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Emory Experts - Post-Financial Crisis: How Well do Mutual Fund Stocks Fare?

Following the global financial crisis in 2008, the assets of passively managed mutual funds have ballooned, while the market share of actively managed funds has fallen dramatically. Addressing this topic, a new research has been coauthored by Jeffrey “Jeff” Busse, professor of finance, and Goizueta alumni Kiseo Chung 17PhD, assistant professor of finance, Texas Tech University and Badrinath Kottimukkalur 17PhD, assistant professor of finance, George Washington University. In their paper, the researchers explain the shift in assets from actively managed funds to passive funds, “Impediments to Active Stock Selection and the Growth in Passive Fund Management. In 1999, Busse and his coauthors explain, the net assets of passive funds were “less than an eighth the assets of active funds.” But by the end of 2019, “the market share of passive equity funds increased to more than 50 percent,” Busse, Chung, and Kottimukkalur note. Passive funds track indices such as the S&P 500, Dow Jones Industrial Average, NASDAQ Composite, and Wilshire 5000—all indices that have been difficult to beat over the last decade. According to the Wall Street Journal, from 2008 to 2018, more than 80 percent of actively managed funds in the U.S. underperformed the S&P Composite 1500. This is in large part, the trio notes in their paper, because the so-called “FAANG” stocks—Facebook, Apple, Amazon, Netflix, and Google—comprise such a large part of these indices. In fact, the top 10 stocks in the S&P 500 currently make up around 30 percent of its market cap. “The market caps of these companies are huge, and they’ve done exceptionally well since the financial crisis,” Busse explains. Hence, active fund managers and their teams of analysts have found it much more challenging to discover undervalued and overlooked stocks with positive alphas ─ the stocks that outperform an index. “As such, a general move toward passively managed funds is not so surprising,” the paper reveals. Finding Diamonds and Avoiding Duds Making it even more difficult to find diamonds in the rough is a lack of volatility in the stock market. Except for some isolated periods, including the month or so around the start of the pandemic in March 2020, the market hasn’t experienced much volatility since 2008. Without wide swings in prices, fund managers have less opportunity to buy low and sell high. Over the same time period, aggregate stock liquidity has also been high, which means less chance for fund managers to pick up winners at bargain prices. “When there’s money in the market—when there’s liquidity—it means there aren’t a lot of disagreements on prices,” explains Busse. “Liquidity is inversely related to mispricing,” the researchers explain in their paper. This combination of circumstances—the rise of the FAANG stocks, the lack of market volatility, and higher liquidity—is making it much more difficult for actively managed funds to find stocks that will help their funds beat the indices, and therefore, outperform the passive funds. As a result, justifying their management fees gets more complicated. According to Thomson Reuters Lipper, the average expense ratio (management fees divided by total investment in a fund) for actively managed funds is 1.4 percent compared to 0.6 percent for the average passive fund—nearly three times as much. While active fund managers have realized that these higher costs are no longer paying off and have moved to reduce them, actively managed funds continue to lose market share. Market Share Gain of Passively Managed Funds While the authors weren’t surprised by the growth of passively managed funds, they were surprised by how much they grew. From 1999 to 2019, the authors note, the number of actively managed funds grew by 11 percent, while the number of passively managed funds increased by 244 percent. “There haven’t been any papers that try to explain why passive funds have gained so much market share,” says Busse. He and his coauthors believe their research illustrates that it’s in large part because the market, post-financial crisis, is challenging for stock pickers. “As such, it has been difficult for actively-managed funds to recoup the costs associated with active management, and compared to earlier periods, passively managed funds are better positioned to gain market share,” they explain. “As the payoffs to active management decrease, it becomes more difficult to justify the costs of active management, and, thus, we expect funds to decrease these costs given their negative performance implications.” Busse doesn’t believe the current fund management environment will continue indefinitely. When the pandemic knocked the S&P 500 down 30 percent in March 2020, managers did gain opportunities to find positive alpha stocks—which they bought. “It’s just, on average, over the last 10 years, there haven’t been enough of those opportunities,” explains Busse. “It’s a matter of hanging in there and, in some sense, keeping your investors from fleeing to passive funds until the environment is a little bit better.” Jeffrey Busse is the Goizueta Foundation Term Professor of Finance where his research focuses on investments, with an emphasis on mutual funds. Jeff is available to speak with the media regarding this important topic – simply click on his icon now to arrange an interview today.

Aston University pollution expert praises Clean Air Zone roll out plans across UK

• Dr Stephen Worrall believes Birmingham’s Clean Air Zone is encouraging fewer drivers into city centre • The pollution expert said statistics show motorists are ‘changing their behaviour’ • He praised other cities for following suit but says changes need to come more quickly. A leading expert in air pollution from Aston University has examined available data on how many vehicles have paid to enter Birmingham’s Clean Air Zone (CAZ) and has said people’s behaviours are changing Atmospheric chemist, Dr Stephen Worrall, praised the introduction of Birmingham’s CAZ which launched on 1 June, saying it was an important step in tackling air pollution in the city and would have a considerable impact on people’s health. Whilst the full impact of the CAZ on pollution levels won’t become clear until 2022, Dr Worrall said since the “Go Live Date” the traffic data revealed that the number of non-compliant vehicles being driven in the zone was decreasing markedly. “In the first two weeks of June before charging was introduced, the daily number of non-compliant vehicles being driven within the CAZ was at an average of 18,787. “After charging was introduced, this dropped significantly to 11,850 for the remainder of June and this number has continued to fall, with the last reported daily average of 10,800 for August. “This isn’t just your average motorist with a car either, as the data shows similar trends for other categories of vehicles with the biggest improvement observed in light goods vehicles (LGVs). Over 75% of these vehicles were complying with the CAZ in August versus just 63% in June. This is a significant and sustained reduction which clearly demonstrates that people are modifying their behaviours,” he said. Dr Worrall added that the data was also able to hint at the manner in which people were modifying their behaviour, with a possible increase in public transport use, car sharing or a reduction in overall number of journeys. “Some people are upgrading their vehicles to newer, less polluting models as there has been a small rise of about 2,500 in the number of complaint vehicles entering the CAZ on a daily basis. However, this number is dwarfed by the approximately 8,500 reduction in the daily number of non-complaint vehicles. The upshot of this is that the total number of vehicles entering the CAZ every day has dropped by roughly 6,000 (around 6%). 6,000 fewer of the most polluting vehicles in our city centre is a real positive and a step in the right direction to improving our air quality and health,” he said. Air pollution particularly affects the most vulnerable in society, including children, and older people, and those with heart and lung conditions. The annual health cost to society of the impacts of particulate matter alone in the UK is estimated to be around £16 billion*. Levels of NO2 in Birmingham frequently exceed 45 to50 micrograms per cubic meter, mainly caused by road traffic emissions, with certain hotspots exhibiting even greater values such as the measuring site at St Chads Queensway where the last reported yearly average for the city centre was as high as 74 micrograms per cubic meter. The primary aim of the CAZ is to reduce the levels of NO2 to 40 micrograms per cubic meter. Dr Worrall said that although CAZs weren’t directly designed to address greenhouse gas emissions, if as suggested they result in less people using their vehicles for journey, then this would have an impact on emissions. “Whilst the CAZ target is to reduce nitrogen dioxide (NO2) levels, the knock-on effect of this reduction in car use will mean a reduction in pollution in general, including greenhouse gases such as CO2. This is really important and suggests that other cities need to be acting now rather than later. Bath has implemented a similar but less stringent system, London recently extended its ultra low emission zone (ULEZ) area and Portsmouth’s CAZ will be coming live shortly too, but other cities who have plans in the pipeline should really bring them forward as a matter of urgency,” he said. Dr Worrall added that with current COP26 discussions bringing pollution to the forefront, it was important to continue with awareness. “These policies are all small pieces in the puzzle for reducing emissions from transport and getting people to make wiser choices about the vehicles they own and buy, and as COP26 is making very clear we need to be doing all of these things now to save our planet” he said. Dr Worrall has great experience in the subject, having spent a portion of his post-doctoral research in Beijing where he took live air pollution measurements, monitored problematic levels and discussed with international colleagues’ ways to address these issues. Read more about the College of Engineering and Physical Sciences at Aston University, here: https://www.aston.ac.uk/eps ENDS * Defra (2017) Air quality plan for nitrogen dioxide in the UK

Aston University makes experts available through COP26

The University’s website is highlighting its experts, projects and research, latest news and podcasts around sustainability On 4 November the University’s Supergen Hub will co-host a ‘fishbowl’ conversation to develop and interrogate visions for a net zero energy future Aston Originals has produced three shows around finance, energy and transport ahead of the summit. Aston University has launched its COP26 campaign to highlight the work being done by its academics and researchers to support the United Nation’s biggest climate change targets. The University’s website will highlight its experts, projects and research, latest news and podcasts around sustainability and climate change. The COP26 summit will be attended by the countries that signed the United Nations Framework Convention on Climate Change (UNFCCC) – a treaty that came into force in 1994. More than 190 world leaders will meet in Glasgow, between 31 October and 12 November, to discuss ways of achieving net-zero carbon emissions by 2050 and keeping the global temperature rise to 1.5 degrees Celsius this century. High profile attendees are expected to include Greta Thunberg, Pope Francis and Sir David Attenborough. Representatives from Aston University will also be taking part at the global summit. On 4 November during ‘Energy Day’, the six UK Research and Innovation Supergen Hubs, one of which involves academics from Aston University, are hosting a ‘fishbowl’ conversation with the public, to develop and interrogate visions for a net zero energy future. It will be participant-driven, enabling multiple perspectives to be aired and offering an opportunity for a variety of participants to engage, and will be live-streamed for those who cannot attend in-person (tickets available for the live-stream here). Also during Energy Day at COP26, the Aston University Supergen Bioenergy Hub will be hosting a ‘Build your own biorefinery’ game on the COP26 Universities Network exhibition stand within the Green Zone. Members of the public will be invited to create their own biorefinery (where multiple products are created from one feedstock to extract maximum value), demonstrating the many routes to producing bioenergy and bioproducts and the co-benefits that can be achieved through different choices. The campaign will also look at the huge carbon footprint of asthma inhalers and a new project which aims to redesign the canisters, so they are more environmentally friendly. The University’s new digital content brand, Aston Originals, has produced three videos showcasing its experts under the topics of finance, energy and transport. Professor Simon Green, pro-vice chancellor research at Aston University, said: "COP26 highlights how big a challenge the climate crisis is for everyone around the world. “I am proud of the work being done at Aston University to combat the problems facing the planet – from the researchers in the College of Engineering and Physical Sciences carrying out world-leading research into new and innovative ways of converting biomass into sources of sustainable energy to experts in the College of Business and Social Sciences who are helping small and medium sized enterprises (SMEs) cut their carbon footprint.”

Tomorrow's Election Day, and it’s all eyes on Virginia!

In what is shaping up to be one of the most contested gubernatorial races in recent history, it’s all coming down to Election Day. Media from across the country are all watching and trying to get all the expert insight they can on why this election is so important and what winning or losing could mean for not just the state – but the mid-term elections coming up next November. UMW’s Stephen Farnsworth is the ‘go-to’ for major media outlets across America and for international media following U.S. and Virginia politics. Recently, CBS News called on him to lend his expertise on just where this race sits. "The race for governor in Virginia is in its final stretch with just two weeks to go before Election Day. Former Governor Terry McAuliffe, the Democratic candidate, and Republican nominee Glenn Youngkin have clashed on several issues related to schools from charter schools to vaccine mandates for teachers and students. Stephen Farnsworth, director of the Center for Leadership and Media Studies at the University of Mary Washington, joins CBSN AM to discuss."  October 19 - CBS News Dr. Stephen Farnsworth is a sought-after political commentator on presidential politics. He has been widely featured in national media, including The Washington Post, Reuters, The Chicago Tribune and MSNBC. If you are a reporter covering Virginia's gubernatorial race, simple click on his icon to arrange an interview today.

Prof Rachel Warren on the impacts of climate change at COP26

A number of climate experts from the University of East Anglia will be available for interview during the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Among them is Prof Rachel Warren, Professor of Global Change and Environmental Biology, from UEA's School of Environmental Sciences and Tyndall Centre for Climate Change Research. Her research areas and expertise cover the impacts of climate change on biodiversity. She is an IPCC author and available for interview on topics including climate change policy and modelling, climate change mitigation and adaptation, the impact of climate on ecosystems and species, and sustainability in the context of the Paris Agreement goals to limit global warming to well below 2oC.

Greenhouse gas removal expert Dr Nem Vaugham on COP26

A number of climate experts from the University of East Anglia will be available for interview during the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Among them is Dr Nem Vaughan, Associate Professor in Climate Change, at UEA's School of Environmental Sciences and Tyndall Centre for Climate Change Research Her research areas and expertise cover greenhouse gas removal, and technologies and practices that aim to remove CO2 from the atmosphere. She is currently the Principal Investigator of a NERC funded four-year consortium project on the Feasibility of Afforestation and Biomass energy with carbon capture and storage for Greenhouse Gas Removal. Her main interest is in climate change mitigation – ways to reduce emissions, to decarbonise and adopt new forms of energy. She is exploring the options of particular technologies and practices for reducing and removing carbon emissions – including biomass energy carbon capture with storage, and afforestation (the introduction of new trees). She recently co-authored an article in The Conversation on the issues around carbon removal: A global carbon removal industry is coming – experts explain the problems it must overcome.

Environmental economics expert Dr Brock on COP26

A number of climate experts from the University of East Anglia will be available for interview during the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Among them is Associate Professor in Microeconomics, Dr Mike Brock, from UEA's School of Economics. His research areas and expertise cover environmental and behavioural economics, recycling and environmental valuation. He explores how (and why) people behave in a more sustainable or environmental way. Particular projects include financial incentives to encourage recycling through lottery techniques and the use of competitive rankings on personal use of energy to stimulate energy reduction. Mike has also explored people’s behaviours towards wildlife – for example why people flock to see newly-identified species of birds and the environmental of that behaviour.

Environmental governance expert Prof Heike Schroeder to attend COP26

A number of climate experts from the University of East Anglia will be attending the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Prof Heike Schroeder, from UEA's School of International Development, will attend COP in its second week, from November 7, as principle investigator for the INDIS project on Indigenous visions of sustainable development & climate resilience. Prof Schroeder's research and expertise covers global environmental politics, forest governance and REDD+, the international climate negotiations, urban climate governance, indigenous peoples/knowledge and sustainable development. The team will be showing how Indigenous knowledge might contribute towards national and international targets for climate mitigation, adaptation, and sustainable development. The value of Indigenous knowledge is often ignored by policy-makers, and Indigenous Peoples themselves have few opportunities to articulate and share their knowledge in a way that can impact policy making circles and strengthen sustainable futures. The project’s Indigenous partners from three countries (Uganda, Papua New Guinea, and Bolivia) will be presenting their own visions for just and environmentally sensitive futures. Where: Exhibit slot in the green zone on Mon, 8 Nov 1:00-2:30pm. The project will also have a slot in the IASS Pavilion in the Blue Zone in Week 2 covering findings and outputs.

Oceans expert Dr Bakker to attend COP26

A number of climate experts from the University of East Anglia will be attending the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Dr Dorothee Bakker will attend the first week of COP26 as part of the Integrated Carbon Observation System European Infrastructure Consortium (ICOS ERIC). Her areas of research and expertise cover processes affecting the air-sea transfer of natural long-lived greenhouse gases (carbon dioxide, methane, nitrous oxide) and the marine carbon cycle in a changing climate. Dr Bakker chairs the SOCAT global group - SOCAT is a Global Ocean Observing System, with more than 100 contributors. Her brief: The ocean takes up a quarter of anthropogenic CO2 emissions. This uptake varies over time (between years and decades) for reasons that we do not fully understand. It is unclear how ocean CO2 uptake will respond when we move towards net zero. Measurements of (surface) ocean CO2 and their synthesis are therefore key for determining ocean CO2 uptake, now and in the future. However, funding for these measurements and their synthesis is precarious. Dr Bakker is currently investigating carbon cycling in UK shelf seas and the Southern and Arctic Oceans. She is a co-author of this year’s Global Carbon Budget paper (for SOCAT synthesis of ocean CO2 measurements).

Rochester's David Primo on how the wealth tax proposal will (or won't) work

“The ‘wealth tax’ that’s being proposed in the current budget is really a tax on unrealized capital gains, so the stock that you have not sold yet but which has seen gains would be taxed before it is sold,” says David Primo, the Ani and Mark Gabrellian Professor and an associate professor of political science and business administration at the University of Rochester. “It applies only to the ‘richest of the rich’ and many questions remain as to how the operational and Constitutional concerns of it will be addressed. This proposal is much different from traditional wealth taxes where the idea has been to assess the wealth of tax payers every year and have the wealthiest individuals pay a tax on their net worth.” Primo is available for interviews and can discuss the precedent that this current wealth tax would establish with regard to taxing stock investments; if this is the best approach to taxing the wealthiest Americans; if it would even generate enough tax dollars to make a difference with the federal government’s current spending obligations; and more.