Daily Commentary

MarketMinder’s View: It seems like a stretch to argue the potential for tax hikes in October’s Budget is the sole reason UK stock funds saw net outflows in August, considering only one month (April) has seen net inflows since June 2025 and August’s outflows were actually far lower than July’s. Outflows ramped up ahead of last year’s Budget, then eased, and this summer’s are nowhere close to those levels. We suspect there are other factors at work, too, like money chasing hot Tech returns elsewhere (the UK has precious little Tech). But on the bright side, this should also put to bed the idea that fund flows drive returns. Since May 31, 2025, the MSCI UK IMI is up 28.0%, a little behind the world and a little ahead of Europe, all while those UK fund outflows were occurring (all from FactSet, using returns with net dividends in USD through Monday’s close). Fund flows are trivia. They can hint at sentiment, but they don’t determine returns. For every buyer, there is a seller.

MarketMinder’s View: Look, we have no interest in wading into the political debate on indexing capital gains to inflation for tax purposes. But this piece argues indexation would “create wild distortions” in markets, which we find quite odd. The case for indexing gains to inflation is simple: Given inflation erodes nominal gains over time, it makes little sense for the government to tax returns inflation has already wiped out. In periods of hot inflation and/or weak returns, something this article doesn’t actually address, you could end up paying taxes on a real (inflation-adjusted) loss. That benefits no one but Uncle Sam. This piece dismisses all of this, arguing instead that indexing stock gains would distort bond returns. “For example, how much more yield would people then demand for owning bonds when appreciating assets like stocks are shielded? And what would governments and companies then have to pay to borrow? Long-term interest rates are already near multidecade highs worldwide.” That seems like a straw man to us, given US Treasury bond interest is already subject to federal ordinary income taxes while stocks are already taxed at a preferred rate. Heck, there is an inverse distortion at the state level, with states tacking their own capital gains rates on stock returns but letting US Treasury bond interest go tax-free. The claim is also easy to test against history, as we can see how yields responded to capital gains tax changes. We dug in and found no relationship. Yields continued falling after 1997’s capital gains tax rate cut. They chopped sideways after 2003’s. They fell after 2012’s. As for the other claim, that indexation will make 401(k)s and IRAs pointless because withdrawals are taxed at ordinary income rates, there is already a discrepancy! Ordinary income rates already exceed capital gains rates. But people still find it worthwhile to use these vehicles to defer income from their prime working years, when their top marginal rate is higher, to retirement, when it will probably be lower. Again, we aren’t trying to get political, but the unintended consequences posed in this article don’t hold up to us as likely threats.

MarketMinder’s View: This is a great explanation of why the long-term winners from new technology are impossible to predict and often aren’t the primary purveyors of the technology itself. But we think it misses on the portfolio implications. The immediate application is to AI, but it is generally true of all new major developments. Whenever something groundbreaking emerges, the initial hype surrounds the developers, then it shifts to the companies that build the infrastructure to spread it far and wide. But in the long run, the real winners are the creative users who dream up ways to apply that technology to solve everyday problems, bringing new or better goods and services to market. And those are always a giant unknown in the early days. So this seems like a reasonable hypothesis: “It will only be when everyone’s computer is running Claude or Perplexity, and we’ve all worked out how to use it, that AI will be transformative. When that happens, the gains accruing to the chip-makers and the builders of the data centres won’t disappear. But an increasing share of the economic value might migrate to the businesses and individuals using cheap and abundant intelligence.” (Which reminds us, MarketMinder doesn’t make individual security recommendations and features this for the high-level themes only.) The article spends most of its pixels on examples from the advent of railroads, electricity, automobiles and the internet. All good stuff! Our only beef is with the parting advice to start planning for all this in your portfolio now. If all the history highlighted here is a reliable guide, all those potential winners are way too far out to identify now, and it will be a long, long time before it starts showing up in their returns. Even those who craft the ETFs mentioned are just guessing, as the tumult around a recent hedge fund run by an AI “expert” illustrates. Markets pre-price the foreseeable future, about 3 – 30 months ahead, not far-flung possibilities.