Welcome to the Morningstar Series "Ask the Expert". I'm Holly Black with me is Jon Miller
from the Morningstar Manager Research team. Hello.
Hello Holly. So, it's been a bit of a strange couple of
months in fund management, we've seen a number of issues come up that I think is probably
rocking investor's trust in the industry. What's your take on that as an analyst?
Yeah, I think you're right, we are built on trust, people are saving for the long term
and when there is a breakdown in trust, it affects confidence. And you see people probably
doing potentially silly things with their money.
Now I think the biggest issue we've seen is probably Neil Woodford, let's be honest. Where
liquidity and a manager really thinking about where he saw his own skills and didn't have
a wider view of liquidity and issues within his fund are the things that have come to
the fore. There was a BBC program called Panorama that was aired, and it went into a bit more
detail. We saw some people from the FCA. The FCA investigating the illiquid holdings or
unquoted very early on, you ask why wasn't that continually monitored from close. So,
it's part of the postmortem, where we need to look and learn. I think we should also
look and see where investors are today. In the UK, I think we're actually in a pretty
good place for investors. We can come on to a few points around that. But I think we just
need to look closely at how we rebuild the trust. But also look at the positives to ensure
that people have faith in what they can do and invest over the long term for their future
and their goals. But isn't this going to be too late for some
people? They'll say, no, I've been reading all these newspaper front pages and they say,
take my money, stuff it under the mattress. These guys are just secretly squirrelling
away and doing really nefarious things. Yeah, and you think fair enough, that's how
people think. But we need to educate people to start with about why keeping cash under
the mattress doesn't help you in terms of real returns over the long term, your future,
your goals. There are ways you can self-invest now, kind of regulation has pushed that in
a way to an extent maybe with pension freedoms, for example. But around that, there's research
that can be done, there are advisers out there that are skilled, that can help people on
their lifetime planning and coaching to achieve those goals. And, you know, it's also not
about putting all your eggs in one basket. It's like your friend down the pub, he says,
I know about this gold miner that's going to double its money in the next six months.
That's not the way we should be thinking. We should be looking at long term compounding,
to increase your savings and ability to spend in the future. And that's where we need to
rebuild by education and trust and confidence in people.
That's all very well saying it and knowing the theory, but when you see your money losing
value, it's really hard to keep that in mind. And I think something that's come up in recent
weeks is some investors feel that the regulator and the fund houses should be doing more to
protect them. There is an initiative around that in terms
of fund boards and independent non-executive directors which should be looking more closely
if funds are achieving their outcomes. But you know, if people are worried about funds
performing, underperforming. The TV programme talked about rock star fund managers. We have
got to move away from this star manager culture, we actually like groups where there's teams
involved and where there might be change where there are people still coming through the
ranks. But you know, people can invest passively.
So that means you can track an index without worrying if fund's going to underperform or
outperform. And the beauty is you can do that for 0.05% or 0.1% to replicate the FTSE All
Share today. So, you know, in terms of bringing us to where are investors today, I think they
are in a good place because you've got a load of options there that have reduced fees if
you want to go passive and you can invest in multi asset funds. So, these are funds
that invest in equities, bonds and other diversified areas to create a diversified portfolio. Some
of those invest in passive funds only, so you can buy these funds for 0.3%.
You know, in the past what we had were fund of funds, they still exist today but are getting
less flow, charging 1.8%. So, look at that gap you've got today. Still, I'd say in terms
of doing your research, those index tracking funds, the multi asset ones are doing different
things. So, you need to look behind the bonnet and under the bonnet to see what those are
because there's different things in terms of execution that are happening. So, you know,
it's all about doing your research still. But fundamentally, when you look at the way
the fees are coming down, the way passives are taking their hold here. And still there's
some good active managers out there, charging less and you got clean share classes here.
I think it really is a good time to be an investor.
So, there has been a lot of progress and transparency and cost all getting better. But there's still
room to move. Of course, and we shouldn't, what I'm trying
to say is there are some positives, but we shouldn't brush things under the carpet if
there are issues. Those known issues should be looked at. You know, as I said, the postmortem
with the regulator those things should be, it stands out in the future, how much unquoted
you can use in open ended funds. Should they be served only in closed ended funds, all
these things are relevant, topical, want to help investors. But we also should focus on
where there are some positives that can help people rather than shy away completely from
having to help themselves as well and getting advice on how to save for their futures.
Jon, thanks so much for your time. Pleasure.
And thanks for joining us.