DIY Investor Magazine
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June 2017
36
MOORE ABOUT PERSONAL FINANCE: ACTIVE VS PASSIVE
AND SACKING NICOLA HORLICK
By Francis Moor
Much has happened in the two months since I wrote my
article on the LISA and it would be foolish to speculate
too much on what might happen to personal finance
after the election.
The Conservatives lead in the polls and Theresa May
is seen as a sound and capable leader – if for turning
more than her predecessor Margaret Thatcher as we
have just seen with the so called ‘Dementia Tax’ which I
will return to later in this article.
George Osborne was dismissed as Chancellor of the
Exchequer and now edits the London Evening Standard,
free to snipe at the current Conservative offerings. Sadly,
‘Spreadsheet’ Phil is never going to be so entertaining;
however the Tory manifesto now provides room for him,
or the next Chancellor, to sort out tax anomalies as it
only pledges to hold VAT at current levels.
This is a pragmatic move because who knows what
chaos Brexit may cause given the very harsh approach
of the European Union; apparently even English
teachers at expensive Brussels schools salaries are to
be included in the divorce.
However we are not even at Brexit yet; firstly (and I don’t
understand why) we have had to wait for France to elect
Macron and then the German elections to, presumably,
re-elect Angela Merkel if she has not done enough
damage to Europe already.
So I am not going to talk about specific products in
this article because all might change; there is however,
a fundamental change happening in the world of
investment management which will continue whoever is
in power on 9th June.
Predominantly this involves Vanguard the Pennsylvanian
company that took on the might of Fidelity in the USA.
With $5 billion of assets under management between
them, the battle between these titans of investment
management has been seen as the embodiment of
the active vs passive debate; Fidelity’s aggressively
managed funds vs Vanguard’s low cost passive
investments.
Vanguard has now launched its Vanguard Investor
direct to consumer service (Vanguard Investor Targets
DIY Investors) which offers a FTSE 100 tracking ETF at
just 0.06% and an average ongoing annual charge fee
(OCF) of just 0.14% on its trackers; charges for its Life
Strategy funds have just been reduced to 0.22% which
coupled with a platform fee of just 0.15% means an
investor can maintain a portfolio for just 0.29% p.a.
Vanguard’s charges could send shock waves through
the asset management and broking world.
PASSIVE FUNDS VS ACTIVE FUNDS.
I should declare an interest as I was an Executive on the
Board of Fidelity Brokerage where I had the pleasure
of meeting Ned Johnson on many occasions on my
trips to Boston and his senior legal counsel Bob Posen,
witnessing the incredible success story of the 401K
division out at Marlborough including Bob Reynolds who
went on to be COO.
Ned was a very difficult man to present to as he would
leaf through the presentation and start asking questions
about the conclusions whilst one was trying to build the
story!
I never had the pleasure of meeting his daughter Abby
(Abigail) who now heads Fidelity but Ned is as much an
industry name as the Sage of Omaha – Warren Buffet.
Both built incredible investment businesses.
So what are active funds?
These are funds managed by investment professionals
