Have you got a car? Probably. How did you pick it?
Well, there would have been a range of criteria. Purpose: runaround, get you to the station in the mornings, drive to work, ferry the kids around, cheap first car for one of your children, or just pure pleasure.
Colour, efficiency, and of course cost, which will include the insurance, are all factors.
Is there any single factor that is more important than the others? You would probably say price – at the end of the day you only buy what you can afford, but price is unlikely to be the sole reason, particularly as the choice currently means that you can find a car for almost any price.
The Daily Telegraph is running what it describes as a ‘campaign’ against high charges on investment funds.
You might have read about it, or you might have had clients asking you about it. Now the Telegraph is a decent newspaper and it has a couple of excellent personal finance journalists – Ian Cowie (once a columnist for Investment Week) and Paul Farrow (who started his journalist career with IW).
Unfortunately, its newsdesk is looking for something to keep readers interested during the summer and they have picked on an easy target – investment funds.
The Telegraph’s newsdesk has made the typically ill-informed link between charges and performance – in the same way they might if they were talking about a washing machine or a loaf of bread.
So here is the point. The reasoning you use to buy a loaf of bread is different from that you use to buy a washing machine, which in turn are both completely different from the reasons behind buying an investment fund.
Secondly, there is no link, either objectively or subjectively, between price and performance of investment funds. In general terms, charges are broadly the same across the industry, although the total cost of investment – as expressed by the TER – varies quite considerably.
There is no doubt TER is going to become a more widely quoted and understood measure of cost. There are some examples of very high TERs, and some of these are very hard to justify, but many are easily explained by factors such as spreads in the underlying markets or the size of the actual fund.
But the most important point to make is that it is a dangerous route to go down to equate cost with performance.
This ‘campaign’ has been supported by Alan Miller – the former New Star fund manager who now makes his living out of ETF portfolios.
As he is punting ETFs these days, he would say that active funds are too expensive. As someone who made serious money out of running active funds, including hedge funds, and who had periods of mediocre performance to say the least, there is a hint of hypocrisy in his criticism of active management.
But then we are in what is known as the silly season.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at lawrencegosling@sky.com
