So finally there will be a new equity income sector. From 1 January 2012, the IMA will launch a Global Equity Income sector, marshalling those funds placing at least 80% of their assets in global equity and generating an annual income yield 110% higher than the MSCI World Index.

A new equity income sector is overdue. Too many income-seeking funds have for too long sat in sectors in which the bulk of their constituents exist primarily to generate capital growth, not income. That gives a picture of relative performance that is, particularly for income funds during bull markets, both unflattering and misleading. (Although of course it can work the other way.) While advisers and wealth managers are well equipped to overcome this incompatibility, there is little doubt the amorphousness of some sectors makes it unnecessarily difficult to compare funds on a like-for-like basis – no small impediment to private investors buying without advice.

If global income investors will now be able to make decisions based on meaningful relative performance, what about investors assessing non-UK regional income funds? A few years ago pressure began to build for a European equity income sector following a spate of fund launches in that area. The IMA now says it will consider one when the number of eligible funds reaches 10. But some fund managers, notably Argonaut’s Oliver Russ,  believe that hurdle has already been cleared, with a dozen or so funds currently eligible for inclusion in a new sector. That suggests the ostensibly straightforward question of ‘what constitutes a new sector?’ cannot be adequately answered with basic qualifying requirements alone. So what else, then, is the IMA taking into account? Surely there are enough funds – or there aren’t?

If the trade body is not yet prepared to sanction a standalone European income sector, could others ultimately be created before it? New US equity income funds from companies including Legg Mason have attracted considerable attention and it is not unreasonable to suppose that more internationally-minded groups will seek to leverage their existing expertise in income investing with funds that fish for yield across the pond. (Or, indeed, in Asia.) But it is early days. For now investors looking overseas for their income will at least be able to more accurately compare what is on offer globally, if not within specific non-UK regions.

According to accepted wisdom, ‘this time it’s different’ is the most dangerous phrase in the investment world. History, experts caution, almost always repeats itself; only the delusional and desperate believe otherwise. But does this counsel always hold true?

Not if you pay heed to the mounting weight of evidence in favour of one of the world’s least loved equity markets: Japan. Notorious among investors for its numerous false dawns and defining ‘lost decade’ of the 1990s, Japan has long been the default cautionary tale for market practitioners fretting over another looming banking crisis in the west. Recently, however, the media has begun to express interest in the fruits of Japan’s efforts to overcome its troubled past; noting, in particular, that the country’s banking system, having endured in 2002-3 the kind of bad debt write-offs and taxpayer-funded recapitalisations currently facing many western banks, is in relatively rude health.

Nor has it gone unnoticed that Japan’s equity market – down less than 10% this year – has been remarkably resilient in the face of March’s devastating earthquake and tsunami, and lingering fears of a global recession. While not everyone is convinced that Japan’s relative lack of volatility means the market doesn’t have further to fall, there is little doubt that, at a price-to-book ratio of 0.9x, Japanese equities look fundamentally cheap; particularly given the balance sheet strength of corporate Japan.

Could, then, this time be different – at least for those contemplating a move into the country?

Some major investors certainly think so, with a number of multi-managers upping their allocation to Japan in recent months. Meanwhile influential IFAs such as Mark Dampier are beginning to set aside their natural wariness and view Japan in a more positive light.

Needless to say, however, not all investors are scrambling to buy the Japanese story. Detractors cite numerous concerns, not least the strong yen (although exports contribute much less to Japan’s GDP than widely assumed). Indeed, the yen recently touched a post-war high versus the US dollar, buoyed by its safe haven status and speculative inflows. But news today that the Bank of Japan has again intervened to suppress the currency’s value should assuage some investor fears over the country’s export sector, although the longer-term impact of the intervention may, as history suggests, prove to be limited.

Yen aside, Japan will remain a hard sell to investors who feel they have heard the ‘new dawn’ story too many times before. But there is little doubt overall sentiment towards the country appears to be turning. At a time when markets remain in thrall to macro fears, it seems investors seeking a potentially lucrative home for their capital could do worse than consider a stock market which appears well placed to outperform its counterparts in the west.

As a miss it was a big one, and commentators are still trying to work out what went wrong. George Osbourne tried to pin the blame on December’s deep freeze (something he did 24 times in a three minute interview yesterday) but, as commentators have been quick to point out, that hardly provides a convincing explanation for such a broad and savage decline in the economy.

Exacerbating the situation is, of course, high inflation, which Mervyn King admitted yesterday will fall in a range of 4-5 per cent over the coming months. As the Times highlighted on its front page today, workers are now facing the sharpest fall in their real wages since the 1920s, which will come as depressing news for a population yet to feel the full force of draconian spending cuts and the rise in VAT.

Still, not everyone is rueing yesterday’s dismal growth numbers. Ed Balls has, in effect, just been handed a large, spike-studded stick with which to beat the Chancellor. Helping him wield it yesterday was Sir Richard Lambert, the CBI’s outgoing director-general, who took the chance in his final week at the CBI to attack the coalition’s austerity plan.

Nevertheless, Balls’ argument that the government needs to implement a Plan B, and quickly, is not one shared by King nor, indeed, by plenty of other experts. Yet Balls is far from alone in, if not actually celebrating economic weakness, hardly viewing it as a complete disaster. The Times’ David Wighton, for instance, says the dismal growth numbers will put paid to expectations of an early rise in interest rates, something he thinks will, in conjunction with the low pound, give the economy a sporting chance of decent growth in the second half of the year.

As yesterday’s shock news proved, predicting economic outcomes is, at times, almost futile. But if – or rather when – CPI hits 4 per cent, there is little doubt we will see renewed warnings about the risks of stagflation, and another round of personal finance stories urging savers and investors to take urgent steps to hedge against inflation. In the current climate, it will, for many people, be advice well worth considering.

At the time of writing, the gold price had crashed through $1,300 an ounce. As the FT points out, that’s still a long way from bullion’s 1980 inflation-adjusted high of $2,300, but it still represents an 18% advance since the turn of the year. To put that in perspective, over the same period, the S&P 500 index has risen around 2%. Quite simply, gold is the only real bull market in town.

Why has bullion done so well while other assets classes have not? Future inflation is one reason. Gold is a classic inflation hedge, and although US inflation – in contrast to the UK – is currently extremely low, investors have been betting since the turn of the year that this will not be the case forever, particularly with more quantitative easing on the horizon.

Another reason is that gold is considered to be a good hedge against equity volatility, being less synchronised with economic cycles than other commodities. Bullion’s ‘safe haven’ status has, against a gloomy macro backdrop and an uncertain outlook for many asset classes, seemingly appealed to a wide spread of investors; not least hedge funds, which have – and reportedly continue to take – major positions in the metal. Moreover, with year-end performance reports looming large, many managers are anxious to deliver strong H2 returns following a generally painful summer. Gold, with its largely unbroken upward trajectory in 2010, must to those investors seem like a particularly appealing option right now.

While these short-term factors – and some major countries’ willingness to competitively devalue their currencies – have recently driven gold to new highs, bullion has not, of course been a Johnny-come-lately success story. Indeed, as Bloomberg points out, gold is homing in on its tenth consecutive annual gain – outperforming, in the process, global equities and US Treasures, among other asset classes – which would represent its longest winning streak since 1920. And few investors seem to believe the party will end any time soon. In fact, some of the industry’s leading managers have positioned their funds to benefit from future gains in the metal, while one wealth management boutique is so sold on gold that it insists all clients allocate 5%-15% of their portfolios to it.

Bullishness, then, abounds. But how long can the rally really last?

Last Tuesday, gold received a major fillip when the US Federal Reserve cast aside its coyness on QE2 and finally suggested it was prepared to embark on a fresh round of expansionary monetary policy. More quantitative easing would be good for gold because it would reduce the value of the dollar, to which the metal is inversely correlated. The prospect of central banks buying more government bonds in vast quantities has convinced some traders that, far from hitting a plateau, the gold price could eventually reach the giddy heights of $1,600 an ounce. Traders are far from alone in their enthusiasm. With negative comment on gold generally hard to find in most press articles, journalists are clearly struggling to find anyone willing to express a bear case opinion of any kind.

The reason for this dearth of party poopers might have something to do with investor inflows, or, at least, the nature of them. Analysts are reporting that the flood of new money into gold stems chiefly from long-term investors, rather than ‘hot money’ speculators seeking to turn a quick profit. With imminent sales out of the equation and little sign of short positions being put on, support for a sustained upward move should be firmly in place. But for how long? George Soros has stated that a meltdown is only a matter of time, having described gold the ‘ultimate bubble’. That gloomy statement may, one day, prove to be correct. But don’t expect the gold story, in one shape or form, to lose its shine just yet.

As the Telegraph’s Paul Farrow noted in his recent Money Marketing column, the debate over charges is nothing if not emotive, with the hostile mood little improved by fund managers’ general disinclination to offer a robust defence. Cynics might suppose they know what informs groups’ reluctance to engage – and in some cases I’m sure they have a point – but does an unwillingness to put your head above the parapet necessarily establish your culpability? Rightly or wrongly, many groups consider it to be a zero-sum game.

This time around the general debate has encompassed performance fees which, it is fair to say, have never been warmly embraced by the UK retail market. News that most funds levy fees on a relative, rather than absolute return, basis is unlikely to quell the criticism. But are performance fees inherently bad? Is there anything underhand about charging fees on a relative basis? Unless a fund explicitly targets absolute returns, in which case a relative performance fee is manifestly inappropriate, there appears nothing innately unfair about charging an additional fee for outperforming an index – even if it has fallen – as long as the investor knows that such a fee could be levied.

If that argument applies to performance fees, it also, of course, extends to AMCs and TERs. It has been suggested that some fund groups do not, shall we say, strain every sinew to highlight charges that nestle at the upper end of the cost scale, and that practice is undoubtedly something the industry could improve. But, in general, if charges are genuine, reasonably reflect the services and costs associated with a particular investment approach and are – crucially – transparent, why shouldn’t a group charge what it likes? Funds do, after all, incur different levels of costs and there is no uniform approach to managing assets. Fidelity, one of the few fund managers involved in this debate, argues that charges are justified by the number of meetings analysts hold with companies and suppliers in order to give clients an investment edge. If its performance reflects this extra work and the costs it incurs, then it is difficult to see the problem. Most car buyers accept that a high performance Porsche will cost more than a moribund Mazda. If a fund manager demonstrates consistent outperformance, why should the same principle not apply?

Some will say, of course, that this argument misses the point; that the real issue is whether TERs are an adequate gauge of total cost. As TERs do not include trading as well as other costs, there is justification for saying they are not. But as some commentators have pointed out, the real issue isn’t necessarily trading costs per se, it is whether the activity of the manager offers value for money. And this is, partly, why investors employ advisers. If they cannot themselves determine whether managers are adding value relative to their charges, then they have to employ someone who can. Most people understand – as evidenced by the very small number of investors who buy funds direct – that investing in assets is a complex, risky enterprise.

Much of the criticism of active management charges emanates from the passive management end of the sector, which of course has its own battles to fight, particularly when – as now – funds are the mercy of choppy or falling markets. In these conditions, costs must seem like safer ground for comparison than performance. But as long as investors understand what they are paying and what they are getting for it, the debate over charges seems, as a fund manager might say, a little overdone.

So why did the agencies do it? In a word: Dodd-Frank (or to give it its full name: the Dodd-Frank Wall Street Reform and Consumer Protection Act). Signed into law last week, the Dodd-Frank Act effectively renders agencies ‘experts’ – a label that makes them legally liable for the quality of their ratings. Fearing future liabilities, the agencies wasted no time in withdrawing their consent for their ratings to be used.

Are the agencies being justifiably cautious or, as one bond manager has suggested to me, exposing themselves to the accusation that they lack faith in their own work? They certainly have reason to be nervous. During the crisis billions of dollars of highly rated securities collapsed or suffered downgrades; disastrous failings which prompted furious investors to attempt to claim compensation from those they believed responsible. For their part, the agencies have kept claims at bay by arguing that their ratings are simply ‘opinions’ (i.e. free speech) and that investors should conduct their own due diligence. Dodd-Frank not only potentially exposes them to future liabilities; it also, presumably, opens them up to legacy lawsuits, too. Needless to say, that could prove extremely costly.

If, then, the crisis revealed ratings to be deeply flawed – and the agencies’ reaction to Dodd-Frank is a tacit admission that little has been done to improve them – the obvious question is: why? Guan Jianzhong, chairman of China’s largest rating agency, claimed last week that Western agencies – which he blames for the global financial crisis – are too politicised, and too eager to subjugate their principles in order to win new business. Agencies will doubtless argue that they are powerless to prevent companies shopping around for the best rating – a key argument behind Jianzhong’s claim – but surely businesses must have learnt that practice somewhere: after all, would they bother with the best-of-three approach if ratings were indisputably made on the basis of objective assessment?

For now, the agencies are hoping that Dodd-Frank will, in the course of its implementation, be substantially watered down. But if it is not – and at this stage there is little reason to believe it will be – there will be far-reaching consequences for credit rating agencies and the securitisation markets they serve. With the fall-out from the financial crisis still being keenly felt, few would argue that an overhaul of these industries is wholly without merit.

It’s not hard to see the regulators’ problem. The Ucits framework was originally designed for the retail market under the general principle that funds marketed at unsophisticated investors should be simple to understand. But with the introduction of Ucits III – which allows fund managers to use a much wider range of investment instruments – that broad principle was more or less jettisoned, with many groups launching funds that are, to all intents and purposes, hedge funds.

In many ways this outcome was wholly predictable. In a single stroke Ucits III handed to investment professionals – not, on the whole, people inclined to look gift horses in the mouth – an extremely well-stocked, shiny new tool box: was there ever any doubt they would delve deeper than the spanners and the monkey wrench? Funds today often use most if not all of the broad powers at their disposal – not least because the volatility of some asset classes, like emerging markets, actively encourage it – and they do so in a number of increasingly complex ways. Indeed, it now seems even the most sophisticated hedge fund strategies can be substantially replicated under the Ucits III framework.

Should, then, this newer breed of funds be treated differently under Mifid? While the ‘yes’ case is, on the face of it, persuasive, it is difficult to envisage its proponents getting their way. Practically, there would be major hurdles to overcome – not least that a change in approach could place a considerable burden on advisers – while fund associations (if the response from Germany’s BVI, as quoted in FTfm, is a guide) – would be deeply unenthusiastic. And there is also, of course, the (some may say moot) question of: are retail investors buying ‘Newcits’ funds anyway? Hedge funds are not marketed to retail investors and neither, generally are their Ucits equivalents, with high minimum investments often elevating them well beyond the reach of the financially diminutive. That is not true of every single Ucits absolute return fund – some have industry standard minimums and could theoretically be bought by the man on the street – but few groups seem to be actively seeking to attract money from retail investors. That might not be a good argument for maintaining the status quo, but it remains a point worth making.

Ucits III was unquestionably a huge leap forward for the industry, enabling investors of all types to access hedge fund strategies within a liquid, regulated format. Whether or not they will eventually be sold to retail investors with tighter controls under Mifid is currently being investigated by the Committee of European Securities Regulators, which is to submit its recommendations to the European Commission in the not-too-distant future. The industry will await its verdict with interest.

The answer, of course, is probably not – like trench warfare, the combatants on both sides are too fixed in their positions to capitulate easily now – but recently there has been a noticeable escalation in hostilities.

First, in April, Ignis Asset Management published research which torpedoed the idea that the RDR would trigger a dramatic increase in the use of passive funds. Not only did nine in 10 IFAs polled say that UK passive funds were riskier than investors realise (prescient in light of BP’s recent experiment to see if it could halve its share price faster than it could pollute the entire Gulf of Mexico), more than two-thirds said they had no plans to increase their use of passive funds following the RDR – indeed, one in 10 planned to use them less.

Today, however, came the counterattack. According to a report by Citigroup, Principal Global Investors and Create Research, the investment industry is set for a ‘massive rebalancing’ from active to passive fund management, amid mounting disillusionment about active managers’ ability to beat benchmark indices. Indeed, Create’s chief executive is quoted in FTfm predicting that the proportion of global assets being managed passively will rise from 15% to 25% in the coming decade, led by sovereign wealth funds, Australian pension funds and – weirdly – US retail investors, who have pulled vast sums from active funds in the last two years and thrust it into the grateful hands of passive managers.

So, case closed then: passive funds are, finally, set to claim the spoils of war (or at least a much greater percentage of them). Except that they, er, aren’t. Citigroup’s research also predicts that by the middle of the next decade, the volume of money being run in a passive index-tracking style could be so great that attractive opportunities will emerge for active managers (due to the extreme price anomalies it would create), potentially reversing the flow of assets from passive to active funds. In other words, passive funds could become victims of their own success. (Interesting to note that passive managers like Vanguard, whose entry into the UK retail market awakened the temporarily dormant active versus passive debate, are suggesting we are a long way off a situation in which the size of index assets influences market pricing.)

Nonetheless, there are plenty of active fund groups out there who would privately admit that the wind is blowing in favour of passive funds. Their counter (i.e. public) argument is usually this: yes, of course passive funds will grow in popularity, but active managers who consistently deliver excess returns will always be worth paying for. If you consider a fund manager like Barry Norris, whose Argonaut European Alpha fund is top decile over every relevant period since launch in 2005, that argument is difficult to refute.

But are we missing something here? Very little of the research in this area appears to explicitly address the market and macroeconomic environment in which funds and fund managers operate. Passive groups suggest investors are disgruntled with active performance, and there is little doubt that is true. But is poor past performance necessarily a guide to future underperformance? Professional investors tend to think not. One leading multi-manager I recently spoke to suggested that, over the medium term, markets will become more focused on fundamentals rather than short-term macroeconomic news flow. Markets will therefore reward companies who can grow in a low GDP growth environment, which suggests that, in the coming months and years, the good stock pickers will outperform their respective indices. If you believe that argument, then we could potentially have a situation in which global assets flood towards passive managers just when good active management comes to the fore…..