Fixed-Income Performance Puzzle

Excerpt of column published by Christopher Joye in The Australian Financial Review

After the savage 1991 recession when the jobless rate hit 11 per cent, the Commonwealth’s gross government debt-to-GDP ratio rose to 23 per cent on the back of understandable budget deficits. The government’s persistent inability to size spending to revenues since 2009 has seen the sharpest deterioration in Australia’s creditworthiness in post-war history with the gross government debt-to-GDP ratio jumping from 5 per cent in 2007 to 29 per cent in 2016-2017. Ken Henry, previously secretary of the Treasury, is spot on when he says “governments have not matched the improvement in the strength of bank balance sheets that has occurred since the crisis”.

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Defining Active Strategies

Excerpt of column published by Christopher Joye in The Australian Financial Review

At a seminar this week I was asked to define what we mean by “active” management. Start with the alternative: passive investing or blindly following market indices is by design price- or valuation-agnostic capital allocation (given the assumption markets are generally right or “efficient”). Irrespective of how overvalued or undervalued an asset class may be, the passive portfolio accepts exposure to it. The active player, by contrast, seeks to outperform market benchmarks by identifying irregular pricing errors – typically individual assets that the market is undervaluing and which can provide additional capital gains if and when prices converge back to fair value.

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