We are moving to a world where the cost of accessing global equity markets is effectively zero.
Beta is nearly free and chasing the elusive alpha has become even more expensive. The only people who seem oblivious to this fact seem to be investment managers themselves.
A case in point is Vanguard’s latest round of cost cutting, which pegs the cost of a multi-asset portfolio at less than 25 basis points. That’s not wholly surprising, as Vanguard has always prided itself in keeping costs low for investors.
But what is shocking is that Vanguard’s LifeStrategy portfolios have outperformed the median discretionary investment manager’s portfolio in every category across one and three years compared against Asset Risk Consultants’ indices of discretionary portfolios.
Not only has LifeStrategy beaten the average discretionary portfolio by more than 6 per cent in the past three years in every category, it has done so with broadly similar volatility and drawdowns. And given the margin of outperformance, discretionaries should be ashamed.
Indeed, it calls into question the value of discretionaries, who are often charging as much as 10 times the cost of Vanguard’s plain vanilla portfolio.
Advisers may well find it easier suggesting clients give up on chasing alpha and accept market returns rather than having to explain why a manager underperformed.
Abraham Okusanya is founder and director at FinalytiQ
