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: Taking any central banker at their word is perilous, given their collective history of changing their minds, but this is a good reminder that monetary policy isn’t predictable or preset no matter what futures markets pencil in. As Bank of England Governor Andrew Bailey told Parliament’s Treasury Committee today: “‘What I want to dispel is the idea that we've really got a secret plan, we ⁠know where we're going to go to and it’s unconditional.’” He explained further that market-based rate expectations looked more in line with inflation fears than inflation data (and, presumably, its actual forward-looking indicators). Now, none of this means the BoE won’t hike next week—again, it is all unpredictable! But it is a good reminder that policymakers look at a range of things and when the data change, they change their minds no matter what earlier forward guidance they might have uttered.