What can be asserted without evidence can also be dismissed without evidence.
Christopher Hitchens (1949-2011) paraphrases the Latin (quod gratis asseritur, gratis negatur) in God is Not Great: How Religion Poisons Everything (2007).
FTSE Group has today announced the results of the market consultation on minimum free float requirement for the FTSE UK Index Series. The consultation showed a clear preference from respondents for setting a minimum 25% free float requirement for UK Series constituents. As a result, the FTSE Policy Group have approved a change to the Ground Rules of the FTSE UK Index Series, which increases the minimum free float for a company to be eligible for inclusion to 25%.
Good news in anyone’s book.
This week Helen and I found out that the child we’re expecting in April will be a little girl. We’re very excited.
Selby District Council has outsourced everything. The staff of the Council now number fourteen, and their job is to get the best value for money for the elected councillors and their constituents from the arm’s-length organisation, Access Selby. No doubt phase two will involve competitive tendering, and a big contract for Serco, Capita or similar. So long as you have the right contract managers, and you source services from beyond the biggest providers where appropriate, this is a great model. However, unsurprisingly:
…the unions oppose the council’s move to a more streamlined, more commercial operation.
This despite the fact that the employees (who weren’t fired) quite like the changes:
Suzanne Collins, a community officer, says that brings more variety to her day.
“(Different tasks) all come under one officer,” she says. “Now we do a lot of the outside work… and a lot of different types of work.”
Central government next?
It’s a good job we have experts looking after our savings and investments isn’t it?
…our industry destroys $1,300 billion of value annually – a staggering 2% of global GDP (see here for details). This includes about $300 billion in fees on actively managed long-only funds which fail to outperform their benchmarks, $250 billion spent on wealth management fees for services which do not meet their benchmarks and $50 billion in fees on hedge funds which underperform.
That’s from an investor newsletter by Absolute Strategy Partners, picked up by FT Alphaville. The alternative?
…Or you can simply do as the 1.5 million people in the UK who, according to a survey conducted earlier this year by Schroders, hold all their equity investments in a single company. Not my preferred approach, but who am I to challenge the wisdom of 1.5 million people?
My theory is that most people don’t want to risk losing money through making poor decisions on their own behalf. Paying an intermediary to make (even bad) decisions allows the investor to avoid feelings of regret and self-blame, and point the finger for losses elsewhere. We care more about avoiding the blame for our own misfortune than we do about the misfortune itself. As in psychotherapy so in fund management: the fee is part of the treatment.
Felix Salmon is absolutely right to call the new commitment not to force private sector bondholders to take losses on any future eurozone bail-outs ”the Eurozone’s terrible mistake”. I do sometimes wonder if we have learnt nothing: not only from the recent crises, but also from the study of incentives more generally.
I’m a fan of AIM, as you can probably tell. But this, from the LSE Group’s website FAQ disappoints me:
We do not publish a list of companies that have delisted. You can however find the AIM companies that have delisted each month in the AIM factsheet.
In other words: we have the information, and you can put it together by yourself if you must, but we aren’t going to help you, because it might put people off to see a list of worst cases.
For markets, data is good. Openness, even about bad things, especially about bad things builds confidence. Up the game please, LSE.
I have long suspect that analyst coverage drives valuation. This paper seems to confirm it:
…dumped stocks consistently outperform covered stocks with significant risk-adjusted returns across different market conditions and regulatory environments. Hence, investors might earn better returns by investing in dumped stocks, but the higher returns may represent compensation for greater search costs and information risk associated with investing in these stocks.
What is the best was to recognise ‘dumped’ stocks, and arbitrage this? I think it should be possible to automate and thus minimise search costs.
Was I too hasty in defending AIM? A couple of discussion I have had in the last week have made me a little more critical. I have also read this recent paper:
…We find that AIM firms perform poorly on a variety of dimensions. Their post-listing returns significantly underperform stocks on other exchanges. Liquidity is low and there is evidence of substantial information asymmetry. Results are similar across subsets of firms including US firms that directly list on AIM, firms that cross list, and domestic listings. AIM firms do not appear to distinguish themselves through choice of Nomad. Failure rates are very high and there is no evidence that significant numbers develop into “highfliers” or graduate to better exchanges. AIM stocks even underperform stocks that trade on the unregulated “Pink Sheets” in the US, inconsistent with a significant bonding effect of AIM listing.
Room for improvement then, and good reminder to me not to be complacent.
I’ve previously mentioned my support of the petition to end the prohibition on AIM stocks being held in ISAs. The most frequent argument I have had back is that AIM stocks are of poor quality. Clearly there are some poor quality AIM stocks. What of the average quality? This is from the abstract of a working paper Ulf Nielsson of the University of Copenhagen:
…This study, however, shows that these small firms listing on the relatively less regulated AIM market are of similar quality level as firms listing in the U.S. and in continental Europe. Consistent with this result, the failure rate among AIM listed firms is the same as that of other markets. Interestingly, they also raise relatively more capital and have a higher market valuation. Overall, even though high regulation standards may appease investors, the paper questions whether a strict regulation environment will necessarily facilitate stock market prosperity.
This paper does not compare AIM to the Main Market, and I would be interested to see a paper that does. However, I think Nielsson does demolish the crude “AIM stocks are stinkers” line.