The Financial Times lead article on Tuesday was the performance, or lack of it, by active investment funds in the first quarter of this year. According to the FT US mutual funds have underperformed the equity market by the greatest margin in nearly two decades. We have pointed out before how several consensus views, for example favouring European equities over US ones, have not worked so far this year. Goldman Sach’s publicly closed four of its six trade ideas for the year a few weeks ago, due to lack of performance. The debate over active and passive fund managers is once again resurrected as Neil Woodford announced he is absorbing research costs and not passing them onto to the investor.
Tuesday may not have helped fund managers address the lack of performance as equity prices fell across the board. The catalyst for Tuesday’s fall was a resurgence of the cocktail of the usual concerns. We have previously highlighted the mixed messages coming from Federal Reserve members, and this appeared to be the case once again. Last week Janet Yellen boosted equity prices with her dovish comments, this week Fed Bank of Boston President suggested the market was too bearish on the outlook for rate rises. Certainly the US economic data, which looked decidedly iffy at the start of the year, has picked up in the past few weeks. Both the manufacturing and non-manufacturing purchasing manager’s surveys for March beat expectations.
The recent strength in the Japanese yen has also become a focus, as the Japanese currency is considered a reflection of risk appetite. A strengthening yen indicates risk aversion and a weakening one “risk on”. The yen has risen over 7% this year, despite this the S&P 500 has recovered its losses.
Greece is back on the agenda; the headlines have so far been referring to efforts to deport migrants back to Turkey. In a week that seems to be dominated by revelations, the Greek government are questioning a leak of conversations held by the IMF accusing the EU of waiting until the last minute before coming to crucial decisions. The IMF were not part of the last Greek bailout and as the IMF plan their next visit in the coming week, little has changed from the time of the last bailout. The economy is still struggling; unemployment remains high as does the debt burden.
The final nail in Tuesday’s sell off was a returned weakness in the oil price. The oil price fell to just above $35, back to levels last seen early in March. The FTSE 100 likewise from early March has failed to break through 6200 and has found support just above 6000, we may be revisiting the low point again in the coming days.