Cover of MoneyWeek magazine issue no 693

Dangerous ground - Profit-hunting in risky markets

30 May 2014 / Issue 693

If you know what to look out for, investing in corrupt markets can actually boost your returns, says Jonathan Compton.
Read this week's cover story here

PLUS:
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Excerpt

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

Winning the costs war

We are beginning to be pleased with the way some things are going in the financial industry. The Retail Distribution Review, along with campaigns from us and other organisations for transparent and low-charging structures, is slowly bringing down costs.

If you want to invest purely in tracker funds (in which the manager tracks the market as a whole rather than trying to add value by picking the best stocks), you can now do so with Fidelity for just 0.07%. That’s not bad at all.

Meanwhile, there is something of a backlash against fund managers whose funds behave like trackers, but charge as if they were wildly successful actively managed funds.

In the US, several pension funds are considering class actions to recover fees paid to companies that have sold them ‘benchmark huggers’. In the UK, says the Financial Times, a large law firm is in talks with “investors interested in taking legal action after buying index-hugging funds that posed as active products”.

These cases may not succeed – but at least they are a warning to the 40%-odd UK funds who fall into the index-hugging category, that investors are no longer tolerating the culture of gratuitous over-charging.

So, here’s the big question. If you can buy a tracker for a near-negligible amount of money, is there any point in buying an active fund?

• Read the full editor’s letter here: Winning the costs war