The Power of Central Banks

In Europe, the transformation in the sovereign debt market since Mario Draghi’s “whatever it takes” promise in July 2012 has been remarkable.  Ireland, which just exited an IMF bailout program in December, can now issue 5-year debt at yields well below 5-year Treasuries.

PIMCO Secular Outlook, May 2014 – The New Neutral

Passive Indexing Wins Again

180px-Bogleheads_facebook_logoI’m a bit of a Boglehead, and the data appears to back me up.  From

In 2012, 63 percent of large-cap funds, 80 percent of mid-cap funds and 67 percent of small-cap funds underperformed [relative to their benchmark]. The only asset class to see the majority of active funds outperform was large-cap growth, with 54 percent beating their benchmarks. The worst performance came in mid-cap growth funds where 87 percent failed to outperform.

As we would expect, the performance tends to worsen when we look at longer periods. This is because the typically higher expense ratios of active funds become a greater burden over time. For the past three-year and five-year periods, 86 percent and 75 percent of large-cap funds underperformed, 80 percent and 90 percent of mid-cap funds underperformed, and 67 percent and 83 percent of small-cap funds underperformed, respectively. And there were no asset classes where a majority of active managers outperformed.