Are there major changes at hand? BlackRock, which capitalized on a decades long boom in index investing, said investors should rely more heavily on actively managed strategies.
The investing behemoth, which managed about $10 trillion of client assets at year end, where only $2.6 trillion is in active equity and bond portfolios, stated “higher interest rates, persistent inflation and more geopolitical risk amplified by majority of monies are now in passive investments make active investing attractive.”
Indexing has evolved from an investment strategy to the investing strategy given that over 55% of assets are now passively indexed where price discovery does not occur. Monies are invested based upon size where security analysis to determine its value does not occur.
In a 2016 report written by Alliance Bernstein, the asset management company stated, “passive investing is worse for society than Marxism,” given the lack of proper price discovery, ultimately causing capitalism to cease to exist.
BlackRock, who was also the leader in ESG investing, abandoned the ESG investing compact with State Street and Vanguard earlier in the year perhaps given the lack of returns.
An argument can be made that corporate America moved towards “woke” given that over 30% of all shares are owned/voted by three firms above, perhaps forming the ultimate shareholder activist. CEOs and Board of Directors must answer to their owners and a large minority of their owners were demanding the companies to take a certain direction.
ESG/Green investing has come under pressure given the lack of returns and considerably higher fees, where the social compacts were more significant than financial performance.
All know the phrase Past performance is not indicative of future performance. Is BlackRock modifying this stance by stating past investing strategies is not indicative of future investing strategies? Perhaps yes.
Radically changing topics, the $42 billion seven-year Treasury bond auction was met with “generally solid demand” given the recent increase in yields. Monday there was the sale of both the two- and five-year Treasury notes that drew “only middling demand” despite yields near the highest levels of the year.
As noted yesterday, the markets are now only pricing 75 basis points of easing by year end, a view that closely matches that of the Federal Reserve. A May reduction which was all but “assured” two weeks ago now only has an 18% chance of occurring.
Wow! Talk about the velocity of change.
Equites were relatively quiet yesterday ahead of today’s release of revised 4Q GDP and tomorrow’s release of the PCE.
Last night the foreign markets were down. London was down 0.74%, Paris down 0.05% and Frankfurt up 0.19%. China was down 1.91%, Japan down 0.08% and Hang Seng down 1.51%.
Dow and NASDAQ futures are down 0.20% and 0.40%, respectively. The 10-year is up 4/32 to yield 4.29%.
