EDITOR'S LETTERMerryn Somerset Webb
The website taking fund managers to task
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 beyond that, 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.
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.
• Read the full editor’s letter here: The website taking fund managers to task