A whimsical observation no doubt, but I’m often disappointed that what passes for educational financial press is just as likely a sales document for a product sector. My dear old Dad always impressed on me as a kid that you don’t lift yourself up by dragging others down. He was primarily regaling against militant labour unions in this regard, but the point was made. So when I see an article espousing the many benefits of buy and hold investing through say ETF’s, an author often finds it necessary to denigrate market timing, high conviction or alternate fund management styles. Vanilla ETF’s serve a wonderful purpose as a cornerstone in any investment portfolio. However if index investing is so good why the need to belittle investment styles the author is invariably ignorant or incapable of achieving? The financial advice industry seems to sometimes operate as a propaganda machine for the large “asset under management” accumulators. With their “no-one will notice me” index hugging investment styles that don’t deviate from a benchmark, investment monoliths feel a degree of safety. However The Future Fund and some Industry Funds have shown that throwing away benchmarks has liberated their asset managers to outperform the market by a fair margin. Comments by Future Fund Managing Director David Neal should be seen as a possible watershed for thoughtful fund allocators: “[The absence of a] benchmark just completely frees us up to go and build the right portfolio”. Also Alan Kohler wrote in the Weekend Australian that “having enough retirement superannuation is about higher returns and not necessarily saving more”.
The Hedge Fund sector often despairs at being benchmarked to stock indices. I can sympathize but even more absent in this conversation is the absolute performance and drawdown reporting of index investing. If a writer can espouse the low costs of an ETF, surely drawdowns must be reported to give the investing public a more complete picture. The wilder beast theory shows it is human nature for a fund manager to seek safety in a pack of index investors, however there is also an argument for and benefits in various investment styles and products. The race for lower fees could possibly lead to more generic offerings from fund managers, but I can’t imagine that less diversification will help anyone’s investment goals.
Tim Hobill Cole
Barwon Managed Discretionary Accounts