Competition between asset managers

Closed-end funds and OEICs
OhNoNotimAgain
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Joined: November 4th, 2016, 11:51 am

Competition between asset managers

Postby OhNoNotimAgain » November 18th, 2016, 10:14 am

A gripping new report from the FCA
https://www.fca.org.uk/publication/mark ... report.pdf

Rob

rgifford
Posts: 31
Joined: November 4th, 2016, 10:20 am

Re: Competition between asset managers

Postby rgifford » November 18th, 2016, 11:26 am

As shorter 'Key Points' news release from Reuters

http://uk.reuters.com/article/uk-britai ... inanceNews

LooseCannon101
Posts: 9
Joined: November 5th, 2016, 2:12 pm

Re: Competition between asset managers

Postby LooseCannon101 » November 22nd, 2016, 5:58 pm

The findings of the report suggest that retail investors - you and me, are paying over the odds due to cosy relationships in the City of London.

Investment consultants and brokers are being bribed to offer higher ratings, with performance figures for active funds being manipulated by overly zealous marketing teams. No one seems to be on the side of the investor, with fund management firms trying to fool investors by not explicitly mentioning how much they make over the long term e.g. 20 years.

OhNoNotimAgain
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Joined: November 4th, 2016, 11:51 am

Re: Competition between asset managers

Postby OhNoNotimAgain » November 22nd, 2016, 6:22 pm

It also says there is no point in paying for active funds because they do not deliver and it is impossible to select active funds that will outperform in advance and best buy lists are useless

Tools available to assist both retail and institutional investors in identifying
outperforming products, such as best buy lists and investment consultant
recommendations, do not allow investors on average to identify products that,
after charges, outperformed the benchmark..


Past performance information is difficult to interpret and compare and does not
appear to help when trying to identify future outperformance


on average, consultants are not able to identify managers that offer better returns
to investors


Assuming, for illustrative purposes, that both funds earn the same return before
charges (the average FTSE all share growth), an investor in a typical low cost passive fund
would earn £9,455 (24.8%) more on a £20,000 investment than an investor in a typical active
fund, and this number could rise to £14,439 (44.4%) once transaction costs have been taken
into account.


Overall, our evidence suggests that actively managed investments do not outperform their
benchmark after costs. Funds which are available to retail investors underperform their
benchmarks after costs – while products available to pension schemes and other institutional
investors achieve returns that are not significantly above the benchmark.


Rob

Alaric
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Re: Competition between asset managers

Postby Alaric » November 22nd, 2016, 7:41 pm

MunroMan wrote: it is impossible to select active funds that will outperform in advance


Perhaps those that know how to do this don't divulge their secrets.

But can we accept that there will always be some funds which will outperform a benchmark, whether by taking on more risk or otherwise? The difficulty is not that they don't exist, but you don't know which ones they will be.

I don't agree with the mantra that past performance doesn't give an insight into the future. In absolute terms yes, but what about relative terms? A fund which concentrated on an individual sectors would likely both out perform in some periods and under perform in others. That's behaviour likely to be repeated if the investment mandate remained unchanged. High charging funds with a mandate close to the centre would also likely under perform and that's also likely to continue. Property funds are, or appear to be, less volatile than equity funds.

OhNoNotimAgain
Posts: 20
Joined: November 4th, 2016, 11:51 am

Re: Competition between asset managers

Postby OhNoNotimAgain » November 28th, 2016, 7:55 am

It is disappointing this report has not received more coverage
Here is another take on it:

The FCA has rightly exposed:

Lack of price competition in active funds
Failure to pass on economies of scale
Hidden transaction costs
£109 bn of closet index funds
Near useless broker ‘buy lists’
The crucial importance of increased transparency and standardisation of costs and charges
The 0.6% pa under-performance of active funds
Numerous conflicts of interest operating within fund managers, pension consultants and pension trustees that result in detrimental outcomes for prudent, hard-working savers and investors.

https://henrytapper.com/2016/11/27/mill ... ent-study/

BrummieDave
Posts: 30
Joined: November 6th, 2016, 7:29 pm

Re: Competition between asset managers

Postby BrummieDave » November 28th, 2016, 8:54 am

And perhaps the reason it hasn't received greater coverage lies in the final point on your extract "Numerous conflicts of interest exist...'.

Add journalists who depend upon media companies for their income, and media companies who depend upon advertising from the financial industry to the list and there's your answer. You don't bite the hand that feeds you...

AleisterCrowley
Lemon Slice
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Re: Competition between asset managers

Postby AleisterCrowley » November 28th, 2016, 9:23 am

Alaric wrote:
MunroMan wrote: it is impossible to select active funds that will outperform in advance


Perhaps those that know how to do this don't divulge their secrets.

But can we accept that there will always be some funds which will outperform a benchmark, whether by taking on more risk or otherwise? The difficulty is not that they don't exist, but you don't know which ones they will be.

I

Yes, very unlikely the set of all funds would not contain some that outperformed the benchmark.
Do the fund managers of these outperformers have 'special skills' ? Probably not. We humans (particularly investors) are very good at rationalising luck as 'skill'
Even if some managers do have an edge, if there's no way to recognise this other than post-event the fact is useless to retail investors

Alaric
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Re: Competition between asset managers

Postby Alaric » November 28th, 2016, 9:35 am

AleisterCrowley wrote:Even if some managers do have an edge, if there's no way to recognise this other than post-event the fact is useless to retail investors


If every single fund was either a tracker or a benchmark hugger, retail investors would have no opportunity to attempt to outperform the market. That would not be good for choice. If you take the view that accountancy is a subjective subject with "true and fair" concealing a multitude of issues, those investment managers able to get under the skin of a Company and its window dressing have a potential advantage when the rest of the world catches up.

You could say the same about post-event on indexes. They won't all perform the same, so how do you decide which one to follow?

AleisterCrowley
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Re: Competition between asset managers

Postby AleisterCrowley » November 28th, 2016, 9:45 am

Alaric wrote:
AleisterCrowley wrote:Even if some managers do have an edge, if there's no way to recognise this other than post-event the fact is useless to retail investors


If every single fund was either a tracker or a benchmark hugger, retail investors would have no opportunity to attempt to outperform the market. That would not be good for choice. If you take the view that accountancy is a subjective subject with "true and fair" concealing a multitude of issues, those investment managers able to get under the skin of a Company and its window dressing have a potential advantage when the rest of the world catches up.

You could say the same about post-event on indexes. They won't all perform the same, so how do you decide which one to follow?


If you pick a fund that is radically different to the index there's a good chance that the performance will be radically different - in a positive or negative direction...
You could say the same about post-event on indexes. They won't all perform the same, so how do you decide which one to follow?
That's one of the big questions - 100/250/all share? What sort of global exposure? In my opinion invstigating this is more useful than trying to spot star fund managers.

LooseCannon101
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Joined: November 5th, 2016, 2:12 pm

Re: Competition between asset managers

Postby LooseCannon101 » November 28th, 2016, 8:30 pm

I was reading this week's edition of Investor's Chronicle and noticed an article on the FCA report as mentioned in the 'Competition between asset managers' original post.

Last week there was an article in Investor's Chronicle on synthetic ETFs which was mentioned about a month ago on one of the boards of the Motley Fool website.

Perhaps it is pure coincidence that two articles appear a few weeks after appearing as original posts on popular investing websites.

swynn
Posts: 17
Joined: November 18th, 2016, 7:27 am

Re: Competition between asset managers

Postby swynn » November 30th, 2016, 10:03 am

The FCA "has stopped short of recommending a cap on fees". I am recommending a cap on portfolio turnover. This has generated a considerable amount of correspondence, and now a four page Complaints Commissioner decision (ref FCA00212).

swynn
Posts: 17
Joined: November 18th, 2016, 7:27 am

Re: Competition between asset managers

Postby swynn » December 12th, 2016, 6:14 pm

The Complaints Commissioner decision has been published:

http://fscc.gov.uk/wp-content/uploads/F ... -11-16.pdf

BarrenWuffett
Posts: 18
Joined: November 4th, 2016, 10:31 am

Re: Competition between asset managers

Postby BarrenWuffett » December 12th, 2016, 7:03 pm

I wonder how much the FCA are spending on this study which is doing no more than stating the bleedin' obvious - low cost passive funds provide better returns than more expensive managed funds. I suppose it makes them feel as if they are doing something useful?

swynn
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Joined: November 18th, 2016, 7:27 am

Re: Competition between asset managers

Postby swynn » December 13th, 2016, 11:29 am

You say "low cost passive funds provide better returns than more expensive managed funds". i agree. But a problem seems to be that some funds claiming to be "low cost passive funds" are actually a con. The low cost comes from low portfolio turnover, PTR values. But the highest PTR values for the index funds in my data are 685.5%, 571.7%, 108.2%. 91.1%, 89.2%. This is a reason why I am saying the FCA should publish the PTR values for the funds which it regulates. We can then sort out the sheep from the goats.

swynn
Posts: 17
Joined: November 18th, 2016, 7:27 am

Re: Competition between asset managers

Postby swynn » January 12th, 2017, 9:41 am

"which is doing no more than stating the bleedin' obvious"

Not so bleedin' obvious to the DWP, otherwise the funds of DC workplace pensions would be passively managed.


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