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

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

In this interview, Napier tells the IC’s Mary McDougall what a new era of financial repression might mean for investors, why he thinks China is not investable and where he thinks the best value is in equity markets. He also explains why he thinks it's time to invest with active fund managers over index funds and what he thinks are the most common mistakes that private investors make.

Napier is a consultant, investor, historian, writer and Honorary Professor at both Heriot-Watt University and The University of Stirling. He’s advised institutions on asset allocation since the mid ‘90s and is chairman of Mid Wynd International Investment Trust. He's written two books: Anatomy of the Bear: Lessons from Wall St’s Four Great Bottoms and The Asian Financial Crisis 1995-98: Birth of the Age of Debt.

He also runs a course in finance called ‘The Practical History of Financial Markets’ and is keeper of The Library of Mistakes, a charitable venture he set up in Edinburgh in 2014.

Timestamps:

00:00 - Intro
01:10 - Takeaways from the launch of The Library of Mistakes
03:16 - Outlook for inflation and money supply
06:05 - Diminishing role of central banks
07:40 - What indicators investors should look at
08:48 - Outlook for equities
10:26 - Implications of financial repression
13:48 - Role of tax
15:27 - Impact of deglobalisation
18:20 - Is China investable?
21:10 - Companies that benefit from deglobalisation
23:40 - Index funds vs active managers
28:28 - Categorising by country vs sector
31:38 - Suggestions for novice investors
33:18 - Research of Hendrik Bessembinder
34:45 - Infrastructure and property
38:29 - Re-equitisation
41:42 - Problems with the search for yield
44:20 - Biggest personal mistake
46:00 - Most common mistakes made by private investors

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