Jeff PrestridgeOct 7 2020

We should be proud of our fund industry

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We should be proud of this country’s fund management industry.

Proud as punch. Bar the occasional glitch – for example, Woodford Investment Management – it is a business sector that thrives more than survives.

Both diverse (in terms of products) and dynamic (many talented fund managers). A world leader, I would suggest.

The City I love is more like an early Sunday morning rather than a Friday lunchtime

Even coronavirus has spared it the emasculation that other industries have experienced in recent months, although I did find it rather alarming wandering around a deserted City of London 10 days ago – the industry’s ‘home’ – after having a company health check (‘all fine’ for those who are interested in my good/ill health).

The City I love seemed like a ghost town – more like an early Sunday morning in the capital rather than a Friday lunchtime stroll through the Square Mile.

I want our bustling City back. I fear for all the ancillary businesses – the sandwich shops and bars – that depend upon an alive City. Apocalyptic. 

Of course the fund management industry is as adept at working remotely as it is firing on all cylinders from London (or other city) offices.

Indeed, since lockdown and coronavirus changed all our lives for the worse, only a handful of fund managers I have spoken to have returned to their place of employment.

The vast majority are content to work from home and have no inclination to come back to the office until long after the New Year has been welcomed in – and maybe even later, if the anticipated second coronavirus wave bites as viciously as an Australian cattle dog. God forbid.

Yet world leader as it may be, the fund management industry cannot be complacent.

While it can not mitigate falling stock markets – more a probability in the coming months than a possibility – it needs to move with the times; be progressive rather than regressive or stagnant.

In its defence, its embracing of environmental, social and governance investing is welcome, although some of the fund labelling remains a little tenuous – if you do not believe me, take a look at SCM Direct’s work on the issue: ‘Greenwashing report – misclassification and mis-selling of ethical investments’.

But it needs to do much more in ensuring retail investors get value for money from entrusting them to look after their long-term investments. Value in terms of access to robust and successful investment and also in terms of ‘fair’ ongoing charges.

It is an issue that the City watchdog is aware of, although I am not quite sure whether the regime it has introduced to tackle better value for money – ‘assessment of value’ – is fit for purpose. More a bureaucrat’s dream than a giant step in the direction of greater investor power.

In theory, the annual assessment of value reports that fund management groups are now required to publish by the regulator should highlight areas of investor detriment – be it continued poor (relative) investment performance, onerous fund charges or share classes that have discriminatory charges.

They do, but you have to dig rather deep to find such evidence.

Take M&G’s annual report. It is 416 pages long – nearly eight times the size of the equivalent report published by Artemis (53 pages) and ten times that issued by Columbia Threadneedle (42 pages).

Eight times, ten times the value? Not in a million years.

It is designed not to be read. It is not until you get to page 344 that the real juicy bit of the report jumps out of you: “We are unable to conclude that the fund has delivered value to its investors...The fund has consistently fallen short of its performance target and we have determined that action must be taken by M&G to ensure it is better placed to achieve its objectives going forward. For this reason we have rated the fund as ‘unsatisfactory’ for its performance.”

The fund in question is the £1.4bn M&G Recovery – a vehicle that has registered double digit losses over the past one and three years and single digit losses over the past five.

True to its word, M&G has now taken action by announcing that the incumbent manager Tom Dobell (a lovely individual) is leaving at the end of the year, to be replaced by Michael Stiasny.

The rest of the assessment report – bar black marks for two other funds – is as investor useful as a chocolate fireguard. Box ticking of the finest order.

It should not require assessment of value reports to get fund management groups to do the ‘right’ thing. 

Just recently, Baillie Gifford trimmed the ongoing charges of its Global Income Growth and Responsible Global Equity Income from 0.57 per cent to 0.5 per cent.

This is despite both funds having deemed to be providing value for money in Ballie Gifford’s assessment of value report. The Scottish investment power house said the reductions reflected its commitment to “offer value for money to investors”.

More please. Plenty more. This should be the investment industry’s Holy Grail.

Jeff Prestridge is personal finance editor of the Mail on Sunday