30 September 2013

Absolute Return Uncertainty

Absolute Return funds were introduced a few years ago with the objective - in general - of providing investment growth which is "absolute" rather than relative. Typically they try to do better than a cash-based benchmark like the Bank of England's Base Rate.

Although it wasn't always obvious where they fitted into a diversified portfolio, I was keen on them initially since they aimed to provide investors with what they wanted - after all, who is interested in their investments just doing better than a benchmark which is itself falling by several percent a year?!

However, they rely in part on the non- / low correlation between equities and fixed interest to keep things on an even keel. With the upside-down world we now have due to Quantitative Easing, those asset classes are more correlated for the time being, so it's likely to be increasingly difficult to provide an absolute return in a fund.

As a result, they could end up acting more like a multi-asset managed fund. Nothing wrong with that if well managed, but absolute returns may not be achievable.

9 September 2013

Opting Out of Free Money

The Department for Work and Pensions have done a review on the early stages of Auto-Enrolment - that's the pension regime which all employers are required to adhere to over the next few years.

Employees have to be signed up to a pension scheme with employer contributions - although they can choose to opt out if they insist. Although employees do also have to make their own contributions (unless they have a very generous employer) the fact that the employer is making contributions effectively gives them free money which they may not have had before.

The DWP review says that 9% of large company employees have opted out - and that's seen to be better than expected.

Unless you have some fairly specific circumstances (like you can't afford your own contributions) then it seems to me that opting out means opting out of free money. And why would you do that?!

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