Investors today are getting used to life in a low-return world. No matter where you look, the picture in stock markets is much the same: after climbing strongly in the first few years from the lows of the 2008-09 financial crisis, markets’ momentum more recently has faded away. Now we seem to be wading through financial treacle. Much of the time, share prices plod along without going anywhere very much, until a squall blows up and markets temporarily tumble before picking themselves up and resuming their desultory trudge towards the horizon.
It’s a situation that has foxed even the canniest operators. Recent returns from many hedge funds have been so poor that one prominent manager, Dan Loeb of the US fund Third Point, suggested that the supposed superstars of the investment world were in “the first innings of a washout.” Leading UK manager Crispin Odey saw more than four years of gains in his flagship hedge fund wiped out by the market turbulence in the first quarter of this year. Events like this speak volumes: in their attempts to shine in this low-return environment investors feel compelled to take big, risky bets that leave them hugely exposed should things not pan out as hoped.
Discretion may be the better part of valour, but these days it brings scant reward—accepting that you cannot pick winners and simply tracking an index has not been a particularly profitable pursuit either. The FTSE All Share index, the broadest measure of the UK’s equity markets, is little changed from its level in early 2013; the S&P 500 index of the largest US companies has been flat for the past year and a half; the FTSE Euro…