Episode 401 - In this week's episode I discuss how to use a fund's Active share and tracking error to find fund managers that are investing with conviction. I also react to the Chancellor's inflation video released on social media this week before Andy discusses how to find the best money saving deals easily.
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Summary - Episode 401
Finding truly actively managed funds
Past performance of funds can be analysed over different time periods to give insight int how a fund is managed and the biases in the manager's portfolio However it may not give a complete picture.
Alternatively Active Share can be useful in finding funds that are backing their convictions. Active Share measures the disparity between a fund's holdings and its benchmark index. A higher active share means a more actively managed fund. However, calculating Active Share can be difficult as it's not widely available and not all funds publicise their holdings.
Finally tracking error, which is a measure of the deviation of a fund's performance from its benchmark, can also provide insight into a fund manager's management style, especially when combined with the Active Share measurement as summarised in the chart below.
Inflation truths
Highlights:
- Inflation is a measure of the rate of change of prices over time, not how high prices are
- The Consumer Price Index (CPI) is calculated by the Office of National Statistics (ONS) from a notional a basket of goods and services. The price of these items is used to calculate the percentage increase in prices over time. Currently the annual inflation rate is over 10%
- Inflation can appear to decrease without prices actually falling, due to the mathematical calculation of comparing prices to a previous period.
- High inflation can be controlled through monetary policy, such as raising interest rates
- Merely reducing the rate of inflation does not guarantee lower prices, it can be a result of mathematics.
- Government taxation and policy decisions (such as the energy price guarantee) can impact inflation, both positively and negatively
