SOMETHING FOR THE WEEKEND
Social background.
If you really are determined to invest in actively managed funds (and there’s a whole host of reasons why you shouldn’t) you might just want to look at the fund manager’s social background.
A new study of asset managers in the United States has found that managers from less well-to-do families often tend to outperform their wealthier colleagues.
Oleg Chuprinin of University of New South Wales and Denis Sosyura of University of Michigan used hand-collected census data on the households in which managers grew up in order to measure how family background relates to their performance.
We have organic food. Why not organic finance?
Like any parent of teenagers, I often find myself preaching the benefits of sensible eating. But I’m sure my children’s generation are far savvier about food than we ever were. Of course nutrition has become part of the school curriculum, but something else that has changed over the last 30 years is that there is now much greater transparency about the food we eat.
I’ve often thought how good it would be if providers of financial products were forced to be as open and honest in their “packaging” as food producers now have to be. Of course, there would be nothing stopping you buying the same old rubbish as you did before, but at least you would be able to make an informed choice.
How pleasantly surprised I was, then, to read a report by two Stanford University academics recommending just that. The paper, Organic Finance: the Incentives in Our Investment Products by Ashby Monk and Rajiv Sharma, explains how “increasing complexity has allowed for an obfuscation of fees and costs that asset managers, implicitly or explicitly, charge to asset owners”.
When will investors see the joke is on them?
As a child I loved The Emperor’s New Clothes by Hans Christian Andersen, the tale of a vain ruler who hires two dishonest weavers to make him the finest outfit. The weavers convince him that they’ve “made” the suit out of a magic fabric that is invisible to anyone who is unfit for his position or “hopelessly stupid”.
Although his ministers can see the clothes really are invisible, they pretend they’re not for fear of appearing unfit for their positions, and the Emperor does the same. Eventually, the weavers pretend to dress the Emperor, who proudly parades in his new suit before his subjects.
Because they don’t want to appear stupid either, the townsfolk also play along with the pretence. Suddenly, a child in the crowd, too young to understand these adult mind games, blurts out that the Emperor is wearing nothing at all and everyone falls about laughing.
What a perfect analogy this tale is for the asset management industry.
Other TEBI posts you may have missed..
Investment industry reform is not a party political issue
Learn to love your future self
Investing lessons from the world of tennis
Asset management — the one industry that was never Thatcherised
Beware over-hyped products that seem too good to be true
Casting out sin — passive investing for Catholics
Also worth reading..
Behavioural finance:
Why don’t investors stay true to their principles? Think self-deception (Stephen Wendel)
The endowment effect — another behavioural bias which harms investor returns (Tim Richards)
The industry:
A plan to stop the pension fund rip-off (Dan Solin)
Robots will never beat the best human financial advice (Nick Goodway)
There are more smart beta strategies than there are stocks in the S&P 500 (Michael Batnick)
Sensible investing:
Exposing the myths and realities of passive investing (Craig Lazzara)
Hard truths for investors to wrap their heads around (Morgan Housel)
Beware of investing too heavily in new technologies (Lawrence Hamtil)
Before you craft an investment policy statement read this (Tadas Viskanta)
Control what you can control. Why worry about anything else? (Ben Carlson)
Yes, Jack Bogle is a legend, but he’s wrong about international stocks (Patrick Collins)
Make sure you pay as little of your gross return in fees as you can (Simon Constable)
Just because a fund has high active share doesn’t mean it’ll outperform (Jeff Schumacher)
Diversification is important precisely because we do not know what the future holds (Justin Sibears)
Who produces TEBI?
All of TEBI’s content is produced by Regis Media, a specialist provider of content marketing for evidence-based advisory firms.
As well as producing custom-made videos for clients, we have a range of pre-produced video content, in English, Dutch and German, which can be tailored for individual firms.
In addition to video we produce blogs and infographics, and we also manage social marketing for advisers who don’t have time to do it themselves.
If we can help you, why not contact Sam Willet or Christina Waider for more information?
Tel +44 (0)121 285 2585
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.
