I have been asked to write on this subject by a site reader and it is indeed a ‘hot topic’ in the trade press for investment advisers. That is because the ways in which investment advisers and managers diversified portfolios traditionally are not likely to work in the current financial market climate. I started with a blog post, but the subject deserves more than that, so I have added a “How to” article. Here is a link.
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What you should have bought on January 1st 2018
Hindsight is the only perfect vision, it is said. The publishers of the FT Trustnet web site have recently put together some charts showing how various regions and asset classes have performed in terms of value changes so far this year. It is not a pretty picture.
The only way you could have made good value from high level asset allocation decisions would have been
Investment Manager Charges
NotHarry has written about costs elsewhere and the subject will always be part of a discussion about what investments to buy. The regulator, the FCA, has just completed some work on fund manager transparency (or more realistically, the smoke and mirrors employed). Such work is written up in ways that the public at large are unlikely to find interesting but the comments of Gina Miller’s True and Fair campaign (see Links) are out there in the media now and they suggest that not much progress is being made.
A quick look at their website is recommended to all my readers – here is an easy link:
Reading List – a bonus service!
I am an avid reader and have 3 or 4 books on the go at all times. Almost all my reading informs my investment decisions because I read about people (both real and fictional) and it is human behaviour above all else that influences every sort of investment market (even in these days of algorithmic trading, because that itself introduces a human reaction).
From time to time I come across a book that is not obviously about investment markets, but adds understanding to what is happening in the world.
Recently, a colleague introduced me to the book Sapiens and its sequel Home Deus by Yuval Noah Harari. Together these are a compact history of the world and a look at the future in terms of the broad aspects of human behaviour. To simplify one main point: the author suggests we live in the data age and the gods are now the data owners. What he wrote a couple of years back is currently being evidenced by the Cambridge Analytica revelations.
If you like your books ‘meaty’ and thought provoking, I thoroughly recommend this pair.
I will return to the topic of learning economics and psychology from novels in later posts!
The FTSE at 7000 (ish) – the passive funds conundrum
I have a copy of a trade newspaper article printed in late 2007 reporting on a pre-Christmas survey of well known investment fund managers, most of whom are still working now. They were asked what they thought the level of the FTSE 100 index would be at the end of the next year. The answers ranged quite widely, but several were above 7000. The then current level was around 6400.
In fact the index fell 28% plus the next year. And 11 years later it is trading in the range predicted by the optimists a decade ago! If you were keen on passive index tracking funds in 2007, you would not have had a brilliant decade if you stuck to your FTSE 100 Tracker fund, although the dividend income would have been some consolation.
Don’t think this post is intended just to take a pop at passive funds – I see them as useful investments, if you know exactly what you are getting, and they are low cost.
The FTSE 100 is what is called market cap weighted, which has two main implications: a minority of large shares influence its performance and the mix of shares in the index changes over time. So the FTSE 1000 index valued at 7000-ish now is a completely different mix of shares to the one being speculated about at the end of 2007.
In fact, buying the index is a certain way of buying the past performace of businesses, which is what has driven up their share values and got them into the 100 highest value listed businesses in the the UK. So it can and does often include some shooting stars that will quickly die and fade. In deference to my football fanatic ex-colleague, I often refer to them as Wimbledons!
It might sound like investing in a list of Britain’s top companies is a straightforward lower risk decsion for beginner investors, but that is yet another investment myth.
Beware of wolves dressed as your kindly wealth manager (m)
Reading a piece this morning where a stock broker was explaining that it was hard to make a case for investing in bonds and in fact concluded with a proposal for an investment in “out of the money” convertibles