What are the main things that stop funds performing really well? Look at any proper research and the answers are pretty clear. Fund managers picking rubbish stocks is the obvious one. But beyondthat, the answers are fees and turnover.The more a manager buys and sells, the worse his fund ends up doing.
Why? Simple. Trading costs more than managers ever make up by moving money from what they think is a poor investment, to what they think is a good one. We know this. Academics know this. And managers know this. Unfortunately, they don't often act on it: buying and holding conviction stocks for the long run is a minority strategy in the financial industry.
Good news, then, that the industry and its endlessly trading ways are about to be taken to task. Look at boringmoney.co.uk and you will soon be able to see just how high your fund's turnover is. If you don't fancy paying up for your manager to have fun (trading is a great adrenaline booster), you can sell them.I mention this not just because I approve of this particular website (I do!), but because it represents a happy shift.
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For too many years, we at MoneyWeek felt there weren't enough people analysing and criticising the industry, then working to find new ways of doing things. We saw technology and easy access to information disrupting industries all around us. But the one we write about was stuck in its ways. That's changing.
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Boringmoney.co.uk is part of that. So are some of the new fund-management firms being set up I've had some really interesting conversations about fee structure over the last few weeks, and I think that, when we look back in ten years' time, we'll be shocked to remember that any managers ever got away with charging 1% in management fees. But some of the firms we consider to be incumbents are part of the change too.
Take Hargreaves Lansdown. We disapprove of them in some ways (too pricey!). But we're pleased to see them offering flat fee advice on pensions for under £500. We've been pushing for more flat fee generic advice for years (most people need more or less the same thing). Now a large mainstream provider is offering it. That's good news.
I'm not suggesting for a second that the UK's financial industry is suddenly working from a better moral base than it was 15 years ago. Just that a rise in scrutiny, availability of information and technology is finally forcing improvement on it. Something to think about if you need cheering up after reading about the misery in Greece, the dangers in the stockmarket and Donald's Trump's main qualification for being president (he's rich).
For more cheer in this week's issue, there'sAnna Croze's selection of seven of the best Aim-listed stocks. It's great to know that such excellent firms are operating in the UK, and even better to know that they're trading at the kind of prices that might make them excellent investments.
