Benchmarks, The New Partner in Crime
I believe that benchmarks are partially responsible for the current trend in financial inflation. Benchmarks are self-imposed guidelines for investments that in practice act as trend-following mechanisms that are relentlessly following the steps of central bank buying, contributing to the creation of bubbles.
Benchmarks set the expectations for asset allocation and returns, the bar that active investment managers are held against. In principle, investment managers have the discretion to be overweight, neutral, or underweight relative to what the benchmark dictates, but in practice have quite small discretion for tactical asset allocation decisions, which means that the ...
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