Three Certainties in Life - Tax, Death and Fund Fees

Are you aware of the tremendous impact that fund fees (and fees for Private Banking or Independent Financial Advisers) have on the long-term performance of your Investments?

How to measure the performance of your Financial Adviser

Most ordinary people - and I include the Rich and SuperRich in this category - are not really trained or qualified to manage their Financial Affairs, let alone their Investments. One would not expect them to as we all lead busy lives with family, work and other - maybe more interesting hobbies than checking on your portfolio every day.

As Financial Advisers handle the Investment affairs of the majority of people it is essential that their performance is checked in a professional and unbiased way.

Never forget to check the fees on Active Equity Funds

Stable returns, but high costs. This headline caught our attention in today's edition of a German newspaper featuring a large Fidelity Fund focusing on German Equties. So when we checked Morningstar it said that the ongoing charge was a whopping 1.92% PER ANNUM

When you consider that this means that total fees accruing to Fidelity on this fund is around €20 Million (given the total fund size of just over 1000 Million) one is left with the question: is this amount really justified when at most 2 fund managers and a few analysts are needed to run this fund? Pay them a generous €300000 each and allow some ancillary expenses and one would have to assume that fees of 3-4 Million would be more than enough.

Delicate detail: as this fee does not explicitly state it is the TER - Total Expense Ratio - it could well be that the unlucky investor is hit with more fees.

And on top of that many - if not most investors - are charged on average an additional 1% by the Asset Manager or Private Banker that allocates their savings to that fund.

So does the performance justify investment in such an 'active' fund? Yes and No, not if you compare performance sinc 1990, yes if you just look at the past 10 years.

Does the performance justify high fees? As always, it depends. So speak to an independent analyst or consultant who has no financial interest in your decision and be aware that high charges are a serious drag on performance.

Megatrend Funds - is this a clear strategy?

Bankinter jumps on the "Megatrend" train, launches a fund that seems to be able to invest in a mishmash of asset classes. "Fund invests above 60% in companies without any constraints in terms of market capitalisation, sectors, currencies or geographies.The remaining part of the portfolio will be invested in public and private fixed income instruments.The fund's portfolio could also have exposure to other asset classes or factors including commodities, credit risk, volatility, interest rates, inflation and currencies."
So what is the strategy? And how will the performance be measured as there is no clear benchmark against which such an asset mix can be compared.
Investment Europe

Meaningless League Tables and Awards

When selecting a provider of asset management or private bank you should disregard League Tables or Awards. They are meaningless as they disregard the most important factor - past performance and the risk data that is a critical part of it. Naturally security of assets should be another factor that is essential when making your choice. Choose a neutral adviser who has no financial interest in your decision to assist you.
https://www.cnbc.com/2017/08/07/deutsche-bank-slips-down-rankings-of-worlds-top-private-banks.html

'Private' Equity Performance data - how reliable?

Apart from the fact that the promoters control when and what is happening with the portfolio there is the overriding question of comparing apples (listed equity indices, based on actual real-time transactions) and oranges (prices determined in an opaque fashion, high leverage key to investment rationale).
So triumphant messages such as this one can only be considered public relations unless the data is made public (not just sold to subscribers) and the methods properly disclosed. After all, the real end investor has a right to be fully informed about what his fiduciaries are up to with his hard-earned savings!
http://www.cityam.com/269664/private-equity-investors-nab-their-highest-quarterly

Morgan Stanley Adviser's fees - Your loss?

Given that nearly all asset classes are in a steady upwards trend for quite a few years it may not hurt your pocket if your 'Adviser' pockets $ 1 million a year from his clients. But that will change - even if markets hold up, the expected returns will at best be in the low to middle single digits and any fee around the average charged by the Financial Industry (1% of assets) will take a hefty chunk (20-35%!) out of those returns.
Strict control of fees you pay will be a major contributor of your investment performance from now on!
Morgan Stanley is going after a $500 billion opportunity (MS)

People's Trust - more than a catchy Label?

Not convinced that the structure is all that different from a conventional Investment Trust offering. Seven managers, terms not disclosed, the overall fees for the Trust give the game away however. Any target for the investment return is not more than wishful thinking, at least 7 percent is not too ambitious but still doubtful in a world of low returns. The only thing that is certain are the fees that the subadvisors will earn for a very long 7 years. Will that be an incentive to make better investment decisions? Your guess is as good as mine!
People's Trust reveals Manager Line-up

Performance Comparisons: Danger of first Impression

Fund Supermarkets (or Platforms as they are sometimes called) are a massive step in the right direction, i.e. giving private investors more control over their investments. But apart from the problem that each one of these sites can only cover so many funds the performance comparisons can be difficult to interpret. In the example below one would have to know what exactly is meant when a Sterling bond fund is having the 'Extra Yield' words in its name. Does it really make sense to compare it to the Investment Association's 'Strategic' Sterling bond fund? Is one comparing apples and oranges? However small the difference between the two, the verdict on the fund could be heavily influenced by it.
Royal Sterling Extra Yield Bond Fund - Analysis by Hargreaves Lansdown

You cannot eat Relative Performance

In the world of institutional investment management beating the performance benchmark is the holy grail. When a fund loses money it is sufficient to lose less money than peer funds. But as a private investor you cannot be that complacent. You cannot eat relative performance. So the fact that the average 'Quantitative' or 'Systematic' fund is down during the past year is no consolation/. If you were sold on the idea that they offer performance that is not correlated with the big market indices you may well wake up to the fact that there is no surefire way to escape market volatility.
What’s wrong with AQR? - ValueWalk

Long/Short Hedge Funds - did they provide what it says on tin?

The overall performance may have been disappointing with the main explanation (or excuse) the fact that QE distrorted the markets. The flood of money created a one-way street in the markets and hedge funds claim they are not geared up to be compared to long-only funds that profited from the bull market.
But one thing is forgotten in all this: while one may accept that hedge funds are not designed to compete with traditional funds the L/S funds should be able to navigate RELATIVE price moves in the markets and slowly accumulate profits while holding the market exposure broadly neutral. Careful performance analysis should shed light on the skill of the fund manager and how well they kept the portfolio in a market neutral (and therefore low risk) state.
THE LOST DECADE FOR LONG/SHORT HEDGE FUNDS

Fees on Alternatives expensive - Report

While Alternative Investments may offer good diversification they are unfortunately priced too expensively to offer a good risk/reward ratio. Performance - esp in Private Equity - may look attractive but remember that we experienced a long bull market that lifted all (asset) boats.
Complex Investments in Alternatives expensive

Talk is cheap - only Performance counts

Easy to come up with catchy headlines to get publicity! Inevitably his advice becomes a sales pitch, for himself and for investing in shares. All very well, but remember:: the essential question you should direct at any Financial Adviser right at the beginning should be: "What has been your performance?" No matter how big or small the firm, or how prestigious, if the answer is evasive ("this depends on....") just walk away!
Ric Edelman: Working hard won't make you rich - Business Insider

Hedge Funds - not perfect, but objective criticism please!

Claiming that Hedge Funds are expensive and offer poor performance is cheap criticism. Long-only Fund Managers are also in the firing line over poor (relative) performance and high fees. Hedge Funds 'suffer' from the fact that a long bull market makes it easy to outperform any 'hedged' fund. The real test has to be over a whole cycle - from peak to peak over one full bear and bull market. And by the way: levered 'Private' Equity Funds escape scrutiny as their performance numbers are not bandied about in the media - not to mention the often excessive compensation that the management of the companies they are invested in enjoys. So-called 'Absolute Return' Funds are now often sold on the premise that they solve the problem - neither too much hedged, but not fully exposed to market cycles - but their performance and fees are also not all that attractive.
http://www.marketwatch.com/story/hedge-fund-buyers-are-getting-soaked-2017-03-29

Hedge Funds not as bad as Warren Buffett claims

Comparing an Index (S&P 500) with Funds of Hedge Funds also compares apples and organges, though it is near impossible to invest in a Hedge Fund Index, though that would be the appropriate benchmark
Does Warren Buffett Not Understand Risk-Adjusted Returns? - Bloomberg View

Know your Fund Manager

An important - and often overlooked - aspect of selecting a fund manager or financial advisers: what is his PERSONAL track record? Who is actually managing the fund (is it a team or is one person responsible for the performance)? Is the fund manager focused on only one fund or does he have a number of funds to look after? Achieving good performance is difficult enough but the additional task of deciding which fund should benefit from the best ideas is nearly insurmountable. Naturally, fund managers and their employees are more interested in boosting the number of assets under management, and their profits/compensation, rather then just achieving best possible performance.

Top 40 Wealth Managers in USA

Nice job Barron's Magazine, but pretty useless table, no information on performance, fee structure. So a lot of work but the crucial data is missing. Bigger is not better!

Market Professionals at an advantage

Any Retail Investor, small or of 'high net worth' should watch the activities of investment professionals like a hawk. Market Insiders always have an information advantage that can allow them to charge higher fees or find excuses for under performance. 
The Dirty Little Secret of Finance: Asymmetric Information (Bloomberg)
Information asymmetry: Secrets and agents (The Economist)

End of Hedge Funds?

Gloom and Doom may work for Marc Faber but it should not overshadow rational analysis of the Hedge Fund Industry.
Performance comparison with the S&P means to compare apples with oranges. And there are many different strategies that all have to be looked at from a different angle.
Costs have - and continue to be - high and it is not clear why megafunds should be able to charge fees of up to - and in extreme cases more than - 2 percent and at the same time charge performance fees of around 20 percent, often without application of any reasonable hurdle rate.
What has to - and will - happen is that the structure of traditional asset management and hedge fund management will slowly get unified.
Exceptional managers may be able to receive higher fees, but even in the traditional asset management space there is a wide variety of fee levels that investors seem to be happy to accept.
Careful scrutiny will be the order of the day when looking for 'active' managers. The trend to passive investing may continue for a while longer, it will stabilise when the passive part of assets under management reaches the 60-70 percent range. Sharp competition for the remaining 40-30 percent of the asset management cake will lead to a compression of fees.
Performance fees - not only for hedge fund managers, but also for private equity and other alternative fund structures - are problematic in any case. For good reason US regulators placed severe restrictions on their use until the mid-1980s. The way they are structured gives too much of a one way option for the providers of asset management services.
It may be the end of hedge funds as we know it (Business Insider)

Robo Advisers and Private Bankers - what is in the tin?

The internet has already caused major changes to the business model of several industries - retail, music and travel come to mind. Do-it-yourself investing via online brokers is also growing rapidly.
Now it may be the turn of investment advice for the rich and not-so-rich private investors. Robo Advisers are on the march! They are claiming to offer a cheaper service, and maybe their investment choices are also superior to those made by humans in Private Banks. The history of Robo Advice is not going back long enough so a proper comparison of performance with traditional investment managers is not possible. And simulated historical performance is to be treated with caution. As this article explains, Robo Advice is also fraught with problems but to compare it with personalised advice has to be made by comparing apples with apples. Many providers of Private Banking services claim to offer a tailor-made service (and charge fees accordingly) but the adviser handling the account is often spoon-fed investment models that come out of - you guessed it! - some computerised model. Do you really think that the armies of account managers employed by the likes of UBS, JP Morgan etal can all be superior money managers in addition to being personable and skillful in holding client's hands or gathering more assets? You may be lucky and hit upon an investment genius but you are as likely to be allocated a dud picker of investments.