Too many funds simply aren’t providing good value to investors. They charge too much, they return too little, and they don’t embrace the economies of scale.
The FCA this week came to the same conclusion in its assessment of Assessment of Value reports. These were introduced last year, mandating fund companies to assess at least once a year whether their funds were hitting the mark. The trouble, of course, when you ask a company to judge its own performance, is it tends to be pretty lenient. The notion that “you’re your own worst critic” doesn’t seem to apply to a lot of fund groups.
Don’t get me wrong – some groups have taken value assessments seriously and have made significant changes as a result. It’s a topic we discussed at last week's Morningstar Investment Conference. The likes of Schroders, BlackRock and Rathbones have all closed expensive share classes or underperforming funds, which should result in better outcomes for investors.
But others have not. Many firms appear to have taken a brief glance and concluded all of their funds are good value for money and that no changes are needed. These firms need to take a long hard look in the mirror, and think seriously about whose best interests they are working in. Because there is simply no excuse for holding investors in legacy share classes, where the annual fee may be 10 times what the investor could be paying.
We explored a recent example of this after one reader wrote to us that she was invested in the A share class of a fund, where the annual charge was 0.51%, and was being moved to the D share class, where the fee was just 0.05%. The fund company in this instance had decided to close the expensive share class, which is positive, but that doesn’t make up for the years that she has been overpaying. And if there's one thing we know in investing, it's that every single penny you pay in fees eats into your potential returns, stopping your money from growing, hindering your financial future.
The FCA, the Investment Association, and CFA UK have all now raised concerns about how seriously fund groups are taking value assessments. Those firms that are still dragging their heels need to step up.
Time for Japan to Shine?
The halfway point on the year is a natural time to take stock. A look at the top performing funds of the year so far offers few surprises – it’s tech, tech, the US, and more tech. There’s more variation among the most successful investment trusts, with the presence of value and smaller companies names highlighting the change in fortune that this part of the market has enjoyed in recent months.
Perhaps more surprising is how dominated by Japan investment trusts the list of bottom performers is. Every year that I’ve been writing about investing, commentators have predicted: “This is Japan’s year”. And it never is. Decades of weak growth, a slow move to digitisation and the challenges of an ageing population are just some of the issues which have held back Japan’s economy over the years.
But the world’s attention will be turning East towards the Land of the Rising Sun later this month when the Olympics kick off. Could this be the long-awaited catalyst the country needs to move out of our bottom-performers list?
A Winning Combination
Speaking of sport, I’m guessing few Brits will have investing on their mind this weekend when there’s a certain football game fast approaching. But don’t forget, your favourite sports team and your investment portfolio are not mutually exclusive.
My colleagues across the pond in Canada have been looking at how you can take investment inspiration from your sporting passion by buying stocks in sponsor companies and the like. Real Madrid fans may want to buy Adidas shares, for example, Inter Milan aficionados may consider Nike, and Liverpool lovers could back Standard Chartered. And if sports stocks are your thing then regardless of Sunday's result, I'm guessing that the pub companies are going to do pretty well out of the next few days too.
