For the last 13 years we have worked at providing our clients with investments that captured the capital market return at low prices. Over that time we have swum against the tide of popular opinion that advocates active fund management and constantly changing fashionable retail funds. Instead we focus on bringing you institutional class investments that give you the same benefits as large pension and family wealth funds both in terms of price and performance. Along the way we have said that risk and return are related, that asset allocation determines performance and that active management doesn’t add value. Finally the Financial Conduct Authority in their Asset Management Market Study Final Report agreed with our thinking.
In fact what they said was :
We find that many active funds offer similar exposure to passive funds, but some charge significantly more for this. We estimate that there is around £109bn in ‘active’ funds that closely mirror the market which are significantly more expensive than passive funds.
They also said:
Some investors, when choosing between active funds may choose to invest in funds with higher charges in the expectation of achieving higher future returns. However, our additional analysis suggests that there is no clear relationship between charges and the gross performance of retail active funds in the UK. There is some evidence of a negative relationship between net returns and charges.
They also stated:
We find weak price competition in a number of areas of the asset management industry. Firms do not typically compete on price, particularly for retail active asset management services. We carried out additional work on the pricing of segregated mandates which are typically sold to larger institutional investors. This showed that prices tend to fall as the size of the mandate increases. These lower prices do not seem to be available for equivalently sized retail funds.
Active managers charge too much to produce returns that net of expenses, are worse than a typical index fund. By focusing on asset allocation and buying institutional funds on your behalf we believe you capture the stock, bond and property market returns really effectively. Now, after thirteen years, the rest of the industry will be catching up with our clients.
For all these reasons and more we are delighted this report supports the investment approach taken at Citywide Financial Partners and we look forward to sharing more about the findings.
You can see the final report here: