A gaggle of links: matters of debate


Does Covid-19 Prove the Stock Market is Inefficient – Ben Carlson/AWOCS

Is (Systematic) Value Investing Dead? – Cliff Asness/AQR

Is Market-Cap Weighting a Momentum Strategy in Disguise – Ben Johnson/Morningstar

Quantitative Easing, MMT, and Inflation/Deflation: A Primer – Lyn Alden

Mr. Boiling Frog

The Agony Of Being A Franklin Templeton FoF Investor – MF Critic

The real Lord of the Flies: what happened when six boys were shipwrecked for 15 months – Rutger Bregman/The Guardian

U.S. Retirement Savers Stayed Calm While Stock Markets Plunged Ben Steverman/Bloomberg

Mr Fool

I’ve been quite fascinated with whatever has been happening with debt funds since the IL&FS crisis broke-out. It’s been an education for me and I’ve been ranting here and there. But the recent move by Franklin India to shutter 6 debt schemes has made things worse for debt funds. It has created a crisis of confidence for the moment and risk aversion. There have heightened redemptions, especially in credit risk funds and there have been increased inflows into Gilt funds – which is a sign of how dumb investors are. The reason being people are under the mistaken assumption that just because gilt funds don’t have credit risk, they are risk-free. I even went on a long Twitter rant because I keep getting this query.

But, since Franklin move, there has been some amazing writing on debt mutual funds and Indian debt markets and I’ve devoured this stuff.

First, Rajiv Shastri wrote 7 pieces on the various aspects of the debt markets, the flaws and the fixes and they are absolutely bloody brilliant and are mandatory reading. All the pieces are behind a paywall on ET Prime but a subscription is worth it, just for reading these pieces alone. I cannot recommend these pieces enough.

The second fallout from the Franklin fiasco was the illiquidity markdown of 50% applied to the debt portion of their hybrid schemes and asset allocation fund of funds. This didn’t quite get nearly as much attention as the move to shut down the 6 debt schemes. But I think the degree to which hybrid funds have been mis-sold maybe be on par with insurance schemes makes the piece all the more prescient. In this piece, Pravin and Varsha look at the disaster that unfolded in these schemes:

Franklin has invested the FoF money in credit funds. Result: falling NAVs, rising risks. – Pravin, Varsha/ET Prime

There some other really good pieces written and I summarized them with my own takes in this lengthy rant. You can just ignore my rant and click on the links 🙂

Active Management’s Dilemma – John Rekenthaler/Morningstar

There Is a Better Way to Push for Better Labeling of ETPs – Ben Johnson/Morningstar

This might seem like an uninteresting thing but if you are interested in ETFs at all, this is quite a path-breaking development today. I think for the first decade after the SPY – Spider S&P 500 Trust ETF was launched plain vanilla trackers were pretty much the only ETFs. Since then, innovation in ETFland has exploded. Today we have inverse and leveraged ETFs that provide 2X, 3X the daily returns of indices, stocks, commodities. There are a increasing range of defined outcome ETFs that use options to deliver outcomes and there are a wide of range of commodity ETFs. But all these products are called ETFs, which is incorrect. iShares along with State Street and Schwab is pushing for a new classification that separates these products with granular labeling. A really interesting development.

Inside the Biggest Oil Meltdown in History – Leah McGrath Goodman/Institutional Investors

YieldStreet Investors Are Learning the Meaning of High Risk – Claire Boston/Bloomberg

Banks Pretend 2020 Never Happened – Matt Levine/Bloomberg

I was but a thought in my parents’ mind when the 1991 reforms were unleashed. I didn’t know how sweeping they were until this brilliant thread by Anish. Check it out:

Our weird behavior during the pandemic is messing with AI models – Will Douglas Heaven/MIT Technology Review

By Passivefool

A passive investor at present who was actively scammed once. Seduced by the humble beta, preaching to the choir now.

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