James ConeyJul 22 2020

Asset managers need to change the record

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The most flabbergasting thing about the rise of trackers is that it has happened largely without the help of financial advisers or the big investment platforms.

While you guys have been plugging mainstream asset managers and discretionary wealth management services, ordinary DIY investors (as we like to call them in the media) have been slowly and surely opting for trackers.

The reason, primarily is cost.

In March, 80 per cent of new investments made at Hargreaves Lansdown were into passives

Since Virgin launched its  – now, not so low-cost – FTSE tracker in 1995, there has been a steady flow of money moving to cheaper options across the market. Then came BlackRock and then Vanguard; and the rise of the latter has proved the final tilt.

The figures are starting to become staggering. Although the asset managers still have the majority over the longer term, there are signs that investors have grown a little weary of the high fees.

In March, 80 per cent of new investments made at Hargreaves Lansdown were into passives.

For context, trackers account for 18.9 per cent of all UK investments. In the US the figure is 40 per cent.

The growth, perhaps unsurprisingly is coming from younger investors. About 39 per cent picked trackers compared with only one in four investors aged above 55. 

Now you can argue the rights and wrongs of all of this, not least that, clearly, if you are invested in trackers you are totally exposed to the market.

And the old joke is that trackers equal guaranteed underperformance.

But if asset managers are going to prove their worth then they really need to start shifting the dial, because an existential crisis awaits if things keep going as they are.

Just take a look at the annual BMO Global Asset Management Multi-Manager Fund Watch survey.

It showed that the number of funds achieving top quartile returns consistently over a three-year period as at the end of 2020 rose to 5 per cent, compared with 3.9 per cent in the previous quarter. 

Those securing above median returns in 2020, increased from 15.7 per cent in the first quarter to 18.8 per cent.

But flip these figures on their head and you have got more than 80 per cent of fund managers with median or below performance. Pathetic.

And we have seen from value assessment reports that not enough managers are ensuring clients are in the right share classes.

For years asset managers have ignored the argument over fears, and now they are losing out.

For years advisers have ignored passives. I know that some have embraced them, but it is not enough.

Clients, I am sure, are asking about them. If not, why would big names like St James’s Place bother with them?

It shows that if you do not adapt, you may lose out too.

I just don’t believe it

For a few weeks I have been hearing the odd gripe about Unbiased.

The tone has been that the lead generation service just was not worth the money.

As an experiment, and in order to get the full picture, I decided to ask Twitter: ‘Hey financial advisers, what’s the problem with Unbiased?’

The silence was deafening.I received a few replies from advice companies who had found it helpful, but not a single adviser was willing to say specifically what their grumble is.

There are several explanations for this. The first is that my Tweet got lost. That is possible, but given how many financial advisers usually leap on every word I type, I think it is unlikely.

The second is that somehow companies are scared about criticising Unbiased. Again, I do not believe it.

And the third is that Unbiased is one of those services advisers love to moan about because they generally do not like it, but that when it comes to specifics, they just cannot put their finger on what it is they do not like. It is a necessary evil, if you will.

This I am more inclined to believe. If you want to let me know otherwise, do get in touch.

Choppy waters

When is a smoothed fund not a smoothed fund? When it is the Prufund.

I have had a series of letters from people who are annoyed that the Prufund Cautious fund was chopped by 9 per cent during the market downturn.

It is not that they were disappointed by the performance, but they claimed they had no idea it could happen. When you have an investment, you should not have nasty surprises.

Uh-oh.

James Coney is money editor of The Times and The Sunday Times