DIY Investor Magazine
|
June 2017
37
who profess to have an understanding of companies
that make up indices such as the FTSE100; Europe;
USA; and emerging markets.
By buying individual company shares they hope to
outperform an index such as the FTSE 100 or other
FTSE indices. For the analysis of the companies and
judgement as to which stocks to purchase or sell or
keep on hold they charge a premium price often over
100 basis points (bps) – 1%.
Passive funds however are simply tracking an index –
e.g. FTSE100; they simply try to replicate the capital
values of the FTSE 100 companies, which may sound
simple but it is not.
Passive funds track the indices (subject to tracking
errors) so if markets go up so does the value of the fund;
if the index goes down so does the value of the fund.
There is no investment manager (other than an
algorithm) so no need to pay premium prices for
tracking an equity (or bond or other) index, so charges
are in the region of 15 bps or less.
I digress for a moment because Abby Johnson is
seeking to bring Fidelity into the bitcoin era and
apparently Fidelity is mining bitcoins with its huge
computing resources - a topic that I will return to in
another article - but to further digress it is bitcoins
that are demanded by the recent ransom attacks on
computers.
I had the misfortune to be on the receiving end of one
of these with my then business European Pensions
Management; a nasty experience but as we had good
backups (that is the key lesson for this type of attack)
we were able to restore an unaffected backup and
resume business.
SO BACK TO MY MAIN POINT - ACTIVE VS
PASSIVE.
Personally, I am not binary on the issue - the right active
funds (including hedge funds) have their place despite
the higher charges.
However, they need to demonstrably perform and it is
regrettable that many so called ‘active’ funds have been
closet index trackers, but charging 100 bps or more;
there is no defence for that - greed pure and simple,
and I have no time for those types of managers, but I
will defend able active funds that add value.
I recall my days as both a Trustee and then Chairman
of Trustees of the British Horse Society Pension Fund,
led by a lovely man Peter Fenwick of the eponymous
store in London. There was a slight glitch in that they
were trying to run a fully insured scheme as a self-
administered scheme with, under the rules, an illegal
bank account.
Whoops! So I stepped in and started to assist the BHS
Scheme (not the Green version) with firstly a proper self-
administered constitution and then secondly with a more
appropriate investment strategy.
Initially this was placed with Nicola Horlick at Mercury
Asset Management (MAM) as an Active Fund Manager;
I was one of the first to appoint her, and became the
first to sack Nicola and MAM because frankly the cost
of investment management was not supported by
performance.
