Asset Class Returns

The Passive Fallacy

By |2016-09-06T13:18:00+00:00September 6th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

The growth of passive investment strategies has been supported by a narrative that active management should be shunned in favour of the passive approaches which have disrupted the investment management landscape. We at Cerno remain ardent supporters of well-considered, properly implemented active approaches to investment. Our position is based on our own experience of investing and of our time spent observing active investment managers and the development of passive, or rules based approaches. The potential rewards to a successfully implemented active investment strategy are significant and are perhaps best exhibited through the example of a savings plan for a new born child. Assuming the parent of a child born in 2016 is willing to make the requisite JISA and ISA contributions and that child is subsequently able to continue with contributions to the age of 65, the uplift from an active approach results in a potential doubling of income in retirement. Chart 1 demonstrates this clearly by assuming a 4% nominal annualised return from a passive approach and a 6% nominal annualised return from an actively managed approach. These assumptions compare with the average return assumption of 7.6% taken by US Public Pension Plans. These assumptions appear reasonable and correspond [...]

The Robotic Chauffeur: ethics and the adoption of driverless cars

By |2016-03-30T15:18:12+00:00March 30th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

In our recent article for Citywire magazine ‘Fundmanagers as Futurologists’, we analysed how technological developments in the automobile, payments and energy industries influence our investment choices. In this article we further investigate the auto sector and the prospects for the driverless car. Valentine’s Day can be problematic for many of us, but for one company this year it was a complete car-crash. Not only did Google’s self-driving car collide with a public bus, but, for the first time in history, the car itself was deemed partially responsible[1]. Robotics has been influencing the way we travel for decades:  the birth of the aeroplane auto-pilot function in 1912 and London’s very own driverless Docklands Light Railway (DLR) being just two examples. The most recent developments in such technologies mark a turning point: firms such as Google and Tesla are now developing cars with no need for drivers to actually touch the steering wheel, or in some cases the abolition of the steering wheel and pedals altogether– symbolising the first steps towards the transition from autonomous to self-driving vehicles[2]. Fig. 1: Pedal-less and steering wheel-less: Google's self-driving car (2014)[3] The potential benefits of self-driving cars are far-reaching. With respect to safety:  it [...]

Feeling It – Sentiment and Markets

By |2016-03-08T12:48:19+00:00March 8th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

The potential to use investor sentiment as a gauge for future market trajectory is an appealing proposition. Sentiment is often cited as a contrarian indicator; excessive bullishness signals market exuberance poised for a reversal, whilst extreme bearishness may be the precursor to a market recovery. Such indicators are most useful when they are at extremes, and less so when the readings are neutral, which tends to be most of the time. The reason for assessing sentiment is that, when investors are extremely bullish, they tend to be fully invested, leaving little available cash to drive asset prices higher. On the other hand, when extreme bearishness prevails, the abundance of cash sitting in portfolios can be deployed to buy cheap assets, creating the foundation for a bull market. There are broadly two approaches to quantifying investor sentiment: attitude and activity. The former are typically surveys, gathered through proxies, of near-term expectations of active investors or market commentators. The second method maps risk appetite through trading activity, measured by asset flows, positioning and market volatility. In practice, the usefulness of these sentiment indicators for predicting stock market returns is somewhat uncertain. In this note we will examine a few of the most [...]

‘I’m not done yet’ vows Peter Pan Pendleton

By |2016-02-24T10:15:18+00:00February 24th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts, Press & Media, Women’s Sport in Britain|

This article was first seen on The Mixed Zone - the women's online sport magazine After her untimely fall on her jumps debut at Fakenham racecourse aboard odds-on favourite Pacha du Polder, Victoria Pendleton’s dreams of riding at the Cheltenham Festival are hanging in the balance. The Mixed Zone’s Laura Winter spoke to her after the race about the reasons behind her desire to become a jump jockey Victoria Pendleton readily admits she achieved more on a bike than she dreamed she would. Her illustrious cycling career, spanning more than twenty years, embraced nine world titles and three Olympic medals – including two golds. She also picked up a Commonwealth title in 2006 and two European golds in 2011. She was a poster girl for Great Britain during those two glorious weeks in the summer of 2012 when the Olympic Games came to London. And after winning a gold in the keirin and a silver in the sprint, to add to her sprint gold in Beijing in 2008, Pendleton retired. A tumultuous, emotional and world-beating career on the track had come to an end. But what next? Suddenly she felt lost. She missed the sense of purpose and focus that had for so long dominated her [...]

What Equity Indices Tell Us When They Get “Narrow”

By |2016-02-12T11:03:37+00:00February 12th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

The S&P 500 index peaked in late May 2015 at 2130, having enjoyed a seven year bull run. However, the current mix of strong dollar, weak oil and the peaking of the earnings cycle have pitched the US into bear market territory. The dip into bear te rritory was preceded by a narrowing of market breadth. In local currency terms, the S&P 500 index returned -0.73% on a price basis in 2015 (and 1.4% on a total return basis) however, this number is skewed by a handful of large entities. In particular, the new darlings of the tech industry: Facebook, Amazon, Netflix, and Google (collectively termed as the ‘FANGs’), together with Microsoft and General Electric, produced outsized returns which dominated index performance. These six firms contributed in excess of 100% of the index level return, as shown in the table below: Stock 2015 Performance Contribution to Index Return Netflix 134.4% 0.1% 117.8% 0.8% Alphabet (aka. Google) 45.3% 0.5% Facebook 34.2% 0.3% General Electric 27.5% 0.4% Microsoft 22.7% 0.5% Source: Bloomberg Upon closer scrutiny, we would find that fewer than half of the underlying stocks made a positive return during the same period. Stripping out the distorting effect of the [...]

Cerno Capital opens business for international clients

By |2016-01-20T16:47:51+00:00January 20th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

We are pleased to announce our webpage for international clients is launched and now live. The page can be viewed by clicking into ‘INTERNATIONAL CLIENTS’ on the homepage of company website (, the Chinese version is also available on our Chinese  website ( This extension to our web page reflects our dedication to the international market by providing professional services to international investors looking to settle in the UK through Tier 1 (Investor) Visa scheme. The webpage provides information about the scheme and relevant contact details at Cerno. We look forward to connecting with investors around the globe through this exciting expansion of our website. 盛诺理财的海外客户网页现已诞生并正式启用了。这标志着本公司向开拓海外尤其是中国客户市场又迈进了一步。网络用户可以通过我们的中文网站进入到海外客户的页面(,新添加的页面提供了英国第一级(投资者)投资移民服务的相关信息,客户也可以通过网页上的联系方式与我们的客户总监直接联系作详细咨询。盛诺投资的资深财富管理团队致力为客户提供度身定做的专业服务, 我们期待新的网页可以帮助我们与更多的中国客户连接沟通。

Cerno UK Income Strategy – 2015 review

By |2016-01-08T10:46:02+00:00January 8th, 2016|Asset Class Returns, Cerno Capital Posts, Other Posts|

The hunt for income continued in 2015. Equity income investors who were drawn to the energy and materials sectors faced the headwind of commodity price declines. Recent dividend cuts from companies such as Anglo American highlight the risk of a singular focus on yield. The Cerno UK Equity Income Strategy had no direct exposure to these sectors during 2015 having sold a position in Royal Dutch Shell at the end of 2014. The proceeds of this sale were invested in Vodafone. Other than this purchase, portfolio activity for the year was restricted to rebalancing. Our strategy identifies London Stock Exchange listed businesses which demonstrate a history of dividend progression along with growth, profitability and balance sheet characteristics which suggest the progression of dividends can be maintained. The strategy is concentrated in a small number of positions which are equally weighted and rebalanced routinely. The performance of the strategy is captioned below:- 2015 Since Inception ^ Annualised Cerno  UK Equity Income Strategy 22.8% 70.2% 21.6% FTSE 350 Index 0.6% 11.1% 3.9% FTSE 100 Index -1.0% 8.65% 3.1% FTSE 250 Index 11.4% 35.7% 11.9% ^ Inception date was 12th April 2013 Note; performance represents the UK Equity Income Strategy which is run [...]

Back to Buybacks

By |2015-10-13T09:14:10+00:00October 13th, 2015|Asset Class Returns, Cerno Capital Posts, Other Posts|

Share buybacks, or the repurchase of shares by listed companies is a popular use of listed companies’ cash. Repurchased shares are initially held in treasury which means they do not qualify for dividends or voting rights. If treasury shares are subsequently retired, this provides a stronger signal on the intentions of management.  From the long term shareholder’s perspective, a buyback is viewed positively because the reduced share count increases all other shareholders’ percentage ownership of the company. Of course, the value of the company has declined by the amount of cash used to repurchase the shares. A buyback impacts per share data. Therefore, an immediate benefit to shareholders of a buyback is the reduction in share-count which increases dividend per share assuming there is no reduction in the total amount of cash set aside for dividend distribution. The corresponding benefit to management is an increase in earnings per share; many incentives are based on earnings per share growth data, rather than aggregate earnings growth or return on invested capital metrics. It is therefore understandable in a world of income starved investors and incentivised corporate managers that buybacks are generally welcomed. Indeed, some commentators have been tempted to add the dividend [...]

Turkish Vulnerability

By |2015-09-10T13:25:03+00:00September 10th, 2015|Asset Class Returns, Cerno Capital Posts, Other Posts|

In recent weeks, China has dominated the headlines; in particular the recent stock market and currency volatility have sparked fear across global markets. Looking forward, we would highlight a less discussed market that has been concerning us in recent periods: - Turkey. Turkey is significant, due to the size of its economy (13th largest among OECD countries) and its geographical and economic proximity to Europe, which accepts circa 55% of its exports. Turkey is in a more vulnerable position than China in several ways: it runs one of the highest current account deficits in the EM universe owing to its dependency on short-term foreign funding to support the economy. Like its EM peers, Turkey has been a beneficiary of large foreign capital inflows, manifest in the significant external leverage built by its domestic corporate sector, masking its waning economic momentum. Gross external debt has doubled from pre-crisis levels to almost US$400 billion in Q1 2015. This  represents 50% of GDP, which, as noted by financial historian Russell Napier, exceeds the threshold of 30% where historically a country is more likely to default. In comparison, while China’s debt level is much higher in absolute terms, its ability to repay is stronger [...]

A day at the Women’s Ashes

By |2015-08-25T15:21:29+00:00August 25th, 2015|Asset Class Returns, Cerno Capital Posts, Other Posts|

Although it was a disappointing Ashes Test for England Women at Canterbury last week, Cerno Capital hosted an event to remember on the second day of play at the Spitfire Ground. A delayed and rainy start to proceedings saw Australia declare for 274-9 before Wallabies star Ellyse Perry took centre stage to see off several English wickets. In the event box, Cerno were remaining positive about England’s slow start, with members of the investment team and guests celebrating the coverage of women’s Test cricket across TV screens and on the radio, via Sky Sports and Test Match Special. Former England cricket captain Mike Gatting attended the event day, sharing his thoughts on the Test match and discussing the progress of women’s cricket on the international stage. It presented a fantastic opportunity for all to quiz the brave batsman about his career, who played for Middlesex and toured South Africa as captain of the infamous rebel tour party of 1990. Gatting wasn’t the only inspirational cricketer present on the day, with Isabelle Duncan, author of ‘Skirting The Boundary’ - a history of women’s cricket, a guest speaker at the event. Duncan told stories of how she appeared on the cover of [...]