This is an absolute scandal. And these firms charge their customers highly for losing them money compared with a simple cheap tracker fund. https://t.co/Y6izhOlTR0

— Paul Lewis (@paullewismoney) August 17, 2024

Paul says it is, Robin says it is, Dave says it’s even worse than that for him

2/2. If your personal inflation rate over the last 5 years accumulated to 45% – a fund not achieving this / whatever it is – has failed. You are out of pocket for life.

— Dave O. (@Ddimyngorrach) August 18, 2024

But are we engaging with those who profit from managing our money, to offer us anything more than their best endeavours? It would be a scandal if they were negligent or took bets beyond the remit of their prospectus or took money out the back door. But if a manager is simply in the wrong place at the wrong time and gets it horribly wrong, is it an “absolute scandal”?

Of the 32 horses I bet on in July, 31 lost, my return on capital employed was minus 20%. Do I blame the bookies for misleading me, or the trainer or the jockey or the horse?

As Robin teaches us, we stray into these areas of fund management out of curiosity or because of advice. There is  a highly developed risk assessment in the advisory world which assesses people’s capacity to take risk. If these funds are being advised for people with low capacity for risk then either the risk assessment tools are wrong or the funds aren’t doing what they say on the packet. It would be a scandal if these funds are being used by people with a low capacity for risk but I am not sure they are.

Labelling

Some would argue that these funds are labelled to sell not to describe. “Positive future” is something most of us would buy and if the fund is 71% below benchmark then we either now see the future as negative (unlikely) or the views of the manager were wrong, or it may be that the future is still bright, it’s just taking a little longer to arrive than anticipated. Other labels such as “sustainable equity” suggest that a long term view is definitely needed. I’m involved in a fund called Long Term Assets and our message in the label is “buy and hold”. Three years is a horribly short time.

The simple cheap tracker fund

The simple cheap global equity tracker fund isn’t going to let you down, it will give you what the market gives you and so long as you are spread about , you will get what you bargained for, if you bargained for a steady long-term return. Warren Buffet recommends most of us stick to this middle of the road approach and evidence (and Robin Powell) will say he’s right.

When do I expect more?

I expect more than the market return when I am giving my long-term money to a fiduciary. A fiduciary is a trustee or an insurance company with an IGC who is investing my money for the rest of my life (hopefully a long time).

I expect more than average so long as the average includes a lot of dumb money (like my non-advised  stuff). If I were to put my money with a wealth manager, I would also expect more than the benchmark (assuming that was the market average or beta).

I expect more and I expect a fiduciary who fails to stick his or her hand up and be accountable for failure. Because if they do not achieve what they’ve promised, they deserve a bollocking and if they don’t do better – a sacking. That’s accountability.

If you run a long term assets fund , you are asking for a mandate over at least five years and normally 20 years plus. A fiduciary should be really kicking the tyres on this kind of fund because they are taking a big bet based on duration as well as initial investment.

For all I know, the funds that are listed above are advertised for long-term investment not for 3 year investment. Anyone investing in them three years ago will be wondering whether to hold or whether the “first cut is the cheapest”.

But there is no evidence yet that these funds are “dogs”, they are showing dog-like tendencies but dogs are supposed to be for life (hopefully more than  3 years). Even if these “dogs” really are “dogs” , they won’t be worse than the horses I bet on , who lost me 100% of my money.

Guys – guys – guys – please calm down!

What we are looking at is normal distribution, these funds are at one end and somewhere out there – possibly undisclosed – is the fund manager who’s made 30% a year for 20 years.

You are not going to get access to that fund manager or the assets he/she manages through a tracker and probably not through Artemis or L&G or Aegon. But if you are investing in a £20bn + default fund of a workplace pensions, you should be expecting your CIO to be working out who that genius is and beating a path to his/her door.

Because he or she is probably very rich and so are his/her investors. I’m not telling you where to invest or who to invest with, but the day we give up on genius is the day we hand the world to BlackRock and that’s not a day I’m looking forward to.

Not all spotted dogs are scandalous