FTfm has been talking about the technicalities of more abstruse exchange traded funds for a while, so it’s nice to see a lively debate going on across the blogosphere. Leveraged and inverse ETFs come in for a good spanking in particular.
While the good folks of IndexUniverse, Abnormal Returns and Seeking Alpha make some excellent points, it is important to bear in mind that the problems are mostly not with the plain vanilla ETFs most investors are using. It would be a pity if the move to low-cost passive investment were deterred by the problems of a few foolish investors in products they had failed to understand.
Wealthy may enjoy luxury yachts, but they are paying too much for wealth management
Pity the poor private client – well poor is probably the wrong word, but apparently the wealthy are getting a bum deal from many of the advisers and private banks that look after their money.
They pay the highest fees and get the worst performance, according to Alan Miller, former chief investment officer at New Star Asset Management and now partner at Spencer-Churchill Miller, a wealth management boutique.
Mr Miller has seen the light and is using low cost exchange traded funds to build portfolios for clients, as he explains in a video interview. He says making asset allocation calls is the key to making money, rather than picking stocks.
Just in case anyone is wondering why BlackRock is trying to snap up Barclays Global Investors, a small reminder dropped into my mailbox today with a preview of research on the exchange traded fund industry, albeit delivered by BGI.
It quotes data from mutual fund consultant Strategic Insight to the effect that net sales of mutual funds were minus $6bn in the first three months of the year compared to net sales of $7.7bn for ETFs, one good reason why the US money manager might be keen to get hold of BGI’s business.
Exchange traded funds seem to be flavour of the month in mainstream asset management, but they are also becoming popular in some of the more weird and whacky corners of the online personal finance market.
Examples include DecisionMoose, which offers free access to a fairly simple asset allocation model using ETFs, and MarketRiders, which gives subscribers access to “The System”, which according to the website is “a scientific method [for building an ETF portfolio] developed by Nobel Laureates and experts and used by the investing elite, but purposely hidden by Wall Street”.
Which would you trust with your money?
With rats doing the trading, could badgers be providing ETF platforms?
As you ascend in the glass elevator at 88 Wood Street in the City of London, it is possible to peer through into Source’s offices, where you will see a badger looking out over London Wall. Is it pondering how best to diversify counterparty risk, or whether its swaps need to be over-collateralised? Why, in other words, is there a badger dancing on the desk?