Well, I’ve told you $51bn times already….
Wednesday, 10 September 2008
If you read our blog and investment philosophy, we are clear about what does and what does not add value. Whilst we accept that some managers do find excess returns (sometimes referred to as alpha), the problem is that its difficult to know in advance which manager will do it…also the cost of achieving alpha is eroded by the extra expenses in finding it! So no real added value.
Most investors with £100,000, £500,000, or over £1,000,000 may think that the traditional routes of investment make sense to them even though the added value is somewhat illusionary. To any of you out there...read on.
Rather than believe us, just look at the Massachusetts Pension Reserves Management Board in the US. It manages not a few hundred thousand, but $51bn.
As reported in the FT on Monday 8th September….”Active US equity managers had almost two-and-a-half decades to prove their worth to Massachusetts’ state pension system. They failed. So the $51bn (£29bn, €35bn) Massachusetts Pension Reserves Management Board decided to dump all its active domestic equity – usually a mainstay in public retirement portfolios – and invest the money in cheaper index products. “
It went on to say "The Massachusetts plan last month decided to fire a slew of firms running $1.8bn worth of active US equity and reinvest the funds in cheaper products expected to return just as much. Executive director Michael Travaglini says that over the system’s 24-year history, active US equity managers have lost money exactly as often as they have made it."
"We’ve been around since 1985 and when you look at that entire track record, there were 12 years where our active domestic equity managers added value and 12 years when they detracted value, and if you look in the aggregate net of fees, our performance was right on top of the [Russell 3000] index,” says Mr Travaglini. “We looked at the issue in 2003, and at the time the analysis didn’t support this conclusion. But we’ve done [the analysis] over a longer period of time and we think we’ve got a better mousetrap."
So what does this mean to you?
Active managers, according to Massachusetts, have lost money exactly as often as they have made it. So where was the added value? Remember also, that these are institutional funds. That means most investors are paying even higher charges for funds that on average have lost money exactly as often as they have made it. In fact, retail investors (that’s you if you are reading this) are likely to have lost because of retail costs.
The answer is simple.
Forget the marketing hype that fund managers and advisers try to impose on you and instead take a different course just as the Massachusetts’ state pension system have done…thankfully at Murray Round will believe in similar principles. Moreover, unlike Massachusetts’ state pension system, you do not have 24 years to test your existing investments…its too late. If timing has any value, its getting on the right track now and follow the lead of managers like Massachusetts’ state pension system. They have $51bn reasons, and your we know your £1,000,000 is just as important. Act now.
Categories: Research, Asset Class Management
posted by Murray Round Wealth Management @ 16:21,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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