SOMETHING FOR THE WEEKEND
China
We’re going to see dramatic changes in the global investment industry over the next few years. China.
First, as you would expect me to say, the massive shift we’re witnessing in the US from expensive, actively managed funds to low-cost, index-style investments, is likely to spread across the world, as more and more people are presented with the evidence on how they should be saving for retirement.
Secondly, there’s going to be a huge increase in assets under management. At the last count, global AuM was nudging $80 trillion. Depending on what happens to asset prices in the meantime, we can expect to see that figure rise to well in excess of $100 trillion by 2020. The reason for that is growing prosperity in South America, Africa, the Middle East and, especially, in Asia.
To gauge what’s happening in Asia at the moment, I’ve been speaking to Jason Hsu. Jason is one of the co-founders, with Rob Arnott, of Research Affiliates, based in California, and a pioneer of so-called smart beta. An adjunct professor in finance at UCLA, he has authored more than 40 peer-reviewed articles. Jason is currently heading up Rayliant Global Advisors, which is seeking to disrupt the investment ecosystem in China and the wider Asian region. I hope you enjoy this interview.
Read the interview with Jason here
Mark Hebner — another man on a mission
Mark Hebner can safely be described as one of the pioneers of evidence-based investing. Mark is the founder and President of Index Fund Advisors, based in California, and is a respected speaker, news contributor and investment educator. He says his life mission is to “change the way the world invests by replacing speculation with an education”.
Mark and I have just produced a documentary based on his book, Index Funds: A 12-Step Recovery Program for Active Investors, which we’re going to be featuring on The Evidence-Based Investor in the coming weeks.
In this interview Mark discusses his career, his opinions on active management and why having a disciplined, rules-based approach to investing is so important.
Read the interview with Mark here
The industry that grew too fat
Cancer Research conducted a survey a couple of years ago which found that 90% of people who are clinically obese don’t think they have a weight problem. To be honest, I wasn’t particularly surprised. Thankfully I’m still safely inside the “marginally overweight” category, but I know full well that when I am carrying too many pounds I’m the last one to admit it. I only tend to take notice when a close family member points it out; and thankfully my teenage children are only too happy to oblige.
I wonder, then, whether the recent comment by the chief executive of the New York-based asset manager AllianceBernstein that the fund industry has grown too large will finally spur the sector, and its regulators, into taking remedial action?
Peter Kraus told the Financial Times that his industry has a “scale problem”. Asset management, he said, is in “secular decline because it has overcapacity”. At a certain point of size for a mutual fund, he explained, “the incentives shift from trying to outperform your benchmark to not wanting to underperform. Our advice to the industry is to constrain ourselves. We are hurting ourselves by growing too big.”
Why active makes less sense now than ever
Think of a product. Literally any project — razor blades, phones, TVs, cookers, caravans, anything. Then think back to what they were like 10 or 20 years ago. If you’re old enough, try to remember them 30 or 40 years ago. Chances are that either those products are of a significantly higher quality now than they were then, or they’re cheaper, or, in many cases, both. Partly as a result of better technology, partly plain and simple capitalism, consumers have never had it so good as they do today.
Now think of the fund management industry. How has that changed over the years? True, there’s far more choice than there was in the past. But has more products meant better products or cheaper products? The answer has to be No.
Let’s look first at cost. In a recent interview with Morningstar, Jack Bogle compared the cost of investing today with what investors paid in 1951, the year he entered the industry. Then, a typical US equity fund would cost around 50 basis points or 0.5%. Today the average is more like 85 basis points — an increase of around 60%.
Other TEBI posts you may have missed
Why excessive pay for fund managers affects us all
Advisers shouldn’t seek alpha — they are the alpha
Tomorrow’s investment consultants will be very different to today’s
The long, slow pension rip-off — Is anybody interested?
The Gospel according to Buffett
Also worth reading
Complexity is the investing devil (Dan Solin)
Why retirees should run from active managers (Eric Nelson)
Trying to time risk factors doesn’t work for long (Ben Carlson)
Chasing the latest hot funds is a very bad idea (Dynamic Beta)
Risk is less about markets than about ourselves (The Motley Fool)
Investors beware, perfect is the enemy of the good (Cullen Roche)
3 ways to think about whether something “is worth it” (Carl Richards)
Overconfidence can wreck your returns. It’s one reason why you need an adviser (Josh Brown)
Nick Murray
I know that many TEBI subscribers are fans of the adviser coach Nick Murray. For advisers outside the US who aren’t aware of him, it’s worth learning more about him and what he has to say. This 25-minute video is a great place to start:
Nick Murray: Financial healing
And finally..
I don’t know about you, but I get plenty of abuse on social media for saying the things I do. I’ll admit that it used to bother me, but it doesn’t any more. Most of the time, the critics haven’t properly examined the evidence about investing — or, if they have done, it’s not in their commercial interest to admit that it’s pretty compelling. Either way, they’re not going to change their opinion any time soon, so the best approach is, politely, to ignore them.
Seth Godin said much the same thing on his blog yesterday:
Enjoy your weekend.
(Photo: Herman Liu)
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
