Friday Briefing: Yet further evidence timing the market is hard

November has been quite a month for the ‘what were you worried about?’ crowd, which has converted the majority of Bank of America global fund manager survey respondents to their cause.

Inflation has fallen to just 3.2% in the States and on home soil, the UK managed a 2.1 percentage point fall, bringing CPI to just 4.6%, while the widely covered trio of the Fed, BoE and ECB all left rates unchanged.

Friday Briefing: The investment trust sector is having its watershed moment

Just a quarter of those surveyed believe high inflation keeping central banks hawkish is the main tail risk for markets (replaced at the top spot by geopolitical risks), while 76% are now betting the hiking cycle has run its course.

Markets have even gone so far as to predict cuts from May next year, with 48.2% betting the Fed trims, according to the CME FedWatch Tool. (There’s even a 2.1% likelihood for cuts in January, which seems… I suppose it’s only a small chance.)

Ask the BoE’s Megan Greene when she thinks cuts are coming and you’ll be met with a very different answer, as Bloomberg’s Francine Lacqua found yesterday.

“Fran, I’m not thinking about cuts at the moment.”

Well, that’s us told.

Hipgnosis continuation votes don’t lie (feat. Wyclef Jean)

Still, the BofA respondents paid no mind and also asserted their strong belief in the ‘soft’ or ‘no landing’ scenario, with 74% certain things will work out just fine.

Presented (again) without comment.

Of note on the slightly less positive side, Daniel Loeb informed Third Point investors in his quarterly letter that commercial real estate was building as an opportunity – thanks to increasing default rates and loss severities, which should lead to opportunities to invest in senior tranches from forced sellers, that is.

What’s the move for investors?

Well, as ever, wisdom dictates that time in the market is a much safer play than timing the market, a mantra once again reasserted in new research.

Morningstar’s latest paper, The Big Shortfall, found that investors in thematic funds are even more susceptible to trying and failing to enter and exit trades at the ideal moment.

Owing to the very nature of the vehicles, which offer investors access to specific themes rather than wider markets or the portfolios seen in traditional active products, investors find themselves tempted to try and bet on their convictions.

However, the paper found that investors are “collectively poor market-timers”, with thematic vehicles inducing more frequent trading and a tendency to buy high and sell low.

Over a five-year period, investors are missing out on an average 4.9 percentage point annual return uplift compared to just sticking in these vehicles.

Combine this with the intraday trading available in ETFs, investors in narrow, thematic exchange-traded vehicles lose out on an average 500-600 basis points over investing in a traditional mutual fund.

Make that an energy transition fund and investors lost an average of 11.9 percentage points.

Probably simplest to stick with Morningstar senior manager research analyst Kenneth Lamont’s advice to adopt a patient and disciplined buy-and-hold approach.

Saves on trading fees, too.

This article was first published as part of the Friday Briefing series, which is available exclusively to IW members each week. Sign up here to receive the Friday Briefing to your inbox each week.