Sophia Grene

are ETFs 'good', 'bad', or 'I dunno'?

In the balance: are ETFs 'good', 'bad' or 'I dunno'

ETFS – are they low cost, simple investment tools for the retail saver (GOOD), or a complicated device for enhancing the profitability of investment banks (BAD), or even a bewildering mix of the two (UH- dunno)? If the recent wave of commentary on the blogosphere has left you feeling confused, here’s a helpful guide from the Aleph blog – The Good ETF.

But remember, according to Tadas Viskanta at Abnormal returns, size really does matter for ETFs.

Sophia Grene

Is there an equity risk premium? Can investors take advantage of it? Yes, according to Jeremy Siegel. No, according to a delightfully scornful riposte from sometimes FTfm writer John Keefe.

Feel free to join in the fight in comments, but bear in mind that in the long run, we’re all dead.

Sophia Grene

sweets in jars in a sweet shop

How many penny sweets can you buy with a billion dollars?

For a financial journalist, one of the major challenges of the past couple of years has been to convey the scale of the numbers we are dealing with on a daily basis. What is a billion dollars? How many penny sweets can you buy with it? Pints of milk? And we know a trillion is bigger, but how much bigger?

An innovative and practical attempt to solve this problem has been recognised with one of the greatest international accolades, an IgNobel prize.

Sophia Grene

Hedge fund managers are often castigated for their high fees, while even traditional fund managers do not seem to think there is any advantage to offering lower-priced products than their neighbours. Although overcharging is never to be condoned, however, it may be in some cases that the consumer is simply not paying attention to what they are paying for their services.

This week I met some representatives from French independent asset manager Financiére de l’Echiquier, who conveyed a sense of their company as one that ticks all sorts of boxes as consistent, stable, responsible and a good employer.

This disarmed me slightly as I had planned to go in all guns blazing to attack them for what I thought were unconscionably high fund fees of 2.392 per cent a year. That’s fees alone – for comparison, in the UK, the average total expense ratio (fees plus expenses) is 1.7 per cent.

When I finally challenged them, instead of whipping off their friendly masks to reveal the evilly grinning features of Mammon-worshippers grinding the faces of the poor, they looked a bit surprised.

“But those fees are pretty much in line with the average,” was the response, followed by a thoughtful pause. “Do you know, that is the very first time anyone has ever asked about our fees.”

That is after all how capitalism works. You charge as high a price as the market will bear and the European fund market will still bear very high prices.

Sophia Grene

Investing in solar panels this year generated a loss

Investing in solar power this year generated a loss

Investing in a climate change fund is usually seen to be a responsible thing to do, so surely offering a climate change fund is something a responsible investment manager might do.

Not according to RCM, a fund manager with a long track record in sustainable management and a very successful (in assset-gathering terms) Ecotrends product. It does not, however, offer a climate change fund, because of concern it does not make sense as an investment strategy.

Sophia Grene

Asset managers like to boast of their lovely cushiony profit margins, but their profitability is another matter entirely. According to a survey by SimCorp Strategy Lab, nearly half of investment management businesses are struggling to break even.

They calculate a cost rate by subtracting ebit (earnings before interest and tax) from gross revenue and expressing the result as a percentage of gross revenue. Less than 20 per cent managed to keep that cost rate below 85 per cent, while 41 per cent saw it rise to 99 per cent or above.

FTfm reports the results of the survey but we would like to know what you think. Is asset management industry really this difficult to make a profit in? Is this a reasonable way to think about profitability? And are investment managers really as clueless about cost control as the survey authors think?

Sophia Grene

Genghis Khan

Genghis Khan

As many as half of Mongolia’s 2.7m people rely either on mining or agriculture for a living. Even the most basic economics will tell you this is not an ideal situation, and unlikely to make for a stable and growing economy. They are particularly concerned about the potential for substantial mining revenues to destabilise the economy, a phenomenon known as ‘Dutch disease‘.

So, unlike their ancestors who sought to boost their wealth by raiding outside their own borders, the modern Mongolians have announced plans for a Mongol Sovereign Wealth Fund or Mongol Hoard.

Sophia Grene

Perhaps it is inevitable that companies continue to perform their core business even after they have spectacularly messed up, but sometimes it does take your breath away.

The temptation to tell ratings agency Moody’s about the beam in its own eye is almost irresistible. Yesterday it downgraded the operational rating of some funds because:

… Marathon’s investment and liquidity risk monitoring processes, although very strong, could be enhanced by incorporating additional shocks into a global stress test. In Moody’s view, such additional stress testing would have strengthened Marathon’s ability to cope with the market dislocation over the past year. Moody’s noted that the quality of all of the funds’ other major operational areas, such as valuation, operations, corporate functions and service providers continue to be viewed as excellent. Moody’s believes the valuation processes and back office operations have functioned particularly well during the recent periods of great market stress.

Moody’s is one of the companies currently being sued for alleged ‘negligent misrepresentation’ in its ratings of special investment vehicles, and part of an industry sector widely blamed for having failed to understand the cumulative impact of the risks it was rating.

The pot is calling the kettle black. And in this case, the pot is the sooty item and the kettle only a little tarnished.

Sophia Grene

“Behold, my child, the Nordic man, and be as like him as you can,” exhorted Hilaire Belloc in Talking (and Singing) of the Nordic man.

That was before “Taking the Temperature“, a recent report from Insight Investment and Ethix SRI Advisors, found the 40 largest companies in the Nordic region are lagging significantly behind their European peers in their management of climate change risks and opportunities.

Am I the only one who thought, along with Belloc, the Nordic region was full of hearty outdoor types who would understand the importance of climate change? Apparently, although the companies surveyed are trying to sort out their governance and management with respect to climate change, most of them expect to increase their greenhouse gas emissions in the future.

It is particularly ironic given the commitment of the Norwegian government pension fund to ethical and sustainable investment. Clearly the domestic fund, which invests solely in Norwegian securities, has failed to demand sufficient of its investee companies.

Sophia Grene

Gillian Tett of this parish is wondering why more bankers are not in jail. She thinks it’s partly because all this finance stuff is too complicated for the poor little lawyers to understand. But there may be other reasons, like judges who think they should take the working environment of wrongdoers into account. Like the fantasy judge imagined by the Jets in Westside Story, who lets off a hoodlum because he pleads a tough childhood, this New Jersey judge seems to think working in a “pernicious and pervasive … culture of corruption” is a mitigation of accuseds’ offence.

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.

Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.