GO
Loading...

Why 'Boring, Dull, Passive' Investing Is Working

Peter Scholey | Photographer's Choice | Getty Images

Oh dear, how embarrassing this FTSE 100 rally is proving for the great and the good in the City of London. While we should all be celebrating the fact that the U.K. blue chip index is trading just over 300 points away from the all-time high it seems to have caught the smart set a tad off guard.

At the time of writing this article the FTSE is around 1,400 points above our 52 week low of 5,229 and for most of the last year the doom-mongers have been talking of an apocalyptic correction to come. Now, that correction may well be on the cards and the "sell in May" brigade may have their day on the seasonals, but we haven't seen a sniff of a sustained downtick just yet. And that is getting a lot of people very worried.

One seasoned CIO just gave me a shrug of the shoulders, a deep exhalation and a lost look into the distance when he explained to me the problem last week: "We just can't get into the market. Every time we think we are seeing a correction, it just gets bid into aggressively and we have a lot of frustrated institutional clients who can't understand why we haven't got them in."

But a lot of people have made a lot of money from this massive move upwards in equities. Every share is owned by someone. So why the bleak City mood? Simple really. It's because the least lucrative strategy for the investment banks and stockbrokers is "buy and hold" and it's the "buy and hold" investors who have made most of the money so far since those 2012 lows.

As I'm sure you are aware, CNBC anchors are not allowed to trade stocks so my bit of equity market titillation comes in the form of my pension, which is plain old long equities. All the usual blue chip names in the U.K. are in it, plus a few U.S., Japanese and European equities. Seriously, if you wrote down twenty well known, big stocks, that would pretty much be my stock market exposure. It's boring, dull, so passive it's unbelievable and, oh yes, making absolutely shed loads of money.

I'm not bragging, I'm just making a point. It has no downside hedge, it has absolutely no stock picking preferences from me and in a falling equity market will lose performance very rapidly. But for the moment it is performing like a dream and beating most hedge fund, quant, derivative and a whole host of other diversified strategies.

This boring old long only holding, which millions of other investors are adopting, has got to be hurting the smart asset managers. The managers who want churn, who want volatility, who want stagnation, who want more fear in the market. Why pay "two and twenty" when vanilla is top trump? This is certainly not a market rally in which the professionals have covered themselves in glory.

That said, when we have our eventual correction long only will take a bath, but the timing of that downtick is proving somewhat tricky to call. And it's proving a painful wait so far for the sophisticated money men desperate to show how smart they really are.

Steve Sedgwick, Anchor, CNBC Europe

Symbol
Price
 
Change
%Change
FTSE
---

Featured

Contact Commentary

  • CNBC will consider commentary on a variety of topics, including investing, Wall Street, politics, international affairs, the Federal Reserve, health care, technology, careers, entertainment and more. We want a variety of viewpoints – especially those that are different from something you’ve read on CNBC.com.

    Send op-ed pitches to commentary@cnbc.com. Put the words OP-ED in the subject. Articles should be between 600 and 700 words. All submissions must be exclusive to CNBC.com. Please also include a 1-2 sentence bio of the author and a Twitter handle for the author or company. Please remember these are opinions and should be in your own voice, not in the voice of your PR person or in-house legal consultant!

    We apologize that due to the volume of submissions, we may not be able to respond to every email. If we have not responded within 5 business days, please feel free to submit the op-ed to another publication.

    Who is the commentary editor?
    Cindy Perman is the commentary editor for CNBC.com. She has worked in online news for more than a decade. She also writes the "There Must be a Pony in Here Somewhere" blog and is the author of the book “New York Curiosities” (2013, 2nd edition). Follow her on Twitter @CindyPerman.