Readers will have noticed a sharp reduction in the value of funds with a technology bias over the last 3 or 4 months, accelarating since the start of this year.
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Midweek Musings – Vanguard’s sustainable offering vs. building an ethical portfolio using ETFs
The Vanguard Sustainable Life offering
Not long back, I mentioned that Vanguard had announced that they would be offering multi-asset ESG (environment, social, governance) portfolios built using an actively managed approach, not something one would have expected, although I was aware that they were being criticised for the lack of ESG filtering of their main best sellers.
I initially and incorrecty assumed from the press release information that the products would be managed collections of ETFs (exchange traded index tracking shares), not direct holdings in individual businesses. That is the way the Vanguard Lifestrategy funds work.
I have now read a little more and the following may be of interest to readers who have ESG priorities when making investment calls. I have already written that there is indisputable evidence that more money is flowing into ESG filtered funds than the rest, and so all investors ought to take account of the obvious boost to the momentum factor.
Working Brief – January 2022
Pottering About
This month the 2 parts of this post are linked. The first is an assessment of the context for making asset allocation decisions in 2022 and the second part is a reminder of why portfolios need to allow for the unpredictable which in one sense is the only actual certainty! None of us can say we know exactly what events will impact our lives in the future, but we can say that there will be events!
Crystal ball gazing?
We rarely have the opportunity of predicting the future reliably. Naturally, we would like to be able to do so and activities like holiday planning, weather forecasting, getting married and so on are undertaken based on making judgements influenced by our experience, maybe the advice of others and these days some predictions are 100% the outputs of sophisticated computer models.
There is a significant branch of mathematics (statistics) that offers a range of rules and methods to try and deliver at least a way of measuring the probability of certain events happening and those methods are widely used when people try to estimate investment returns.
In the middle of the 20th century, modern portfolio theory (MPT) was devised on the broad assumption that the statistical scientists with their ‘greeks’ (alpha, beta etc) could deduce enough from the past to allow portfolio building to become more of a science and less of a dark art.
In my opinion, that approach is informative but useless on its own. There is clear evidence from all over the investment panoply that past performance is truly not a guide a to the future. Unless we understand why an investment has done well or poorly and the context, both in term of timescale and events, we will never have enough information to make a trading decision.
The process of investing usually requires participation in a market and market behaviour is still mostly human behavior. This means that another branch of science, psychology, comes into play. That is now widely recognised and in the late 20th century the idea of behavioral finance was taken on board by investment market participants.
Midweek musings – on yer bike!
Midweek Musings – not exactly in the vanguard
Having no doubt realised that there is a head of steam behind the sustainability investing ‘fad’ (I jest!), Vanguard have at last reacted with a new product launch.
The problem with their otherwsie well thought out low-cost Lifestrategy funds is that they are built using passive funds that track the main global market indices, so are not in any way subject to ESG filtering. That has resulted is those funds being dumped from many an IFA preferred list and no doubt also avoided by ‘greener’ DIY investors.
Watching Brief – December 2021
Pottering About
I often cross check what I have written in the past about economics and markets, partly to see how my looking into the future has inevitably been exposed as frequently ‘off beam’ (this tends to keep my current writing away from the wildest of speculations!) but more to assess what surprises or new trends have emerged and the more common reality: over many periods how little changes in 12 months.