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.
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.
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.
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.
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.
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?
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.
“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.
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.