Readers of my previous Intelligent View blogs will be aware of the general concerns of the Financial Conduct Authority about the behaviour of fund managers. The FCA’s report into the asset management industry in June 2017 highlighted a number of areas of poor practice which was followed up by an investigation into closet tracker funds resulting in 64 out of 84 fund managers investigated refunding money to their investors.
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The FCA is reluctant to take any truly strict action against active fund managers even though it is fully aware of a number of sharp practices which exploit investors. Interestingly even though the FCA isn’t taking a tough stance the writing is on the wall for many of these active fund managers anyway. The main reason for this is the inexorable rise of passive or index tracker funds. Increasingly large flows of money is moving away from active funds into passive funds and there appears to be very little the active fund manager can do about it.
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Much research into fund management has shown clearly that for most investors, most of the time they are better off investing in passive rather than active funds. Why is this? Well the main reason is charges. Passive funds have much lower charges than active funds. In addition to this there is less buying and selling in an index tracker fund which further reduces charges because of lower trading costs. Three quarters of active fund managers underperform the index meaning that the majority of them underperform index tracker funds!
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The other big issue is that fund managers are fundamentally in a conflict of interest position because on the one hand they are trying to maximise returns to their shareholders but on the other hand they are trying to maximise the return for their investors? Well clearly they cannot do both!
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The result has been a number of poor practices which has resulted in the majority of fund managers both overcharging and underperforming. A recent report of St James’ Place, an insurance company that masquerades as an independent wealth manager, highlighted the fact that their investment performance is very poor, their charges very high and the penalties for cashing in their investments are penal.
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Such poor practices are much more likely to happen with stockmarket quoted companies whose policy is to maximise profits for their shareholders. Interestingly there are some good examples of fund managers who have less conflicts of interest which has resulted in much better returns for investors and more ethical behaviour by these organisations. Surprise, surprise!
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In the UK Baillie Gifford is a good example of a business that is run by a partnership, has a number of excellently performing funds and, lo and behold, much lower charges. Of course the best example of all is Vanguard, a mutual fund manager with no shareholders, which pioneered passive investments in the form of index tracker funds. The company is relatively young having been formed just 42 years ago by Jack Bogle. Vanguard now has $5.1 trillion in funds under management. It is already one of the largest fund managers in the world. Testament if any were needed of the power of acting in the best interests of investors.
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Interestingly Vanguard doesn’t just offer passive funds. About a quarter of its funds are active funds. This underlines an important point. Although passive funds outperform active funds about 75% of the time there are still a number of excellent active funds that continue to save funds.
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Whilst the CCM Intelligent Wealth Fund is a new active fund we are confident that it will join the minority of top active funds in outperforming index tracker funds over the long term because of a number of its unique features. It has a predominantly buy and hold strategy therefore very low trading costs, its owner Minerva Money Management is a private company so there are no external shareholders to satisfy, it has an excellent investment strategy investing solely in innovative and disruptive companies that are shaping our future and it is wholly committed to acting in the very best interests of its investors.
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So if you would like to invest your money with a fund managers that puts you, the investor, first why not invest your hard earned wealth into the CCM Intelligent Wealth Fund? You know it makes sense.
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The FCA is reluctant to take any truly strict action against active fund managers even though it is fully aware of a number of sharp practices which exploit investors. Interestingly even though the FCA isn’t taking a tough stance the writing is on the wall for many of these active fund managers anyway. The main reason for this is the inexorable rise of passive or index tracker funds. Increasingly large flows of money is moving away from active funds into passive funds and there appears to be very little the active fund manager can do about it.
Â
Much research into fund management has shown clearly that for most investors, most of the time they are better off investing in passive rather than active funds. Why is this? Well the main reason is charges. Passive funds have much lower charges than active funds. In addition to this there is less buying and selling in an index tracker fund which further reduces charges because of lower trading costs. Three quarters of active fund managers underperform the index meaning that the majority of them underperform index tracker funds!
Â
The other big issue is that fund managers are fundamentally in a conflict of interest position because on the one hand they are trying to maximise returns to their shareholders but on the other hand they are trying to maximise the return for their investors? Well clearly they cannot do both!
Â
The result has been a number of poor practices which has resulted in the majority of fund managers both overcharging and underperforming. A recent report of St James’ Place, an insurance company that masquerades as an independent wealth manager, highlighted the fact that their investment performance is very poor, their charges very high and the penalties for cashing in their investments are penal.
Â
Such poor practices are much more likely to happen with stockmarket quoted companies whose policy is to maximise profits for their shareholders. Interestingly there are some good examples of fund managers who have less conflicts of interest which has resulted in much better returns for investors and more ethical behaviour by these organisations. Surprise, surprise!
Â
In the UK Baillie Gifford is a good example of a business that is run by a partnership, has a number of excellently performing funds and, lo and behold, much lower charges. Of course the best example of all is Vanguard, a mutual fund manager with no shareholders, which pioneered passive investments in the form of index tracker funds. The company is relatively young having been formed just 42 years ago by Jack Bogle. Vanguard now has $5.1 trillion in funds under management. It is already one of the largest fund managers in the world. Testament if any were needed of the power of acting in the best interests of investors.
Â
Interestingly Vanguard doesn’t just offer passive funds. About a quarter of its funds are active funds. This underlines an important point. Although passive funds outperform active funds about 75% of the time there are still a number of excellent active funds that continue to save funds.
Â
Whilst the CCM Intelligent Wealth Fund is a new active fund we are confident that it will join the minority of top active funds in outperforming index tracker funds over the long term because of a number of its unique features. It has a predominantly buy and hold strategy therefore very low trading costs, its owner Minerva Money Management is a private company so there are no external shareholders to satisfy, it has an excellent investment strategy investing solely in innovative and disruptive companies that are shaping our future and it is wholly committed to acting in the very best interests of its investors.
Â
So if you would like to invest your money with a fund managers that puts you, the investor, first why not invest your hard earned wealth into the CCM Intelligent Wealth Fund? You know it makes sense.
