Product research

Professor Russell Napier: The equity index fund is a dangerous product

The Covid-19 outbreak has triggered a transformation in monetary policy, according to Professor Russell Napier, with governments now effectively controlling the money supply. Combine that with a decoupling between the West and China and Napier thinks investors need to prepare for a prolonged period of inflation.

In this interview, Napier explains what a new era of financial repression could mean for investors, why he thinks China isn’t investable, and where he thinks the best value is in stock markets. He also explains why he thinks it’s time to invest with active fund managers rather than index funds and what he thinks are the most common mistakes made by private investors.

Napier is a consultant, investor, historian, writer and honorary professor at both Heriot-Watt University and the University of Stirling. He has advised institutions on asset allocation since the mid-1990s and is Chairman of Mid Wynd International Investment Trust. He wrote two books: Bear Anatomy: Lessons from Wall St’s Big Four Bottoms and The Asian financial crisis 1995-98: birth of the era of debt.

He also runs a finance course called ‘The Practical History of Financial Markets’ and is the custodian of The Library of Mistakes, a charity he started in Edinburgh in 2014.

Timestamps

01:10 Takeaways from the launch of The Library of Mistakes

03:16 Outlook for inflation and money supply

06:05 Reduced role of central banks

07:40 Which metrics investors should watch

08:48 Insights for stocks

10:26 Implications of financial repression

13:48 Role of tax

15:27 Impact of deglobalization

18:20 Is China investable?

21:10 Companies profiting from deglobalization

23:40 Index funds vs active managers

28:28 Categorization by country vs sector

31:38 Suggestions for novice investors

33:18 Search for Hendrik Bessembinder

34:45 Infrastructure and property

38:29 Re-shareholding

41:42 Problems with search for yield

44:20 Biggest personal mistake

46:00 Most common mistakes made by private investors