I’ll take investment nous over cheaper charges any day

Take fund management, for example. Over the past couple of years, it has been batted around the head for being too expensive and not transparent enough when it comes to the overall charges levied on investment funds.

The batting is relentless. The latest to wade in wielding an almighty baseball bat is the Financial Services Consumer Panel, a collection of august individuals whose role in life is to advise the FCA on the interests and concerns of consumers.

In a discussion paper just released, the FSCP calls for all investment managers to be required to quote a single and comprehensive annual charge, including estimates of forward costs such as transaction charges. This would replace the oft-quoted annual management charge which the panel says can represent as little as a quarter of total fund costs.

It argues that all other costs currently deducted by the investment manager from the fund should be borne in future by the investment firm, not the little old investor.

If such an overhaul were to be implemented – it is proposing a roundtable with ‘stakeholders’ (presumably fund managers and investors) in the New Year to thrash out all the details – nirvana would be reached.

Investors would be able to compare charges on a like-for-like basis while fund groups would come under pressure to become more efficient in order to show their total charges in the best light.

The latest to wade in wielding an almighty baseball bat is the Financial Services Consumer Panel

Sue Lewis, the panel’s chairman, says: “People are depending more and more on investments to deliver their long-term financial well-being, especially in the light of recent pension reforms. It is completely unacceptable that consumers do not know what firms are charging them to manage money on their behalf.”

I do not have a problem with the panel’s beef about the need for transparent fund management charges – although you can hardly say that the regulator’s disaggregation of fund platform charges has been a great success (investors are more baffled than they were pre-disaggregation).

Nor do I have anything but admiration for the true and fair fund management charges campaign spearheaded by Gina Miller at wealth manager SCM Private Finance.

I heard Gina speak at a recent savings conference organised by the splendid Tax Incentivised Savings Association and she was as passionate as ever about the need for complete transparency.

Yet, with all this focus on disclosure and costs, we seem to be forgetting what fund managers are primarily in business for – which is to enrich those investors who entrust them with their hard-earned money.

I would rather have my money managed any day – and every day – by someone with investment nous than a rival who would appear charge-friendly under the new FSCP disclosure regime, but who actually possesses little talent for delivering the investment holy grail that is alpha.

I would rather have my money managed any day by someone with investment nous

Investment nous is not in short supply. Wealth manager Tilney Bestinvest recently identified 100 fund managers that it says have driven their funds to outperform their benchmark stock market indices more times than not over their entire careers – some spanning more than 20 years.

The average monthly outperformance of this top 100, according to Tilney’s scrutinisers, is 0.38 per cent a month, equivalent to 4.56 per cent ‘extra’ return a year. And this extra return is net of all the charges the FSCP is getting all worked up about.

Over the past couple of weeks, I have spoken to a couple of investment managers who I would back irrespective of how competitive – or uncompetitive – their funds appeared in the new FSCP charges world.

The first is Giles Hargreave of stockbroker Hargreave Hale, an absolute gem of a fund manager and Tilney’s ‘number one’.

He has catapulted Hargreave Hale’s fund management arm, Marlborough, into the limelight in recent years by delivering advisers and investors consistent investment performance.

He has done this by concentrating on smaller UK companies and building a 15-strong team of analysts and managers whose role is to separate the wheat from the chaff.

Two characteristics make Giles stand out from the usual investment crowd.

First, he is not gung-ho. His three main smaller company funds – Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth – are all broadly invested across more than 200 companies. Consistency in investment performance is the aim. Conviction investing is too volatile for his liking.

Second, Giles believes he is doing real good by backing many of Britain’s fledgling companies that other fund managers would not give the time of day to. Often, he provides companies with the finance that banks are not prepared to provide. He backs Britain.

Of the ‘top’ 100 Tilney fund managers, 14 run smaller UK company portfolios while 33 marshall funds that are invested in a mix of mid-cap and smaller company shares.

The second top manager I have spoken to recently is Tom Slater, who runs the £3bn Scottish Mortgage Investment Trust with James Anderson. A fund with a compelling record – check it out – and ‘total’ charges of 0.5 per cent.

Even those boffins at the FSCP would surely be impressed. But then maybe not.

Jeff Prestridge is personal finance editor of the Mail on Sunday