Opinion  

Hold the champagne – does public grasp meaning of FTSE high?

The FTSE 100 last week soared to an all-time high, though of course whether it is still there by the time you read this cannot be said with confidence.

All this is better for advisers and their clients than the proverbial kick in the teeth, but anyone with a little bit of nous about investment knows it means very little.

We know that a new and prospective investor may be put off by such ‘slow’ progress since the last millennium, given that the previous high was registered on the last day markets were open in 1999.

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Anyone who knows anything about investment also knows that investment in the FTSE 100 plus reinvested dividend income would be well ahead.

Anyone who knows anything about the index also knows that this peak is not an accurate reflection on the state of the UK economy, as it is one of the most internationalised home markets in the developed world.

‘So what?’ you say as investment advisers. Our clients are not exactly offered FTSE 100 exposure. They have a balanced, diversified portfolio, and even in casual conversation down the pub about what is a good fund, you might suggest a decent income fund or even a broad global passive exchange-traded fund.

But there is an issue with this level of understanding. This is a world in which many in fund management simply do not use language the public understands. ‘Risk on’ and ‘risk off’ would, for example, be bizarre terms to adopt for shares and bonds, even if the terms contained a passing resemblance to the risk of various types of investment – Greek government bond anyone?

But it is not just the failure to explain a vocabulary that really only addresses market professionals, it is also that in this environment, the bad headlines may seem even worse. Recent wild accusations have seen closet index trackers accused of defrauding investors. They are rubbish certainly, but fraudulent?

It underlines how important it is that active fund managers get their messages and disclosures right.

But it isn’t helped by the startling events at Aviva Investments, where the firm has paid out almost £150m in fines and compensation. It was accused by the regulator of palming off less successful trades on their standard retail funds while cherry-picking better performing trades for the more lucrative – in fee terms – hedge funds.

Aviva fully co-operated with the FCA’s investigation, adding it had fixed the issues and its systems and controls.

But this can still only add to the impression that, on charges and the rest, fund managers are doing the modern equivalent of coin clipping with their investors’ money.

Actually, part of the problem with much of this is that investors simply do not move long-term underperforming money as frequently as they should.