Who can investors trust?
From cryptocurrencies to Facebook, trust is in short supply. If you want a fund to buy and abandon, who can you trust to be around long enough?
Over the past few weeks I've been on a conference binge attending, talking and speaking. Every conversation I have had, every point I have found myself making and most of the questions I have been asked have one way and another ended up being about the same thing: trust.
Who can we trust? How do we know we can trust them? If we think we can trust them what are the signs that we are wrong?
It came up at a panel I chaired at Advertising Week Europe on cryptocurrencies. Their very existence, the panel agreed, is a function of lack of trust. If the great financial crisis had never happened and money printing had never become so popular, everyone bar a few bonkers gold obsessives (like me) would have remained perfectly happy with their fiat money. Bitcoin would never have appeared.
The rest of the discussion boiled down (I am very much paraphrasing) to which cryptocurrency you could trust the most to remain secure, fully anonymous and definitely decentralised. The answer, for those of you interested, was Monero. Look to its website and you will see that one of the currency's selling points is that "third parties do not need to be trusted to keep your Monero safe".
The issue of trust came up again when, thanks to the 150-year celebrations of the F&C Investment Trust, the world's oldest, I joined a small roundtable with the futurist Yuval Noah Harari. Among other things, the discussion covered the extent to which you might ever be able trust any company to store and use your data properly, and your biometric data in particular.
I have, for various reasons, been wearing a glucose sensor in my arm for a few weeks. It produces reams of data, sent to an app on my phone, that could, if properly analysed, tell you all you need to know about my daily routine from what and when I eat to when I sleep and when my stress levels rise and fall.
Where is that data going? I have read all 16 pages of the privacy agreement and am assured that my individual data is not being sold on as mine. But how much of my "sensitive health-related information" am I passing on, having agreed that it can be used as "de-identified, pseudonymised, aggregated and/or anonymised information"? I don't really know.
Extrapolate that a little, says Harari, and imagine that your health insurance provider (or even the NHS) insists you wear a variety of sensors so it can constantly track your health. You could say no. But the price of opting out would be very high medical care costs. So would you?
What if you lived in a dictatorship and had to have your heart rate and glucose constantly tracked? Suddenly, someone who mattered would know if looking at pictures of your great leader made you feel tense and angry rather than grateful and peaceful. It isn't something you may have thought about much before, but all emotion can be biometrically tracked.
That's clearly about an extreme example of data-related intrusion as I can offer. But it's still a neat reminder that, be it Facebook, fiat money or glucose sensors, we are all using and being used by an awful lot of products we don't really trust. It isn't a comfortable situation.
Picking a trustworthy manager for a "forever fund"
This brings me to trust in fund management. In almost any question and answer session I do, the question of a "forever" fund comes up. If you don't fancy investing as a hobby, what can you buy and abandon? When the question comes, it is often framed as if it is about asset allocation, about past performance or even about fees. But it isn't really about any of those things. It is about trust.
Which manager can you trust to take care of your long-term interests? The immediate answer of the industry cynic is none of them, the exploitative rascals. Another uncomfortable situation. But that isn't quite as bad as you might think.
Think about how we should judge a company we might want to take our money for 20-odd years. We'd like to be sure they are safe in a compliance and a longevity sense. But we also need to know that they invest for the long term and that they understand that for a retail investor equities are better than bonds. There is no doubt that you are better off with your money in the vibrant world of business than the deadness of other people's debt.
There are plenty of businesses that will still be around in 20 years or 150; that have managers with "skin in the game" (in other words, meaningful holdings in the funds they run); that look to the long term; and that have lasted this long by looking out for their customers as well as themselves.
There is Baillie Gifford, one of the few partnerships left in the business and also one of the few with a genuine long-term outlook on life. They were putting patient capital into the market for decades before their rivals even considered the idea.
There's Fundsmith, Terry Smith's fund management firm. You can argue with his fees but not with his revolutionary (for this industry) transparency. It is entirely beyond me why more fund management companies don't send out the regular letters and put on proper annual meetings in the way he does. That way trust lies.
Otherwise, there is Lindsell Train or perhaps Troy, a firm with a solid long term outlook aimed at preventing capital losses above all else. (I have investments in a Troy trust, as well as those run by Baillie Gifford).
Finally, I would name Legal & General. It might not sound like it quite fits with the rest of the list here and the charges on many of its funds are far too high. But when I ask investors who they trust it is often mentioned.
Under its current chief executive Nigel Wilson, a genuinely passionate advocate of the advantages of patient capital, it is interested in the same thing we are: finding financial safety by investing in the long-term vibrancy of equity markets. Not one to rush to, given what we know about the compounding effects of high fees, but one to add to your "maybe" trust list.
PS: I suspect some of you might be interested in Harari's views on cryptocurrencies. He thinks that the ones you know about at the moment might work well for organised crime, but the rest of us are more likely to find ourselves using some kind of AmazonCoin than we are bitcoin.
This article was first published in the Financial Times