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Home > Opinion > Tony Hazell

Fund managers need to stop adding to bloated sector

Even the most skilled and diligent IFA cannot hope to keep track of all investment funds; the execution-only investor has no chance.

By Tony Hazell | Published May 16, 2012 | Investments | comments

Small investors are consistently steered away from investing directly in shares. The reasons are generally something to do with complexity and risk.

Do not put all your eggs into one basket they are told. It is much better to have a nice investment fund that will give you exposure to a broad mix of shares and possibly other investments.

Great, fantastic. There is nothing wrong with that. And as those who held on to windfall shares in Bradford & Bingley, Halifax and Northern Rock will confirm, investing in shares can be risky.

On top of that, small shareholders always seem to be the last to know what is actually going on.

So the investor decides a fund is a much better idea. But where do they start? (I know, I know – they should go to an IFA, but let us face it, not all of them do.)

Consider this. There are 621 shares in the FTSE All Share.

Now look at the mutual fund arena. There are more than 2000 investment funds for the investors to wade through.

Before investing, a canny person would check up on the aims of the fund, though this can be far from easy to ascertain. They should also work out the charges and effects these would have on any returns.

Then there is the question of whether the fund does what it claims – and will it continue to have the same aims a year or two later.

The fact is that there are far too many investment funds. Even the most skilled and diligent IFA cannot hope to keep track of them all – and the execution-only investor has no chance.

Often the funds appear to be launched on little more than a whim of a marketing department. Fashion and the urge to bring in more money has a greater influence on many fund launches than investment or economic reality.

Investment Management Association members between them have £613bn under management. But it is fair to ask how much of that money could be better managed and how much could be managed equally as well at a lower cost.

Many firms would do far better to address their existing range of funds and look to improve the performance of these than to continue to churn out new funds in areas in which they have little expertise.

Hargreaves Lansdown’s Wealth 150 now contains rather less than 150 funds. That says much for the quality of the majority of funds on offer.

Do not get me wrong. I am all in favour of well-managed investment funds that offer genuine opportunities to investors.

What concerns me is that some firms seem to have forgotten the real needs of investors in their rush to make money and launch ever more unnecessary new funds.

What concerns me is that some firms seem to have forgotten the real needs of investors in their rush to make money and launch ever more unnecessary new funds.

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