Decisive Month for Chinese Developers, Failure of Active Funds

٢ نوفمبر ٢٠٢١

Even though China's second-largest developer Evergrande escaped default again last week by paying at the last minute, it's still a long way from a happy ending. And the point is not even that another large developer from China cannot pay off its obligations (Yango Group said on Monday that it is going to extend payments on three of its dollar bonds). The problem concerns the sector as a whole.

Bond yields skyrocketed to 20%. That is, it will not work out especially to refinance the debt. At the same time, according to Bloomberg, in November, Chinese developers will have to repay over $ 2 billion in loans. It is possible that as a result, the ranks of defaulters will be replenished with new names.

In the meantime, China is trying to avoid a crisis, let's talk about active investment. Back in the 60s of the last century, it was empirically proven that in the long term active investment management in one wicket loses out to passive one. Roughly speaking, the average return on investment funds is usually lower than the growth rate of the stock market as a whole. That is, there is no point in trying to choose one or another set of shares, it is more efficient to buy the entire index.

So the other day another study was published, which showed that nothing has changed over the past 50-60 years. Of the nearly 3,000 active funds analyzed by Morningstar, only 11% of actively managed large-cap funds outperformed passively managed funds over a 10-year time frame.

As for the period of the pandemic, which seems to be ideal for active management (high volatility, wild jumps in macroeconomic indicators, etc.), it did not work here either: only 47% of active funds were able to survive and outperform passive funds. That is, in fact, random and the notorious 50/50. In general, we continue to follow Katie Woods: with her investment policy, she is a typical candidate for the queue of those who did not pass natural selection in the long term.