Simple portfolios for lazy investors

Cheap passive funds are a great way for busy people to invest, says David C Stevenson. And they're only going to get more popular.


Life is too busy to deal with the minutiae of investing
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Most investors are too busy with day-to-day life to care too much about the minutiae of investing. So while we may operate a satellite portfolio of exciting punts, we tend to leave most of our money in core portfolios that chug along with a check-up every six months.

The fund-management industry has built up a huge architecture of funds that cater to this philosophy, but I've long thought that the easiest product of all would be a one-shot exchange-traded fund (ETF) that has a mix of asset classes and investments in one simple, cheap, easy-to-trade vehicle.

You'd pay an ongoing charge of about 20 to 40 basis points, a dealing cost of, say, £10 a time to your broker, and you could get on with the rest of your life knowing that you've sorted out the foundation of your portfolio cheaply and simply.

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It's easy to see the potential for this. In the UK, Vanguard runs five multi-asset passive Life Strategy funds, which it launched in 2011. These aren't ETFs, but they are easy to buy through major brokers in the same way. They are all invested in Vanguard's range of global stock and bond tracker funds, and their asset allocations range from defensive (20% equities and 80% bonds) through to 100% equities.

Their basic charge is around 0.22%, which is incredibly low for a diversified portfolio. In total these funds have amassed over £6.8bn in the space of just a few years, which is an impressive number. The biggest fund is the 60/40 equity/bond split, which has amassed £2.6bn.

My guess is that these ultra-cheap funds will continue to gain market share and could be sitting on more than £20bn within a few years, partly because many investors who keep their money with some form of independent financial adviser will realise that their adviser is outsourcing their investment decisions to a discretionary fund manager (DFM).

Typically, these DFMs operate multi-asset portfolios at higher cost because they are supposedly adding "alpha" (superior) returns but most don't add any value on top of that basic division of a multi-asset portfolio into lower-risk and higher-risk assets. The same is also true for most absolute-returns funds, which are just an excuse to charge extra in fees for supposed multi-asset-class expertise.

The future of easy investment

However, the Vanguard range, admirable though it is, has its limits. Investors should be able to go beyond the traditional way of thinking (splitting a portfolio between defensive and growth assets) and look to other strategies to generate wealth and preserve capital but do so at low cost via tracker funds.

In the US, some services are starting to do this. A small ETF firm called Pacer has launched index-tracking ETFs, which stay invested in a broad basket of large-cap US equities while markets are in buoyant mood, but switch into defensive bonds as markets look shaky all for a total expense ratio of 0.60%.

Or take the Motif investing service, a kind of robo-adviser-meets-personal-ETF issuer. Motif lets clients pick their own theme cryptocurrencies, battery stocks, distressed retailers, or whatever you like and builds a portfolio around that. Its new Impact Portfolio services adds a sustainable investing layer to this the user chooses ethical issues that matter to them, and Motif omits companies that don't meet those values from the portfolios. Ideas like these will help investors cut costs, improve diversification and give us back time to spend on the important stuff in life.

Activist watch

Brexit is good news for foreign investors in UK stocks because the uncertainty is depressing the valuations of well-run British companies, Christer Gardell, the co-founder of Cevian Capital, tells the Financial Times. Cevian, a Swedish firm that is Europe's largest activist investor, recently sold its 8% stake in truckmaker Volvo to China's Geely for €3.25bn a profit of €2bn on its investment.

The firm plans to invest the proceeds in other firms in northern Europe. Its existing holdings include British insurer RSA, as well as steelmaker ThyssenKrupp and engineer ABB. "We really like the UK market. We like the corporate governance, the rational behaviour of corporate boards," says Gardell.

Short positions brokers suspend 1,500 funds

n UK stockbrokers have been forced to stop their clients investing in many investment trusts and exchange-traded funds (ETFs) because the funds have not met new EU requirements that came into force at the start of this year, says Simon Jessop on Reuters. The Packaged Retail and Insurance-based Investment Products (PRIIPs) legislation requires each fund to have a Key Information Document (KID) that sets out risks and costs in a standardised format.

However, around 1,200 ETFs and 300 investment trusts have failed to provide KIDs in time, according to Hargreaves Lansdown. About 900 of the ETFs and 200 of the trusts are US-based and are unlikely ever to do so, while most of the rest will probably do so in time.

n Mark Mobius, who is perhaps the best-known emerging-markets fund manager, will retire from Franklin Templeton this month. In a career of more than 30 years, Mobius built a strong track record, outperforming his peer group by 566% in sterling terms since 2000, says Rob Langston on Trustnet. But he has largely stepped back from portfolio management in the last two years. His largest remaining responsibility, the Templeton Emerging Markets Investment Trust, suffered a spell of weak performance in the three years before Carlos Hardenberg took over as lead manager in 2015. (See page 32 for a profile of Mobius.)

David C. Stevenson

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit as well as in the asset management space. 

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business. 

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust. 

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.