What caught my eye this week.
A nice coincidence saw Joe Wiggins at the Behavioural Investment blog write about the downsides of friction-free investing in the same week that Freetrade was acquired by IG Group.
IG does offer share trading, but it’s still known primarily as a spreadbetting firm.
And while I’d argue Freetrade – in which I was a tiny early investor – provides a less gamified trading environment than, say, Robin Hood in its pomp, many investors will still overtrade when there’s no explicit cost for doing so.
Wiggins writes:
The issue for investors is that technological developments have made many things easy – checking portfolios and trading – but without careful consideration of the negative behavioural implications.
Investors have ended up in a situation where we are overwhelmed by emotional stimulus and have no friction to stop ourselves reacting to it.
It is as if the industry has said – “humans are prone to costly behavioural mistakes, so let’s make them as easy as possible to make”.
Wiggins says it’s both the best of times and the worst of times to be an investor.
We all have easy access to the tools we need nowadays to invest to meet our long-term goals.
You can buy and hold a basket of thousands of the world’s best companies for peanuts. Choose the right cheap platform and it’ll cost you very little to let it compound for decades.
However we still have the biggest hurdle to get over – ourselves!
Free love
It’s not yet clear what the consequences of zero-fee trading will be for investors as a whole.
It’s still a safe bet that a majority of DIY stockpickers will be taken out to the woodshed and shot – or less sensationally that they’ll lose to the market – and that they’d be better off in index funds.
Decades of data shows that’s true for most people.
However research published in 2023 by the University of California found the cost savings from zero trading fees do appear to boost returns:
The trading platform eToro’s staggered removal of trading fees in different countries allowed the researchers to compare investors’ behavior before and after fees were gone.
[Lead researcher] Even-Tov and his co-authors looked at these patterns for over 40,000 investors between October 2018 and November 2019.
The research design proved particularly powerful as it cut across three different dimensions of trading behavior.
- First, the researchers could look at how individuals changed their own behavior (if at all) when trading fees were removed.
- Second, they could compare trading behavior between individuals in countries with and without fees.
- And third, they could compare how individuals traded stocks that had no commission (non-leveraged trades) as opposed to those that continued to have a commission (leveraged and short sale trades).
Even-Tov and his colleagues found, first and most intuitively, that the removal of fees increased trading frequency by an average of about 30%.
Having no fees also drew more people to the eToro platform: New users grew by 172% in countries without fees and only 18% in countries where fees remained in place.
Interestingly, the removal of fees also led people to hold significantly more diverse portfolios.
Most important, taking away fees improved net performance among traders.
Of course, ‘improved net performance’ still doesn’t mean most people should go stock-picking – or churning a portfolio of index-tracking ETFs based on what Donald Trump last muttered, come to that.
If you lose to the market by a bit less because your trading commissions were zero, you still lost to the market.
But much more important is the big picture.
As Wiggins says:
The present environment for investors – defined by noise, emotional stimulus and an absence of friction – will almost certainly drag many of us away from investing and towards gambling, where our actions will be increasingly short-term and speculative with poor odds of success.
This is in the interests of some in the industry but certainly not most investors.
Have a great weekend.
From Monevator
Fixing my portfolio and my brain – Monevator [Members]
Financial freedom, working-class style – Monevator
From the archive-ator: Why I’m saving and investing for the disaster to come – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Stocks bounce on cooler-than-expected inflation in US and UK – CNBC
UK economy disappoints despite return to growth – BBC
Investors pour billions into S&P equal weight fund as tech fears rise – FT
FCA could loosen mortgage rules to boost growth – BBC
What to expect from new pensions minister Torsten Bell – This Is Money
Property sellers in England and Wales make ‘lowest returns in a decade’… – Guardian
…and why – This Is Money
Freetrade faces investor backlash over its £160m acquisition by IG Group – Sky
Spain plans 100% tax for homes bought by non-EU residents – BBC
Silicon Valley’s largest start-ups to shun IPOs in 2025 [Search result] – FT

Trump 2.0 begins with US household balance sheets in great shape – Apollo
Products and services
Is financial advice just for the rich? – Which
Get two years free EV driving with this charger deal – This Is Money
How to get the best value from pension annuities – Guardian
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
The best money-making apps and websites – Be Clever With Your Cash
Lifetime ISA faces an uncertain future due to Treasury review – Which
Ofcom enforces ban on surprise mid-contract telecoms price rises – Guardian
Open an account with low-cost platform InvestEngine via our link and get up to £100 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Vanguard defends home bias in UK LifeStrategy funds – Interactive Investor
How poor insurance sales practices give false confidence to customers – Which
Flats for sale in fashionable parts of cities in England, in pictures – Guardian
Comment and opinion
There’s always going to be a bigger boat – A Teachable Moment
What if stocks only rise 3%? – The Retirement Manifesto
Pursue the ‘unnecessary’ things in life – The Root of All
Mega cap world domination – A Wealth of Common Sense
[That] Rob Dix on the Seven Myths About Money [Podcast] – T.P.P. via Apple
Historical returns for all the main asset classes [US but relevant] – AWOCS
Why you don’t need to worry about budgeting – Next Big Idea Club
Five ways to manage drawdown in retirement – Humble Dollar
US valuations are not in a bubble – Simple Living in Somerset
Naughty corner: Active antics
Peel Hunt’s five equity income trusts for 2025 – Trustnet
Is the UK cheap? [Search result] – FT
Terry Smith’s Fundsmith underperforms for the fourth year – Morningstar
SJP: Investors should rotate into emerging markets and small-caps – Trustnet
Why Moderna and Pfizer have erased their pandemic gains – Sherwood
US TikTok ban mini-special
Americans still don’t realise what TikTok is – Garbage Day
The TikTok ban shows America is at war with itself – Kyla Scanlon
Kindle book bargains
Saving Time by Jenny Odell – £0.99 on Kindle
The Black Swan by Nassim Taleb – £0.99 on Kindle
Good With Money by Emma Edwards – £0.99 on Kindle
Number Go Up: Inside Crypto… by Zeke Faux – £0.99 on Kindle
Environmental factors
Climate ‘whiplash’ events increasing exponentially around the world – Guardian
Scientifically proving how whales found peace in war – bioGraphic
Nepal’s leader says it has too many tigers. Does it? – BBC
Easing climate despair by volunteering to clean up a local park – Guardian
How climate change could make London much colder [Search result] – FT
Cost to clean up toxic ‘forever chemicals’ could top £1.6tn in UK and Europe – Guardian
Robot overlord roundup
Apple suspends AI-generated news alert service after BBC complaint – Guardian
Five ChatGPT prompts to quit your job and become a digital nomad – Forbes
Amazon races to transplant Alexa’s ‘brain’ with Gen AI [Search result] – FT
That sports story you clicked on could be AI slop – Wired
OpenAI’s All in America blueprint is just a list of demands for the US government – Sherwood
Off our beat
Minimum levels of stress – Morgan Housel
The typical man disgusts the typical woman – Bet On It
Tiny Islands proves it’s still possible to live a life of contentment – Guardian
How GLP-1s change what people buy and eat – Two Percent [h/t Abnormal Returns]
The curious gems of the River Thames – Atlas Obscura
Confronting the consequences of falling global birth rates – McKinsey Global
Why skyscrapers became glass boxes – Construction Physics
Will this video game be the first ever billion-dollar entertainment made? – Guardian
Kevin McCloud of Grand Designs reflects on his life – The i Paper
Marina Hyde: it’s the tech bros inauguration derby – Guardian
Australian scientists dub unusually large new spider species ‘Big Boy’ – Independent
And finally…
“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”
– James Carville, Strategic strategist to President Bill Clinton
Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
2 unrelated thoughts
1. The view that market timing never works is historically justified (in part) by “Anyway CGT and dealing costs wipe out your gains”. But if you are trading in an ISA with say 5 trackers and £10 a trade commission you can get in and out of the market for £50 a go with no tax implications.
2. Equal weight sp500 funds must surely be spending their whole time rebalancing?
Always enjoy your links but disappointing to see climate alarmism being promoted in such a lurid way by the FT. The mainstream media love apocalyptic stories, and of course predictions of imminent AMOC shutdown is juicy red meat in that respect, featuring a recurring cast of Stefan Rahmstorf and the Ditlevsen twins. Barely a few months go by now without alarming headlines of AMOC doom in the mainstream press usually traceable back to one of these prophets.
Just one problem – the evidence does not support their doomsaying. To be fair the FT journalist does acknowledge that their prophecies are not shared by the IPCC: however, this is not a ‘conservative’ position but actually the mainstream consensus. That is because many scientists have found no convincing evidence that the AMOC is on the verge of collapse. As an example, a major new research study was published this week showing there has been no significant decline in the AMOC over the past 60 years in spite of a warming climate [ https://www.sciencedaily.com/releases/2025/01/250115125052.htm ]. And the latest data on sub-polar sea temperatures shows this at record highs, i.e. the sub-polar ‘cold blob’ that Rahmstorf relies on is no more.
I raise this chiefly as an example of the problems with relying on the daily press (whether FT/Guardian/Torygraph etc) for environmental information, when their main purpose is sensationalism rather than sober factual analysis. Unfortunately, there are many academics working on climate issues who are happy to exploit this issue for their own benefit. For a deeper understanding of the problem can highly recommend the new book ‘Climate Change isn’t Everything’ by Professor Mike Hulme at Cambridge University – one of the world’s leading climate scientists and an IPCC panelist.
For most amateur investors currently investing in index funds is the way ahead
Chose a global equity index tracker and a global bond index tracker hedged to the pound-2 funds only-in an Asset Allocation suitable the place in your investment cycle ie 100% equities for 20 year olds to a 50/50 for retirees are two examples
Then leave investments well alone to compound -let the stockmarket do its thing -no tinkering-stay the course through thick and thin-do not trade!
This does require severe investor discipline!
The investor should then devote his investing efforts to those factors under his direct control ie save as much as you can,live frugally and keep costs down
That’s it!-will beat most other investment policies hands down
xxd09
I’d be interested to know if any MV reader who holds Vanguard LS is aware of having her views on its home bias checked out, as the II interview suggests? I’m certainly not, despite Mrs T holding LS60 via II for many years. It was originally bought as a ‘one stop shop’ in case anything happened to me, but the home bias (and increasingly uncompetitive fees) is leading me to question its value.
Thanks for all the links.
I wouldn’t normally do this but .. here’s one more .. Mr Money Mustache is trying to spend more on https://www.mrmoneymustache.com/2025/01/16/mmm-2024-spending/
@B.Lockdown Trading in and out of Trackers will always involve frictional costs as well as the commissions. Trading in and out of markets profitably on a consistent basis is difficult… although on rare occasions the markets can appear irrational.
@Martin T The Vanguard home bias has an historical basis but the last 15 years have been unkind to such a bias, it would be ironic if they lost that just as mean reversion reared its head….
The .22% charge is still low enough that you would have to have a lot of assets for it to make a significant difference.
I would be more concerned about hedging ALL your bond exposure to sterling. Over an extended period of time the pound has declined …. Throw in the effect on relative interest rates of hedging the downsides overweigh the stability benefit imho.
@Martin T; I confess that, as a LS owner, that came as something of a surprise to me, and has me thinking as you allude, although I do take @Hariseldon’s point.
The “bet on it” article… OK I’ve been out of the dating game for a while, but I found it an uncomfortable read – somewhat “incel energy”!
PC-I can resonate with that -a fit of picque spending after the IHT news on pensions seems to have made little difference to the portfolio!
Obviously we appear now have enough to spend without checking too much (aged 78) but our lifestylehas never been a flamboyant one and won’t change now
Money is important like oil in a car engine -necessary but by no means the answer to the good life -the “engine “is the thing and that’s a whole different story !
xxd09
@PC — Yes, I saw read and enjoyed the MMM piece as ever but I felt the budgeting was a bit US-centric and detailed for the links. 🙂
@Faustus — Can’t recall your stance from previous discussions but Monevator comments are not a safe harbour for climate change denial. 🙂 If you’re disputing that particular projection of the science then fair enough, we do know it’s a chaotic system and more so as temperatures rise, and intrinsically very hard to predict etc. (A reason not to gamble with further global heating IMHO).
@Martin T @Kript — The ‘home bias’ thing has long been a bone of contention re: LifeStrategy. For instance see our review here:
https://monevator.com/vanguard-lifestrategy/
RE: the ‘bet on it’ article, yes there’s a dash of that but I assure you if you’re over 40 and haven’t dated since your early 20s (typical of my friends) then you wouldn’t believe how different it is.
I often like to appall/amaze friends with kids who have literally no idea what their offspring face. If anyone reading this thinks it’s like the 1990s you are about 180-degrees wrong!
There are pros and cons and as a bit of a serial monogamist I learned to navigate the new reality, but the incel stuff (/and the many coincident and legitimate frustrations that younger women express with the whole malarkey) didn’t arise out of nothing, although obviously I don’t at all condone the hateful stuff.
I put the link in as so many people are shocked by that graph (it’s ancient news really) but I’m wary of starting a big discussion in the comments as I don’t think we want to bring gender conflict to Monevator, so I’d say if anyone does want to comment here about it please do thoughtfully and judiciously, thanks!
@B. Lackdown — I’d say the main reason market timing doesn’t work is that most people will not judge when to get in and out of the markets, rather than the frictional costs? When even the likes of Warren Buffett have eschewed it you know it’s tricky. Of course there are hedge funds that increment in and out of different markets on a daily basis, but that’s as much about risk control etc (and their returns typically do lag an always invested equity-heavy allocation, albeit they would perhaps rightly say max-returns are not their goal). But if you look too at non-quant hedge fund guys like Michael Burry and Ray Dalio (at least in his pronouncements, if not how his fund is actually run), they get market calls wrong very regularly.
I’m a very active investor and I do trade in and out based on valuations, sentiment etc, and I’m a market obsessive, and I can assure you it’s not the 0.5% turnover charge that makes it *very* difficult to time whole markets! 😉
All that said you make a good point. If you’re reading an older investing book that talks a lot about dealing charges and capital gains taxes and you’re invested in, say, a Freetrade ISA with no dealing fees and no CGT then the parameters *are* a bit different.
Cheers all!
The evolution of fewsoj trading platforms should be seen as a good thing – from a time when trading, OCF and platform fees could easily add up to 2%+ a year, to now where I’m paid to good shares (that T212 lend out).
This reduction in fees is a welcome boost to my long term aspirations, but does this mean that there will be a crisis for wealth managers and the like who lived off the ridiculous fees handed to them? (I’m thinking SJP and others)
@B Lackdown @TI: “When it comes to so-called market timing there are only two sorts of people: those who can’t do it, and those who know they can’t do it” (Terry Smith). Needs to be said though that in category 2 are those that can’t and know it but still do it anyway (realising deep down, when doing so, that it will inevitably be a disaster). I’m afraid that I’ve been guilty of that. Removing myself from the market in 2008 (the easy bit), after Bear Stearns, but then failing to get back in (the hard bit) until 2013. I shudder when I think now how much that’s cost me down the years.
Excellent links well chosen @TI.
May I give a shout out to the superb piece in those links by our own @ermine on SLIS and to also recommend the FT piece on whether or not the UK market really is cheap and the McKinsey piece on demographics (worth downloading the 82 page report).
I think I’m landing in broadly the same space as @ermine (and Ray Dalio) on US dominance and market concentration.
As for the FT piece, that illustrates that one needs to think carefully about what cheap really means for a security and for an index (“if UK stocks are cheap in general, which UK company is cheap specifically, when compared with a roughly equivalent US company that is growing at roughly the same rate? An index can only be cheap if it has cheap companies in it”).
And with the McKinsey report, demography is still destiny.
As a budding amateur meteorologist, Faustus response was exactly right.
Accusing them of climate denial was off I’d suggest. Temperature rise there is clear evidence for. But AMOC decline there is not. They posted a study from an exceedingly respectable institution.
The reporting from general news sources on science topics has, sadly, always been pretty terrible.
Kudos to Faustus
Too late for me but listening to Jonathan Clements on Barry Ritholz,s Big Picture podcast today………
Clements is an index investor ie buy and hold but as a experienced investor he has made money going seriously into stocks when markets crash ie 2002,2008 etc
Too scary for me but perhaps the only time a “stay the course “ investor could make some extra money if they have the nerve!
Of course “staying the course” through a market crash (my investment policy) means doing better than most investors who cut and run and then miss the inevitable market up turn
xxd09
Hi Dave, to be clear I wasn’t accusing them of that. I was flagging up the house rules on this site.
There are 100% posters on here who use the usual Internet slang to radically and daringly pretend human-induced climate change isn’t real. Perhaps they even believe it.
When you moderate tens of thousands of comments a year it’s not always easy to remember who exactly said what.
Re: Faustus’ comment, I literally said “fair enough” 🙂
General pure climate change denialism I’m pretty much putting into the same bucket as racism and sexism when it comes to our comments though.
Overwhelmingly these people tend to believe other things such as Covid wasn’t real, Bill Gates is running a global conspiracy, and muslims are taking over Britain, so if that sort chooses to post elsewhere I’ll live with the loss.
Again, not impugning @Faustus with that brush based on this comment (nor you tbc!)
Cheers! 🙂
>s an example, a major new research study was published this week showing there has been no significant decline in the AMOC over the past 60 years in spite of a warming climate
Other studies disagree, for instance this one shows a drop of 15%.
https://www.nature.com/articles/s41586-018-0006-5
https://www.fisheries.noaa.gov/feature-story/reconstruction-major-north-atlantic-circulation-system-shows-weakening
I thought the AMOC article was quite balanced and I think TI was right to step in with a cautious warning.
Alarm bells ring in my head as soon as I read the words “mainstream media”. That term covers everything from the tabloid comics and tabloidesque TV channels to responsible publications such as the FT, Economist, New Scientist and Scientific American. Some of which you certainly have to be wary of, but attacks on “mainstream media” rapidly turns on my BS detection filters and I either stop reading or look with amusement for links to the truth according to someone on Twitter or YouTube. Or in the case of something to do with climate change, a denialist Web site.
This article really resonates with me. I’ve just put in an ISA transfer request to move my income ETF portfolio from InvestEngine to iWeb, even though they don’t currently offer in-specie transfer-outs. Ironically, I had moved it from iWeb to InvestEngine a year or so ago.
When I was with iWeb, I went to the online portal maybe once a year, and iWeb would automatically pay through dividends to my bank account completely hands free. That worked perfectly for me as I was never tempted to tinker, and if I did, there was a small transaction fee to make me think again.
IE was a really poor experience (for me). It was app based (very slick and user-friendly might I add), it’d keep pinging me, I had to go in to the app to withdraw dividends and I just couldn’t stop myself from checking too frequently and unnecessarily rebalancing, tweaking and generally tinkering based on what was going on in my life and in the world.
At the end of a year with IE, I realised that the ease of access/use, unrestricted/free trading options, etc. simply didn’t suit my nature and it just wouldn’t do for what I wanted from it. iWeb, with its terribly antiquated web-based portal, cryptic user interface, trading fee and 2FA authentication did the job, and did it well, because of those features.
Apologies, seems I misunderstood the comment.
I wasn’t aware of your house rules, they sound commendable! 🙂
Nothing worse than aftertiming, but I sold everything in February 2020 because I couldn’t believe how unseriously the market was taking COVID. I was then dozy about getting back in so didn’t double my money but still did better over the year than if I had just stayed invested. That’s the one time I have tried market timing, so I am a net gainer from it.
There’s also times like, let’s say, now. I have not exactly market timed but I have decided there’s been a big shift in my risk tolerance and I have rebalanced accordingly.
#17 @Rahul I do consider app only platforms to be unusable, but InvestEngine works perfectly fine in the browser – never used the app. Not having an option to pay dividends out to an account outside is not something I ever considered as a downside – that’s an interesting drawdown perspective.
iWeb ISA is not flexible, while InvestEngine is, but that’s probably not a significant factor if you’re removing more than you’re adding.
Also, how do I get 2FA in iWeb? I’d love to have proper TOTP (Time-based One Time Passwords, generated from a seed you store in a password manager or authenticator app), but it seems like only AJ Bell offer it. HL send 2FA codes by text (much less secure than TOTP), and iWeb ask a security question (two passwords != 2FA)
@Andrew T, In other areas of life (supporting your local football team) I fully get home bias, but investing in a global tracker ?? by x5 . I’m in the minority here being a complete novice investor and there are others with far more knowledge .Having read TI/TC recent appraisal
“Not excessive and a wrinkle NOT a rankle im keeping the faith.
Just in case someone missed this, Odd Lots has a cool three-part series this week on the history of Eurodollars. It traces their origins in the Cold War and how they became such an important pillar for the widespread adoption of the Dollar as the world’s top trading currency: https://m.youtube.com/watch?v=NqpzVlAwyb4&list=PLe4PRejZgr0MuA6M0zkZyy-99-qc87wKV&index=4&pp=iAQB
It traces their origins in the Cold War and how they became such an important pillar for the widespread adoption of the Dollar as the world’s top trading currency
@Tom-Baker Dr Who — Not to mention being the lifeblood of the City of London’s resurgence from sleepy backwater to global hub, at least until 2016 applied the brakes…
Cheers, I’ve fallen off the OddLots wagon of late, will check it out.
@ Pikolo I feel Investments platforms have been a little slow with 2FA compared with banks. One of the reasons I have splits my savings across a few platforms out of fears my account my get compromised. I quite like the Invest Engine platform and use mainly the web browser version. I had the app but removed it from my phone as I wanted to reduce the number of financial apps on my main phone. With the app you do get notification to your phone as an alternative to text messages to login to your account.
Re: Stocks bounce on cooler-than-expected inflation in US and UK
Interesting to observe the IT discount narrowing that followed, for all the debate around the various factors impacting them there seems an increasingly convincing case that rates are the primary driver
I feel for some of the Freetrade investors, who feel like they have been shafted by the underwhelming price IG have paid for the company, but crowdfunding is always going to be a punt where more often than not, money is lost rather than gained. I invested over a couple of rounds, the biggest wedge was in the 2018 round when the purchase share price was around £0.52, so I’m in the positive. I hope there are no significant changes to the app post sale.
And I can concur, friction free buying and selling does mean that I trade a lot more often with Freetrade, than I do with my other brokers and I hold many more holdings (which hopefully means more diversification!)
However, I am still following my own buy and hold strategy, as I buy far more than I sell!
As for the men/women dating thing, when I was doing the rounds of online dating, I felt that it was indeed “very slim pickings” for me to choose from, so it wasn’t just me! 😀
@Martin T #4 I used to hold VGLS but got rid of it a long while ago specifically because of that home bias. What I thought VGLS was was like was VWRL + some lump of global bonds. It puzzles me why there is no corresponding global equities + global bonds and I am not convinced by the ‘justification’ for the home bias that people want to recognise the holdings.
When I list the holdings of VWRL I recognise the top 20 but not all of the top 30 and of the top 100 I miss a lot. I don’t care, and if I wanted a classic 60:40 stocks:bonds I would far prefer a 60:40 mix of VWRL: some global bond fund.
If I wanted home bias I could add VUKE to a true global lifestrategy fund but you can’t unscramble the VGLS egg. Weird. I’d struggle to justify considering VGLS as a passive fund from a philosophical point of view. This is sort of acknowledged in the KIID – to wit
It appears it is an active fund of passive funds.
That Which link on the costs of financial advice makes sobering reading – £16k average cost over 5 years for advice on investing a £250k lump sum!
Given the flavour of some of the executive orders mooted to be signed by Trump today, I wonder at what point ‘authoritarian risk’ starts to be factored in to US equities, just as they are with Chinese stocks ?
> I wonder at what point ‘authoritarian risk’ starts to be factored in to US equities, just as they are with Chinese stocks ?
Can’t argue with authoritarian, but the investment case is that Big Tech bought some of the the authority, Elon Musk’s DOGE for example. A quick gander at TSLA over six months shows the market expects some return on Musk’s investment 😉
Re: ‘authoritarian risk’, well equities can do anything but I do think this explains some of the rise in US bond yields we’ve seen since the election (the ‘term premium’ in bond speak).
People have tried to explain it away as tariffs could be inflationary etc, but that’s not very satisfying when trying to corroborate with other sources of data.
Much more likely is the bond market fears the potential for unlikely-but-possible stuff like, say, Trump imposing his will on the Fed Funds rate, and they want some extra compensation for that risk.
Surely it’s the debt. Deficit 6% of GDP. Interest payments exceeding the DoD outlay. That’s what’s fuelled strong GDP growth and job creation. But unless the Fed stops OT and starts QE market rates will react to the US Gov spending like a drunken sailor and reset higher accordingly. (That’s unfair to drunken sailors of course. They only spend their own money and have to stop when they run out). Until then the bond vigilantes will demand both higher rates across the yield curve and a term premium for the long end of the curve. The Fed (understandably) can’t change course on running a tight policy because an accommodating one would risk breaching the inflation part of its mandate. Trouble ahead unless DOGE is cover for rate cuts.
The trouble with this theory is that neither party was really committed to doing anything about the debt, all of which was already there before election day. Therefore it’s hard to argue something changed to send rates higher when Trump was elected purely on debt grounds IMHO. 🙂
Re-VGLS ,As there is little or no growth in GB and difficult to see where it is going to come from in future, isn’t it even harder to justify these funds having uk bias ?
@David — About 70-80% of the UK market’s revenues are generated overseas. So the UK economy isn’t crucially important if you’re buying the index. The UK market is more a play on (a) global growth (b) global trade (which ironically we’ve played our own part in damaging re: 2016) and (c) currency FX, especially versus the dollar, where a strong dollar versus GBP boosts UK earnings and vice-versa.
So one offsetting benefit of home bias for UK is that your equities are marked in GBP but you’re benefiting from international revenues. However it probably all comes out in the wash, and most passive academics would say this isn’t a reason to have Home Bias.
I think Vanguard is saying it has some Home Bias because its customers so far have on balance wanted it, for good or ill.
@TI #33: Trump’s less Javier Milei and more Juan Perón, so I’d guess on debt that the bond markets are now pricing in a populist ‘spend all to please all’ disaster from DC scenario (with the Red sweep of the Congress, Presidency and Supreme Court), rather than a libertarian ‘miracle on the Pampas’ situation with Musk/ DOGE doing a slash and burn on public spending. Maybe higher for longer whatever the pressure DJT now puts on Powell to cut hard?? [BTW can’t believe the brass neck of $TRUMP coin. What a grift.]
Sabine Hossenfelder on the AMOC debate above @ comments # 2,12,14,15&16:
https://youtu.be/U068p4RMgew?feature=shared