Continuing his series on active and passive investing, Graham Bentley considers the possibility some fees charged for investment advice might constitute ‘money for nothing'.
Over the last few months I have been batting on in this column about the loftily termed ‘Selectivist/Passivist' schism in asset management. We have considered what alpha is, how factors influence returns, active share as a measure of selectivity and the evidencing of skill versus luck. In this article, I want to consider the economics of investment advice. It can be argued that an equity market's returns (its ‘beta') are driven by forecast cashflows, and the discount rate - in other words, getting the net present value of those flows. For close to 35 years, global investment returns have...
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