Column-Forget market angst, just ‘KISS’ and make up: Mike Dolan By Reuters

By Mike Dolan

LONDON (Reuters) – Worried about a hawkish Fed, over-valued stocks, teetering debt piles, volatile currencies, cliffhanger elections or rancorous geopolitics? Relax and don’t over-think it.

For those with long-term savings horizons, the temptation to overtrade and overpay fees for sophisticated investment management, esoteric financial products and expensive hedging may just not be worth it.

Despite a never-ending debate about the merits of active or passive investing and the perennial search for index-beating “alpha”, the surest, cheapest and least taxing strategy over the long term may be a simple combination of two diversified passive funds.

One should track top global stocks and the other equivalent corporate bonds, both hedged to domestic currency.

Then just go fishing.

So reckons JPMorgan’s long-term investment strategists Jan Loeys and Alexander Wise, who dub their favoured approach KISS, or “Keep it Simple, Stupid”, after the long-standing design principle on avoiding complexity where possible.

“Our main contention is not that KISS investing is absolutely optimal and doing anything else is irrational or a bad investment,” Loeys and Wise told clients this week.

“Our point is instead that we believe you can achieve most, if not all of your financial objectives by following our KISS approach,” they said. “Adding more products or complexity in our mind produces steadily falling extra benefits.”

The JPMorgan team acknowledges that short-term trading and market timing by hedge funds or other active players are critical to market efficiency and liquidity and can make big killings. But by so quickly arbitraging away market pricing anomalies before most investors can even spot them, there’s not much juice left for much of the market.

“The lifetime of any new ‘alpha’ ideas has gotten shorter and shorter,” they said.

But their main rationale for longer-term savers to keep it simple riffs largely off the fact that any outperformance just doesn’t seem to compensate much for the fund manager selection risks, higher fees, transaction taxes and the sheer time spent monitoring more complex or esoteric portfolios.

What’s more, they reckon the fewer the assets one has in a portfolio, the easier it is to judge risk on them.

KISS AND TELL

By way of example, Loeys and Wise examine 24 years of monthly hedge fund returns in excess of what that simple global…