Market Research

Last week’s events marked a turning point in the coronavirus crisis, with governments around the world announcing stringent measures to contain the spread of the virus. Let’s face facts: this crisis may bring a recession. From an economic standpoint, the public-health measures inflict short-term pain in return for long-term gains.

We’ve just been through the worst week in the stock market since darkest days of the financial crisis in October 2008. The speed with which markets have plunged in response to the coronavirus outbreak has been enough to test the nerves of even the most stoic investor.

There seems to be confusion, among the public in general but also among professionals, about what smart beta (or “factor”) funds really are. Are they passive? Are they active?

It may be bad memories from last October coming to the surface, but I’ve been sensing more nervousness about the stock market in recent weeks. You’ll recall the markets went through a bad patch around this time in 2018, with the S&P/TSX Composite down 6.3% in October and another 5.4% in December. South of the border, the S&P 500 plunged 6.8% in October and 9% in December.

Michael Burry’s words reported in a Bloomberg article caused a good deal of commotion and may even have shaken some investors’ confidence in passive funds. In my opinion, the article delivers three negative messages about index funds without offering the slightest proof. Let’s take a closer look.

The growth of passive investing shows no signs of letting up and neither do the warnings about it from people who earn their living actively managing investments.

The endowment style of investing has been widely emulated not only by endowments, but also by other kinds of institutional investors and private wealth managers. This paper explores research on the investment performance of U.S. endowments.

According to this Bloomberg article, Michael Burry (a hedge fund manager and the main character of the novel and movie The Big Short) draws a parallel between Collateralized Debt Obligations (CDOs), whose disastrous flaws were partly responsible for the 2008 financial crisis, and exchange-traded funds (ETFs), and concludes that there is potential for a potential similar outcome in this market as well.

Exchange traded funds continue to grow in popularity and that’s making life difficult for Canada’s mutual fund industry. ETFs outsold mutual funds in Canada last year for the first time in a decade and the trend looks set to continue.

Like it or not, many ETF investors are about to get an extra dose of China in their portfolios this year, thanks in part to index provider MSCI. U.S. Senator Marco Rubio is certainly not a fan of their decision. He has recently written to MSCI’s CEO, looking for answers as to why the company has included China A shares in their emerging markets indexes.