Tick ​​tock investment time bomb – how investors sold a myth.

F.

Or for decades, the UK has been selling a myth to retail investors. The UK investment industry has created the story that higher fees for active management give you higher performance, especially when times are hard, compared to inactive / index managers. When markets become difficult, they can be converted into cash or more defensive shares to protect your hard-earned savings. In 2020, the CEO of Schroders said that the weakness of the index funds will be reflected in any downturn because “More attention will be paid to the shortcomings of mechanized trading, known as passive trading.”

The data shows. unfunctional Investment management is fine and the day is really winning. SCM Direct compared the performance of each sector of the Geographic Investment Association from 2022 to date compared to the index benchmark, and found an average. UnderPerformance c. 3.9% In 17 of the 18 sectors analyzed, the average fund performed below a comparable benchmark. One sector that performed better was European equity, but the difference was just above 0.

Further analysis shows that the average passively managed fund receives 1.24% per annum (including trading expenses and performance fees) which is 4 times higher than the 0.32% per annum received through ‘passive’ funds. Is.

That’s why it’s a ticking time bomb for the UK investment industry. For years, clients didn’t really know what they were paying for their fund or wealth manager. Now, many people are thankful for the new legislation of 2018, the founders of SCM, Allen and Gina Miller, who have been campaigning for many years.

The question is, why are these stars of the world of active management doing so badly? The answer consists of a number of factors. Too much in high value growth stocks, too little in oil and gas stocks or banks, too much trading at the wrong time, too many charges to fight it. However, a fundamental and compelling factor changed the rules of the game. In the old days, active professional managers could beat private investors using better and earlier information. Now everything is reversed, the private investor can spend more time checking the company’s data. This data is now free and distributed to all investors at the same time. The active fund manager has gone overboard. Of course, there will always be some with extra skill or luck that can overcome difficulties for a period of time but not much. Even the great Terry Smith, who runs the UK’s largest fund (£ 22bn), has lost investors 21.4% in 2022, compared to a 13.8% loss for the comparative benchmark (MSCI World Index).

The investment industry is a well-oiled marketing machine that sells stories of retail investors. Now one of the most important stories has been found. In late May, a SCM Direct Commission poll of more than 2,000 people across the UK found that lower fees and charges were the most important factor (even more important than performance) when investing, especially in youth groups. Maybe that’s why the stock market now devalues ​​the old-fashioned fund managers – Jupiter 9x on expected earnings, Liontrust 8x and even Schroders 12x. They are rapidly maturing, with low-growth companies struggling with the constant attention of clients to low-cost funds or operators, or both. Many of their businesses, not just their investment styles, are ticking the time bomb until they quickly embrace the modern world.

Performance 31 December 2021 to 17 June 2022 GBP

Performance 31 December 2021 to 17 June 2022 GBP

Extra Value YTD

IA UK Small Companies

-22.44

FTSE Small Cap ex Inv Co

-13.95

-8.49

IA Japanese small companies

-18.08

MSCI Japan Small Cap

-10.68

-7.40

IA Global Equity Income

-8.63

MSCI World High Dividend Production

-1.48

-7.15

IA UK All companies

-12.65

FTSE Share all.

-6.05

-6.60

IA North American Small Companies

-20.80

MSCI USA Small Cap

-14.82

-5.98

IA Latin America

7.37

MSCI Emerging Markets Latin America

13.32

-5.95

IA Asia Pacific including Japan

-14.97

MSCIAC Asia

-9.40

-5.57

IA Global Emerging Markets

-12.34

MSCI Emerging Markets

-8.38

-3.96

IA European Small Companies

-23.82

MSCI Europe Small Cap

-20.09

-3.73

IA India / Subcontinent

-11.19

MSCI India

-7.57

-3.62

IA China / Greater China

-8.88

MSCI China

-5.53

-3.35

IA Global

-16.72

MSCI World

-13.74

-2.98

IA UK Equity Income

-5.31

MSCI UK Dividend +

-2.66

-2.65

IA Japan

-14.62

MSCI Japan

-12.58

-2.04

IA North America

-15.87

MSCI USA

-15.03

-0.84

IA Europe except the UK

-16.79

MSCI Europe Former UK

-16.39

-0.40

IA Asia Pacific except Japan

-7.95

MSCI AC Asia Former Japan

-7.66

-0.29

IA Europe including UK

-15.03

MSCI AC Europe

-15.06

0.03

Average

-3.94

Source: SCM Direct