I’ve never been called a Communist before, and certainly not a Jihadist. But in the last few weeks I’ve been labelled both – and, I dare say, worse. Hate mail.
The reason? I’ve made a documentary about the fund industry. And it’s clearly hit a raw nerve.
It’s called How to Win the Loser’s Game and, without wanting to spoil it for you, it draws some pretty startling conclusions.
First, the average investor needs to forget pretty much everything they thought they knew about investing and ignore what the vast majority of investment professionals and money journalists say they should be doing. Second, despite its staggering size – its US turnover alone equates to the GDP of Switzerland – the active fund industry adds no value (that’s right, no value) whatsoever. And third, most of us are better off assembling a portfolio of cheap and boring index funds and forgetting all about it.
The message is nothing new. There’s a wealth of independent, peer-reviewed evidence dating back to the 1950s that picking stocks and timing the market – or choosing an “expert” to do it for you – is a waste of time and money.
A recent report by the Pensions Institute found that only around 1pc of UK fund managers outperform the market with any degree of inconsistency; that they’re almost impossible to identify in advance; and that even those who do add value simply recoup it in charges, leaving nothing for the investor.
Another report, by the EU-funded consumer group Better Finance for All, concluded that along with Italy and Spain, the UK has some of the worst-performing pensions in Europe. They’ve actually delivered negative net returns since the year 2000.
Alas the Telegraph was the UK’s only national newspaper to cover the findings of both reports in any detail. Even when the Financial Services Consumer Panel issued a report portraying an exploitative industry awash with conflicts of interest, poor governance and a lack of transparency, the story barely received a mention.
The problem is partly that passive – or evidence-based investing, as I prefer to call it – doesn’t make for exciting copy. With active funds, there’s always something to say, always someone who’s only too happy to provide a juicy quote.
But the real issue is a deeper one: there are far too many powerful people doing really very well out of the status quo. And no, not just the hugely paid managers who actually run these funds. Active management has a whole support industry in tow – a vast network comprising financial advisers, politicians, lobbyists, advertisers, PR consultants and, yes, even journalists. Whether they realise it or not, they’re all helping to perpetuate the myth that successful investing is all about finding a fund manager who has the magic touch.
The industry trade body, the Investment Management Association (IMA), as Michael Johnson from the Centre for Policy Studies has pointed out, is a master at doing just enough to keep the show on the road – hinting that positive change for the consumer is just around the corner while desperately trying to keep things exactly as they are.
But not even the IMA can hold back the tide for ever. Doubtless through gritted teeth, it announced this week that inflows into passive funds hit record highs in October, while the research organisation Lipper predicted the trend would continue, with active funds likely to post their worst annual performance for 30 years.
In fact I’m really quite heartened by the abuse that I and fellow campaigners for a fairer, more transparent investment industry have started to attract. I even managed a smile when a highly successful American fund manager suggested that those who rock the active boat “will surely rot in hell”. It’s certainly an improvement on being ignored.
It was Gandhi who said “First they ignore you, then they ridicule you, then they fight you, and then you win.” We’ve reached the ridicule stage already. And we’re ready for a fight.
This article was first published on Telegraph.co.uk on 10th December 2014