OpinionJun 1 2016

Hounded by Twitter

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Twitter. Damned twitter. I wish I had never brought this social media tool into my mediocre life as if it were a lover.

For the past month, I have received a Twitter pasting for my views on active fund management (I have referred to a little of this social media bashing in past Financial Adviser columns).

They are views, I must reiterate, not an unequivocal defence of active fund management (I have been and continue to be one of its fiercest critics).

They are opinions borne out of the simple premise that both competition and choice are good for investors, whether the fund management provided is active or passive.

Here is a taster of the tweets that have come hurtling my way. I have ignored the ridiculous ones that say journalists are not needed – what utter baloney – blame the media for not being hard enough on the banks (rubbish) and suggest the fourth estate should collectively crawl under a rock, hide and never resurface (okay, let us all go and live in Russia).

Just for clarity’s sake, I have added annotations in square brackets to make sense of some of the tweets.

“Sensible investment [passive investment] is boring, media don’t do boring – it (no news) doesn’t sell papers.”

“It’s not just re ‘passive’. It is about pointing out the costs of active and the random nature of returns, not just waxing lyrical about [Neil] Woodford [Woodford Investment Management] as if he’s the answer to everything.”

“Lots of ‘star’ manager profiles [in the newspapers] and beauty parades, not enough on fees or long-term performance or academic evidence. The evidence has repeatedly shown that active funds outperform no more than you’d expect from random chance.”

“Most investors should take [Warren] Buffett’s advice and index. The public needs to know it and journos [journalists] have a duty to say it.”

Finally: “Overall, financial PR still has too much influence over [journalistic] agenda and content” and: “The UK [investment] media still dances to the industry’s tune.”

There is more but you get the gist.

According to the authors of these tweets, the financial press is beholden to both the investment funds industry and its phalanx of public relation advisers. We are also besotted with active fund management and do not give enough airing to the growing market for passive investment (now some 12 per cent of the retail investment funds industry, according to the latest statistics to emerge from the Investment Management Association).

Rubbish. Utter garbage.

Most of the tweets have emanated from journalist and broadcaster Robin Powell who runs a website called evidenceinvestor.co.uk and a company called Regis Media. He is an ardent supporter of passives. Indeed, he is such a passive disciple that he is happy for his ‘content’ to be presented by firms in their own branding. Anything goes, it seems, provided the passive gospel can be spread far and wide.

Anything goes, it seems, provided the passive gospel can be spread far and wide.

In recent weeks, Mr Powell has argued that buying individual stocks is a “bad idea” for most investors. Newly listed companies, he says, are particularly worth avoiding. As for active funds, he talks about a “current crisis”.

Advisers, he says, do little but pick average funds for their clients while the investment industry creates an illusion that it only provides good funds. As he said: “If a firm has hundreds or thousands of funds, then a few of those are likely to outperform by the law of averages. And guess what? Those are precisely the funds that feature in their advertising and that you read about in the media.”

Mr Powell is well entitled to his views. He is passionate and I like passionate, irascible people. But the future of retail investment management is not just about passive versus active. It is not as black and white as that, confining active fund management to the scrapheap (as Mr Powell wants) and going hell for leather for low-cost passive fund management. We need our Waitroses and John Lewis’s as much as our Lidls and Poundstretchers.

It is more about ensuring investors get best value for money from the industry they give their money to in order for it to increase (in value).

That means advisers constructing portfolios for clients which best serve their long-term financial interests. If that means portfolios comprising both active and passive tools, fine.

It also means continuing to drive down costs, both on the active and passive side, so that investors’ returns are not compromised by charges. We need the ongoing costs of index tracking funds to be trimmed as much as the costs of active fund management to come down.

M&G’s move to cut the ongoing charges for a majority of its direct fund investors is a step in the right direction – as is its decision to bear the cost of external equity research that currently gets dumped on investors.

We need other fund groups to follow suit. As for investment fund platforms, they also need to trim their charges.

In a perfect investment world, we would have active and passive management working in tandem – not against each other – to better the interests of investors.

Let’s tweet that instead.