycheck unopened in the mail are, for the "mash of numbers and abbreviations unreadable 'disappear like snow in the sun, if you choose the system" live and let live. "
http: ... //www.volkskrant.nl/dossier-werk/zo-ontcijfert-u-de-cryptische-loon
In many places in the Netherlands are already initiatives to test MONEY = OXYGEN paradigm. Of course it's a local currency "is not the answer to the crisis, but as long as the ECB does not want to work according to the DAB system, you need while still giving people something to do.
http: ... //www.volkskrant.nl/film/deflatie-dreigt-als-de-laser-van-darth-vad
More and more countries seem consumers to postpone purchases, making the system "Lying to Life" drifts further into trouble. The Governor of the Bank of England said yesterday during a hearing in the House of Commons that he can not foresee what the future will bring. The best weapon against the specter of deflation is the introduction of an unconditional basic income, but this looks WitteGejT network still does not sit. Chairman Janet Yellen of the Federal Reserve said yesterday even hinted that a US interest rate hike is still far away. So ...
Why would you need active management in large caps anyway? Those guys were always useless.
Active management value still shows up in small caps. A rising tide won't float total shit. Dimensional and Vanguard can't avoid the garbage that will make the difference in those funds.
A Darwinian shakeout in 2008 would have closed down all Wall Street's investment banks.
We used to call it Capitalism.
There will be one more cirlce of active managers remaining: the members of the fed market advisory committee. Nice work if you can get it.
Now now there will still be Active Managers churning the accounts!
I canned my "active manager" and his fees/commisiions several years ago - best thing I ever did financially.