SOMETHING FOR THE WEEKEND
Fund managers.
There’s been plenty said and written about fund manager pay in the UK this week, after the announcement by two prominent City stockpickers that, in future, they won’t be paying bonuses, either to themselves or their staff. So, is this move by Neil Woodford and Daniel Godfrey to be welcomed? Fund managers.
I’ll admit I’m in two minds. Of course, we pay fund managers to outperform the index. Over the long term, hardly any do. Why should we pay them extra, in years where they do outperform, for simply doing their job?
The important question for me is this: Do bonuses improve investor outcomes? The evidence suggests that performance-related bonuses in asset management, and indeed in business generally, do not, in most cases, lead to better results. There is also evidence that bonuses in fact encourage the wrong sort of behaviours.
An interview with the Swedman
A while ago I mentioned the inaugural Evidence-Based Investing Conference, which is taking place in New York City in November. Over the next couple of months, I’m going to be helping to promote the event with a series of interviews with some of the speakers.
The first interview is with Larry Swedroe, the well-known investment writer and Director of Research at Buckingham Asset Management.
David Pitt-Watson on asset management fees
There are few people who know and understand the financial system better than David Pitt-Watson.
Educated at Oxford and Stanford, he worked in fund management for many years and, as co-founder and former Chief Executive Officer of the Focus Funds and Equity Ownership Service, David built and led the largest responsible investment group of any institutional fund manager in the world. Now an Executive Fellow of Finance at London Business School, he has been heavily involved in policy making internationally, particularly in the areas of corporate governance and financial regulation.
His new book, What They Do With Your Money, explores the global asset management industry. Co-written with Jon Lukomnik and Stephen Davis, it explains how errant expertise and naïve regulation have combined to impose a huge stealth tax on our savings and our economies. It also lays out an agenda for tackling the misalignments that allow the financial industry to profit at our expense.
Over the next few days, we’re going to be running a series of three videos featuring David Pitt-Watson. In the first video, he explains why it’s so important that investors (both retail and institutional) focus on the fees and charges they pay to invest. He also tells us why he thinks there are now so many different layers of intermediation involved in asset management.
The new, improved TEBI website
Whether you’re new to The Evidence-Based Investor, or a regular visitor to this site, I’d like to extend a warm welcome and invite you to stick around for a little while.
That’s because in addition to our regular blog content, we have three new attractions to keep you informed and entertained:
1. Video: Video is a hugely effective way of educating investors and the new video section of the site is long overdue. Here you’ll find a number of video series that help to explain the evidence-based approach, including Index Funds: The 12-Step Recovery Program for Active Investors, How to Win the Loser’s Game and Stock Market History: A Crash Course for Investors.
2. Evidence: Wherever possible I try to refer in my blog posts to the relevant academic research. But now we have a library of academic papers for you to browse through, or to use a go-to resource whenever you’re looking for evidence on a particular aspect of investing. Simply enter the search term and click on Submit.
3. SPIVA: Regular TEBI readers will know that I regularly refer to the SPIVA (or S&P Index Versus Active) data provided by S&P Dow Jones Indices. It’s an extremely valuable resource that investors, including professionals, should make far more use of. To see how actively managed funds have performed against the index over the past ten years, just click on the relevant scorecard.
Lies, damed lies and trade body PR
A question I’ve been pondering over the past few days is this: Should I respond to the extraordinary press release issued by the Investment Association last week, which categorically stated that there isn’t an issue with hidden fees fees and charges in UK asset management? Or, by doing so, would I be lending credence to “research” that frankly isn’t worth the name?
The only comment I will make is that we shouldn’t be at all surprised by some of the nonsense which the former journalists and spin doctors the trade bodies employ in their communications departments routinely come out with.
Other TEBI posts you may have missed
What do managers of index funds do all day?
Asset management fees are a stealth tax on all of us
Also worth reading
Volatility drives us mad and steals our futures (Josh Brown)
Index trackers: The good, the bad and the ugly (Monevator)
How to keep your balance in an unbalanced world (Joe Davis)
They’ll try all sorts of ways to sell you higher fees (Cullen Roche)
Is buying a foreign holiday home a good idea? (Merryn Somerset Webb)
Wherever you look in the active fund world there’s an absence of skill (Dan McCrum)
Market history: The longer you can look back, the farther you can look forward (Anthony Isola)
Finally..
Have a good weekend. Monday is a Bank Holiday in the UK. TEBI will be back in action on Tuesday.
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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.
