You will find this amazing, but some people just aren’t interested in investment. No interest in the effect of the US government shutdown, on the sort-of recovery and hence on the stock market; no interest in valuation techniques; and no desire whatsoever to talk about whether Russia is really cheap enough to buy.
I have friends who aren’t much interested in gold; who just don’t want me to explain to them how a shift in global inflation expectations will change the price they pay for their mortgage; and who really don’t care about Chinese corporate governance.
I don’t get it, obviously. But that’s the way it is. And this isn’t just non-financial friends – even well- off ex-finance friends don’t want to talk about finance much. They just want me to suggest a fabulous fund of some kind or another that will take every asset allocation and stockpicking decision out of their hands, tell them where to go to buy it and then get on with talking to them about the things we are all interested in (everyone’s children, mostly).
You’d think this would be easy – a new fund seems to launch every few hours in the UK. But there are two problems. The first is that there are very few good funds out there catering for lazy investors. And the second is that even if you can find a competent one that will balance simple asset classes (some equities spread across lots of different markets, some bonds, maybe a little property), invest wisely inside those asset classes and rebalance the whole lot a couple of times a year, it is still all but impossible to explain the current charging complications to anyone who isn’t familiar with the retail investment market.
Only this week I had to waste 30 minutes of good gossip time explaining to an ex-City friend that the fund he was interested in buying was rather more expensive than he thought (it was a fund of exchange traded funds, so came with a pile of double charges). When I was done with the ETF fund I started to explain how the price of so many active funds has now fallen (thanks to the retail distribution review) to the extent that the prices of some clean share classes can be on a par with those of passive funds. My friend – not long semi-retired from 20 years working with money – looked at me in misery. “What,” he asked, “is a clean price? Why does it have to be so hard?” Why, indeed?
Clearly, this is all really complicated and only some of us care about it. Most people just want it to go away. They don’t want to construct their own portfolio and they don’t want to pay an IFA or a wealth manager to do it for them either. They want a one-stop shop fund. I’m hoping that the industry might get around to coming up with some of what they like to call solutions in this space at some point (however unrealistic an aspiration they may think it). But while they consider the pros and cons of cheap all-rounder products, it is worth casting your mind back to the solution that people used to use as a default – balanced managed funds.
These were supposed to do exactly what I describe above but have fallen out of favour thanks to the arrival of more complicated solutions and better stories – who needs a careful mix of quality bonds and equities when you can have derivatives and Nigerian bank stocks?
There are, however, still a few good ones around. Knocking around the top of my simple/cheap/good list the moment is the Baillie Gifford Managed Fund (disclosure: I sit on the board of a trust run by Baillie Gifford). The performance is good (the five-year return is 71%) and if you buy it right it is very cheap. The right way is to get it from a broker that sells you clean shares in it – Ie those that have had the old commission rates paid to advisers stripped out. Do that and you will pay 0.4% in management fees and a total cost every year of not much more than 0.45%. That’s a good price. Do it the hard way – Ie buy the old share class – and you will pay more like 1.5%. In the new world of low fees that’s a lousy price.
I’m also interested in one from another Scottish company. The McInroy & Wood Balanced Fund has a £10,000 minimum investment, but offers a diversified international bond and equity portfolio with a very good long-term performance record. It isn’t as cheap – the annual charge is 1% – but it is simple, and I know at least one lazy, rich person who considers it the answer to their prayers.
On to one-stop investment trusts. My long-term favourite, Personal Assets Trust, hasn’t been top of the pops recently in terms of returns, but it still fits the bill nicely, as does the Ruffer Investment Company.
But there is one more that you might think about. I first mentioned the Battle Against Cancer Investment Trust to you last year when it launched. It is an unusual fund in that it is a fund of hedge funds (so not that simple), but it avoids most of the usual problems of these by including only really good funds and by not charging for them. Yes, in a rare example of financial do-goodery, all the managers have waived their usually rapacious fees for this fund for charitable reasons. So you will pay nothing but 1% a year as a donation to the battle against cancer.
Bacit has been trading at a premium, but it is now raising some new money so you can call your broker today and sign up to buy shares without paying that premium. I think you should. It gives you exposure to the kind of managers who wouldn’t normally allow most of us into their Mayfair offices; it should provide good returns (remember you aren’t paying the usual fees) and it is probably the first socially responsible investment I have ever had any time for.
So here’s an idea for all those of you who want me to give you a simple answer to your investing dilemmas. Put most of your money into one of the balanced funds above. Put the rest into Bacit. Job done.
• This article was first published in the Financial Times